Fad that won’t fade

Neg­a­tive pub­lic­ity on food pro­duc­tion makes or­ganic a vi­able propo­si­tion

Finweek English Edition - - Business Strategy -

THE AV­ER­AGE SOUTH AFRICAN is cut­ting back on many lux­u­ries. A two-week trip to Hawaii be­comes a week­end get­away to the Drak­ens­berg. A new sports car morphs into a sec­ond-hand Citi Golf. A smoker might even be forced to cut down on his cig­a­rette con­sump­tion.

It’s not un­rea­son­able to ex­pect or­ganic food to count as a lux­ury item. For ev­ery R1 spent on non-or­ganic food, con­sumers spend R1,70 on the or­ganic va­ri­ety. Prices taken from Wool­worths on 4 Fe­bru­ary this year show that a trol­ley of or­ganic and free-range op­tions would set you back R200 ex­tra.

But you’d be wrong to think con­sumers are cut­ting back on or­ganic shop­ping. Both Pick n Pay and Wool­worths re­port pos­i­tive growth in their sales. Pick n Pay’s Tamra Ve­ley says: “Pick n Pay’s or­ganic range of prod­ucts has shown steady growth since its launch in Septem­ber 2007. Our ex­pec­ta­tion is this cat­e­gory will con­tinue to show steady growth as more of our con­sumers are start­ing to de­mand a wider range of or­gan­ics. We ex­pect it to grow even fur­ther as we con­tinue to add more prod­ucts.”

Pick n Pay is cur­rently in­creas­ing its of­fer­ing of or­gan­i­cally cer­ti­fied prod­ucts to in­clude or­ganic dairy, or­ganic gro­ceries and or­ganic com­mod­ity items, such as su­gar, oils and flour.

Wool­worths’ lat­est an­nual re­port shows its or­ganic food sales ex­ceeded tar­gets by 9,81% in 2008, al­though a spokesman is more hes­i­tant about the year ahead. “Wool­worths’ cus­tomers have been most ad­versely af­fected by the cur­rent eco­nomic cli­mate. Our cus­tomers gen­er­ally ser­vice higher lev­els of debt. In­fla­tion­ary pres­sures have spurred all cus­tomers to spend more cau­tiously.”

All Wool­worths’ or­ganic farm­ing is strictly reg­u­lated, au­dited and cer­ti­fied by in­de­pen­dent or­gan­i­sa­tions. Its cer­ti­fiers are re­quired to be ac­cred­ited to ISO 65 and are gen­er­ally cer­ti­fied ac­cord­ing to EU stan­dards, be­cause SA’s leg­isla­tive re­quire­ments haven’t yet been pub­lished.

Its spokesman says: “Or­ganic foods are pro­duced ac­cord­ing to spe­cific pro­duc­tion stan­dards. The use of syn­thetic pes­ti­cides and ar­ti­fi­cial fer­tilis­ers is pro­hib- ited, ge­net­i­cally mod­i­fied crops aren’t used and if live­stock is in­volved, the an­i­mals are reared free range, without the rou­tine use of an­tibi­otics and without the use of growth hor­mones.”

How­ever, some grey ar­eas are caus­ing con­sumers to hes­i­tate in reach­ing for an or­ganic al­ter­na­tive. “There’s no law defin­ing the use of the word or­ganic in SA. Any­body can use it for any­thing without any le­gal reper­cus­sions,” says Diana Cal­lear, MD of or­ganic cer­ti­fy­ing body Afrisco.

Cal­lear says most re­tail­ers will ask for or­ganic cer­tifi­cates sup­plied by cer­ti­fy­ing bodies. Since Afrisco is a ma­jor cer­ti­fier it “keeps an eye” on what’s be­ing sold. “I of­ten go into Wool­worths to in­spect their or­ganic food. Wool­worths is good be­cause it has cer­ti­fier lo­gos on the pack­ets. We haven’t been able to fault them,” Cal­lear says.

In terms of the eco­nomic down­turn, Cal­lear has no­ticed changes in the ex­port mar­ket. Afrisco cer­ti­fies a large com­pany in Zam­bia that pro­duces sev­eral high-value veg­eta­bles they ex­port to Bri­tain by air. “How­ever, there’s been an out­cry in Bri­tain be­cause or­ganic food is good for the earth but the car­bon emit­ted by the air­craft isn’t. Be­tween that and the re­ces­sion, sev­eral com­pa­nies are no longer ex­port­ing,” she says.

Con­cern­ing the R200 price dif­fer­ence be­tween the or­ganic and non-or­ganic shop­ping trol­ley, Cal­lear says: “Pro­duc­ing or­gan- ically is very labour-in­ten­sive. Pro­duc­ers aren’t al­lowed to use any chem­i­cals, which means weeds need to be hoed by hand.”

If a farmer is just beginning to pro­duce or­ganic foods, he ap­plies for a con­ver­sion cer­tifi­cate. The con­ver­sion pe­riod is three years, which is how long it takes for chem­i­cals to leave the soil. “The start is a learn­ing process, which means less pro­duc­tion for the farmer,” Cal­lear says.

Packaging is an ex­tra cost to the pro­ducer, since or­ganic food can’t risk com­ing into con­tact with any chem­i­cals in the trans­port and sell­ing process.

Even though it’s more ex­pen­sive for a re­tailer to of­fer or­ganic foods, Cal­lear says: “I think they of­ten up the price be­cause it’s or­ganic.”

Evan Walker, a re­tail an­a­lyst at RMB As­set Man­age­ment, says or­ganic food sales re­main a small but grow­ing com­po­nent of most re­tail busi­nesses. “Re­tail­ers cater to a se­lect cus­tomer group – those who are aware about their health and so­cial is­sues.” Walker says or­ganic foods used to be a trend, but the neg­a­tive pub­lic­ity sur­round­ing other food pro­duc­tion meth­ods – such as ge­netic mod­i­fi­ca­tion and wide­spread pes­ti­cide use – has driven peo­ple to shop or­gan­i­cally. “This isn’t a fad. It will be around for a long time,” he says.

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