Marketing Trends for Organic Food in the 21st Century

The following sections are included:

• Foreword

• Contents

• Preface

• Market outlooks

• Producers' Attitude

• Consumer Behaviour

• Distribution Networks

• Potential Marketing

• The Marketing Mix

• Challenges

• Outline of the Book

The organic market in Denmark is no longer a niche market as it was in the late 1980s. The development has followed the typical pattern for diffusion of innovations and by 2002 the market supply seemed to have surpassed the equilibrium supply by around 30% and a potential adjustment is expected in years to come. During the period 1987-2002 the development in the organic industry underwent dramatic changes. In the beginning many small new businesses dominated the area. Presently, there is a remarkable concentration of cooperative monopolies and oligopolies from the conventional industry dominating entire industry.

In general, Denmark can be regarded as a frontrunner in organic development. Therefore, important clues concerning the development in other EU countries can be found, and the following points are analysed to evaluate if similar developments can be expected. Can the Danish diffusion path for organic development be expected in other countries? Will the supply in other EU markets also surpass market equilibrium? Are the Danish experiences with respect to policy choices and power-play of dominant players in processing and distribution industry of general relevance? Do the maturity gains and potential observed in the Danish organic industry apply to other markets? Is increased international trade beneficial?

The chapter examines the scope and significance of the National Organic Program (NOP) recently introduced in the United States and systematically analyzes the effects of the new national organic standards on the markets for organic, conventional and genetically modified food products (GMPs). The effect of the NOP on consumer purchasing decisions and welfare is examined under the current no labeling of GMPs regime. A model of vertical product differentiation is developed to capture heterogeneous consumer preferences regarding interventions in the production process. Analytical results show that, as long as the NOP does not impose significant costs in the organic food supply chain, the introduction of the new organic standards can increase the market share of the organic sector and can enhance aggregate consumer welfare. Overall, the market and welfare effects of the NOP depend on the distribution of consumer preferences and the level of aversion to interventions in the production process, the production share of GMPs, the effect of the NOP on the price of the organic product and the relative costs of producing organic, conventional and GM products.

This paper attempts to estimate the factors affecting the demand for organically produced fruits and vegetables. Taking into account the rapid growth of the market for organically produced products, and the fact that there has been an upward trend in the interest for healthy products with fewer agrochemicals, the need to identify consumer characteristics that affect the demand of these products has become critical. A randomly selected sample of 660 people was interviewed from March to July 2000 in the prefecture of Thessaloniki. Among them, 316 were actually organic food consumers. Demographic characteristics and consumer attitudes were included in a two-stage single equation probit model, in order to derive the most important factors affecting the consumption of organically produced fruits and vegetables. Results indicated that the most important factors that affect the demand of the two organic product categories are household income, level of education and employment. In addition, positive attitudes towards organic product prices and attributes, attention to food labels and interest in chemical residues found in food products positively determine the demand for organic fruits and vegetables. Income elasticities were found to be significant and positive, indicating an elastic demand for both organic food categories.

This paper analyzes the marketing of organic grains and oilseeds in the United States in order to assess their future trends. Grains and oilseeds are interesting because they are inputs in the production of final goods (e.g., edible oils, pasta, flour, bread, breakfast-cereals, animal feed, etc.). Therefore, observed price premiums with respect to similar conventional products at the farm level are related to price premiums observed at the final goods markets. Available information indicates that both supply and demand for organic products will continue growing, due to the substantial potential demand and to the entry of mainstream processing firms in the production of organic products. This is also confirmed in the simulation results, which also indicate that investments in marketing infrastructure for organic products should reduce marketing margins and observed price premiums.

The growth of and interest in organic agriculture has emerged due to various problems encountered (health problems owing to pesticides, hormones, environmental problems brought on by to pesticides, decreasing biodiversity, threatened food security) which researchers hope to solve. Regulation EEC 2092/91 provided the organic farming sector with a means of asserting its special character and giving the credibility it required to take its place on the market for foodstuffs. Labelling and advertising of a food product may bear indications referring to organic production methods in the sales description only where at least 95% of the ingredients of agricultural origin are organic. Products with an organic content of 70% to 95% may bear indications referring to organic production methods only in the list of ingredients but not in the sales description.

Regarding the socio-demographic profile of the organic product buyers, most studies agree that it is mainly women, who buy larger quantities and more frequently than men. Slight differences between gender groups are observed as regards their willingness to pay. The age factor does not seem to play an important role either, with the younger seeming slightly more willing to buy (more and expensive) due to their greater environmental consciousness. This willingness, however, does not translate into demand due to their lower purchasing power. On the other hand, the presence of children in the family seems to play an important role, positively influencing organic purchase. Despite high price premiums for organic food, higher household incomes do not necessarily indicate higher likelihood of organic purchases. Some lower income segments seem to be more entrenched buyers. Although there is conflicting evidence, those who are more likely to buy organic generally are female, in younger age groups, with higher levels of education and income, or families with children.

Agri – food markets have been undergoing a dramatic change. The former primarily seller dominated markets have been transformed to buyer-dominated markets. Buyer orientation results in a marketing orientation philosophy. Therefore organisations must have proper knowledge of their target markets, their customer focus groups and the driving forces of their business.

The underlying concept is the marketing orientation as a core competence of a successful network. The authors predict that the present competition of a single enterprise will be substituted in the future by a competition of vertical co-operating “Supply Chain Networks” steered through co-operating management systems like ECR and CPFR being customer orientated.

In the paper the following questions must be answered:

Does marketing orientation change the quality understanding in business and production processes?

Does a more precise customer segmentation change the handling of commodities within the network?

In terms of networks, which incentives will be used to guarantee the customer orientation of the whole chain?

To answer these questions, chain systems must be analysed in terms of which quality attributes are perceived as important by the consumer and how can they be transmitted into the system.

It is becoming more difficult in the Netherlands to sell homogeneous products at a moderate price. To keep a sustainable position in the market, it is necessary to develop new products and new production systems. The basis for this development has to be a combination of changes in markets and in the capabilities of firms and farms. Consumers want to choose from a large variety of good-quality products. Farmers – especially those with a medium or small farm – are looking for methods to improve the added value of their farm. The objectives of both farmers and consumers could be fulfilled by producing high-quality speciality products. However, the marketing and distribution of regional products requires large efforts in the field of horizontal and vertical cooperation and the right choice of marketing channel and marketing concepts. For many Dutch farmers this implies learning new skills. Given the differences in optimal scale between farmers, processors and retailers, many farmers have formed producers' groups. In this paper, we approach the problem by means of theoretical frameworks about chain development, horizontal cooperation and management. This leads us to formulate a number of hypotheses. We discuss a number of cases to see whether these hypotheses are supported by real-life examples, and then draw a number of conclusions.

It is well documented that a large share of new products does not survive the first year in the market. Research reported in this paper examined the relationship between product quality and innovation success. In contrast to existing product innovation research that focused on industrial goods, this study used food product data in a 2002 German food manufacturing firm survey. Results suggest that premium quality increases a firm's new product introduction success rate. Furthermore, larger firms tend to have higher success rates. Intensity of competition and retailers' market power reduce firms' new product introduction success rate.

The following sections are included:

• Introduction

• Methods

• The Structure of Organic Agrifood Marketing

• Conclusions

• References

This paper presents an overview of the pro- and anti-competitive impacts of private-label products in the German market for organic products. A large share of organic products in general food retailing is being marketed under private labels while national brands constitute only a share of 32%. The big share of organic private labels can increase buyer power of food retailers. Retailers are able to exert pressure on their manufacturers to ensure that they receive products of the required quality and at the lowest possible price. Despite these anticompetitive effects, private-labelled products can also have pro-competitive impacts. The organic food production sector is characterised by many small manufacturers. For them, the production of organic private labels implicates lower costs. Furthermore, private label goods do not have to compete for shelf-space, and producers do not have to pay slotting allowances.

Measuring both customer and societal satisfaction is critical to the process of serving them and outdoing competition. This is also true for agribusiness and the food industry. Predicated on the view that quality is defined as meeting or exceeding customer expectations, the gap approach has contributed significantly to our understanding of the service delivery process in several areas. The gap model serves as a general framework to examine the total delivery system, measure gaps, and explore not only the causes of the gaps but approaches towards their closure. An interesting and important question concerns the extension and applicability of the gap model to the business-to society context. This extension has significant implications for the assessment of the delivery system as well as the measurement and diagnosis of potential gaps. A subjective approach of corporate social performance is chosen. It is argued that social responsiveness can be considered as a requirement of an economic offering, which is experienced and sensed by society without actually consuming it. The developed model provides a modular approach to assess the performance of the delivery system. The delivery system can be assessed at the consumer, channel-member and/or society level. Finally recommendations for further research are provided

Despite a high value image towards consumers, origin and organic labelled food products have a low market share in Europe that varies between European countries depending on the main channel used for sale. Among several labels used to highlight food products in Europe, those based on origin (PDO) or provenance (PGI) are increasingly being applied and complement the Organic Farming label. Origin labelled food products are mainly present in Southern Europe but we can find it in Northern countries too. Geographical spread seems inverse for organic labelled food products. Typical food products and food produced organically have always commanded a higher price than conventionally produced foods, a factor that was previously felt to have hindered the expansion of these products. They are still considered as niche markets and were once difficult to obtain other than in specialist outlets and local markets. They are now much more readily available on the shelves of the major supermarket chains across Europe. This article will focus on the place of such specific products within the European food market by means of recent studies. The consumer perception of food labels, his/her purchase behaviour within different sales channels, and the market share estimation of such products, will be seen successively.

Organic food, once perceived to be on the ‘alternative’ margins of the food market, now occupies a much more mainstream position. This has been attributed to increasing consumer concerns over food safety in the wake of a series of high-profile food scares and growing consumer affluence. The highest annual growth rates in sales in Europe have been recorded in the UK, Sweden, Switzerland and Denmark, with retail sales of organic food in the UK reaching £1 billion in 2002. Demand outstrips national supply in most parts of Europe and currently the majority of organic foods sold are imported. Fresh vegetables account for the greatest proportion of sales, with the multiple grocery chains dominating the markets of countries with greatest sales.

This chapter discusses the factors influencing choice of organic foods amongst European consumers, and thus the factors limiting the growth of the market. It discusses factors such as price, availability, perceived healthiness/safety and ethical food production. It also includes a report of original research carried out in the UK in 2002. The study was based around the Theory of Planned Behaviour, and was similar to a study carried out in 1992 by Sparks and Shepherd.

Over the past two decades, growing environmental awareness coupled with concerns about health and quality of diet have led many people to question modern agricultural practices [1], New waves of consumers are demanding organically grown foods, with health concerns prompting consumers to avoid chemical additives and pesticide residues in food fearing, despite scientific consensus to the contrary, that these foods are unsafe [2]. Consumer interest in organics has undoubtedly been fuelled by health scares of recent years, such as BSE and E-Coli, which continue to raise public concern. Growing awareness and antipathy to the introduction of genetically manipulated foods adds to consumers' fears [3], All these factors have combined to generate an extremely buoyant organic food market in the second half of the 1990's. In Ireland, the key drivers that are influencing certain consumers to choose organic foods include: food safety, healthy eating, sensory qualities and to a lesser extent environmental concerns and animal welfare. Two recent studies have highlighted the importance of these issues to purchasers of organic foods [4,5]. A study of Irish organic meat consumers highlighted the importance of food safety and health in their food choice. Not only were these factors important to them but they believe that organic meat was superior to conventional meat in terms of quality, safety, labelling, production methods and value. In another study, which examined the purchase of organic yoghurt, a means-end chain method examined the importance of values and consequences associated with product attributes. The main end values identified were ‘pleasure’, ‘family security’ and ‘equality’. Health benefits associated with organic yoghurt were important as respondents believed that organic yoghurt was free of many hazardous ingredients. Purchasers of organic yoghurt displayed high levels of environmental consciousness, however few linked the product attribute ‘organic’ to improving the environment. Interestingly, animal welfare was rarely mentioned as a motivating factor in the purchase of organic yoghurt. These two studies, discussed in detail in this chapter, provide interesting insights into the views of Irish organic consumers and the importance of their evaluation of the key characteristics of organic foods.

The paper presents partial results from a European study on consumer motivations and perception of organic food, using the means-end theory and laddering.

The means-end chain model (Reynolds and Gutman, 1988¹³ ) gives the possibility to explicitly link product attributes to consumers needs and wants. This theory stands on associations: between concrete product attributes, abstract product attributes, functional consequences, psychological consequences, instrumental and terminal values. As a result, products attributes are means for consumer to obtain desired ends: consumers achieve values through benefits yielding self relevant product attributes.

In order to explore the relevant cognitive structures of consumers regarding the place of purchase of organic food, 104 respondents were interviewed using the soft-laddering technique, an in-depth face-to face interviewing approach at measuring means-end chains. Consumers where interviewed in various part of Italy, and vary according to their gender, age, frequency of purchase of organic products, level of knowledge of organic products, and residence (rural vs. urban).

The results (ladders) of this semi-qualitative interviews are coded and presented in a set of hierarchical structured value maps (HVMs). The results are discussed and analysed, using insights from previous research.

The threat of continued food scares has driven growth in the organic market in the last few years, as consumers have come to distrust many conventional products and have taken a greater interest in food safety mechanisms. This concern for food safety is now at its peak throughout Europe, and Spanish consumers are similarly concerned about the quality of the food they are eating.

Spanish organic agriculture has grown very fast in the last decade; the land devoted to organic production methods has increased more than 150 times and the manufacturers are also solidly established. On the other hand, the efforts to boost organic production have to be accompanied by the development of a national action plan for organic food to improve the whole situation of the organic sector and to assure consumers of consistent product quality.

As a part of a research project, we describe here the situation of the Spanish organic food sector and the political initiatives carried out, and the analysis of the Spanish consumer, through a national survey carried out by telephone interviews. The consumers' knowledge level about organic products, their behaviour and attitude facing these products are studied. And, as conclusions of this research study, we show possible marketing strategies to satisfy the consumers' needs and preferences.

While 3 percent of the fields in Norway are grown organically in the advent of the 21st century, only a small share of the resulting products reach the consumers as organic food. A number of factors can explain the relative lack of success of organic products through the value chain. Lack of differentiation from conventional foods may discourage consumers. Extra costs limit the interest of processors and retailers. The political decisions and subsidies are directed at production, and have few direct effects on the organization of the value chain. The marketing of organic products has followed different strategies. Organic milk is handled through the national dairy cooperative, and around forty percent is sold as organic varieties of conventional brands. Meat producers have been less successful as only about twenty percent of the certified production is marketed as organic. In some of the more promising cases organic products are marketed in a niche strategy where organic production methods is one of several differentiating product attributes.

The term “value” has been defined as an enduring prescriptive or proscriptive belief. The LOV typology of values has been extensively used in the past and makes a distinction between external (relations-oriented), interpersonal (fun) and internal (self-directed) values. We employ Confirmatory Factor Analysis to test and validate the LOV scale in an organic Greek consumers' context using empirical data. The structure of the LOV scale repeats itself in this context. This happens despite the sample being drawn from Greece which holds a completely different position to that of the US according to Hosftede's dimensions of cultural differences. Nonetheless, the relationship between the value factors reflects these differences.

Organic farming is taking off in Portugal. CAP subsidies are a major factor behind this increased interest. Organic farms are still a small proportion of the country's total farms (0.2% of the number of farms and 1.3% of the farmland). They are mostly extensive (low input) Mediterranean farms located in the mainland interior and less developed regions. Large farms and highly educated farmers are the most representative among those who are converting. Olive oil is the main organic production now reaching about 6% of the total land area in this activity.

Twenty-one organic distributors, processors, farmer associations, and certification bodies were interviewed to assess the market barriers for organic food in Portugal. Results show that distribution channels are short. Bottlenecks exist in domestic supply. Most of the organic food consumed in Portugal is imported. Certification has some problems. In general, consumers are not aware enough of organic products or don't have a willingness to pay a high price premium. However, a segment of highly educated urban consumers with above average income does exist and the market potential is growing. Consumers buy organic food for health reasons. The possibility of introducing an in-conversion food market to help farms in conversion to organic was ruled out as it could create noise in the organic food market. The Portuguese government and the EU should concentrate their efforts in promoting the organic food market and in educating consumers.

Organic-food consumers and some related issues were investigated in the city of Palermo. Consumers were asked to express their global satisfaction regarding consumption of organic food, as well as some other personal information. A survey was conducted from the main four organic–food specialized retailers by interviewing nearly 200 customers. The data were used to analyse the overall satisfaction of the local organic-food consumer. Furthermore, a “discrete choice” model was run by using the overall customer satisfaction (OCS) derived from the consumption of organic food as a dependent variable and a set of other variables as regressors. Model outputs were used to identify the key determinants of the overall customer satisfaction, providing likewise useful information regarding future actions to be taken in order to improve the quality of organic-food supply on a local scale.

The following sections are included:

• AUTHOR INDEX