The Scottish Government

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2. Background

2.0. Background

This section will provide the reader with information on the organic sector and present the findings of studies and reports that address issues relevant to the aims and objectives of the project. The Scottish Executives Organic Action Plan ( OAP) is introduced, and there is a brief look at the European market for organic food and market information, next the UK market for organic food is detailed and finally Scotland's organic supply network is considered.

The OAP published in February 2003, set out the Scottish Executive's actions in support of the development of the organic sector. Through the aims outlined in the action plan, the Executive intend to see accelerated growth of organic farming where this can make the best contribution to environmental sustainability. The disproportionate amount of imports entering the Scottish organic marketplace prompted the Executive to encourage the Scottish organic sector to achieve its full potential and supply at least 70% of Scotland's demand for organic products with indigenous produce ^** .

"We want to see Scottish organic products grow in market penetration so that they can meet at least 70% by value of overall Scottish consumer demand for organic products which can be sourced in Scotland, as well as succeeding in broader UK and international markets"

The Action Plan also discussed improvements to the Organic Aid Scheme ( OAS) and the promotion of a joined up organic food chain, developing the infrastructure required to increase access for indigenous organic products in Scotland.

2.1. Europe

2.1.1. European organic market

In 2004, the European market value for organic food was an estimated £8 billion and in the enlarged EU around 6 million hectares of land were managed to organic standards ¹. EU Member States have Governmental support through their individual organic action plans.

Additionally, the European Action Plan for Organic Food and Farming was published in 2004. In recognition of the public benefits of organic farming its central objective is to 'facilitate the ongoing development of organic farming in the EU'. It has been recognised that the organic market is at varying levels of development across Member States. Table 1.1 illustrates country status in terms of market maturity.

Table 1.1. ² Market maturity

The future of the organic sector in Europe will continue to be affected by agricultural policy. The de-coupling of farm payments from production under the mid-term review of the Common Agricultural Policy ( CAP) will have an impact on the development of the organic sector as it will across the entire food and farming arena.

2.1.2. Market information

It is apparent that there is a lack of obtainable market information on the production, demand, importation and export of organic food. Basic data such as number of certified organic holdings, land and cropping area does exist, as certification bodies are legally required to record and make this information available. However there is still no requirement to record or report livestock numbers on organic farms and consequently this information is not accessible for market information purposes. The lack of market information is a problem for producers, processors and traders as they are unable to identify opportunities within the market.

An EU group has been created to address this issue, with the aim of building a framework for reporting credible organic production and market statistics. The EISFOM-project (European Information System for Organic Markets) will act as the dissemination and discussion point for projects involved in market intelligence.

2.2. United Kingdom organic market

In 2004, the UK was ranked ninth in the world for registered organic land (686,101 hectares), with estimated organic retail sales of £1.213 billion and annual market growth of 11% ¹. Taylor Nelson Sofres ( TNS) Superpanel data suggests that the market for organic products is concentrated within about 7% of UK households and that this is remaining static ⁴. Within Europe, the UK continues to be the forerunner in terms of market growth.

According to the Soil Association Organic Market Report (2005), there has been mixed progress in increasing reliance on indigenous organic produce in the UK, with the overall market penetration of UK products remaining relatively static at 53%.

2.3. Scotland's organic Market

2.3.1. Scottish organic market - production

At the publication of the Scottish Organic Action Plan, approximately 35% of organic produce sold in Scotland were derived from domestic sources (Scottish Executive, Organic Action Plan). A target to match the conventional market of at least 70% has been set by the Executive. An increase in the area of arable land and improved grassland would be necessary to achieve this target but it is apparent that since the publication of the OAP, total organic land area in Scotland has declined.

Between April 2003 and January 2005, the area of land managed organically in Scotland declined by 14% from 416,880 to 356,764 hectares (Table 1.2) ¹. The area of land under organic management now accounts for 55% of the UK's organically managed land and 6.5% of Scotland's farmed area compared to 3.7% for the UK as a whole ¹.

Table 1.2. Organic land in Scotland (hectares)

Figure 1.1, illustrates the trend in producer numbers over the last four years. During this time, the number of registered organic producers in Scotland fell from 695 to 625, a 10% decline.

Information source: SAC, 2005 (data from organic certification bodies)

This decline in organically managed land area and in the number of registered organic producers can be attributed to a number of factors. However, it is apparent that some producers who came to the end of their five year Organic Aid Scheme agreements and failed to see the expected premiums for their organic produce have come out of organic production. Additionally the introduction of single farm payments caused an amount of uncertainty throughout the agricultural sector, which had the side effect of reducing the numbers of producers going into conversion.

Information collected by DEFRA for 2004 shows that 95% of the organically managed land in Scotland is grassland. Figure 1.2 illustrates how the remaining 5% is split among the different enterprises.

Figure 1.2. Organic land use in Scotland 2004/2005

2.3.2. Scottish organic market - processing

To gain an understanding of Scotland's organic sector, the Soil Association undertook a project funded by Scottish Food and Drink; Organic Supply Chain Development: Processor Project. The project aimed to identify gaps within the supply chain infrastructure. During 2004, around 100 companies were interviewed to explore the issues they faced. Two of the issues raised were difficulties in sourcing Scottish organic ingredients and problems marketing goods through different distribution channels.

Figure 1.3 and Table 1.4 have been extracted from the Organic Supply Chain Development Project and highlight the trends relating to the sourcing of organic ingredients in Scotland. Almost half the businesses contacted claimed to source exclusively in Scotland and almost a quarter claimed to source everything they possibly could in Scotland.

Figure 1.3. ⁷ Processors use of Scottish organic ingredients

The participants were asked to identify what barriers they encountered when sourcing Scottish organic ingredients. Table 1.3. illustrates the responses from the processors.

Table 1.3. ⁷ Barriers to sourcing Scottish organic ingredients

It was documented that there is a lack of intermediate processing, specifically meat handling/cutting for organic producers in Scotland. For example, many abattoirs are tied to contracts and are unable or unwilling to accommodate smaller producer/processor demands.

2.3.3. Scotland's organic market - multiple retailers

Whilst investigating the Scottish organic supply network it is necessary to consider where consumers purchase organic produce. In Scotland Tesco dominates organic retail sales with a 38% share of all organic produce sold through the multiple retailers, Sainsburys have a 15% share of the market, and Asda and Morrisons account for 13.7% and 13.3% respectively (for full details see section 4.1.1).

2.3.4. Scotland's organic market - direct sales

Direct sales account for approximately 12% of organic sales in the UK¹ but there are no statistics available that relate directly to Scotland. However, interest in alternative market outlets has risen. For example, since the first farmers market was held in Perth in June 1999, farmers markets have increased in popularity and the number of markets throughout Scotland has increased to 55. On average, sales of organic produce at farmers market account for between 10% and 15% of the markets turnover.

As an alternative outlet, these markets provide the ideal platform for direct sales and building business opportunities. The consumer project conducted by SAC in 2003 highlighted the importance of contact between the farmers and growers with their consumers ¹¹. This interaction generates trust and goes some way to addressing consumer needs for information on food provenance.

2.3.5. Consumption of organic food in Scotland

According to TNS data in December 2004 (see appendix III), 5.4% of all purchases of organic food in the UK were made in Scotland, equating to a market value of £65 million. Additionally, TNS carried out a UK wide study in 2003, which looked at consumer triggers for buying organic food ⁵. TNS reported the following findings relating to Scottish organic consumers;

• 64% are more likely to purchase organic products from Scotland;
• 67% are prepared to pay more for Scottish organic produce;
• 31% would not pay more for Scottish organic produce.

In 2003, Mintel ⁶, surveyed over 600 UK consumers and established the following statistics relating to Scottish organic consumers;

• 64% purchase organic vegetables (highest equal with London);
• 49% purchase organic fruit;
• Only 19% purchase organic meat (this may be indicative of the fact that many consumers perceive Scottish meat as being as good as organic anyway, leaving little room for organic meat to differentiate enough to lure meat buyers).

In 2003 the SAC conducted 300 face to face interviews in Aberdeen, Edinburgh and Glasgow. It was found that organic consumers tend to be occasional 'dippers' choosing organic infrequently. Among the findings, product quality, availability, range and choice mostly influenced purchasers. It was noted that price was a major factor hindering an increase in organic food sales. Many consumers felt the cost of organic fresh foods was beyond their financial capability. This behaviour has implications in terms of understanding the market and businesses planning for producers, processors and retailers in the organic sector.

2.3.6. Developing the market for organic food in Scotland

Since the publication of the Organic Action Plan, a number of initiatives have been commissioned in Scotland. For example, the creation of an 'Organic Zone' on the Scottish Enterprise Food and Drink website, which helps to raise the profile of, dedicated organic businesses.

A recently published report commissioned by SEERAD focused on key areas where further research is needed to help organic producers in Scotland. The report by SQW and ADAS, conducted between June 2003 and March 2004, highlighted the lack of market information across the supply chain. Shortly after the publication of this report, funding was awarded to Scottish Agricultural College ( SAC) to employ an individual for the post of Organic Market Link Co-ordinator ( OMLC). The primary function of the OMLC is to gather data on production levels and availability within the Scottish organic red meat and arable sectors. Additionally, they also act as a central point for the collection and generation of supply and demand information for farmers, growers and processors.

2.3.7. A Scottish organic brand

To help consumers choose Scottish produce and create the demand necessary to reach the targeted penetration levels, it has been suggested that there is a need to address the branding of indigenous organic products. As part of a Scottish Food and Drink Organic Project, the issue of branding was considered with the major stakeholders. Additionally, working with other organic certification bodies, the Soil Association created a Scottish organic logo with associated standards. However, as yet, there is still no Scottish organic brand that distinguishes indigenous produce from imports.

One of the difficulties identified by the stakeholders and thus preventing the creation of a Scottish organic logo, came from multiple ingredient products forcing the consideration of how to define products of 'Scottish' origin. The SQWADAS research report ⁸ suggests that it is possible for multiples and independents to brand unprocessed organic produce with a Scottish label of origin, side-stepping the issues surrounding multiple ingredient products.

Whilst it is evident that with help from SEERAD, Scotland's organic sector is continuing to grow, it is not clear if these efforts are resulting in higher levels of penetration for indigenous organic produce. The next chapter will present information specifically relating to each of the different sectors and results of three separate but not mutually exclusive surveys conducted by the research team. Each will provide a benchmark figure from which future developments can be measured. The results will then be discussed and a number of strategies suggested with the aim of helping SEERAD to incorporate the Scottish Executives Organic Action Plan targets in the development of the organic sector.

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