New tendencies on the organic food market
By Mette Wier, The Royal Danish Veterinary, Denmark, and Agricultural University and DARCOF
This article describes main market features of the British and Danish organic food markets and discusses how organic production, labelling, increasing industrialisation and market concentration act together. The results are based on a research project within the Danish DARCOF centre, plus ongoing research within the QLIF project. The study is based on household level observations of stated as well as registered behaviour of a large number of organic and conventional foods, which makes a detailed and informative approach possible. We utilise unique household panel data from GfK (Denmark) and TNS (Great Britain) together with a questionnaire surveying panel members. The purchase data encompass 80% of all types of grocery goods with weekly information about quantities, prices, store choice etc. For each household, socio-demographic characteristics, habits, and underlying values and attitudes are registered.
Important product types
The Danish organic food market is characterised by one of the highest organic market shares in the world and the British organic food market is growing rapidly. The most important difference between the two countries is, that in Denmark, the organic market share is substantially higher on average 60% higher. The most important organic product groups in Britain are vegetables and fruit, which altogether constitute almost one third of the total organic sales. The most important groups in Denmark are milk and cereals, constituting almost half of the total organic consumption.
Dividing consumers in four groups after organic budget share (where the organic budget share is defined as the ratio of the household budget on organic and total foods) provides additional information on differences across buyer groups. We define heavy users as consumers having an organic budget share (all food types) higher than 10%, medium users as consumers holding an organic budget share between 2,5% and 10%, light users as consumers displaying an organic budget share lower than 2,5%, and finally non-users as consumers not purchasing organic goods at all. Almost every second Danish household is light user and three out of five households are medium users. Only 10% never purchase organic foods, and one out of seven households has a very high consumption (heavy users). For Britain, non users constitute almost half of all households, while light users constitute two fifths. Approx. one out of eight households is medium users, while about one out of twenty is heavy user.
Organic budget shares
For Danish households, the highest budget share is observed for milk, where the heavy users display a budget share of 85% on average. All Danish households display a budget share of 27% for organic milk. For British households, the highest share is observed for eggs, where the heavy users spend an organic budget share of 48% on average - all British households display a budget share of 6% for organic eggs. In Britain, organic milk is primarily purchased by heavy users, while in Denmark, organic milk is a product purchased by medium users as well as by heavy users. This is partly reflected in the fact that the average price premium for organic milk is considerably higher in Britain than in Denmark. Analogously, in Denmark, the highest premiums are observed for organic fruit, a product group purchased primarily by heavy users in Great Britain, premiums for organic fruit are relatively low and this product group is frequently purchased by light and medium users. Generally, heavy users are willing to pay higher absolute prices for organic as well as for conventional goods, and furthermore higher price premiums.
For a large number of products, medium and light users contribute all together with about half of the total organic consumption in both countries. They hold lower average organic budget shares than heavy users do, but as they constitute a large fraction of all consumers as well, they contribute considerably to total consumption. British light users are generally responsible for a higher share of the total consumption than Danish light users are, and this holds especially for fruit and vegetables.
Lack of stability in organic demand
However, the buyer groups are mixed, meaning that large variations are observed within each group. This is supported by the fact that a considerable fraction of households changes behaviour and moves from one buyer group to another during the observation period. Thus, surprisingly, Danish as well as British households are not exhibiting stable organic budget shares during the observation period. A large share of the households in each user group move from one group to another. Generally, most households have increased their propensity to buy organic foods during the period, but a considerable number of movements have also turned in the other direction. The results suggest that values and concerns may be temporary and consumers may engage in food issues in an irregular way. In the QLIF project, we hope to shed more light on how values, concerns and behaviour act together in a dynamic pattern.
The importance of socio-demographic characteristics
In both countries, propensity to purchase organic food is higher in urban areas than in rural areas, particularly in and around metropolitan areas. Likewise, propensity to buy organic increases generally with income, age and education length. These variables are interrelated, but significant effects are nevertheless observable for all of them, even when controlling for the influence of all other variables. Actually, significant effects are still observable when controlling for differences in attitudes and values, which to some extent may be related to socio-demographic factors.
The presence of children in the household does not increase the propensity to purchase organic foods in contrast, it decreases with number of children. However, it is interesting that the presence of younger children increases organic purchasing propensity. Thus, propensity to purchase organic appears not to be related to the presence of children per se, but rather to the presence of younger children. One possible explanation may be related to food expenses constituting a relatively heavier economic burden in larger households, leaving less extra money for organic goods. Thus, at the early age of children, parents care more about food safety and then, in adolescence, the increasing cost-of-living/family size effect takes over.
Anatomy of the organic market
In Great Britain, as well as in Denmark, most organic foods are sold through conventional retail stores. Moreover, organic sales are concentrated around a few large multiples. According to our purchase data set, in Great Britain, three multiples (Tesco, Sainsbury and Waitrose,) are responsible for 70% of the total organic sales, and in Denmark, two multiples (Coop Denmark and Dansk Supermarked) are responsible for 64% of the total organic sales. Supermarkets generally hold a much lower share of organic sales in almost all other European countries.
In fact, the British and Danish markets for organic food are concentrated, as relatively few large multiples, distributors and food processing industries dominate the market. The consumers have access to a wide variety of organic product types, some of those imported and some of those highly processed. The standardised and concentrated organic food markets based a high degree of imported foods and large-scale producers/processors/sellers may be perceived as being in opposition to the organic principles of closeness, small scale units and traceability. In the long run, consumer confidence may be turned down by lack of closeness to and information about organic food producers, processes and suppliers. When information and trustworthiness cannot be ensured by direct personal contact, standardised information provision is an alternative. In the past, well-working and trusted labelling have ensured authenticity of organic products even on these highly developed markets in Denmark and Britain. Future growth will be highly dependent on continuously successful labelling and other trustworthy information provision.
A divided organic market
Provided, the organic labels remain generally trusted, demands from the majority of the organic buyers are largely satisfied, and the British and Danish organic markets appear durable and sustainable in their present form. This, on the other hand, is only true to a certain extent: If one of the few dominant organic producers and suppliers is compromising notably with regard to the most important organic characteristics, a disapproving consumer reaction may fall upon the whole market, making the concentrated structure relying heavily on trusted labelling act as a rebound effect.
Due to consumers, considering issues such as traceability, closeness, origin and alternative, sales channels as key elements in ensuring confidence, a smaller, parallel niche market may prevail. This is already observed in Denmark, where 15% of all organic goods are purchased trough direct sales (farm gates, box schemes, farmer’s markets, etc.) or specialist stores (e.g. baker, butcher, green grocer, health store). This market is primarily held up by heavy users in fact, 77% of organic goods sold directly are purchased by heavy users. However, heavy users do most (57%) of their shopping in supermarkets and 20% in discount stores. Thus, there appears to be two parallel organic markets, attracting different consumer types, but the two markets are not completely disconnected. In the QLIF project, we hope to attain more knowledge on whether different consumer types can be addressed at the same time, and whether the organic branding should be based on two (or more) strategies, each targeting specific groups.
Perception of organic attributes
Our survey results tell us that, in general, people have a good understanding of the organic rules. However, the respondents mainly believe that the label is more comprehensive than it actually is and includes demands for energy conservation, environmentally friendly packaging, taste quality attributes etc. Quite interesting, if the product is labelled “organic”, about one fourth of all Danish respondents feel that it lowers the risk of bacteria contamination and mad cow disease and only a negligible share feel the risk becomes higher. This suggests that the organic production rules are commonly perceived as ensuring enhanced food safety, even in relation to food safety risks that are not handled directly in the organic farming rules. This is quite interesting and suggests that the organic label is working in two ways: first as a distinct label, ensuring specific benefits for organic products. Second, as a broader, more vaguely label, interpreted as signifying more universal benign outcomes. In the QLIF project, we hope to achieve a better understanding of how consumer perceptions of food safety in organic production are created, and furthermore, how such perceptions are influenced by various information types. Finally, there is a need for research on how food safety can be enhanced in organic production, without disregarding the organic principles.
Valuation of organic attributes
The demand for organic foods in Great Britain and Denmark appears to be primarily sustained by private good attributes such as health (including food safety attributes) and quality (e.g. taste and freshness attributes). Public good attributes (environmental and animal welfare attributes) are more widely acknowledged, but appear to have less importance for propensity to purchase organic goods. Combining stated valued attributes with purchase data on individual household level, reveals that solely stated private good attributes have a significant effect on the organic budget share; very interesting, the contribution from stated public good attributes values is not significant. The effect from private good values is significant even when controlling for various household characteristics, health risk concern and main stated purchasing barriers. Consequently, we can conclude that even though households more often assign value to (and additionally assign highest values to) the public good attributes, it is the valued private good attributes that make them buy organic foods. Fewer consumers acknowledge private good attributes (compared to public), but those who do, hold highest propensity to purchase organic food.
How can the organic label sustain consumer trust?
Does this mean that the organic label should focus only on guaranteeing selected food quality private attributes? Most possibly, it should not. It is worth noticing, that the public good attributes in fact are widely recognised and valued. Assigning values to the public good attributes may work as a necessary (but not sufficient) precondition for buying in this case purchasing organic food is possible. However, assigning values to private good attributes appears to be a necessary and sufficient condition, determining to what degree they purchase organic foods.
Our research suggests that the organic buyers have general trust in the organic label as well as in the organic idea. The organic concept is interpreted rather wide-ranging and perceived as encompassing more attributes than can actually be guaranteed. It is possible that trust in private food quality attributes relies heavily on being an integrated part of the organic production approach.
However, it is important to note that there is no scientifically consensus of the quality and health effects of eating organic foods. Thus, the private attributes, being main purchasing determinants, are not well-documented scientific facts, and are not guaranteed by the organic label. This is a paradox, and there is a need for assessing what the lack of scientific evidence means to consumers, and how various types of new information may influence consumer perceptions and valuations of such attributes. Finally, there is a need for more knowledge on how quality attributes of organic foods can be improved without undermining the underlying production and distribution framework.