Consumption of organic products: 
Challenge for performance of supply chain. 

Marja-Riitta Kottila, Päivi Rönni 

Abstract – Lengths of organic supply chains have been increased by the emergence of intermediaries between consumers and organic farmers. The involvement of supermarkets forces the organic chain to merge into the conventional food chain. The small segment of organic products and consumers creates a challenge for the performance of the organic chain. The case-studies described here were conducted to learn more about the performance of the chain. For this purpose, actors along the chain (from farmers to consumers) were interviewed. Three dimensions affecting performance were found, as well as three different levels of commitment to organics.

Introduction
Food chain, where the actors are interlinked to produce value to customers in the form of a food product, is part of a complicated food system. Networks of various actors comprise the food chain, through which the cascade of added value flows downstream, and is delivered to the consumer, while each actor gets a share of the total value created by the supply chain (Lambert et al., 1998; Mentzer et al., 2001; Alvarado and Kotzab, 2001; Finne and Kokkonen, 2005). Organic food chains are often considered alternative food chains, characteristic to which is close connection between the consumers and the producers of the food (Marsden et al., 2000). Close connection is enabled by the short chain with few or no intermediaries, and therefore often considered also the most suitable for marketing organic products. However, in Europe the majority of organic products are sold by supermarkets (Hamm and Gronefeld, 2004). This may be due to lack of other efficient marketing channels or alternatively, the consumers' preference for convenience in purchasing food. (Bähr et al., 2004).
Nevertheless, the involvement of conventional supermarkets stretches the chain and merges the organic chain into the conventional food chain. From the supermarkets point of view, the organic represents an unattractive niche in the conventional food chain, because the market share of organic is only a few percent of the total food market (Hamm and Gronefeld, 2004). To get the small segment of organic products to meet the needs of the small segment of customers of supermarkets challenges the performance of the organic chain. According to supply chain management theory, the interaction as well as flow of information among the actors, starting from the consumers and continuing all the way to the suppliers, holds the key to performance. Fluent information flow requires that actors are committed to the chain, willing to collaborate and share information among each other. (Lambert et al., 1998; Mentzer et al., 2001; Alvarado and Kotzab, 2001; Finne and Kokkonen, 2005).   

Objectives 
The objectives of this study were to understand, how the organic chain performs within the conventional food chain and how committed the actors of the organic food chain are to the focal chain. Based on the existing theory, the following hypotheses were defined: 
H1.The chain does not perform well
H2.The actors' commitment to organic chain varies    
H3.Product type affects the level of commitment.

Methods 
For deeper understanding, a qualitative approach was chosen for the case studies. Two chains were selected by taking into account the requirements of comparability, representativeness and diversity. The food products of the case represent typical daily choices of Finnish consumers. The cases were different from each other in three respects:  product characteristics (fresh product vs. industrial product with a long shelf-life), marketing concept (private label vs. own brand), as well as the size of the marketing company (small processor marketing the products on its own vs. small processor whose products are marketed by a big company). Both products were within the chain assortments of both retailers, which are the largest grocery retailers in Finland. 
To describe the chains, the viewpoint of the organic processor was chosen. From that focal point, the product was followed downstream through the actors involved in distribution, marketing and selling the organic product to consumers, and also upstream to a couple of farms producing the raw material. With the exception of the focal organic processor and its suppliers, the proportion of organic food is small throughout the chains, as in conventional food chains in general. 
To deepen the understanding of the interaction/collaboration between the chain actors, the following four processes were selected under scrutinization: assortment decisions, promotion, replenishment and product launching. The data was collected by interviewing the actors along the chain. There were altogether 28 interviews.  In addition to interviews, secondary material were evaluated. Transcriptions were analysed by summarising and comparing the views of different actors within a chain. Assessment of chain performance was based on the actors' perceptions of the performance as well as problems experienced in relation to organic supply chain. Commitment to organic was evaluated with three factors: significance of organic, the values, goals and needs, as well as investments put into organic. The preliminary results were discussed and replenished at a one-day workshop having a participant from all actor organizations involved.

Results 
The hypothesis 1 was confirmed by the results. It turned out that the performance of the chain is a complicated issue, which can be understood in a very narrow or in a wider sense. Based on the perceptions of the actors, three different dimensions affecting performance could be identified: product flow, balance between demand and supply, and collaboration among the actors. The actors did not consider the product flow particularly tardy or problematic. Therefore, occurring problems in performance were more related to the other two dimensions. If performance as a concept is seen in the wide sense, the hypothesis can be regarded as confirmed. 

The hypothesis 2 and 3 are confirmed by the results, as well. As the measures of commitment are put together, it turns out that farmers in case chain 1 are the most committed. The difference in commitment between the farmers of case 1 and 2 arises mainly from the different nature of the marketed product, and the existing business culture of that particular product area. Organic processors are also quite committed to the organic chain. However, commitment of the other actors towards organic is quite weak, and highly dependent on the alternatives available. On the other hand, since the investments needed are very small, the wholesalers and retailers can easily increase their share of organic, if an adequate number of suppliers exist. Nature of the product has influence on the commitment of the marketer as well as the wholesalers. 

Conclusions
In order to understand the needs and possibilities for improvements or changes within the system, it is essencial to complement the studies done on each actor with research conducted at the chain level. Considering the nature of food as commodity, it is rather difficult to increase the flexibility of the supply chain. The quality of organic produce decreases the flexibility even further due to the required conversion period, great fluctuation of yields, relatively high price of organic raw material, as well as restrictions and requirements set by the regulation concerning organic. Due to the low flexibility of the organic chain, it is important to create long term commitment as well as collaborative forecasting concerning the volume and quality of the demand.   
Commitment of the actors to the organic chains varies to a reasonable extent. The share of organic and type of product seem to indicate the commitment. Growth in demand of the organic might increase commitment, but growth cannot take place without the availability of good quality organic products to the consumers. Media and NGOs have a significant role in increasing the commitment of chain actors, who aim for benefits in the form of improved image. If company image is the main reason for being involved with the organic chain, performance measures other than profitability should be seriously considered for the organic products.  

Acknowledgement
The authors wish to thank the interviewees in the participating companies for the information and time given for this project and the Finnish Ministry of Agriculture and Forestry, SOK and Finnish Cultural Foundation for funding this project. 

References
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