Assessment of Marketing Channels for Conversion Grade Products

Methodology

• The sample of organic farmers was drawn from a list of members held by the three organic inspection bodies, The Irish Organic Farmers and Growers Association (IOFGA), The Organic Trust Limited and The Bio-dynamic Agriculture Association of Ireland. A comprehensive list was subsequently compiled, with a total of 1,083 organic farmers identified. However, information was not available to differentiate between those who had full organic status and those who were just in-conversion, consequently eight hundred and ten farmers were randomly selected and questionnaires sent out to each. Two hundred and ninety one surveys were returned of which seventy four were fully in-conversion and had to be omitted from the study, leaving two hundred and seventeen valid responses. SPSS was used to analyse the data gathered from the survey. The data was coded and assembled into frequency and descriptive tables. Cross tabulations were carried out to examine how scores on variables were related.
  
• Nineteen semi-structured interviews were conducted across various sectors in the food industry. A comprehensive list of various players in the organic sector was compiled. Such players are referred to as intermediaries and included retailers, wholesalers, manufacturers/processors, caterers, co-operatives, accreditation bodies and government support agencies. Each of these was contacted via post and asked if they would be interested in participating in the study. To give an appreciation of what the interview would entail, a list of open-ended questions was enclosed. Letters were followed up with a courtesy phone call. Thirty eight letters were sent out. Sixteen intermediaries were unable or refused to partake in the study.
  

Organic Farmer Survey

• The average size of organic farms was 30.7 ha, with the majority of farmers owning their land. Beef production was the most common activity amongst those surveyed, followed by sheep farming. Given that beef and sheep farming are so important, it was not surprising to find the majority of farmers had a substantial proportion of their land devoted to grassland/grazing and were engaged in the production of hay/silage. The majority of farmers converted to organic farming in the past eight years and appeared content with the amount of land they had converted. A high proportion of farms were located in a less favoured area.
  

The majority of farmers were the sole proprietor of their farm business. In addition to farming, in many incidences farmers were engaged in non-farming activities, explaining why many do not spend as much time on the farm as their conventional counterparts. The majority of farmers had no part-time or full-time staff employed.

Farmers were predominantly male and between 41 to 50 years. A high proportion of farmers received no formal education at all (general or organic). Only 16 percent relied solely on the farm for their income, which is not surprising considering the number engaged in non-farming activities.

Meat was the most commonly produced organic product, followed by vegetables and fruit respectively. While in conversion, cereals were the most commonly sold as such, followed by fruit and vegetables, respectively. Fodder and meat were most likely to be sold as conventional produce during this period.

• Premiums received by farmers during the in-conversion period varied from product to product. Meat products and cereals commanded the highest premiums of up to 100 percent. Farmers did not provide details of premiums received for in-conversion fruit and fodder. Likewise premiums received for organic products varied, with a range of between 5 and 120 percent. Cereals commanded the highest premiums of up to 120 percent while some organic vegetables received premiums as low as 5 percent.
  
• Many farmers failed to disclose how they marketed their in conversion grade produce, hence findings can only be interpreted as indicative as against representative. The box scheme/home delivery service was one of the most commonly used channels for the distribution of conversion grade fruit and vegetables, with 41 and 31 percent respectively being sold via these channels. Own farm shop was used by the same number of vegetable farmers as the box scheme, but a smaller quantity was sold in this manner. Conversion grade meat was most commonly sold (as livestock) on to other farms (42% of producers, representing 33% of sales), while milk and eggs were sold in farmer's own shop. Three quarters of cereal producers sold their in conversion produce on to organic grain merchants, while on-farm processed products were sold mainly via the farmers market.
  
• Where organic products are concerned, the farmers market was the most commonly used channel for the distribution of fruit, vegetables, eggs and on-farm-processed products. Higher proportions of these products were sold through the farmers’ market than any other channel.
  

The majority of cereal producers (61%) sold their produce to grain merchants. The single most important outlet for milk and meat sales was the food processor/slaughterhouse, with 60 and 49 percent of producers respectively using this channel. Sixty percent of all milk produced and 42 percent of meat was sold to this outlet. Own farm shop/direct sales was also an important outlet for milk, while other farms (including sale of livestock) was important for meat (28% of producers representing 23% sales).

• Although most farmers did not have any formal business arrangements with their customers the majority would prefer to have a formal contract for all of their produce.
  

Government promotion of the organic sector was cited by farmers as the most helpful approach in marketing in-conversion and organic produce. Other important aids to marketing these products were EU support for the organic sector and information regarding various outlets.

Highest premium possible was cited as the most important benefit when considering customer outlets for in-conversion and organic produce. Local outlets and an outlet that had a guaranteed secure future were the second and third most important factors cited.

In general farmers had a positive perception of organic produce. Flavour and quality of organic produce were perceived to be better than that of conventional produce. Farmers had a positive outlook on market potential for organic produce. However, the majority of farmers believed that organic produce did not look as good as its conventional counterpart. They also felt that there were not enough organic processors in the country.

Retail Interviews

• The production and preparation of organic food is regulated by Council Regulation (EEC) No. 2092/91. While incorporating the requirements of this regulation the Irish accreditation bodies apply standards that tend to be higher than those set down by the EU. The majority of manufacturers/processors had some form of quality assurance scheme in operation. Retailers relied on wholesalers and manufacturers to check the authenticity of organic products. However quality checks were carried out on fresh produce including fruit and vegetables. Supermarkets required extra quality specifications in certain cases.
  

One of the main barriers experienced by intermediaries to implementing quality policies was the lack of communication, education and information along the supply chain. Research carried out by the marketing organisations showed that price, availability, range and quality of organic supplies were key barriers to the consumption of organic food. Although barriers to consumption, the above inevitably hinder the development of quality policies for organic and conversion grade produce. A major barrier to conversion cited by many manufacturers is the lack of Irish organic supplies. In the majority of cases manufacturers and processors were forced to import because it was very difficult to seek Irish supplies. Another barrier cited by respondents was the heavy amount of paperwork involved.

Price premiums for organic produce varied according to product category, time of year and stage in the food supply chain. Price premiums ranged between ten and two hundred percent. A horticultural producer stated how it is not acceptable to quote a set price premium for organic produce. It is important to differentiate between various products when setting price premiums. Poultry and pig meat commanded the highest price premiums (up to two hundred percent) according to research carried out by a marketing organisation. Price premiums for meat fluctuated depending on time of year. According to some retailers price premiums for local grown fresh produce were low compared to premiums for further processed products. No clear views emerged on price premiums for conversion grade products. It was noted however that conversion grade dairy products do not command any extra premium unless sold through direct sales.

• The research found that intermediaries are generally satisfied with the current EU labelling system. However, intermediaries suggested that there is a low level of recognition among consumers of the three logos that currently represent Irish organic produce i.e. Organic Trust, IOFGA and Demeter. Many respondents stated the need for more information to be made available to create awareness of the current symbols among consumers. The majority of intermediaries would welcome a generic national label for the marketing of organic foods at home and abroad. This supports the recommendations of the Organic Development Committee to devise a national label for Irish organic produce.
  

The vast majority of respondents did not believe that a market existed for conversion grade produce, labelled accordingly. Such a marketing approach was viewed to be confusing from a consumer viewpoint. However, it was generally agreed that such products could be marketed as environmentally friendly or chemical free products.

Various attitudes were expressed towards the idea of conversion grade products. Respondents appeared quite familiar with the idea of conversion although most were sceptical on the prospect of marketing such products as ‘conversion-grade.’ There was the common view that there is enough confusion among consumers with the different product types such as free-range, natural foods and organic and that in-conversion would further add to such confusion. A small percentage of intermediaries felt that a market could be developed for conversion grade products. In most cases the market was for fresh produce in-conversion. The most suitable markets for such produce were home sales and farmers markets through direct sales. A small number of intermediaries believed that conversion grade products have a role to play in farm supply and livestock feeds.

• A large number of intermediaries perceived growth in the organic market. It was noted that the market for organic foods would expand with growth in consumer awareness. The future market for horticultural produce is perceived to be very strong while the market for organic lamb is expected to develop at a slow pace. A number of respondents perceived a link between organic growth and increased supermarket demand. Some intermediaries believed that the future market for organic foods would be determined by economic factors such as income and price. A small number of respondents did not perceive future growth in the organic sector. The knowledge and information deficit, the continued supply of imported raw material and the lack of positive publicity were some of the concerns expressed by respondents about the future of the organic sector.
  

There is a general consensus that there is a lack of marketing support for conversion grade and organic foods in Ireland. A high percentage of respondents felt that marketing support from the Department of Agriculture and Food is essential for the development of the organic sector. Some respondents suggested that supermarkets have a role to play in support of the marketing of conversion grade and organic foods.

The majority of respondents felt that a significant gap continues to exist between organic and conventional food products through quality standards. Organic standards have improved in recent years according to many intermediaries. However, it was suggested by many that the organic sector has a lot to offer and has yet to reach similar standards in terms of quality as that of conventional products.

Conclusion

The findings from the OFS and retail interviews suggest that the organic market has considerable potential. However, the findings also suggest there is very limited potential for conversion grade products. This suggests that for sector growth to occur, existing incentives to encourage farmers to convert need to be maintained and new ways of encouraging entry identified.