Archived at http://orgprints.org/4753
new tendencies in the organic food market
Wier, M (1), Millock, K. M (2) and Rosenkvist, L (1)
(1) Royal Danish Veterinary and Agricultural University, Rolighedsvej 25, DK-1958, mew[a]foi.dk
(2) EUREQua (CNRS-Université de Paris I), 106/112 Bd. de l’Hôpital, 75 647 Paris Cedex 13, Katrin.Millock[a]univ-paris1.fr
Key Words: Organic market, consumer perceptions and behaviour
We investigate the organic food market in two selected European countries, Great Britain and Denmark. Using unique household panel purchase data together with information on stated concern, values and attitudes, we find that the Danish and British markets share several important features. In both countries, most organic food is produced, processed and distributed at a concentrated and industrialised market, where consumer confidence is sustained by well-working organic labelling. We find that household propensity to purchase organic foods increases significantly with the household’s stated importance of private good attributes, thus making assigned private values determine the level of market participation. The weight assigned to public values is not significantly explaining household organic budget share. However, as almost all consumers purchasing organic foods are in fact acknowledging public good attributes, public values may represent a prerequisite for buying.
In this paper we focus on the organic market in two selected countries, Denmark and Great Britain. These countries are especially interesting in a European context: Britain has the most rapidly growing market, while Denmark has one of the highest levels of consumption of organic food per capita in Europe.
Fifteen years ago, organic food was mainly perceived as offering public good attributes, such as being environmentally friendly and ensuring animal welfare (Beckmann, 2001). However, the growth in consumption of organic foods today may be due to an increasing focus on private good attributes, such as health, taste and quality. It is unclear at present to what extent these different priorities reflect the questions posed by researchers at different periods of time, differences in the characteristics of early and later adopters of organic food, or the fact that consumer priorities may themselves have changed (cf. Schifferstein & Ophhuis, 1998; O’Doherty Jensen et al. 2001). In addition, increasing food safety concern, partly driven by the threat of food scares emerging during the 1990s, may play an important role (cf. Beckmann, 2001; Briz and Al-Hajj, 2003; Mitchell, 1998; Richter et al., 2000, Storstad and Bjørkhaug, 2003). Recent research (Grankvist el al. 2004) suggests that positive information about a specific type of product (e.g. an organic product) mainly affects consumers who already have a strong interest in that product. In contrast, negative information about an alternative product (e.g. a conventional product) may also affect consumers who have only an intermediate level of interest, thereby inducing even more consumers to purchase organic products. Similarly, Storstad and Bjørkhaug (2003) suggest that, while the pioneers of organic consumption were primarily motivated by environmental concern, the demand for organic foods increases faster as food safety concern increases.
If demand for organic foods is increasingly driven by food safety concern, the current industrialisation and concentration of organic food producers and suppliers represent a paradox. Organic farming can be viewed as a criticism of the increasingly industrialised conventional farming (se e.g. Morgan and Murdoch, 2000) and previous research shows that organic farmers are quite different from conventional farmers regarding their environmental and animal welfare attitudes (Storstad and Bjørkhaug, 2003). Often, organic foods have been associated with attributes such as by traceability, closeness, local origin, small scale units, adequate information through the chain from producer to consumer, all characteristics commonly perceived to ensure food safety. However, todays’ British and Danish organic food sectors are not very different from the conventional food sector, and lack several of these features. The organic products at the Danish and British markets are sometimes highly processed, often imported, and most often, consumer access to information about the producer is limited. In this paper, we will describe the market features of the British and Danish organic food markets more deeply, identify to what extent private good attributes such as food safety influence demand, and discuss how organic production, food safety concern, labelling and increasing industrialisation and market concentration act together.
The study is based on household level observations of stated as well as registered behaviour of a large number of organic as well as conventional foods, which makes possible a detailed and informative approach. We utilise unique household panel data from GfK (Denmark) and TNS (Great Britain)
encompassing the purchasing behaviour (daily necessities) of 15,000 British households during 2001-2003 and 2000 Danish households during 1997-2001, together with a questionnaire surveying panel members. The Danish purchase data encompass 80% of all types of grocery goods, including all types of organic goods, while the British encompass 47% of all organic sales. In both cases, we have access to weekly information about quantities, prices, store choice etc. Panel members record items purchased from every shopping trip using a barcodes laser scanner. For each household, socio-demographic characteristics, habits, and underlying values and attitudes are registered. In the study, we apply demand modelling (micro-level Almost Ideal Demand System (fixed effects) and Likelihood Ratio testing. We explain household organic budget share by relative prices, stated values and attitudes, plus socio-demographic household characteristics (income, age and number of household members, urbanity, education, etc).
Results and brief discussion
The organic market
Almost every second Danish household is light user1 and three out of five households are medium users. Only 10% never purchase organic foods, and one out of seven households has a very high consumption (heavy users). For Britain, non users constitute almost half of all households, while light users constitute two fifths. Around one out of eight households are medium users, while around one out of twenty is heavy user. However, the buyer groups are mixed, meaning that large variations are observed within each group. This is supported by the fact that a considerable fraction of households changes behaviour and moves from one buyer group to another during the observation period. Thus, surprisingly, Danish as well as British households are not exhibiting stable organic budget shares during the observation period. A large share of the households in each user group, move from one group to another: Generally, most households have increased their propensity to buy organic foods during the period, but a considerable number of movements has also gone in the other direction. The results suggest that values and concerns may be temporary and consumers may engage in food issues in an irregular way.
In Great Britain, as well as in Denmark, most organic foods are sold through conventional retail stores. Moreover, organic sales are concentrated around few large multiples. According to our purchase data set, in Great Britain, three multiples are responsible for 70% of total organic sales, and in Denmark, two multiples are responsible for 64% of total organic sales. Supermarkets generally hold a much lower share of organic sales in almost all other European countries.
In fact, the British and Danish markets for organic food are concentrated, as relatively few large multiples, distributors and food processing industries dominate the market. The consumers have access to a wide variety of organic product types, some of those highly processed. The British and Danish organic markets rely heavily on imported goods to satisfy market demand. Thus, in both countries, most organic fruit and vegetables are imported, and so is a large fraction of organic cereals. Organic dairy products and meat are mostly of national origin, but again, a large share of organic fodder in livestock production is imported. Apparently, however, this has not constituted a problem in the past. This is quite interesting, as our survey results tell us that the origin attribute commonly overrules the organic attributes. Part of this may have to do with the fact that imported foods, domestically packed or processed, are often perceived as national products. Part of it may be explained by trust in foreign organic products being enhanced by national labelling. Thus, our survey results tell us that most respondents have general confidence in domestic products with the Danish organic label. Trust in organic products without the label is low – especially, for foreign products. Thus, the organic label appears to be an effective instrument to enhance trust in imported organic products.2
The standardised and concentrated organic food markets based a high degree of imported foods and large-scale producers/processors/sellers may be perceived as being in opposition to the organic principles of closeness, small scale units and traceability. In the long run, consumer confidence may be turned down by lack of closeness to and information about organic food producers, processes and suppliers. When information and trustworthiness cannot be ensured by direct personal contact, standardised information provision is an alternative. In the past, well-working and trusted labelling have ensured authenticity of organic products even on these highly developed markets in Denmark and Britain.
Due to consumers considering issues such as traceability, closeness, origin and alternative sales channels as key elements in ensuring confidence, a smaller, parallel niche market may prevail. This is already observed in Denmark, where 15% of all organic goods are purchased through direct sales (farm gates, box schemes, farmers’ markets, etc) or specialist stores (e.g. baker, butcher, green grocer, health store) – in Britain, this figure is at least 10%. This market is primarily upheld by heavy users – in fact, 77% of organic goods sold directly are purchased by heavy users. Still, however, heavy users do most (57%) of their shopping in supermarkets and 20% in discount stores. Thus, there appear to be two parallel organic markets, attracting different consumer types – but the two markets are not completely disconnected. One important research question is how different consumer types can be addressed at the same time, and to what extent the organic branding should be based on two (or more) strategies, each targeting specific groups.
Perception of organic attributes
Our survey results tell us that the respondents in the main believe that the label is more comprehensive than it actually is and includes demands for energy conservation, environmentally friendly packaging, taste quality attributes etc. Quite interesting, if the product is labelled “organic”, around one fourth of all Danish respondents feel that it lowers the risk of bacteria contamination and mad cow disease – and only a negligible share feel the risk becomes higher. This suggests that the organic production rules are commonly perceived as ensuring enhanced food safety, even in relation to food safety risks that are not handled directly in the organic farming rules. This is quite interesting and suggests that the organic label is working in two ways: firstly as a distinct label, ensuring specific benefits for organic products. Second, as a broader, more vague label, interpreted as signifying more universally benign outcomes.
Demand for organic foods in Great Britain and Denmark appears to be primarily sustained by private good attributes such as health (including food safety attributes) and quality (e.g. taste and freshness attributes). Public good attributes (environmental and animal welfare attributes) are more widely acknowledged, but appear to have less importance for propensity to purchase organic goods. Combining stated valuation of attributes with purchase data on individual household level, reveals that solely stated private good attributes have a significant effect on the organic budget share; very interesting, the contribution from stated public good attributes values is not significant. The effect from private good values is significant even when controlling for various household characteristics, health risk concern and main stated purchasing barriers. Consequently, we can conclude that even though households more often assign value to (and additionally assign highest values to) the public good attributes, it is the valued private good attributes that make them buy organic foods. Fewer consumers acknowledge private good attributes (compared to public), but those who do, hold highest propensity to purchase organic food. Thus private good attributes, primarily food safety attributes, appear to play an important role in consumer willingness to pay.
The industrialised and concentrated organic food markets based on a high degree of imported foods and large-scale producers and processors may be perceived as being in opposition to the organic principles and may turn consumer confidence down in the long run. This is especially important as food safety attributes appear to play a key role in consumer demand.
Our research suggests that the organic buyers have general trust in the organic label as well as in the organic idea. The organic concept is interpreted rather wide-ranging and perceived as encompassing more attributes than can actually be guaranteed and is interpreted by consumers as signifying generally enhanced food safety. It is possible that trust in private food quality and food safety attributes relies heavily on being an integrated part of the organic production approach. However, it is important to note that there is no scientifically consensus of the quality and health effects of eating organic foods. Thus, the private attributes, being main purchasing determinants, are not well-documented scientific facts, and are not guaranteed by the organic label. This is a paradox, and there is a need for assessing what the lack of scientific evidence means to consumers, and how various types of new information may influence consumer perceptions and valuations of such attributes.
In the past, well-working and trusted labelling have ensured authenticity of organic products even on these highly developed markets in Denmark and Britain and future growth will be highly dependent on continuously successful labelling and other trustworthy information provision. Provided the organic labels remain generally trusted, demands from the majority of the organic buyers are largely satisfied, and the British and Danish organic markets appear durable and sustainable in their present form. This, on the other hand, is only true to a certain extent: If one of the few dominant organic producers and suppliers are compromising notably with regard to the most important organic characteristics, a disapproving consumer reaction may fall upon the whole market, making the concentrated structure – relying heavily on trusted labelling – act as a rebound effect.
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