Consumer concerns about protecting and improving their health and the health of the planet are twin trends that have been accelerated during the pandemic and both have a big significance for the food and drink industry. Our food purchases are being influenced by a desire to have healthier diets and we’re willing to apply cooking skills improved by enforced practice during Lockdown, notwithstanding that scratch cooking fatigue is evident as we limp into the middle of the second year of coping with Covid-19! There is growing awareness that all of us, through such actions as being selective in what we eat, reducing food waste, conserving and recycling resources such as packaging, can be part of the solution rather than the problem relating to climate change and reducing the damage to the global environment.
Indubitably, the halo of dietary and environmental health surrounding organic food has helped drive its popularity in many markets.The organic food market in the USA saw solid growth year after year in the first 2 decades of this century and, then, the pandemic struck and the rate of growth accelerated by a record 12.8% in 2020 to a new high of $56.4bn. Almost 6% of the food sold in the USA last year was certified organic. Pre-Covid, 82% of consumers surveyed bought organic food and drinks at least monthly, 18% weekly and 11% daily, with Millennials the group most likely to purchase.
The top 5 reasons for purchase of organic food in the USA are:
- safer for me and my family;
- to avoid pesticides and other chemicals;
- to avoid antibiotics and growth hormones;
- to avoid GMOs;
- and its perceived higher quality.
This is worrisome as it indicates concern about the safety of “regular” food. The aspiration, not unreasonably, is to eat food that is closer to its natural form and less changed by human manipulations – sentiments that have been reinforced during the pandemic. The label organic is seen as promising “GMO-free” and contributes to the attractiveness of organic food for many as GM products are very far from popular!
US retailers have been quick to promote organic private label products during the pandemic as organic food represents an unique intersection of perceived quality and value and the store brand association with an organic label shines a positive light on the store brand overall (e.g. Kroger’s Simple Truth organic products). Such products are increasingly seen in the centre aisles that house categories further down consumers’ adoption pathway of organic items (i.e. moving along from fresh foods which are core organic lines to canned food and non-food items). Shoppers see private label organic products being as good quality as branded ones but have the advantage of being lower priced.
In the UK, a surge in demand from locked-down shoppers helped sales of organic food products rise by 13% in 2020, the highest growth level in 15 years. Canned and packaged organic food grew the most (20%), followed by meat, poultry and fish (17%). But, total sales are still only at a modest £2.8bn (<$4bn). On a per capita basis, organic food sales in the UK are one-third of equivalent US sales. In the UK, close to 20% of organic sales from supermarkets were online indicating that younger, higher income shoppers are key customers for organic products. In Germany, the largest organic market in Europe, we have seen a similar picture: the organic market growing at double speed of the conventional market (22% y-o-y growth in supermarkets) to reach a record 15bn EUR in 2020, and a record share of the market of 6.4%. Poultry, with a 70% growth, and red meat, 55%, were leading the pack.
In the UK, the pandemic has led to a greater appreciation of food, in general, and organic food, in particular, is seen as being sustainably produced, i.e. good for the planet. Effective lobbying by farm groups and consumer activists concerned about future trade deals with powerhouse food exporters such as the USA and Australia has fuelled consumer concerns about “industrial” farming practices. Such practices are perceived to threaten UK food quality and safety standards should they be given untrammelled, tariff-free access to the British market!
The favourable consumer view of organic food within the EU sits well with some powerful EU politicians, not least the EU Commissioner of Agriculture. As part and parcel of the EU New Green Deal in a post-Covid world, targets have been set to reach 25% of agricultural land under organic farming and 25% of food production by 2030 across its 27 member countries. Currently, 8.5% of the bloc’s agricultural land is farmed organically but there’s considerable variability by country ranging from 0.5% (Malta), to 25+% (Austria). Ex-EU member UK, with 2.6% and Ireland with 1.6% are in the European “naughty corner” for organic land use. Four member states accounted for more than half of all organically farmed land in 2019: Spain (17.1%), France (16.2%); Italy (14.5%); and Germany (9.4%). Together, they had 57.1% of the EU-27 organic area. Sweden has the highest proportion of its cereals and vegetables produced organically – 6.5% and 19.5%, respectively.
The organic food production and consumption component of the EU’s Green Deal has the intention of “restoring balance in our relationship with nature”. The plan has 23 actions structured around 3 axes: boosting consumption – through helping consumers make informed choices; increasing production; and improving the sustainability of the sector.
Is this just a nebulous plan which will be blithely ignored by commercial farmers? NO – it comes with financial support for growers! The 2020 total EU budget was €168bn, of which 35% (€59bn) was destined for agriculture, rural development and fisheries. Further, there’s significant “green” political support in some EU countries (e.g. the German Green Party is mainstream).
Digging into the agricultural statistics, more than three-quarters of “farms” in the EU are less than 10ha (in fact, the majority are <5ha – little more than gardens!) so the splash of agricultural support money will reach a lot of voters. But farm numbers are declining sharply – between 2005 and 2016, falling from 14.5m to 10.3m. Over this period, more than one third of livestock and poultry holdings disappeared in France, Germany and the Netherlands. The EU Agriculture Commissioner (Janusz Wojciechowski) is bound and determined to halt the decline: “the European food sector in the past was based on small farms, and it should be in the future as well”. A mental picture of King Canute sitting on his throne at the seaside attempting to turn back the oncoming tide comes to mind!
On financial support to the EU farm sector, the stark reality is that 80% of direct subsidies go to just 20% of the larger-scale farmers which incenses the green lobby. Providing some degree of mollification, CAP reforms are being introduced to encourage farmers to leave more space for wildlife, adopt organic standards for livestock, with the intent of using less chemical fertiliser and pesticides, and to nurture healthy soils. The Commissioner believes that “Small farms can ensure food security for EU citizens and deliver environmental benefits”. Over the past 25 years, farmland birds and insect numbers have plummeted. His view is that food exports are important but not as much as producing EU food for EU consumers. Implicit in his arguments is that smaller-scale producers are more likely to be environmentally friendly than the larger-scale. Environmental campaigners remain hugely sceptical of any significant change to the CAP, let alone radical change, arguing that funds will continue to flow to the biggest, most polluting farms with barely any “green strings” attached.
Now, having exited the EU, the UK or, at least, England, is taking a different tack. It’s withdrawing over time the direct farm payment subsidy and replacing this with “public payment for public goods”, essentially paying farmers via the Environmental Land Management Scheme (ELMS) for providing citizens/taxpayers with environmental and social goods and services on-farm. International competitors may shrug and say “Ah, just another set of disguised farm subsidies”!
A new radical UK government initiative being proposed is to pay older English farmers to retire thereby attracting new, younger entrants into the industry. It’s proposed farmers could be paid up to £100,000 ($140K) if they rent out, sell or give away land they own, or if they surrender a tenancy. The rationale is that older farmers are more likely to be resistant to changing production systems to be more environmentally friendly whereas younger farmers may be more open to new “green” methods. In contrast to the EU vision, this approach may well accelerate the exit of small, uneconomic farms from food production, particularly given that the average age of UK farmers is 59. Don’t stand in the doorway, there may be a rush!
The direction of EU and UK agricultural policy is increasingly and, in most respects, encouragingly “green” – with the focus on environmental and animal welfare aspects. This may increase costs albeit whilst adding social benefits. The accepted wisdom is that EU/UK food products will be of “higher quality” and, therefore, must be protected from lower cost competitors who are producing food of “lower quality”. This will seriously complicate the completion of trade agreements with international food exporting countries such as the USA, Brazil and New Zealand – often, in international trade negotiations, agreement on agricultural and food items become the tail that wags the dog ensuring that the speed of completion of comprehensive trade deals are glacial.
The deal with Australia seems to be close to “done and dusted” leaving many UK farmers incandescent with rage. In truth and fact, the “Aussie Deal” will have very limited immediate or even medium-term impact on UK producers but their concerns are that this agreement is “the thin edge of the wedge” opening the gates for a veritable flood of chlorinated American and Brazilian chicken and red meat “doused in hormones”! This story will run and run. The longer-term implications are that the EU and the UK may well build a protective “green wall” around its borders and this will have strong consumer support. However, EU and UK food exporters will likely have to face “tit for tat” rebuffals from those countries that are not well pleased with their food exports being labelled substandard! The result may please many Europeans – viz., an increase in food self-sufficiency in the EU and the UK – but not, perhaps, classical economists who promote the advantages of international trade and comparative advantage!