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Organic Marketing Initiatives and Rural Development

Schmid, Otto; Sanders, Juern and Midmore, Peter (2004) Organic Marketing Initiatives and Rural Development. OMIARD Reports, no. 7. School of Management and Business, University of Wales, Aberystwyth.

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Summary

Over recent decades, organic farmers have come together to form collective marketing initiatives. To begin with, such schemes were often essential as the only means of finding markets for organic products, but farmers today participate in them to pool ideas, capital and skills, and to collectively increase added value of products and market power in the supply chain. However, Organic Marketing Initiatives (OMIs) are not only initiated and managed by farmers but also by consumers, processors or local authorities, for example to promote and support regional food production, or environmentally friendly farming systems, or the availability of high quality food. The involvement of various actors and the broad range of objectives connected to such initiatives may indicate a potentially important role for them in rural areas.
These collective marketing approaches were the main focus of the Organic Marketing Initiatives and Rural Development (OMIaRD) project, a shared-cost research project funded by the Quality of Life and Management of Living Resources Programme, part of the European Union’s Fifth Framework Programme for Research and Technological Development. It ran from January 2001 to February 2004 and involved ten partners and eleven subcontractors from a total of nineteen European countries, both within and outside the EU.
The main research focus was to analyse under which market and policy conditions OMIs can be successful in economic terms, as well socially and ecologically, and how the beneficial impacts of organic agriculture can be further multiplied in rural regions. In the context of this project, an OMI was defined as an organisation of actors (privately or cooperatively owned) involving participation of organic producers, which aims to improve the strategic marketing position of the products by adding value to the raw product through processing or marketing.
To get an overview of OMIs in Europe, two comprehensive surveys were conducted in each EU member state, two accession countries (CZ, SI) and two EFTA countries (CH, NO) in 2000 and 2002. In total, 912 initiatives were contacted, of which 405 initiatives took part and filled in a standardised questionnaire. Based on the definition given above, all initiatives in the survey met three minimum criteria: first, involving at least one organic producer; second, with an annual turnover of organic products of more than €100,000; and third, with organic products contributing 25% or more of annual turnover.
The investigation showed a broad diversity of approaches among the OMIs, particularly in their objectives, type of organisation, management and marketing activities. Although there is not a typical OMI, some similarities exist. OMIs located in countries with an emerging organic market (BE, CZ, IE, ES, GR, PT) tend to be initiated more by processors and consumers, whereas farmers were mostly the initiators of OMIs located in countries with growing (FR, FI, SE, IT, NO) or established organic markets (AT, DE, DE, CH, UK). Because actors from outside the farming community are involved, objectives tend to focus not just on improved farm income but also on social and environmental goals. Vegetables, cereals and fruit are the most commonly sold products, followed by the two processed product groups, milk and meat.
Many OMIs sell a significant proportion of their products within their home region but ‘export’ outside the region is also quite common. With growing competition from large food companies, professional marketing is increasingly necessary. In total, 54% of the OMIs investigated have their most important customers in the same region; only 10% of the OMIs stated that their main trading partners were located outside the country. Even if OMIs are rather small and regionally focused, in most countries they were able to place their products on the shelves of multiple retailers. Almost 55% of all OMI products are sold through this market channel, the remainder being mainly sold to health food stores and organic food shops.
During the project, in the years 2000 and 2002, a detailed analysis of the market environment of OMIs was conducted. Although it was difficult to gather reliable statistical data, the analysis showed major differences in the market situation and prices between countries, and even regions. The organic area has increased rapidly in the last decade, with growth rates from 10% to almost 50%. However, the share of organic in total food production is still quite small. A major proportion of the organic food produced still has to be sold on conventional markets without the benefit of price premiums for its certified organic origin. Sales problems occurred in several European countries, especially for all grassland-based product groups and for special crops such as wine, olives and fruit in southern European countries. For some products, the supply-demand situation changed rapidly, showing the volatility of the small, organic food market. Two product groups, fruit and milk, for which there was an EU-wide oversupply in 2000, were in short supply in many countries in 2001, demonstrating the importance of balanced development, specifically in terms of policy support on both the supply and demand side of the market.
Self-sufficiency in the EU for key product groups was close to 100% although there are differences at national level. For organic animal products, the potential for increased foreign trade is very limited. The high degree of self-sufficiency in fruit (94%) disguises the fact that there is a flourishing foreign trade in organic fruit, in terms of the export of apples and the import of tropical and subtropical fruit.
There were significant differences in overall market shares of organic products between countries: Switzerland and Denmark had 3.7% and 3.5% respectively, while Austria and Germany had between 2% and 2.5%, but all the other countries had shares below 1%. In almost all countries where turnover shares in organic food are significantly above the EU average of 1.5%, most sales took place in general food shops such as supermarkets; Germany was the only exception, with organic food shops and health food shops having higher market shares. After 2000, general food shops increased their market share, quite considerably in some countries.
Although most of the European countries surveyed have state labels (ten countries), consumers have difficulty in identifying organic products. Reasons might include lack of a common, trustworthy organic label, consumer unfamiliarity with labels or the difficulty of distinguishing organic from other non-organic labels, for example the EU designated origin label.
Organic price premiums were low for product groups where supply was higher than demand, for example, for milk, beef, sheep and goat meat, wine, apples and oranges. However, for products in short supply, with high production costs, or where no or low government subsidies exist, prices are relatively high (poultry, pork and vegetables, potatoes). Consumer prices also differ quite significantly across countries, being between 40% and 60% higher on average (for the main product groups) than those of conventional products. From the market analysis, we conclude that public promotional activities should help improve market transparency and recognition of organic labels, and avoid market distortions created by unbalanced financial support schemes.
This conclusion from the market analysis was supported by a Delphi Expert Survey which was conducted in three rounds in eighteen countries. Expected annual growth for coming years varied among countries and product groups, with the lowest rates anticipated in Denmark (approximately 2%) and for cereals markets, and the highest rates in Germany and the UK (7-8%) and for meat and convenience products. These rates are not directly related to market development but also reflect specific country conditions. Experts agreed that organic marketing structures need to improve in order to absorb expected increases in both supply and demand; also that a broader product range could help stimulate demand and that new consumer groups should be targeted.
Deeper insight into the conditions in which OMIs operate successfully comes from a detailed analysis of OMIs comprising sixty-seven case studies in thirty-five European regions, interviewing OMI managers as well as external experts. These regions, selected on common criteria, were grouped in less favoured areas and non-LFAs, of which some had favourable conditions and others unfavourable.
The assessment of the OMIs surveyed showed that internal business-related factors are more decisive for success than external, context-related factors. Yet, in some cases, external factors (such as niche demands, policy support measures) can improve their potential.
The analysis made clear that the vision of the founders, their strategic options and their management choices primarily determine an OMI’s success; in particular, the way in which they adapted their strategic objectives to changing market and political environments during different phases of development. Also, maintaining the motivation of members and other internal and external cohesion factors are major challenges to achieving not only economic, but also wider social, environmental and political goals.
A basic assumption of the analysis is that choice of different objectives has a crucial impact on the OMIs’ strategies and, consequently, on their successful development. It became apparent that OMIs aiming for social or environmental objectives tend to underestimate financial imperatives. In particular, such OMIs lack competency in financial management, in contrast to those with clear economic objectives. On the other hand, OMIs focusing mainly on economic objectives tend to neglect both human relations and regional networking.
The most challenging marketing strategies and management issues for OMIs are improving their supply policy (in sufficient quantity and quality), keeping logistics costs to a minimum and not relying too much on public funding. A final key success factor for an OMI is networking both along the supply chain and within the region.
However, success can be seen in more general terms, such as combining effectiveness (formulating and achieving strategic objectives in line with initiators’ expectations) and efficiency (achieving objectives while maximising output at minimum cost). This relates to the capacity of OMIs to set and achieve relevant economic, social and environmental objectives, and manage internal resources in a manner which minimises costs for a given output (or maximises output for a given cost), taking into account changing market and policy conditions.
Detailed analysis of the impact of OMIs on rural development in four case study regions, through qualitative interviews with between fifteen and twenty different actors and stakeholders in the regions, showed that not only economic factors, but also ‘soft’ factors, are relevant. The OMIs in all case studies − two pasta projects in Italy, a vegetable box scheme in the UK, a dairy in Austria and a meat initiative in France − achieve their social and environmental (and sometimes also political) objectives effectively though on a rather small scale, for example, by enhancing the status of farming, preventing abandonment of the countryside and improving the image of the region. However, policymakers, especially at regional level, need to become more aware of valuable, less indirect benefits of OMIs for sustainable rural development and take this sufficiently into account when designing and enhancing support measures.
Although OMIs have considerable potential to contribute to sustainable rural development, it is far from being realised. A range of approaches can help OMIs to both prosper and increase their contribution to achieving such general aims. The policy framework can facilitate development and expansion of the producer-led marketing of organic products, in order to achieve integration and additional benefit. CAP reform, agreed in 2003, provides new resources for the rural development plans of member states, allowing support for quality enhancement by groups of farmers (specifically identifying organic farming as eligible). However, financial support for joint action by farmers to improve quality in the marketing and processing of their products is a necessary, but certainly not a sufficient, condition for OMIs to perform successfully. Policy support for the development of OMIs is currently limited to action that removes barriers to development or improves conditions in which they operate. For consistent and sustained development, ideas and effort must come from organic producers themselves and the communities in which they are embedded.
For longer-term economic and social viability based on growth of organic agriculture, consumers must become aware of the intrinsic value of organic food and how it differs from that produced by conventional agriculture. A communication offensive, as part of national and European Action Plans for Organic Agriculture, requires the movement as a whole to combine with other stakeholders and businesses, to promote organic food, even at premium prices, as a ‘value for money’ option satisfying a range of consumer needs.
The qualitative consumer research undertaken explored consumer expectations, as well as barriers and motives for buying organic food, through seventy-two focus group discussions and over 800 means-end (laddering) interviews in all participating countries. A better understanding of consumer attitudes and behaviour may help OMIs to improve and tailor marketing strategies according to the level of the supply chain and specific targeted consumer segments. Three main groups of consumers of organic food were distinguished: regular consumers, who have generally higher awareness of environmental issues; a large majority of occasional consumers; and non-consumers.
For many consumers, organic products are associated with health because they contain little or no agrochemical residue, taste good, are farmed naturally, are not mass produced, and are environmentally and animal-welfare friendly. Also, organic products are chiefly associated with the consumer’s own country and for the most part, represent a positive, informed lifestyle that is generally desirable for the whole of society, but is (as many interviewees assumed) not feasible as such.
Interviewees commonly related organic food to regularly purchased, fresh, unprocessed products like fruit and vegetables, dairy products and meat. Processed, convenience foods are not instinctively linked with ‘organic’.
The same range of motives for consumption of organic food is mentioned in all countries’ focus groups, but there are differences in terms of the priority given to each. Motives also vary according to product categories. Negative associations relate to high prices of organic products, their occasional poor appearance, their limited availability, and – less often – their unusual taste is also commented on.
As regards the context in which occasional consumers would prefer organic food, the following situations were mentioned: buying for children; entertaining guests; illness; availability of new products; and organic food in ready-to-eat form. In contrast, there are also occasions when regular consumers do not buy organic food: when inviting guests (for cost reasons, for example, or the reduced importance of health aspects) or on holiday; because of scandals in the organic food industry; where organic products come from very distant countries; and due to lack of availability or poor appearance.
The majority of interviewees across all countries (especially regular consumers) agree that organic food is expensive, but it is appropriate that it costs more than conventional products. Absolute price seems to be less important in assessing organic prices than the price-performance ratio, whose low rating implies that the value of organic quality is not generally discerned or accepted.
Interviewees mainly agree that the product range should reflect a modern lifestyle. The full range of organic food should be readily available to allow choice from an extensive range of products. Packaging should reflect organic philosophy and, hence, be as minimal as possible, though many also point out that packaging should become more professional and less ‘dull’. Most participants agree that it is implicit that the quality of organic products must be very good.
Interviewees view the various sales channels for organic food in different ways, particularly regarding their strengths and weaknesses. Smaller outlets are generally favoured because of personal contact and trust. However, both regular and occasional consumers, and even those who prefer smaller outlets, are aware that making organic products available in supermarkets and hypermarkets is necessary and inevitable if they are to reach more people. Consumers preferring organic shops appear mainly interested in soft attributes, such as store atmosphere and interaction with sales personnel, revealing a hedonistic approach to shopping. Organic restaurants are welcomed as an opportunity to get to know organic food. The consumer study provides arguments for adopting different strategic approaches according to each level in the supply-chain (producers or processors, mass market outlets, niche providers), or to target market segments (including occasional or regular consumers, or parents with young children). Main barriers should be overcome by means of an appropriate marketing strategy and, in particular, increased communication effort.
In order to develop appropriate recommendations a scenario analysis was conducted, describing the possible future environment for OMIs based on four different scenarios. Those involving strong liberalisation in the food market and a reduction in regionalisation would present the strongest challenges; on the other hand, increased regionalism within an effective regulatory framework, even with ongoing liberalisation, would strengthen OMIs’ activities.
The final conclusions and recommendations list a range of factors to be taken into account by policymakers, as well as OMI managers, when formulating strategies to exploit future potential more effectively and overcome limitations: consideration of market potential and limitations; retention and strengthening of the ethical basis whilst growing; dealing with increased competition; reduction of dependence on supermarkets through diversification; deciding for or against export; responding to the growing demand for convenience food; and improvement of the price to cost relation. Other key factors are communication policy, and supply policy with regard to product quality management. Simple options that OMIs should consider include: improved decision processes and management skills; realistic finance policies; cooperation with conventional agriculture and other supply chains as well as with organic food and farming organisations; improved vertical networking along supply chains; and horizontal networking in regions.
The following policy support measures are also recommended: improved market transparency; support for knowledge transfer and advice; financial support for OMIs and organic farmers; consumer information and education; more public procurement of organic products; facilitation of cooperation and networking; and research and development projects
To conclude, the analysis showed that several OMIs, by improving their business activities and the environment in which they operate, can go further to achieve social and ecological goals and become a model for sustainable rural development. For both market-related and rural development-related activities, there is interesting and challenging development potential and this can present real opportunities for OMIs.


EPrint Type:Book
Agrovoc keywords:
Language
Value
URI
English
UNSPECIFIED
UNSPECIFIED
Subjects: Food systems > Markets and trade
Values, standards and certification > Consumer issues
Food systems > Produce chain management
Research affiliation: Switzerland > FiBL - Research Institute of Organic Agriculture Switzerland > Society > Rural sociology
European Union > Organic Marketing Initiatives OMIaRD
UK > Univ. Aberystwyth
Related Links:http://www.irs.aber.ac.uk/omiard
Deposited By: Padel, Dr Susanne
ID Code:10653
Deposited On:26 Mar 2007
Last Modified:16 Mar 2022 15:18
Document Language:English
Status:Published
Refereed:Not peer-reviewed
Additional Publishing Information:For details how to order a copy of the full report (€20)please see http://www.irs.aber.ac.uk/omiard/publications/index.html

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