Organic Marketing Initiatives and Rural Development

Abstract

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. 
\nThese 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. 
\nThe 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. 
\nTo 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. 
\nThe 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. 
\nMany 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.
\nDuring 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.
\nSelf-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.
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\nThere 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.
\nAlthough 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. 
\nOrganic 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.
\nThis 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.
\nDeeper 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.
\nThe 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. 
\nThe 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. 
\nA 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.&#13