Organic bright spot in sluggish economy

Suppliers of organic ingredients remain upbeat in spite of signs the recession is starting to harm sales of organic food and beverage products.

European certification body the Soil Association recently revealed that the UK's organic food and drink market grew just 1.7 per cent in 2008, compared with 22 per cent the previous year.

In the US, meanwhile, the Organic Trade Association announced that the American organic food market increased 16% last year, an impressive rate of growth, albeit down from 20 per cent in 2007. However, the future health of the category remains unclear, with Mintel issuing a forecast that the US organic market will actually shrink by 1 per cent in 2009.

The economic downturn is widely accepted to be bad for the organic market. It's a simple equation: organic products are more expensive because they cost more to produce, people have less money, and so sales of organic products are falling. And yet some ingredients suppliers are actively growing their organic portfolios.

One of these is France-based Tournay Biotechnologies, which supplies natural extracts to supplements manufacturers in Europe and the US. The company significantly boosted its organic offer at the end of last year, a move company boss David Tournay said was partly in response to demand — about one in five new sales enquiries is currently for organic ingredients — but was mainly because the raw materials themselves had become more affordable.

"The price of organic raw materials started to decrease, which was important because most of our customers are willing to go organic if the price is not an issue," he explained. "If we can offer something with a 20-30 per cent price premium then it's okay. If it is more than that, there will be no demand for it.

People are willing to go for something that's a bit more expensive — but it must only be a bit more expensive." As a result, he added, if the company can't produce a competitively priced organic extract, it won't bother.

The cost of organic ingredients has fallen because growth in the wider organic market has encouraged increased planting of organic crops, which in turn has helped lower the cost of manufacturing natural extracts. These extracts constitute just a small part of the finished food supplement, and represent just 5-10 per cent of the cost of producing the product. So improved affordability is key to keeping the final product price to the consumer as low as possible, thus maintaining sales in these difficult times.

Cost isn't everything, however. In the US, Kentucky-based colourings supplier DD Williamson is confident of success with its organic ingredients because it makes a point of meeting unfulfilled needs in the marketplace.

"In some cases we're creating products that are not yet built by the organic market," commented global vice president, branding & market development, Campbell Barnum. "For example, most recently we started doing organic annatto extracts; we're not sure anyone has done that before. Some years ago we were the first North American company to come out with a certified organic caramel colouring."

As for the future, Barnum said he wasn't fazed by the recession's impact on the organic sector, in spite of Mintel's gloomy forecast. "We're in it for the long run," he said. "It's still a growth category. I don't believe it's a fad." In France, Tournay was equally bullish. "Organic represents 5 per cent of our sales at the moment," he said. "We are certain it will be at least double that within three or four years."

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