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Final Report Organic Market Research and Action Plan FINAL REPORT January 2003 Final Report ACORN Market Study 2003 Forward From our research for this report we have uncovered a tremendous amount of activity and analysis around market opportunities for organic producers. There is great interest from all parts of the globe as to how the International and North American organic marketplace will continue to evolve and where future market opportunities may exist. The conclusion from all of the reports is that growth in the organic sector will continue into the foreseeable future. Developing countries see the organic industry as their opportunity for wealth and prosperity, while others countries are searching for ways to reduce chemical use, improve the environment and prolong the life of their citizens. Regardless of the motivation, organic agriculture worldwide is no longer considered a niche market opportunity. The conventional food marketplace can be a good source of market knowledge for the growing organic agricultural industry in Atlantic Canada. In many cases the wheel does not need to be reinvented and valuable lessons can be learned from the conventional food marketplace that can shorten the organic market development curve. Retailers and wholesalers want to deal with fewer suppliers, and expect their vendors to meet the economies of scale necessary to match the needs of their distribution and marketing systems. The expectations upon the organic farmer are in fact much greater than those the conventional producer may face. The conventional food market chain has evolved over a long period of time and both producers and buyers have had time to develop relationships and adapt to the distribution needs of the industry. Buyers have expectations that the emerging organic industry must be prepared to meet. There is also an essential need to build a co- operative environment of partnerships between the producers, processors, distributors and retailers for future success. There is no room for antagonism in today’s marketplace. Industry organizations and governments need to play a role in creating forums that bringing together the various stakeholders and lead the development of new organic market opportunities for the benefit of the regions rural communities. All industry stakeholders need to recognize that there are risks associated with operating a business within the organic market chain. The level of skills required in both marketing and production for organic agriculture are in most cases higher than for conventional agriculture producers. Attracting investment and government assistance, building producer support services and creating industry alliances will be challenging. Some readers may ask; why do we need another market study? In our opinion this report is the next step beyond the Pulsifer Report of 1999 and will serve to assist the regions organic and transitioning organic producers to develop the market opportunities that exist in today’s marketplace. This report evaluates more specific market segments to determine sales volumes in the region, identify market trends, food consumption trends and market entry strategies. This report shows market opportunities and information that has diminishing opportunity value as time passes. The difference of whether a market opportunity is developed or sits on a shelf is totally dependant on entrepreneurial action. There are few opportunities in this report for those farm businesses that will not take the initiative and risk to step out of their comfort zone, as many of the opportunities will need to be developed with strategic partners and in conjunction with other industry stakeholders. It is up to each individual producer to decide which market opportunity they can best develop. While the organic industry is still relatively young in the region, it has great opportunity for those willing to take the risk. ProAgri / MHA 2 Final Report ACORN Market Study 2003 This report has been prepared by Bev Connell and R. Gary Morton and reflects the conditions prevailing at the time of our market analysis, August – December 2003. The recommendations and conclusions we have expressed in this report are based on the best efforts and information available to us through our research and analysis. In our opinion these facts represent a fair and accurate assessment of the marketplace and market opportunities for the Atlantic Organic Industry at this time. _____________________________ Bev Connell ProAgri Consulting Ltd. _____________________________ R. Gary Morton Morton Horticultural Associates Acknowledgments The authors of this report would like to gratefully acknowledge the input and contributions from a large number of people involved in the food industry (organic and conventional) of Atlantic Canada. First, we would thank the ACORN steering committee for the project which included; Claire Hanlon- Smith, AV Singh, Claude Bertheleme, Susan McKinnon and Jennifer Melanson, for their contribution to this project and their commitment to the organic industry in Atlantic Canada. Project partners, Bob Burke and Norbert Kungl for their patience and responses to our never ending list of questions, philosophical discussions and late night requests for more information. Also we would like to acknowledge the participants at the public meetings held in Charlottetown, PEI, Fredericton, NB, and Windsor, NS. For their feedback, questions and comments to ensure we kept on track with the project information. Also we thank all those processors, retailers and wholesalers, and food service representatives who assisted us with our research and openly discussed opportunities and issues facing their sectors. Funding for this project was provided by ACOA, which is gratefully acknowledged. Their commitment to further research and industry studies provides the tools to move this industry forward. ProAgri / MHA 3 Final Report ACORN Market Study 2003 Table Of Contents 1.0 Introduction 5 - Background 5 - Scope of the Project 5 - Project Objectives 7 2.0 Executive Summary 8 3.0 Organic Marketplace 10 - World Situation 10 - World Growth 12 - Continental Review & Forecasts 14 - Atlantic Canada 24 4.0 Standards 28 5.0 Benchmarking 30 - Industry Surveys 31 - Competitiveness in the Region 33 - Industry Stakeholder Meetings 33 6.0 The Business Environment 35 - The Organic Market Chain 36 - The Organic Consumer 39 - Industry Trends 43 - Major Organic Brands 47 - Direct to the Consumer Markets 50 - Wholesale Markets 55 7.0 Market Opportunity 60 - Opportunities in the New England Market 61 - Commodity Profiles 64 o Fruit, Vegetables o Dairy and Egg o Meat & Poultry o Field Crops o Other Organic Products 8.0 Strategies 77 - Market Realities 78 - Marketing Tool Box 80 - Evaluating Opportunities 86 - Supplier Requirements 88 - Transition to Organics 89 9.0 Recommendations / Actions 93 10.0 Consultants Conclusions 100 11.0 Appendices 104 ProAgri / MHA 4 Final Report ACORN Market Study 2003 1.0 Introduction BACKGROUND These are very exciting and extremely challenging times to be involved in food production. With an estimated 20% growth in the organic food industry, sales in this sector have become a bright light in a food industry that has experienced little more than 1- 2% growth in recent memory. The majority of organic food (85% - 90%), especially manufactured and further processed foods consumed in Canada are imported from other countries. Characteristically, 95% of the raw organic food supply produced in Canada (mainly grains and pulse crops) is exported to the USA or Europe. Whether organic growers are small and sell direct to the consumer or are larger scale producers focusing on wholesale markets, the entire organic food chain and marketplace is growing and creating new opportunities for all sectors. As the Canadian organic consumer evolves in their food consumption and purchase habits, so will the opportunities for all organic food growers. Processors and manufacturers will also convert portions of their production to organic as the consumer demand increases and supplies of organic food inputs become more available. Turning the market opportunities into realities has been and will continue to be the challenge for producers. Just because a market exists, it does not mean that it can be supplied by local production. Producers need to approach the organic industry as they would any business opportunity. Creating success of a market opportunity for any farm business is dependant on the ability to achieve four basic things: Creating a product the market wants at the quality and in the quantity it requires. Delivering the product to the desired market, when required. Produce competitively priced yet profitable products. The ability to promote the product to assure future sales and retain or increase consumer demand. SCOPE OF THE REPORT This study was commissioned to explore both the domestic and export market opportunities for organic agri-food producers in the Atlantic Canada region. Over the course of the past few months our project team has reviewed many studies, undertaken investigative travel, and talked to numerous individuals to assist us in developing a picture of the organic marketplace. We believe our approach to this project is different than the majority of studies we have come across in our research. Our goal is not to simply quantitatively identify market opportunities, but to use the information to develop strategies for the industry to capitalized upon the opportunities that are best suited to their abilities. Basically,
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