In the EU, corporate inroads into the organic world are following different paths than in the U.S., but debates about potential consequences for farmers and consumers sound familiarPop quiz: Where’s the world’s most valuable organic market?
The United States? Japan? Australia? Guess again. It’s Western Europe. Thanks to a series of nightmarish food scares, a strong euro and what politicos call “a favorable policy environment,” the European Union has outpaced the U.S. in organic sales as well as in organic acreage and number of organic farms. Retail sales of organic products in the EU-15 (Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom) for 2003 totaled €9.966 million, according to a recent report from the USDA Economic Research Service, compared to €8.019 million for the United States.
The recent admission of ten new member states--Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia--and the possible future admission of Bulgaria, Romania, Croatia and Turkey promise to make the EU an even more formidable presence in the global organic marketplace in coming years, both for production and consumption. (Estonia, Poland and Slovenia in particular have shown spectacular growth in organic acreage in the past few years). Unconfirmed reports peg the 2004 European organic market at a whopping €20.7 billion, with projected continued expansion in the double digits.
Those are not the kind of numbers that escape the eyes of the world's biggest food companies. It should come as no surprise, then, that in a stroll down the aisles of an average supermarket across the pond you may encounter such items as Lipton's organic tea, brought to you by Unilever, Kenco organic instant coffee, brought to you by Kraft, and Billington's organic sugar, brought to you by Associated British Foods, a multinational processor and supplier of sweeteners and oils.
While here in the U.S. a series of acquisitions of successful organic startups over the past decade has focused attention on the increasingly powerful role of corporate food giants in the organic marketplace, allied trends at work overseas have received relatively little notice from U.S. organic food and farming advocates. In many cases--again not surprisingly--the same corporations are involved. Some companies have used their international reach to introduce organic product lines originally developed in the U.S. into European markets. In Britain you can now buy pasta sauces and other packaged organic foods under the Seeds of Change label (owned by M&M Mars, the ninth-largest food and beverage company in the world). Hain Celestial Group has brought its organic Rice Dream brand to Europe. Heinz, which owns a stake in Hain and ranks 25th on Food Engineering magazine’s list of the 100 largest food and beverage companies in the world, markets Heinz Organic ketchup, canned tomato soup and other products in the U.K. and elsewhere.
In other cases, as in the United States, large food corporations are acquiring successful independent organic brands or launching new organic products within select markets. To complement its repertoire of organic brands in the U.S., Hain holds a number of European brands that are either all organic or have organic lines, including Biomarché, the leading distributor of organic fruits, vegetables, and prepared salads and other convenience foods in Belgium, and Grains Noirs, a Belgian catering outfit supplying meals on the region’s high-speed rail networks. Switzerland-based Nestlé, currently the largest food and beverage corporation in the world, has entered the European organic market with a line of organic juices and teas aimed specifically at pregnant and nursing mothers. Another brand in the Unilever stable is Bertolli, the world’s leading olive oil label, which now offers Bertolli Organic in some countries.
One of the highest profile European organic buy-ups was of Rachel’s Organics, a phenomenally successful organic yogurt company founded at Britain’s first certified organic dairy, Brynllys Farm in west-central Wales. Brynllys has been farmed by Rachel Rowlands’ family since 1942, but in 1999 they sold the brand to Horizon. Two years later Horizon partnered with Dairy Crest, the UK’s leading conventional dairy company, to create Rachel’s Organics milk. (As most Natural Farmer readers probably know, Horizon was acquired by Dean Foods in 2003.) Dairy Crest seems to be taking a cue from the success of its organic venture with its announcement of St. Ivel Advance, a non-organic milk enriched with omega-3, expected on supermarket shelves by early summer of this year.
Another overseas acquisition Americans may have heard about was Cadbury Schweppes’ purchase of Green & Black’s, the leading European organic chocolate brand and one that is also available in the U.S. Green & Black’s was originally a division of U.K.-based Whole Earth Foods, a pioneer in organic foods processing and distribution in Europe.
Examples like these make one wonder if it even makes sense to talk about agribusiness industry structure on a country-by-country or continent-by-continent basis. Patterns of consolidation do vary broadly across global regions, however, thanks to a variety of historical, cultural and economic factors. A basic difference between food sector consolidation on either side of the Atlantic is that in Europe the most dramatic market concentrations exist at the retail level.
Consider this: As of 2005, just six of the world’s top 25 food retailers were U.S.-based, and only two of those were exclusively U.S. operations (Kroger, #6, and Albertsons, which was #12 but in January of 2006 was broken up and sold to a fistful of buyers including SuperValu and CVS). According to figures from M + M Planet Retail, the top five global food retailers--Walmart (U.S.), Carrefour (France), Metro Group (Germany), Ahold (Netherlands), and Tesco (U.K.)--operate a total of 28,871 stores in 68 countries. Now that’s globalization.
Mary Hendrickson, a professor in the Department of Rural Sociology at the University of Missouri who has tracked agribusiness consolidation for many years, points out that although multinational corporations like ADM and Cargill are well represented in the European feed and seed sectors, “you still don’t get the kind of market control from the processors and traders that you have over here.” This is partly due to the power of large farmer cooperatives, which have traditionally played a major role in European agriculture. Farmers were less able to flex their collective muscle farther along the food chain, however, so “consolidation developed in supermarkets instead.”
(Interestingly, these two patterns of consolidation are being replicated in other parts of the world as well: Brazil and Australia mirror the U.S. situation, with processors and traders wielding a great deal of power in the food economy; other Eastern European and Latin American countries, agricultural economists point out, seem to be following the European model with a handful of supermarket chains grabbing large chunks of the retail food dollar within a few years of their initial arrival.)
Hendrickson is affiliated with the Agribusiness Accountability Initiative (AAI), an advocacy and research collaborative supported by the Center of Concern and the National Catholic Rural Life Conference. According to data assembled by Bill Vorley, a senior researcher with the International Institute on Environment and Development and another AAI collaborator, four supermarket chains in the U.K.--Tesco, Asda (a division of Wal-Mart), Sainsbury’s, and Safeway/Morrisons--accounted for 76.5 percent of retail grocery sales in 2005. The top four supermarkets in France--Carrefour, ITM, Leclerc, and Casino--represented 63.2 percent of retail foods sales in that country in 2003. Similar levels of concentration exist in Germany.
This situation has caused concern among European farmer and consumer groups for some time and has presented special dilemmas for organic food advocates. On the one hand, the supermarkets’ dominance gives them enormous power to dictate As Hendrickson puts it, “Supermarkets are the main players, [and so] they are driving the quality issues, particularly for fresh fruits and vegetables.” On the other hand, in most of the European countries (as in the United States), decisions on the part of mainstream supermarkets to carry organic foods have been critical to the overall expansion of organics.
To take just a few examples:
In Denmark--the first European country to create a national organic standard, in 1987--a retail supermarket chain called FDB began a major marketing campaign for organic products in 1993, which helped stimulate consumer demand. Two years later, a number of the country’s large dairy companies started purchasing organic milk at a substantial, guaranteed premium, which stimulated supply. Denmark’s jump on conversions to organic enabled it to target export markets in other European countries as early as 1999. Denmark now boasts the highest per capita spending on organic food in the EU by a wide margin (€113.6 vs. €48.9 in the country with the next highest figure, Austria, and €35.7 in the U.S., according to figures cited in the USDA-ERS report).
France was an organic pioneer in the 1970s and in 1980 could boast 40 percent of Europe’s total organic acreage. Further expansion of organics remained modest, however, until 1997, when the French Ministry of Agriculture began actively promoting organics, including a declared goal of 1 million hectares and 25,000 organic farms by the end of 2005. (National totals had reached 550,000 ha and 11,377 farms by 2003, as reported by Agence Bio, the French agency charged with promoting organic agriculture.) Also in the mid-1990s France’s major supermarket chains, including Carrefour and Monoprix, created their own Bio product lines, and conventional processors like Danone (the 10th largest global food company) and Besnier entered the organic market. Although France is known for its large number of small-scale artisan organic processors, Agence Bio recently reported a reduction in number and increase in average size of certified organic food processors, suggesting that some consolidation has taken place.
Luca Rosseto, a lecturer at the University of Padua in Italy, credits the what he calls the “LSRs,” or large-scale retailers, with helping to improve quality and consistency and expand domestic markets for Italy’s considerable organic output. All of the major Italian supermarkets (including Coop, Esselunga, Giesse, and Pam) had launched their own organic product lines by 2002; most of these, Rosseto notes, were preceded by ‘low-input’ or ‘integrated pest management’ labels. Thanks to strong governmental support in the 1990s, Italy’s organic acreage expanded to 1.2 million hectares in 2001, but it has since contracted to less than 1 million ha; organic advocates are striving to bring consumer demand in line with farm output before more organic farms re-convert.
Britain’s organic marketplace changed radically in early 2002 when seven supermarket chains got behind a national objective to make 30 percent of the country’s agricultural land organic by 2010. (This now looks pretty ambitious; the U.K. Department of Environment, Food and Rural Affairs reports that in 2005 organic and in-conversion land had reached four percent of total agricultural land.) Still, retail organic sales in Britain totaled €1.78 billion in 2004, with a staggering 75 percent of organic product purchases made in supermarkets. As in other countries the major supermarkets feature a wide range of private-label organic foods: Of 241 organic items called up in a search of Sainsbury's online supermarket, for instance, around three-quarters carried the store's "Sainsbury's Organic" label, including everything from bananas and ground beef to rolled oats and Chardonnay.
Overall, the percentage of organic sales flowing through different retail sectors varies across the continent: in the Scandinavian countries, Britain, Hungary and the Czech Republic, over 60 percent of organic sales were made in supermarkets; in Belgium, Germany, France, Greece, Luxembourg, Ireland, Italy, the Netherlands and Spain, the majority of organic sales were made via direct marketing channels or in specialized shops (including bakeries and butchers' shops as well as smaller natural foods stores). But as a recent European Commission report on organics emphasized, "Specialists are convinced that where organic products are mainly sold through supermarkets, growth and market shares are (and will remain) higher than in other Member States."
Setting a higher standard
So if the success of organics is inextricably tied to market concentration, what is to be done? One approach being explored by the Soil Association, Britain’s leading non-profit group supporting organic farming, emphasizes consumer education--encouraging the public to buy local and organic, to shop at farm stands and producer-only farmers’ markets, to subscribe to “box schemes” (similar to CSAs) and to demand country-of-origin-labeling on organic products sold in supermarkets. The Soil Association has also launched a name-and-shame campaign against the supermarkets to encourage them to source as much of their organic products domestically as possible, gathering data on the percentage of organic potatoes sold at Tesco’s that were imported, for instance, and publicizing the results.
In a recently released market study for 2005, the group reported that these efforts appear to be working. Although organic sales at supermarkets are still increasing, their rate of growth has slowed relative to organic sales directly from farmers or through independent retailers. Of course other factors may be at work as well: the London-based market-research firm Organic Monitor says that a shaking-out process is going on at the big supermarkets, with chains reducing the number of organic items they offer by eliminating the less profitable products.
Another, complementary strategy is to link organic certification with fair trade standards. David Boselie of AgroFair Europe Ltd, a Fair Trade and organic produce trader selling primarily to supermarkets in 11 European countries, says that his company is trying to do this both as a way of distinguishing themselves in the market and as a way of averting the damage that big supermarkets can do to small farmers. “The organic and fair trade standards enable us to plug smallholder producer groups [in Central America, Latin America and Africa] in[to] the high-end supermarket segment in Europe,” he wrote by email. Ultimately, the fair trade approach could also help European farmers who have converted to organic relatively recently and are now struggling to adjust to reductions in subsidies combined with eroding organic price premiums caused by the availability of cheaper organic foods from countries with lower production costs.
As other analysts of the agribusiness world have pointed out, consolidation characterizes almost every stage of the food chain from field to fork. More often than not, those corporate linkages are international in scope. Increasingly, they include both organic and non-organic elements. Tree of Life, which divides the national U.S. natural foods distribution business with United Natural Foods, is owned by Koninklijke Wessanen, a Dutch conglomerate and one of Europe’s largest food companies. Koninklijke Wessanen also owns Distriborg, the leading distributor of organic and specialty foods in Europe, which also runs a chain of natural foods stores in France. Trader Joe’s, which many U.S. shoppers think of as a small-scale maverick compared to its larger rival, Whole Foods, in fact belongs to Germany-based ALDI, #11 on the worldwide food retailer list. In 2004, Whole Foods acquired a small chain of organic markets in London called Fresh & Wild as a first step toward moving into the British natural and organic retail sector. Now the U.K.’s first Whole Foods Market is under construction in London’s fashionable Kensington district.
Meanwhile, the Soil Association touts the expansion of box schemes, but many box schemes in the U.K. have found a successful strategy in supplementing their own on-farm production with exotic organic produce--bananas, oranges, figs--purchased from wholesalers. According to an export study conducted by the Organic Trade Association in 2000, a Welsh distributor called Organic Farm Food has been serving this market while also selling to mega-retailers like Tesco’s.
As these examples begin to suggest, figuring out how to contend with global market forces for the benefit of small- and medium-scale farmers--and consumers--is a tricky business. First-world subsidies harm third-world farmers, but (for reasons that are not well understood), yields on organic farms in Europe are typically significantly lower than yields on conventional farms, so organic farmers need price premiums (or subsidies) to remain viable. This situation may be related to another little-known feature of the European organic farming scene: the average organic farm size (40 ha) is significantly larger than the average size of non-organic farms (15 ha). Is that a type of “consolidation” organic advocates should be concerned about?
One thing appears certain: as trade agreements are worked out and harmonization and equivalency agreements are established for international organic standards, the interdependence of global and local organic farming is probably only going to increase.
To read more about global and European organic markets...
Stephan Dabbert, Anna Maria HÃ¤ring and Raffaele Zanoli, Organic Farming: Policies and Prospects (Zed Books, 2004).
Carolyn Dimitri and Lydia Oberholtzer, Market-Led Versus Government-Facilitated Growth: Development of the U.S. and EU Organic Agricultural Sectors (USDA Economic Research Service, 2005). Available online at http://www.ers.usda.gov/Publications/WRS0505/.
Michael Sligh and Carolyn Christman, Who Owns Organic? The Global Status, Prospects, and Challenges of a Changing Organic Market (RAFI-USA, 2003). Available online at http://www.rafiusa.org/pubs/puboverview.html.
Helga Willer and Minou Yussefi, eds., The World of Organic Agriculture: Statistics and Emerging Trends, 2005 (IFOAM, 2005). Available online at http://www.ifoam.org/press/press/Statistics-2005.html.
Organic Farming in the European Union: Facts and Figures (European Commission Report, 2005). Available online at http://www.europa.eu.int/comm/agriculture/qual/organic/index_en.htm.
Laura Sayre is an independent food and agriculture writer based in Bucks County, Pennsylvania. She’s currently working on a book about the student farm