Organic Sector Drifting Towards Globalization
by George Powell
Organic agriculture is one of the production success stories of the past decade. In recent years it has achieved solid double digit growth in annual sale. Organic agriculture encompasses production systems that promote and enhance soil biological activity. They typically involve minimal use of inputs and employ practices that restore, maintain, and enhance natural processes.
Organic Fits With Consumer Demand
The sector growth is not surprising given the trends of increasing consumer and producer interest in sustainability. People are looking to the health and social implications of food production. Annual retail sales of organic products in Canada are now more than $1 billion. And about 2/5ths of this sold in the larger retail outlets (e.g. supermarkets). Demand greatly outstrips domestic supply. With a 20 percent average growth across Canada in recent years, the difference is made up with imports. Canada imports roughly 90% of the organic grocery items sold here. The paucity of domestic consumer products is due in part to the lack of processing infrastructure. This is much like the conventional agri-food segments.
Canada is not alone in the organic revolution, so there are plenty of import options. As reported in a recent survey on global organic farming, organic agriculture is established in over 120 countries on approximately 31 million ha. The countries with the greatest area under organic production are all major food exporters. These include Australia (11.8 million ha), Argentina (3.1 million ha), China (2.3 million ha) and the US (1.6 million ha). As in Canada, demand for organic products comes primarily from other wealthy countries. And consumers with the highest disposable incomes are the largest spenders on organic foods.
Organic Buyers Still Cost-Sensitive
The global recession however, has eroded this consumer base. Some are declaring the organic sector also to be in economic retraction (“Organic Farming in a Recession“). To maintain sales, price cuts could be on the way. But as with conventional agriculture, Canada is not a low-cost jurisdiction. Land and labour can be sourced cheaply in the developing world. Nor do we have the scale of organic production yet to create economies of scale. This limits the sector’s ability to move on prices.
But the rest of the world seems to be moving to capture market share. They are doing this playing the high volume – low cost game. China, for example, as reported in the People’s Daily Online, is working towards capturing 5% of the global organic market. Our neighbors to the south are also taking concrete actions to expand production and overcome supply bottlenecks. The US Organic Conversion Assistance program is helping with the transition. And the US are expanding their organic production base with an eye to greater exports.
Is globalization of the organic markets in the works? Canada’s recent equivalency agreement with the US suggests so. Imports of US organic products certified under their organic regime now meet the Canadian requirements for organic products. Similar agreements are planned or underway with the European Union and Japan and a global framework can’t be far away.
This move to liberal trade in certified organics, without development of processing businesses, may end up relegating domestic organic sales to seasonal direct-to-consumer outlets. This could permanently hinder development of the domestic value-added processing and packaging. This, as brands are established and volume increases through foreign channels.
Need to Support Domestic Organic
Further economic downturns could exacerbate this situation. Especially as the margin-conscientious Canadian retailers and distributors keep looking further afield to stock the grocery aisles with organic fare. With a steady, year-round supply of cheap imports, there will be less incentive to source from local producers on economic grounds.
Industry and government need to work more effectively towards building domestic value-chains for the organic sector. Do this, or the past two decades of growth will only have succeeded in developing another high risk, low reward farming option.
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