The organic Fruit & Vegetable market is struggling. It’s not just rising costs and regulations, but there is a shift of focus for consumers too. Expensive groceries make that consumers are more likely to choose for conventional foods instead of organic, which led to drastic drop in sales compared to the COVID-year 2020.
At the BioFruit Congress in Madrid our expert Miriam van der Waal talked about the past, present and future of the industry. How can the market overcome the current inflation and make organic attractive to the right consumers?
In this blog we will discuss three insights we gained at the BioFruit Congress:
1. It’s all about surviving for organic companies in the upcoming years
With demand declining and profits going down the organic industry is having a hard time. The profit margins of organic are lower in 4 out of 5 recent years compared to conventional companies, while risks are higher. With inflation peaking in Q1 2023, the market is recovering somewhat.
Current profitability levels in organic F&V are not sufficient and sustainable, however, recovery of profit levels is expected to take at least 1-3 years. It’s about surviving the coming years, and changes need to be made for a fruitful future.
The European Commission supports the long-term growth of the EU organic market. With Green Deal in place, the balance of risk/reward between the organic and conventional segment might be able to restore over the years. As you can imagine, the Green Deal requires a lot of changes and investments in primary food production. It will increase the cost price of (conventional) segment, as a lot of changes and investments in primary food production need to be made.
The strategy “from farm to fork” is there to ensure sufficient, affordable, and nutritious food within planetary limits in 2030. The EU plans to boost the production and consumption of organic products to reach a target of 25% of organic agricultural land in Europe by 2030.
2. The consumer is (too) price sensitive.
COVID-year 2020 was the only time that organic outperformed conventional. Consumers were more interested in a healthy lifestyle and were willing (and able) to pay for it. When life went “back to normal” the consumer sentiment changed.
The industry needs a price impulse to boost demand and profitability. Otherwise only a small group of people will deliberately choose to buy organic products instead of conventional products. Green Deal can (partly) force this change. As you can imagine, the Green Deals requires a lot of changes and investments in primary food production. It will increase the cost price of (conventional) segment, as a lot of changes and investments in primary food production need to be made.
Still, the market still needs to look for ways to educate and persuade consumers into buying organic. One way to do so is to educate and be clear on what you are selling. There are too many different labels, e.g. besides the European organic logo, you will find half a dozen of other logos and claims on labels, and the consumer does not know anymore what they are buying.
3. Ad hoc focus of the sector
The fruit and vegetables segment is way more ad hoc compared to other agri-food sectors. Contracts between actors are way shorter (1-2 years) versus five to ten years in other food categories. This short-term focus makes it hard to create sustainable partnerships.
What we see in other markets is that long-term contracts create possibilities for collaborations within the supply chain. The various parties, like growers, processors, and retailers, need to collaborate to regain demand and boost profitability. Also, better distribution of profits in the value chain is needed for a future proof food system.
The industry still has a long way to go. It will be years of surviving before the market reaches a good balance between risk and reward. Companies need to look for new ways of working, partner up with peers in the supply chain and work together towards a sustainable future.
Want to get to know more about the sentiment of the industry today?
Download our one-pager about the BioFood Congress here.