World organic food sales shine, but dairy in doldrums

In a videocast for the firm, health and wellness research analyst Diana Cowland said the wider organic category had been “fairly resistant to the global recession”.​

In world terms, the organic market increased in value to US $27bn (€20.8bn) in 2010, up from $20bn in 2006 (the latter figure excluding inflation), but still comprised only 5% of total ‘health and wellness’ retail sales, Cowland said.

The sector posted double-digit sales growth from 2006-2008, she explained, but the onset of the world recession and the relative expense of organics led to a drop in growth, although it remained positive from 2006 to 2010.

Cowland said this fall was due to the particular effect of the recession on the two main markets comprising 90% of global organic sales, Western Europe and the US.

Resilience across all categories?​

Organic food and beverages combined enjoyed a compound annual growth (CAGR) of 5% from 2006-2010, excluding inflation, she said, compared to packaged foods on 2% and hot and soft drinks on 3% growth.

“So is this resilience true for all organic food and beverage categories?”​ Cowland asked rhetorically. Unfortunately not for dairy, where all other packaged food (90% all organic sales) categories fared well.

The two largest categories – organic dairy and bakery – witnessed combined sales of $11bn in 2010, Cowland said.

“[But] while all other organic food categories saw growth during the recession, organic dairy sales fell due to two main reasons: high 2008 milk prices in the US,” ​she said.

Somewhat controversially, Cowland lumped soy milk in with organic dairy, and added: “Secondly, Dean Foods, one of the largest organic players, repositioned organic [soy] milk brand Silk as a non-organic product. As a result organic dairy sales fell by 18% in 2009.” *​

‘Tremendous’ coffee growth​

On the organic beverage side, performance had been good, Cowland said, with strong growth mainly due to a large increase in organic coffee sales in Canada, the US, Germany and France, which together comprised two thirds of sector sales.

The reasons for this? “Globally there was much greater consumption of coffee, while people are becoming much more aware of the environmental production methods,” ​Cowland said.

Secondly, there was also tremendous growth in emerging markets such as the Asia Pacific and particularly Latin America, she added.

Soft drinks performed 2% drop in growth since 2008 for two main reasons. Poor sales of Dr. Oetker’s Bionade brand were due to the German firm’s prices hikes in 2008, she said, while Ocean Spray had repositioned its cranberry juice as non-organic product.

Babies go organic…​

Since the onset of the global recession, one organic product was a standout success, Cowland said. “Organic baby food has fared particularly well, as despite lower disposable income levels, parents are willing to spend money on their children to ensure they have high quality and safe produce.​

“Especially since there have been recent health scares such as the melamine contamination of milk formula in China.”​

Last September, Nicholas Saphir, chairman of the UK’s largest organic milk supplier’s co-operative, OMSCO, warned that improved organic performance in liquid milk was the key to future organic dairy prosperity, as he predicted a 2.5% fall in UK organic demand in 2011.

Saphir said this was due to aggressive retail promotions of conventional milk, a squeeze on organic ranges and space, and greater competition from conventional products offering premium standards, which he said the organic sector needed to tackle via innovation.

Moreover, increasing margins for non-organic dairy farmers meant the organic farm gate premium was under pressure, OMSCO said, with UK supplies expected to fall 3.4% in 2011, with organic farm expansion undercut by farmers reverting to conventional production.

* Euromonitor told DairyReporter.com that it had included Dean Foods' Silk brand in this analysis for "dataset purposes"​, since as a B2B company its clients were often interested in related data on dairy substitutes as well as dairy products.