Organic food market

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Introduction

The curiosity and interest is increasing on a daily basis in food which is produced organically throughout the world and the reason is that people are really concerned about intensive agricultural practices and its severe impact on Human health.

The consumers in today's market are much more interested in the social aspects of organic food and its production. There is a niche market prevailing in organic product all over the world and there is an immediate need to diversify the market and satisfy the need of consumers in a more organic and natural manner but there is an obvious need of additional products which are not produced organically.

The real issues which are faced by food marketers in marketing organic products are low quality input foods and organic foods are concerned with the identification and satisfaction of the customer's needs which are key elements of segmentation and targeting of potential customers and then positioning of their organic products in relation to the segmentation done with competing products. The marketers should be able to develop a long term relationship with their customers and this can be achieved by providing good quality, value and satisfaction to create brand and product value that will eventually lead to customer loyalty though re-purchase. (Cassel and Eklof, 2001; Ennew and Binks, 1999; Gabarino and Johnson, 1999).

The marketers have adopted a new paradigm which focuses not only on customer retention but also on customer acquisition to attain their goal. (Crie, 2004). The firms pursue objectives of survival, prosperity and competitive advantage in this cut throat competition by building products and customers through the delivery of high value customer service and satisfaction (Kotler, Armstrong, Saunders, & Wong, 1996; La Barbara & Mazursky, 1983). The current Economic crisis further adds the problem related to these issues because there is an overall increase in sales value due to food price inflation but there is decline in net sales volume (Soil Association, 2009).

This paper will be critically evaluating on various aspects of organic market and food produced organically through setting Recent Trends, analyzing customers perspectives, assessing the competitors involved in organic market that can be Direct or Indirect Competition and at the end giving solid Recommendations and conclusions that are prevailing in the organic Market.

A comprehensive study was done in 2001 from more than 27 different crops all over the world with 37 different vitamins and minerals like the one above and the scientists found that on average organic crops contains:

Inter relation

All the above mentioned categories are interlinked with each other and there is a necessity to know all these factors for the sustainable development of all from consumers to producers and in a large context a whole society and its environment because all of these play an integrating role towards growth and productivity. Producers produce only what consumers want to consume and this has considerable effects on the biodiversity of a particular region. For example in some countries like USA the meat consumption is very high and huge amount of grains are grown for feeding livestock hence affecting the flora in the region.

Recent Trend in Organic Food Market

The research by Organic Monitor, 2007 states that the sales of organic products globally increased to £23 billion in 2007 whereas the revenues of organic products are increasing more than 32.5 billion every year. The countries having the most of its farmland as organic are Australia, Argentina and Brazil with 12, 2.8 and 1.8 million hectares respectively.

Leading National markets and their total Sales of organic food and drink ($m) in 2007

Europe

The market for organic foods is developing fast throughout Europe (Hamm et al., 2002;Wier and Calverley), 2002. Great Britain and Denmark are relatively matured markets where Britain market is growing rapidly and Denmark is having highest consumption of Organic food per capita in Europe (Morgan and Murdoch, 2000; Hamm et al., 2002).

The trends in Europe are suggesting that the organic market is increasing at fast pace where the total organic market in 2007 at approximately €16.2 billion which is almost €2billion more than reported for 2006.There was a considerable growth in most of the major European organic markets between 2006 and 2007 the Czech republic, Denmark, Sweden, Norway and Germany were 70%, 34%, 26%, 24% and 15% respectively.

The Americas

After Europe the largest market for organic products is of North America and the US market is valued more than £9 billion and there was shortage of organic products and to supplement this shortage led by high consumerism of organic products, US and Canada has imported the raw material to curtail the shortage.

The Europe is now the major force and has overtaken North America by 41%and is the main region for new organic products which accounts for over 45% of launches in 2008 where Asia-Pacific accounted for less than 7% of global organic product in 2008.

A US based ACNielson survey conducted in March 2003 in the category of Gourmet Retailer (Everage, 2003) which asked the consumers asking the reasons to buy purchase organic products and the answers are listed below

  • 32% of consumers believe organic products are healthier than Inorganic.
  • 18% answered that organic products contain no pesticides.
  • 11% were happy because of their better quality.
  • 3% are using Organic products to prevent allergic reactions.

Asia

The Asian market is on the rise in organic food production which is lead by china and followed by India.

According to Mr. Mattia Prayer-Galletti who is country program manager for Asia with the International Fund for Agriculture and Development (IFAD) said "China and India have a huge potential to tap domestically to begin with,"

The promotion technique which can be applied to enhance the backup facility for organic farming and marketing of organic products is by "carefully integrating the private sector to provide marketing services", an IFAD report on Asia says.

There has been amazing growth in organic market in the domestic markets where the organic farming was about 2.5 million hectares. There has been over 26 million hectares of farming land which is covered under the organic movement and nearly 332 new certifications have been issued during the year 2004 for accelerating the growth of Organic movement.

The economic slowdown which is prevailing in most of the economies have impacted global organic food sales in an adverse manner after reporting significant growth rates for over a decade, the 2009 proved to be the first year which marked a single digit growth in the organic market.

The overall demand for organic product globally has gone down because the spending power of consumers has been reduced and declining industry investment and U.K market has been affected so adversely that it has registered a growth of just 2% in 2008.

The producers and Retailers are in need to react in changing behavior of customers in organic food market because the expectations are rising dramatically to remain successful in tough competition and many organic food pioneers known as 'bioneers' have overcome this challenge and have adopted Organic Plus Strategies.

In conclusion, the organic food industry in 2009 faces fresh challenges as the global Recession have doubled the changing mood and behavior of consumer which in turn reflecting in organic food sales and to meet these challenges the food companies and retailers should re-align their strategies and organic product ranges to meet the ever growing expectations of the consumers.

Relate the issues to appropriate concepts introduce in the module

In marketing an organic product there are many principles to be followed for a product to get into the market. Most of the principles are laid down by the government so as to save the people from GM product which are manufactured and sold in the market, as well as to save the customer from probable harm. There are some concepts and methods which can be applied while marketing an organic product. The most suitable and appropriate method is to understand the customers wants and needs for the product. The type of product which the customer is looking for differs from range and price. This is because of the different types of customers buying and the size of the market in which the product is being marketed.

Issues in marketing organic products

Issues in marketing an organic product can be of three different types. They are Social, Environmental and Humane. There is no difference between the organic food and the conventional food that we consume in our daily life. The nutrition content is same in both organic as well as in conventional food. In spite of the awareness of harmful effects of inorganic food, people still continue to consume which over the years leads to development of fatty tissues in human body. This is one of the main reasons why small kids are being fatty. In production of organic food phosphoric acid, hydrogenated fat, colouring, artificial flavourings and preservatives are strictly prohibited. The environmental issues relating to the manufacture of inorganic products is also absent. Growing more organic food will help the environment and the living beings to be healthy.

Secondly for consuming the organic product the consumer has to pay more than the conventional product. People do not care the nutrient content present in the organic food when compared with the inorganic food as they go for the price tag. Another advantage of organic food is people take organic food for weight loss.

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Benefits in marketing organic products

There are several benefits in consuming organic food. In organic foods the physical benefits are consumed as nutrients by boiling them, but not in conventional foods. Commercial foods that are consumed which are toxic and causes serious health hazards. Latest study about the organic foods proved that the nutrient content in organic food is much higher in mineral when compared to heavy metals. The pesticides used to grow an organic product make it toxic and cuts down the nutrients that are essential for living. These pesticides makes the soil depleted affecting the nutrient content in vitamin C, beta carotene, and the B vitamins. Researchers have examined that the mineral levels in heavy metals like aluminum, cadmium, lead and mercury are high. Aluminum content in organic food averages about 40% less than conventional food. While lead content is 29% less in organic foods. Mercury causes neurological disease which is less by 25% in organic food. The use of pesticide residues in the conventional food causes breast cancer in women. (Walter J. Crinnion N.D 1995)

Distribution of Organic Products

Retailers play a vital role in marketing the organic products. It also helps to understand the relationship between demand and supply chain of organic products. The conventional food chain is comparatively smaller than the organic food chain. Surveys and researches have reported that the changes in the conventional of food system have impact on organic food products. The main problem in improving the organic food chain is poor information management, inadequate communication with customers and diverging objectives. The supply chain of organic food is closely related compared to the conventional supply food chain. There is a prompt increase in the demand for organic products despite of their market share being very low in the western countries. According to the research in Finland (Finfood 2003a), the demand for the organic products is higher than the supply in the quality-price ratio. Therefore the organizations should have an eye on the demand and supply chain. Qualitative method of measuring used to determine the demand-supply chain of organic products. They mainly concentrate on the information management to know the performance of the business. The supply chain flow among the players in the markets is essential to find the organizational relationship. (Anderson and Narus 1990).

MARKETING CHALLENGES IN THE CURRENT ENVIRONMENT

Customer's perspective

Organic foodstuff can be described as the normal agricultural foodstuff which has not been mixed with any form of chemicals to enhance their taste. This kind of foodstuff was very common in the past century, but not anymore, because things have changes.

However, there are still some consumers who prefer organic food stuff and will do anything to eat food which come directly from the farms.

The consumers of organic food can be divided into three main categories (Smith C., 2009).

Core

These are those who depend exclusively on organic products and to them these products represent their livelihoods in terms of what they can eat.

Middle level

Are those who to some extent value organic products but also do with the conventionally produced food? So this food stuff is somehow important to them.

Periphery

These are those consumers who consume organic products because, they must consume these products. They have more inclination to the inorganic than organic products.

The consumer perspectives about Organic food can be discussed as under (Aikaterini M., 2002: 344-351);

  1. Most consumers view organic food as very healthy and without some form of chemicals and they are willing to pay for these kinds of foodstuff to keep healthy. So to the consumers, organic foodstuffs are a symbol of healthy and good living.
  2. For with strong cultural and religious beliefs, their perception of foodstuff stems from their respect for their religious practices and is more willing to consume organic foodstuff than those who are not deeply religious.
  3. It should however be noted that those who perceive organic food as healthy are usually the elderly and the sickly (most of the time), but many cases, the youth do not view these are healthy, or they are just not concerned about these foodstuff, because, they like to enjoy the fast-food which are usually more artificial.
  4. To some consumers, it is not about what the product is, but what the product represents to them. They are more willing to if the feel that the product represents to them a naturally exotic product which is enriching with all its nutrients.
  5. To other consumers, especially those with medical conditions like allergies, the organic products may represent the solution to their problems and so they view these products as medicinal in nature and are more willing to buy these products than others who are not healthy (FSA 2009).
  6. TO many people, the production of organic foodstuff is a slow and costly process which has outlived its era, now a days, things must move fast and so organic foodstuff are no longer cost effective, and should not be produced, now there are better medical facilities to deal with all kinds of situations and even those who eat foodstuff which are less organic as just as healthy.
  7. To other consumers, the high costs of living is makes it difficult to afford the organic foodstuff which by and large remains expensive because of the duration they take to tend and the about of labor put into their product, therefore, the demand for these is lower besides they may not be available everywhere, like it is not possible to but from the internet. Therefore, costs may deter many.
  8. Organic production can reduce the susceptibility of soil to erosion than the conventionally produced foodstuff. This is because; the production of this foodstuff is done in a natural environment. To some consumer this is fair to the environment because, it does not contribute to climate change and so many will be willing to but these products than the conventionally produced products.
  9. Some consumers like the expectant women are more worried about the increased levels of exposure of their children to chemicals that come about as a result of in-organic production and to them, organic foodstuff are very important. They therefore demand more of the organic foodstuff than the other types of foodstuff and are more willing to pay more for these.
  10. Other consumers prefer the relationships that come about by buying directly from the farmers as they feel that this provides the opportunity for trust and healthy living, because of the natural nutrients that are provided by such food stuff. This makes these consumers to go to greater lengths to pay more and hence their demand is quite high. On the other hand, there are a number of consumers who view organic foodstuff as contaminated and not so sure of the safety of these foodstuff, they may not prefer to buy these foodstuff at any one time.
  11. TO other consumers organic foodstuff represent an ethical ways of production where the food has been produced along the standards of conservation and so it is good for human consumption and should be encouraged, to them this is what should be promoted and not any other kind of foodstuff.
  12. Some consumers view the locally and naturally produced food as the best and they are willing to pay more and support such local grocers or farmers by paying more for these foodstuff and therefore the demand is higher and the marketing function will not be as complicated because, marketing will be done to the local population who already has some appreciation to the kind of food being produced.

The increased publicity about Climate change and its apparent effect has made many people to believe that there needs to be a change in their lifestyle starting from the kind of food they consume. Although organic foodstuffs are quite expensive, their increased acceptability makes them to be marketed more easily in the recent days.

Competitors' perspective

Direct competitors

With the increasingly growing need of the organic products (there is a growth rate of approximately 20% per year of the world organic market since the early 1990s, and the global organic market reached $52 billion revenue in 2008, with a compound annual growth rate (CAGR) of 15.8% during the period from 2004 to 2008) many large producers and retailers entered the market to make money which increases the competition in the organic market.

Producer

The growing demand of organic products has allowed large scale processors and companies like Kraft Foods, Procter & Gamble, Campbell Soup, General Mills, Unilever and etc. enter the organic market. Also, some supermarket chains such as Kroger and Safeway are offering self-label organic products. The cost of the organic products decreased because of economic of scale, and the profit margin shrunk to win the competition. The number of certificated organic farms is increasing and existing farms also improve the output of organic products.

Retailer

Number and size of the locally specialist organic food retailers increasingly grow in recent years. However, the large grocery retailers have quickly dominant the organic market because the limited number and scale of local small specialists retailers.

Wal-Mart announced that it will raise the offering of organic products as part of its marketing strategy, and it will control the price of organic products no more than 10% of traditional products. And this undoubtedly will give press to other retailers, increasing the competition in organic products market. So far, almost every grand retailer such as Wal-Mart, Tesco, Metro, Carrefour, Iceland, Marks and Spencer, and etc offer various organic products. For example, Tesco claimed that they will bring its customers widest types of fresh organic meat, fruit & vegetables, and other organic products, making it an everyday choice. Within Marks and Spencer stores, the company offers totally over 2000 organic products for each of the main sections. Iceland, to some extent, is more aggressive in decreasing the price to make the customers purchase at Iceland.

Initial organic products have largely been seen use is self-owned brand. It seems that Iceland plans to establish a special brand to differentiate its offering from other competitors, establishing a distinctive position in organic market. We can see that the competition among the retailers is quite fierce in organic market.

Indirect competitors

The indirect competitors may come from the substitute traditional similar products. To some extent the traditional food is usually at a lower price, more easily to purchased, and the customers are used to buy them.

Cost

Generally speaking, the cost of organic products is approximately 10% - 40% high than similar conventionally produced products because that the organic products are produced on a smaller scale, and need to be processed separately. Furthermore, because the organic products are not chemically fertilized, there will be more pests and diseases so this will lead more waste in order to select the good organic products before selling to the markets. Additionally, the shipping cost is higher than traditional similar food because there is less centralized production. Many times, the organic products need to be imported from other countries. These will increase the cost of offering organic products, and increase the tendency for customers to purchase traditional similar products.

Availability

Generally speaking, the type of traditional products is much more than organic products. And the traditional products have a wider marketing channel, so the customers are more convenient to purchase the traditional products rather than the organic ones.

Consumption habit

Customers are used to buy conventional products when they shopping, they used to purchase the same things that they bought before, so it is difficult for the customers to convert from traditional dairy products to organic products. It is manifested that the demand of traditional products remains strong although the cognition of consuming organic is increasingly growing.

Additionally, scientific research conducted at the London School of Hygiene & Tropical Medicine which is a 12-month systematic review commissioned by the FSA in 2009 manifests that there is no obvious differences in aspect of taste and nutrition between the traditional food and organic food. Hence, the conventional food is still has its own competitiveness.

For these reasons, it is difficult for the customers to convert from conventional products to organic products. Also, the competition is extremely fierce in the existing organic products market. A successful marketing of organic products has to overcome the forces come from both the direct and indirect competitors.

Recommendations

Regulations

Generalize the restrictions for the poultry and dairy industries and tight regulations about how the meat is slaughtered and handled, the quality of the organic product, limitations on the production for long run. Regulations vary from market to market, so have to make sure that everyone is informed about the current situation and follow the rules.

New markets

To survive in a competition and to market the organic products in a new market, a new entrant have to do some basic market research about the market.

Consumer lack of understanding of 'organic'

Many consumers assume that 'natural' means animals have been raised without growth hormones or routine antibiotic use. This makes it difficult to differentiate 'organic' in the marketplace. Use of terms such as 'grass fed', 'free range' or 'humanely rose' adds to the confusion. So necessary steps should be taken to tell the customers about the breeding and the process followed to raise the organic product which can be achieved by aggressive marketing of the organic labeling

Distance from large urban centre and lack of infrastructure

Local markets can be very limited; generally the organic products are bred in remote animal farms, which are far away from the main, urban marketplaces of retailing those products. So measures of transportation to and fro from these farms can help in fulfilling the requirements of these goods in the market which suggests that the distribution infrastructure is really important.

Customer relationship

The marketers should be able to develop a long term relationship with their customers and this can be achieved by providing good quality, value and satisfaction to create brand and product value that will eventually lead to customer loyalty through referring to new customers and re-purchase of the goods.

Conclusion

The marketers have adopted a new paradigm which focuses not only on customer retention but also on customer acquisition to attain their goal hence the firms pursue objectives of survival, prosperity and competitive advantage in this cut throat competition by building products and customers through the delivery of high value customer service and satisfaction. The current Economic crisis further adds the problem related to these issues because there is an overall increase in sales value due to food price inflation but there is decline in net sales volume.

The organic market in Europe is increasing at fast pace where the total organic market in 2007 at approximately €16.2 billion which is almost €2 billion more than reported for 2006. The Europe is now the major force and has overtaken North America by 41% and is the main region for new organic products which accounts for over 45% of launches in 2008 where Asia-Pacific accounted for less than 7% of global organic product in 2008. After Europe the largest market for organic products is of North America and the US market is valued more than £9 billion and there was shortage of organic products and to supplement this shortage led by high consumerism of organic products, US and Canada has imported the raw material to curtail the shortage. A survey was conducted to find out the reason behind purchasing the organic products, where more than 32% of consumers believe organic products are healthier than inorganic and others chose organic product due to its quality over inorganic product. So we can say different consumers have different reasons behind opting for organic products, some may use it based on the necessity, some may use it because of health and safety issues or some might just have to consume organic product because of some religious beliefs.

The global recession was a sole factor which not only affected various economies and markets but also decreased the significant growth rate of sales of global organic food products. The spending tendency of consumers has gone down because of the recession significantly, which also declined the demand of organic food in the whole U.K, which affected so adversely that a growth of just 2% has been registered in 2008 because of this 2009 proved to be the first year in the whole decade which marked single digit growth year in the organic market. For these reasons, it is difficult to convert the customers from conventional product to organic product consumers. Also, the competition is extremely fierce in the existing organic products market, let it be direct competition between various retailers and producers or Indirect competition through cost and availability, successful marketing of organic product has to overcome the forces coming from both the direct and indirect competitors. The producers and Retailers are in need to react in changing behavior of customers in organic food market because the expectations are rising dramatically to remain successful in tough competition.

In 2010, as the world is recovering from the adverse effect of recession, the organic food industry has to be ready to meet with fresh challenges and the changing behavior of consumers which affects the future organic product industry and also the sales of organic products. For this new world all the retailers and the food companies have to change their business and marketing strategies to meet the growing expectations of the consumers.

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