Analysis of European Organic Food Industry - Example

Name: Instructor: Course: Date: Abstract The European organic industry has grown immensely with almost all the countries in the continent being part of his market. The industry is a competitive one with all the porter’s five forces being evident in every stage in the development of the industry. Germany has the big market share in Europe followed by the united kingdom in which the industry begun. There is hope for future advancements of the industry with more land being converted for organic food production and the success of this will depend on the regulations on the European Union. Table of Contents 1.0 Introduction ………………………………………………………………….3 2.0 An Industry Analysis of European Organic Food Industry………………..4 2.1 Characteristics of the European Industry. ………………………………….6 2.2 The Development of the Industry……………………………………………..7 3.0 Major Players in the Industry………………………………………………….8 3.1 United Kingdom ………………………………………………………………...8 3.2 Germany ……………………………………………………………………….10 4.0 Consumer Perception…………………………………………………………11 5.0 The Future of the European Organic Food Industry………………………11 6.0 Work Cited……………………………………………………………………...13 1.0 Introduction The consumption of organic food which has posed health as well as safety questions is increasingly becoming fashionable on the global arena. Researchers say that the organic foods which are not produced using the conventional methods have greater nutrition and much safer for human consumption that the counter part foods which are produced using residues such as those of fertilizers or even pesticides (Albala and Allen 2007). The industry analysis of the organic food industry in Europe where the key player countries are Germany and United Kingdom will be coupled with the porter’s five forces such as the buyers bargaining power supplemented by the suppliers bargaining power. For instance, the buyer bargaining power is quite evident in this case since most people do not trust the chemicals used in producing these foods and that it is not easy for them to consume the foods argues Baldwin (2009). A new entrant in the market as well as the rivalry between competitors in the market will be greatly put into consideration in the thesis. The threat from substitutes will summarize the porter’s five forces in the industry analysis. The safety of the organic foods comes from the sense that methods of producing them are usually subjected to inspection and they are only made from plants which have been certified as organic (Albala and Allen 2007). This kind of inspection also ensures that the environment has not been with non-organic compounds. The main reason why organic foods are considered to be much better than the non-organic foods is due to the fact that the organic foods are free of dangerous pesticides (Albala and Allen 2007). Despite the fact that there are claims that organic foods have a greater component of nutrients as compared to the non-organic food, little evidence has been developed to prove such claims. Organic farming has a big advantage in that, most of the organic farms have greater compatibility to wildlife as well as increased land conservation initiatives notes Baldwin (2009). The organic foods are more costly in the market despite the big challenge from substitutes. Their expensiveness results from their higher cost in growing them and that they bring healthiness to an individual or a family. 2.0 An Industry Analysis of European Organic Food Industry The organic food industry in Europe commands the greatest share in the market on a global perspective. The analysis of this industry will be guided by several reviews of such things such as the economic of a country or the entire region, the political stability as well as the market factors which have a great effect in the overall development of organic food industry in Europe (Albala and Allen 2007). The market factors are summarized by the porter’s model shown below which form the basis for an efficient market development. Porter’s Model Determinants of Competitiveness The development of porter’s five forces which are used in industry analysis, thanks to Michael Porter, puts the industry of organic food in Europe on a competitive mode. The new entrants in the market who come along with new and much more advanced technologies pose a great challenge to the already existing entrepreneurs in the industry. This has been evident because most participants in the industry even in other countries are believed to be originating from Europe whose consumer demand is very well established (Baldwin 2009). Several countries which are competitors in the industry in Europe such as Britain, Germany, France and Italy, have recorded high levels of production of the organic food which has given birth to demand which is somehow buoyant. Such a move has resulted to increasing the market of the industry in the said countries to more than 10 percent. According to Baldwin (2009) the market of organic food in Europe has seen high rates of market growth which has made some sectors in the economy of the countries experience less imports which has been felt in the region. This growth rate has seen increased rivalry between competitors’s in the industry to the point of threatening the sustainability of the industry in the region (Albala and Allen 2007). Key players in the organic food industry in Europe do not rely on their sources alone, but also import the foods from other continents such as Africa which has put into consideration the new technology. This measure of importing goods from other continents leads to the increased bargaining power of the suppliers who are likely to supply their products at a very high price which would mean increased retail price (Dalzell 2000). The increased retail price leads to increased bargaining power of the buyers who are the final consumers of the finished product, their bargaining power will be based on health ground o simply due to the fact that there are substitutes which are selling at a lower price as noted by Baldwin (2009). The whole process can lead to making of losses by the participating players and thus they should come up with a strategy of counter attacking the increased price by the suppliers. 2.1 Characteristics of the European Industry. The organic food industry market in Europe is a very competitive landscape which has been created by increased number of producers as well as high presence of distributors. The competition among the countries in Europe has made the market to be a high-profile one in cumulating previous decades (Albala and Allen 2007). The industry is also characterized by the consumer behavior which has proved quite difficult to determine due to its sophistication in regard to organic foods (Baldwin 2009). On this matter, the countries have engaged in supply chain management to ensure that the target group is well reached. There is also constant conversion of land to organic production which is done yearly. 2.2 The Development of the Industry According to Dalzell (2000) organic food market in Europe has had boom on the recent years. This is shown through the manner in which trade production has been increasing at a notable momentum; even supermarkets have significantly given room for organic foods notes Baldwin (2009). The definition of organic production is well stipulated in the United Kingdom Register of Organic Food Standards (UKROFS) which is referred to the production of foods of high nutritional quality at their optimum quantities. This is usually implemented through the application of management practices which helps in reducing environmental degradation as well as the use of agro-chemical inputs (Albala and Allen 2007). The organic industry begun in 1939 in the United Kingdom though it took close to 30 years before standards of production was developed. The European Union (EU) developed rules fro labeling in 1991 which was followed by the production regulations as well as the inspection of the organically produced plant products. The production of organic foods in European Union has changed with the changing time in the sense that; the production today is highly regulated and the prospective distributors have to obtain certificates to do so. According to Baldwin (2009), in the European Union, it will take a group or an individual about two years to be in a position to change that was used for conventional production to being used for organic production and this is facilitated through the provision of financial incentives by the willing parties (Albala and Allen 2007). This particular requirement ensures that the consumers are protected from exploitation the growers and producers of organic food. 3.0 Major Players in the Industry In the Europe organic food market, Germany commands the greatest market share followed by the United Kingdom. 3.1 United Kingdom The implementation to use certification before a grower can grow organic foods in Europe was first seen in the United Kingdom. The regulation of operating in the industry is done by United Kingdom Register of Organic Food Standards (UKROFS) in addition; the participants had to meet certain requirements laid down by the European Union (Albala and Allen 2007). Such bodies whose function is that of certifying other firms include; Organic Food Federation, the Soil Association as well as the Demeter. Due to the fact that there are many different bodies of certifying, there is a big challenge in effective marketing of organic produce and this has lowered its performance across the country (Dalzell 2000). In United Kingdom, the organic food industry is a dynamic sector and analysts predict that it will rake in billions of money approximately $ 10.5 billion by 2011. Most citizens consume the organic food unlike in the case of developing countries (Albala and Allen 2007). The soaring demand of organic food by the citizens of the country can not be met by the domestic production which only accounts for 25 percent, and that the country has to embark on imports which constitute the big percentage in the retail sales though there is constant changing of land to organic production annually (Baldwin 2009). Only five percent of land in United Kingdom is used for organic production and this is equivalent to 600,000 hectares. The country has laid down measures to ensure more land is converted to organic production which will help in boosting the economy of the country (Dalzell 2000). The market in the United Kingdom has high presence of fresh produce sales which comprises of fruits and vegetables making up 50%, cereals up to 13% as well as dairy products constituting 14%. The development of sale of this products is challenged by the presence of substitutes in the market which can be of cheaper prices and be preferred by the consumers on the grounds that the non-organic foods are deemed to be more safe which is just a stereotype (Dalzell 2000). In United Kingdom, the sale of organic foods is mainly done by the supermarkets which experience high threat from the rivalry of the respective competitive supermarkets and this sales amount to two thirds of the total sales of organic food in the industry. 3.2 Germany There has been a tremendous growth in the organic food market in Germany since 2001 when the country recoded a 34% growth. The marketing and strategic developers in the industry have varying views of whether the industry will flourish or not; some see that it will stagnate while others have little hope that it will grow despite the fact that there are many obstacles on the way to overcome such as the threat of close substitutes which can leading to loss making in the industry (Albala and Allen 2007). In Germany, organic vegetables which are freshly produced account for about four percent of the entire fresh vegetable market. As is the case in United Kingdom, Germany’s industry is not exceptional from many certifying bodies which lender inefficient services resulting to ineffective and non-uniform labeling hence difficulties in differentiating between organic and non-organic products (Baldwin 2009). Another big challenge which arises due to the lack of unified standards of certifying is that; the final consumers of the product will have no trust of the organic food that is claimed to fit for human and animal consumption (Dalzell 2000). This effect will enable the close substitutes of the organic products on sale to take the opportunity and this derails the performance of the organic food industry in Germany. The pricing strategy of the organic food in Germany is also put to test because the prices of the organic foods quite expensive than those of their counterparts and the buyers bargaining power will be evident in such situations because they will tend to buy the cheap products as noted by Baldwin (2009). Germany’s great desire to be the major organic food producer is evident due to the fact that the country has devoted more than 1 million acres of land for the production of organic food which is far much more than the land dedicated for field crops and grassland which when combined add up to 950, 000 acres of land. The organic fruits and vegetable production in Germany had up to five percent where sales are mainly done directly to the consumers through the farmers markets and this differs with that of united kingdom were sales were mainly done in the supermarkets (Albala and Allen 2007). This mode of selling attracts immense competition from the producers and farmers who can compete through lowering their prices which is detrimental to the success of the industry. 4.0 Consumer Perception Consumers have a perception that the organic food is timely though certain changes regarding their sale and production need to be put in place. There has been increased health awareness coupled with environmental concern which is important to the society in general (Albala and Allen 2007). Most consumers across the world and in particular Europe have turned to using organic foods because they consider it to be more health and tastier alongside added advantage of the environmental consideration (Baldwin 2009). It is important to note that this is a consumers perception that the organic foods are healthier and tastier than those produced through conventional farming since there is no any scientific evidence to prove this. 5.0 The Future of the European Organic Food Industry The success of this industry is eminent in the sense that, the market has been established within the laws of the European Union food industry whose identity is well defined and given the protection of the law notes Albala and Allen (2007). Researchers are optimistic that the industry will grow and record high sales and achieve global recognition though there are some pessimist’s who think that the industry will stagnate. The market growth will be determined by the inhibition of price, the range of products as well as their availability. There is a possibility that in future, the price of the organic foods will equal that of the conventional produced ones because of their availability in the market (Baldwin 2009). The reserved land for organic food product is increasing on yearly basis though clear certification on these areas need to be done (Dalzell 2000). Greatest concern that the strategic developers of this industry in Europe that they need to put into consideration is that, when the conversion of land becomes certified some markets are likely to be over supplied due to the fact that there will be increased production coupled with increased demand from consumers. The main dangers that need to be dealt with in this industry include; production issues, lack of uniform standards as well as cases of fraud argues Baldwin (2009). The organic food industry in Europe development will depend on will also depend on the policies introduced by the European Union as well as those of different national governments. New standards may be more stringent, and organic foods themselves are not exempt from food scares (Albala and Allen 2007). Research may yet show that there are scientific advantages in consuming organic foods, but on the other hand such hopes may never be proven in which case there may be no advantage in consuming organic products rather than foods which have been produced conventionally. 6.0 Work Cited 1. Cheryl Baldwin. Sustainability in the Food Industry. John Wiley and Sons, 2009 2. Gary J. Allen, Ken Albala. The business of food: encyclopedia of the food and drink industries. Greenwood Publishing Group, 2007 3. Janet M. Dalzell 2nd ed. Food industry and the environment in the European Union Springer, 2000 4. Jeremy Rifkin. The European dream: how Europe's vision of the future is quietly eclipsing the American dream. Polity, 2004 5. Mike Dillon, Chris Griffith. Auditing in the food industry: from safety and quality to environmental and other audits. CRC Press, 2001 Read More