The Rise of Organics

The Rise of OrganicsThe mainstreaming of organic products

White paper | August 2010

Shikatani Lacroix is a leading branding and design firm located in

Toronto, Canada. The company commissions assignments from all

around the world, across CPG, retail and service industries, helping

clients achieve success within their operating markets. It does this by

enabling its clients’ brands to better connect with their consumers

through a variety of core services including corporate identity and

communication, brand experience design, packaging, naming and

product design.

About the Author

Jean-Pierre Lacroix, R.G.D., President and Founder of

Shikatani Lacroix

Jean-Pierre (JP) Lacroix provides leadership and direction to his

firm, which was founded in 1990. He has spent the last 30 years

helping organizations better connect their brands with consumers

in ways that impact the overall performance of their business. Mr.

Lacroix was the first to coin and trademark the statement “The

Blink Factor” in 1990, which today is a cornerstone principle to how

brands succeed in the marketplace. JP has authored several papers,

has been quoted in numerous branding and design articles and, in

2001 he co-authored the book “The Business of Graphic Design”

which has sold over 10,000 copies. JP can be reached at

[email protected] and you can follow his blog at:

www.belongingexperiences.com & www.sldesignlounge.com.

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White paper | August 2010 | The Rise of Organics | 1

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What is the future of organic products?

Organic products have been available in supermarkets for the past

twenty years, first catering to a unique group of consumers who

were concerned with the impact of conventional farming practices

on the health of their families. Today, the majority of supermarkets

from around the world carry a range of organic products that have

gained wider appeal among consumers. But are organics a

sustainable trend in light of the economic downturn and the

emergence of “natural” and “local” product offerings? In 2010,

Shikatani Lacroix was retained by Agriculture and Agri-Food

Canada to help position the organic industry to more effectively

compete in the market place. Insights gained through the firm’s

market analysis and strategic process established a framework for

insights on where the industry is heading.

This white paper will leverage some recent research and insights on

the industry, namely:

1. What is organic?

2. What is driving the need to support purchase of organic products?

3. What is the future potential of this category?

4. Who is doing it right?


“Now that I've got

kids, it's become

really important

for me on the

health front to try

to buy as much

organic produce

as possible.”

Jamie Oliver, UK celebrity chef, in BBC Good Food magazine

Eliminating the confusion around organics

One of the clear indications that organic products have become

mainstream and an alternative offering for mainstream consumers is

the level of standards that have been created to safeguard

consumers from misleading product claims. In 2009 the Canadian

government, following U.S. and the European Union initiatives,

established clearly defined standards for the farming and production

of organic products. The Canadian Food Inspection Agency was

mandated to oversee the certification bodies responsible for

certifying organic products, a structure very similar to the US Food

and Drug Administration’s established processes. In Canada, only

products with 95% or more organic ingredients can claim being

organic. However, in the US the guidelines that were established by

the United States Department of Agriculture’s (USDA) National

Organic Program (NOP) to assure consumers know the exact

organic content of the food they buy based on a tiered structure,

namely:

• 100% Organic - Foods bearing this label are made with 100%

organic ingredients* and may display the USDA Organic seal. In

Canada, this designation does not exist.

• Organic - These products contain at least 95–99% organic

ingredients (by weight). The remaining ingredients are not

available organically but have been approved by the NOP. These

products may display the USDA Organic seal. The Canadian

organic certification follows similar guidelines.

• Made With Organic Ingredients - Food packaging that reads

“Made With Organic Ingredients” must contain 70–94% organic

ingredients. These products will not bear the USDA Organic seal;

instead, they may list up to three ingredients on the front of the

packaging. The Canadian standards allow for similar claims on

packaging and products.


European Union Organic Seal

http://www.ams.usda.gov/nop/indexNet.htm




• Other—Products with less than 70% organic ingredients may

only list organic ingredients on the information panel of the

packaging. These products will not bear the USDA Organic seal.

The Canadian standards follow similar guidelines for products

that contain organic ingredients.

The emergence of “natural” and “local” food have created confusion

among consumers between these categories and products that are

truly “organic”. In 2010, the Shelton Group asked 1,006 US

consumers how they know if a product is green, and the top

response was: “don’t know/not sure” (22%) followed by “says so on

the package/label” (20%). Despite well-defined certification

standards, organic products have failed to win consumers’ trust: 31%

said “100 percent natural” is the most desirable eco-friendly product

label claim, compared to 14% picking “100 percent organic.” The

study concluded that shoppers think of the organic category as less

regulated and more expensive than “natural”.

This consumer confusion was further validated by a recent national

survey of U.S. consumers who shop at “natural food” stores when the

following question was posed to them (Natural Foods Merchandiser,

2008): “If you were purchasing a particular ingredient or a recipe

and you had a choice of either a local product or a non-local organic

one, which would you choose, assuming equivalent price and

quality”? 35 percent of respondents chose local and 22 percent

chose organic (41 percent chose both equally). A study conducted

in 2009 by the Ontario Ministry of Agriculture, Food and Rural

Affairs may shed some light on one of the fundamental reasons for

the confusion. The study found that the cost of organic foods was a

big barrier, with 83 percent indicating that they would buy more

organics if they were cheaper. A key reason for the price barrier issue

is that most consumers do not believe that organic foods are that

much healthier than conventional foods.


In a recent

consumer study, it

seems American

consumers have

confused “natural”

as a better

indicator of an eco-

friendly product

than “organic.”

2010 Study, The Shelton Group

New Organic

Experienced Organic

Seasoned Organic

Non-buyers

1 10 100

27

21

20

32

Organic Segments

2009 U.S. Families’ Organic Attitudes & Beliefs

study sponsored by Kiwi Magazine and the

Organic Trade Association

Attributes such as freshness (91% rating) and price (74% rating)

topped the study list of factors determining purchase decisions. The

study does support the importance of promoting the certification of

organic products, with 16% of the respondents strongly agreeing and

39% somewhat agreeing that they would buy organic food if it was

clearly labelled with an organically-produced certification. Creating a

strong unified certification program that has consumer credibility is

one of the key factors that will help the organic sector overcome

confusion and consumers’ lack of commitment.

What are the key drivers in the category?

Although there is potential for confusion about organic, a study on

U.S. Families’ Organic Attitudes & Beliefs sponsored by Kiwi

Magazine and the Organic Trade Association identified that

consumers are committed to the category, with nearly three-

quarters (73 percent) of families buying organic products at least

occasionally, chiefly for health reasons. The study identifies that the

largest group of organic buyers are “Newly Organic” parents

(representing 32% of parents overall), are younger than other

organic buyer groups with younger children. The other groups

consist of Experienced Organic parents (20%), with between 2 and 5

years’ experience purchasing organic products, who are slightly

more educated, wealthier and racially-diverse compared to the

Newly Organic segment. Seasoned Organic parents (21%) are the

most experienced organic buyers with a range of 5 to 15 years

experience in the category and follow the stereo-typical profile of

the Caucasian, highly educated, wealthy organic consumer. Non-

buyers of organic represent 27% of consumers who have never

purchased organic products. Finally, an overarching category termed

“Organic Influencers”, comprised of parents who are extremely well

informed about organic products and likely to influence others into

the category, represent 13% of U.S. parents.


The study identified that health

was the primary motivator for

consumers who currently buy

organic products (55% of parents),

presenting a logical platform for

the industry to build market share

and category loyalty. Parents of

very young children in particular

(under 3 years) are more likely to

incorporate organic into their

children’s lives over a growing

concern regarding the use of

pesticides, hormone growth, and

artificial flavors and colors in

conventional foods.

The study identifies that cost, low interest in healthier foods and a

strong understanding of organic are they key barriers for “Non-

Buyers,” or parents who have never purchased organic products. We

believe that the rise of “cheap foods” that provide very little

nutritional values have allowed this segment of the marketplace to

disengage in striving for a healthier lifestyle. However, the rise of

diabetes, cancer and heart problems among the young has started

to shift the perception of this group towards more sustainable and

healthier needs, all of which points well in supporting the organic

segment.


Supporting these key research findings, we can derive that an

increase in health and wellness are the principal drivers behind the

organic movement. With the aging population in the markets with

some of the largest and fastest growing organic segments (Europe

and Australia) and the increase in this segment’s discretionary

spending, the level of education and increased sophistication of

young families, these regions clearly understand that organic and

natural foods are healthier, better for the environment, and more

sustainable, than conventionally-grown foods.

Our review of trade publications and research support the belief that

organic industry should leverage the following benefits to ensure

relevance and a clear point-of-difference:

1. Safer: Natural and organic foods are produced without the

chemical pesticides and additives commonly used in

conventional foods. The elimination of the use of pesticides

has been the cornerstone of the promotion and

understanding of the value of organic farming.

2. Better-tasting: A study at Washington State University in

2001 found that organic apples were sweeter and had better

texture and firmness than conventionally grown apples.

Leveraging taste and freshness supports some of the key

drivers for the selection of food products.

3. Environmentally-friendly: Organic farms have been shown to

use less energy and produce less waste than conventional

farms. In addition, the elimination of pesticides and

herbicides have a positive impact on the quality of the soil

and water in the surrounding areas.

4. Farmer-friendly: Farmers who grow crops in the conventional

method generally use pesticides, which studies have linked

to various health problems.


Health and wellness

driven by a care for

the sustainable

farming practices

and a fear of

pesticides are

becoming the key

reasons people

purchase organic

products in the

world”

Investopedia, 2010

Finally, the organic sector needs to better leverage the recent food

quality scares and product recalls as a key point of the high level of

standards for the industry. For example, the recent recall of cat and

dog food by a leading manufacturer of private label pet food in

North America - made from wheat gluten imported from China - has

raised some questions about conventional farming methods.

What countries have embraced organic?

The European organic markets are the oldest and have traditionally

been one of the leaders in the growth of organic products and,

often, learning from this market are precursors to attitudes and

behaviors in North America.


In Europe, the growth of organic has been driven by the increase in

consumer buying sophistication as it relates to the following factors:

• Growing concern about the environment

• Rising demand for chemically-clean products

• Growing scrutiny of product origins

• Increasing regionalism / buy local

• Questions about carbon footprint of products

The European Organic Trade Association have identified the need for

organic growers and marketers to go beyond “organic” as

consumers become more sophisticated and markets mature,

evolving towards a sustainable value that is linked to environmental

and community needs.

When you explore the hectares allocated to organic agriculture, it is

important to note that North America lags behind other regions,

with slightly more hectares allocated to organic crops than Africa.

The lack of allocated hectares for organic agriculture has two

significant implications for North American markets.


The first represents the vast growth still available for North American

marketers and growers and may explain why this region is seeing

such a rapid growth in organic farming. The second, which is more

alarming, is the fact that North America cannot sustain the current

level of organic consumption without the reliance of more expensive

imports that have a larger carbon foot print impact due to the

greater distances the product needs to travel.

Compared to 2007, there has been an increase of almost 3 million

hectares or a 9 percent increase in organic farming hectares with the

highest increase occurring in 2008 in Latin America (1.65 million

hectares and Europe with 0.5 hectares). It was interesting to note

that Argentina, Falklands Islands, Spain and China had the highest

increase in organic agricultural lands in 2008.

Is “organic” sales sustainable?

Findings from the 2009 U.S. Families’ Organic Attitudes and Beliefs

Study, jointly sponsored by the Organic Trade Association (OTA) and

KIWI Magazine, also show that three in ten U.S. families (31 percent)

are actually buying more organic foods compared to a year ago, with

many parents preferring to reduce their spending in other areas

before targeting organic product cuts. In fact, 17 percent of U.S.

families said their largest increases in spending in the past year were

for organic products.


Statistics found on the Organic Trade Association research (Source:

Organic Trade Association’s 2010 Organic Industry Survey) supports

the growth of the “organic” segment, namely:

• U.S. sales of organic food and beverages have grown from $1

billion in 1990 to $24.8 billion in 2009. Sales in 2009 represented

5.1 percent growth over 2008 sales. Experiencing the highest

growth in sales during 2009 were organic fruits and vegetables,

up 11.4 percent over 2008 sales.

• Organic food and beverage sales represented approximately 3.7

percent of overall food and beverage sales in 2009. Leading

were organic fruits and vegetables, now representing 11.4 percent

of all U.S. fruit and vegetable sales.

• Organic non-food sales grew 9.1 percent in 2009, to reach $1.8

billion.

• Total U.S. organic sales, including food and non-food products,

were $26.6 billion in 2009, up 5.3 percent from 2008.


• Mass market retailers (mainstream supermarkets, club/

warehouse stores, and mass merchandisers) in 2009 sold 54

percent of organic food. Natural retailers were next, selling 38

percent of total organic food sales. In 2008, mass market

retailers represented 45 percent of sales, while natural food

channels represented 43 percent of sales. Other sales occur via

export, the Internet, farmers’ markets/community-supported

agriculture, mail order, boutique and specialty stores.

• Certified organic acreage in the United States reached more than

4.8 million acres in 2008, according to updated data posted by

USDA. U.S. total organic cropland reached 2,655,382 acres in

2008, while land devoted to organic pasture totaled 2,160,577

acres. California leads with the most certified organic cropland,

with over 430,000 acres, largely used for fruit and vegetable

production. Other states with the most certified organic cropland

include Wisconsin, North Dakota, Minnesota and Montana. Forty-

five states also had some certified organic rangeland and pasture

in 2008; of those, 13 states had more than 100,000 acres each,

reflecting the growth in the U.S. organic dairy sector between

2005 and 2008. Certified organic cropland acreage between

2002 and 2008 averaged 15 percent annual growth. However, it

still only represented about 0.7 percent of all U.S. cropland, while

certified organic pasture only represented 0.5 percent of all U.S.

pasture in 2008. Overall, certified organic cropland and pasture

accounted for about 0.6 percent of U.S. total farmland in 2008.

Although a small percentage of major U.S. field crops are grown

organically, organic carrots represented 25 percent of total U.S.

carrot acreage, while organic lettuce represented 8 percent of all

lettuce acreage. Fresh produce is still the top-selling organic

category in retail sales.


• Meanwhile, the organic livestock sector has seen growth, with 2.7

percent of U.S. dairy cows and 1.5 percent of layer hens managed

under certified organic systems.

Source: U.S. Department of Agriculture’s Economic Research

Service, www.ers.usda.gov/data/organic).

• Acreage managed organically in 2008 in the world totaled 35

million hectares farmed by almost 1.4 million producers in 154

countries, according to data from The World of Organic

Agriculture 2010. Organic agricultural land area increased in all

regions, and was up nearly three million hectares, or nine

percent, compared to 2007 data. Of the total area managed

organically, 22 million hectares were grassland.

In addition, 8.2 million hectares were used for cropland. The

regions with the largest area of organically managed land are

Oceania (12.1 million hectares in Australia, New Zealand, and

surrounding island states), Europe (8.2 million hectares), and

Latin America (8.1 million hectares), according to statistics in a

chapter by Dr. Helga Willer. The report also recorded 31 million

hectares that are organic wild collection areas and land for bee

keeping. The majority of this land is in developing countries.

Source: The World of Organic Agriculture: Statistics & Emerging

Trends 2010.

• Meanwhile, according to Organic Monitor estimates, global

organic sales reached $50.9 billion in 2008, double the $25

billion recorded in 2003.

Source: The World of Organic Agriculture: Statistics & Emerging

Trends 2010


http://www.ota.com/organic/mt/www.ers.usda.gov/data/organic.

http://www.ota.com/organic/mt/www.ers.usda.gov/data/organic.

• In Canada, approximately 3,700 producers working on 612,000

hectares of land produce certified organic products in Canada:

• Certified organic farms account for approximately 1.5% of the

total number of farms in Canada. Organic fruit and vegetable

farms lead the way at about 2.3%.

• Organic livestock is one of the fastest growing sectors.

• There are more than 1,200 certified organic processors and

handlers in Canada, producing a wide variety of ingredients

and consumer-ready products.

• Total annual retail sales of certified organic products in

Canada are approximately $2 billion, with about 45% moving

through mainstream supermarkets.

• Fresh vegetables account for 25% of all supermarket organic

food sales.

• Canada exports a wide selection of certified organic

products, ranging from bulk grains to pre-packaged

consumer-ready products in every category.

• The largest share of our exports goes to the United States,

the European Union and Japan.

• As can be expected from the breadbasket of the world,

organic wheat is our most popular export. However, exports

of oats, flax, barley, lentils, peas, spelt, hemp, soybeans, corn,

sunflowers, and other grains and oilseeds are also significant.


Who is doing it right?

The organic industry evolved from a wide range of small players to a

consolidated industry where ten of the top manufacturers account

for a significant portion of market share. The market has also seen

the addition of new organic products being marketed by mainstream

companies such as Kraft, Unilever, and Nestle, to name just a few.

The following chart outlines the key players in the organic segment

illustrated by Philip H. Howard, Assistant Professor, Michigan State

University.


The Hain Celestial Group

Headquartered in Melville, NY, is a leading natural and organic food

and personal care products company in North America and Europe.

Hain Celestial participates in almost all natural food categories with

well-known brands that include Celestial Seasonings®, Terra®,

Garden of Eatin’®, Health Valley®, WestSoy®, Earth’s Best®,

Arrowhead Mills®, DeBoles®, Hain Pure Foods®, FreeBird™,

Hollywood®, Spectrum Naturals®, Spectrum Essentials®, Walnut

Acres Organic™, Imagine Foods™, Rice Dream®, Soy Dream®,

Rosetto®, Ethnic Gourmet®, Yves Veggie Cuisine®, Linda

McCartney®, Realeat®, Lima®, Grains Noirs®, Natumi®, JASON®,

Zia® Natural Skincare, Avalon Organics®, Alba Botanica® and

Queen Helene® The Hain Celestial Group common stock trades on

The NASDAQ® Global Select Market.

Earth's Best

The company has led the organic baby food market for 25 years.

Their products are made from organic ingredients grown without

harmful pesticides. The company adds no salt, modified starches or

refined sugars to their products and uses no artificial flavors, colors

or preservatives. Earth's Best does not use genetically engineered

ingredients (GEI), either, so parents can rest assured that they are

giving their babies healthy, natural and delicious food.


Amy's Kitchen

Amy's Kitchen is a family business… with every member of the family

taking part. The company was started in 1987, when Amy was born.

Her mom and dad, Rachel and Andy Berliner, carefully nurtured the

company as well as the child, paying constant attention to every

aspect of its day to day activities and providing the vision that has

made Amy's so successful. Amy's organic offerings include frozen

whole meals such as organic enchilada verde and kids' meals such as

baked ziti, as well as salsas and pasta sauces, soups, burritos and

even desserts.

Green & Black's

Green & Black's is a manufacturer of the world's most decadent

organic chocolate. It all started back in London in 1991 when Craig

Sams, founder of Whole Earth – the pioneering organic food

company – was sent a sample of dark 70% chocolate made from

organic cocoa beans. His wife, environment columnist for The Times

and confirmed chocoholic, Josephine Fairley, found the half eaten

bar on Craig's desk and sampled some for herself. The intense flavor

was unique and unlike anything she had tasted before. Jo was

convinced other chocolate lovers would appreciate it in the same

way she had and the couple set about making the world's most

pioneering Organic chocolate brand. The final product was a high-

quality, bittersweet dark chocolate bar, packed with 70% cocoa

solids - enough to make chocolate fans sit up and take notice.


365 Everyday Value/Whole Foods

Our 365 Everyday Value® and 365 Organic Everyday Value®

products are the leading value organic offering from Whole Foods.

With value prices 365 days a year, these organic products are

formulated to meet all our quality standards and were developed to

build brand loyalty at Whole Foods Market. The line covers pretty

much every categories in the store. From flour. Whole Foods is

certified by CCOF, an independent, USDA-accredited, third-party

certifier. CCOF's Organic Certification Program ensures that the

company abides by strict USDA guidelines for handling organic

goods.

Organic Valley

Organic Valley is a cooperative of 1,326 farm families who produce

premium, market-certified organic food products. The vision of the

cooperative is to reflect the organic growers in each of its regions -

regional, organic, and sustainable. When you buy Organic Valley

products, the company promotes that you are enjoying the work of

1652 farmer-owners cooperating across the country, and at the

same time supporting farm families near you. In the past few years,

farmers have joined their production routes in several new states,

which means they have strong regional production in more of the

country. The company reinforce that, the more their cooperative

grows, the smaller and more local -- more "close to home" -- they

become.


Nature’s Path

The road to success for this company is paved with organic

products. Nature's Path Foods is a leading organic food maker

known for its flagship brand of hot and cold cereals. The company

also markets snacks and energy bars under the Nature's Path banner.

Under the EnviroKidz name it makes such kid-friendly products as

Koala Crisp and Panda Puffs cereals, and it sells organic ingredients

under the LifeStream label. Nature's Path has four production

facilities in Canada and the US; the company sells its products

through specialty food stores and other retail outlets in about 40

countries. Arran Stephens started the family-owned business in 1985.

Conclusion

As consumers demographics in the leading markets are getting older

and looking for healthier alternatives while younger families heighten

need for foods with no pesticides or artificial ingredients, organic

products will continue to grow as a mainstream alternative to

conventional foods. With the organic sector maturing and becoming

more sophisticated, and through the support of governments in the

promotion, standardization and conversion of conventional farming

to organics, the industry will maintain, if not exceed the past two

years’ growth. We have already seen mainstream retailers embracing

this emerging segment with the introduction of organic lines of

private label sold at a reasonable value proposition. The true

challenge for this sector will be the ability to optimize agri-output

and better margins while remaining true to the principles that

founded the sector.


We have also witnessed an increase in the marketing sophistication

of organic growers and manufacturers due to a consolidation of the

industry and an emergence of this category as a mainstream, every

day product. Organic brands have evolved from niche players with

limited brand awareness and loyalty to national and international

contenders vying for market share from established brands. The

challenge will be for the manufacturers and growers to unite behind

a common standard versus creating further confusion by supporting

regional or local accreditation standards.

For more information, contact:

Jean-Pierre Lacroix, President

Shikatani Lacroix

387 Richmond Street East

Toronto, Ontario

M5A 1P6

Telephone: 416-367-1999

Email: [email protected]


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The Rise of Organics