German organic market facing tough challenge

Knocked by the nitrofen scandal in 2002, the boom for organic foods in Germany has slowed rapidly in the last year. But as production continues to rise and producer margins continue to fall, there is pressure to increase organic food consumption at a time when consumers are becoming more price sensitive. Organic Monitor​ reports on the challenges facing the German agricultural and consumer protection minister Renate Kunaste, as she acts to develop the organic food industry.

The nitrofen scandal in 2002, that demonstrated organic foods are just as vulnerable to food scares as non-organic foods, caused a sharp fall in consumer confidence in organic foods, reports Organic Monitor. Sales of organic foods plummeted when news broke in May 2002 that contaminated wheat was fed to organic poultry.

Although the organic livestock sector was the most adversely affected, there has been a general slowdown in sales in all segments of the organic food industry. Consumer confidence in organic foods is returning but market growth rates are a fraction of what they were in 2001, continues the report.

Spending about 11 per cent of their disposable income on groceries, the lowest rate in Europe, German consumers are some of the most price sensitive when it comes to food purchases. As a consequence, the price premium of organic foods is a major deterrent to consumer purchases and a change in consumer behaviour is deemed necessary if organic foods are to gain broader appeal. In addition, the current recessionary condition of the German economy is serving to increase this price sensitivity.

Discount stores in Germany are popular and account for about 30 per cent of retail food sales. Organic Monitor reports that the discounters have been showing rising interest in organic foods since 2001 and many now offer organic products. While positive in making organic foods more accessible to consumers, many industry observers are critical of the long-term impact they will have on the industry.

The focus of discounters is to market a basic range of products at low prices. There is a fear that their involvement in the organic food industry will erode farmer and producer margins. Retail prices of organic foods fell significantly in 2002 and a continuation of this trend will make the industry increasingly unprofitable for organic farmers and producers, adds the report.

Preventing oversupply of organic food is another challenge to be faced. In recent years there has been a large rise in production of organic foods, leading to significant volumes of organic fresh produce to come into the German market at a time when market growth rates are slowing.

The result? Oversupply in many sectors in 2003. Organic meat and dairy products are predicted to be the most adversely affected with significant volumes expected to be marketed as non-organic products this year. This could prove to be a major problem, and challenge, as Kunaste is aiming to have 20 per cent of German farmland managed organically by 2011. Overcapacity is likely to dampen farmer interest in organic agriculture and reduce industry margins, asserts Organic Monitor.

The report maintains that Kunaste is the most vocal political supporter of organic farming in Europe. At a European level, she continues to push for agricultural reform in favour of sustainable forms of agriculture - encouraged in the new CAP proposals - like organic farming. She has also set ambitious targets for the German organic food industry - 2002 looks likely to be the most challenging in her tenure as agricultural minister. According to Organic Monitor, how she rises to these challenges will not only be a measure of her success in this position, but it will also have a major influence on the future direction of the European agricultural sector.