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1- PAKISTAN DECLINES IMF OFFER
2-
KESC: ACCESS BILLING
3-
GLOBALIZATION AND TRADE LIBERALIZATION
4- ORGANIC FOOD PRODUCTS: EMERGING MARKET OPPORTUNITIES
5- 'SUST' BORDER

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ORGANIC FOOD PRODUCTS: EMERGING MARKET OPPORTUNITIES

 

Growing organic markets abroad provide an ideal opportunity for the Pakistani farmers to compete and establish their niche in the overall world market


By MUBEEN M. ASLAM
July 21 - 27, 2003
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With the dawn of information age and the new millennium, mankind stands at the threshold of another major breakthrough which is not only expected to reshape the fields of agriculture and business but also influence our personal health, nutrition and lifestyles. Organic farming and organic products are now almost a familiar phenomenon in the developed world. Organic food is getting increasingly popular, as its production and consumption levels keep growing steadily. The consumers increasingly prefer healthful foods and this has opened new vistas for the vibrant agro-based economies like Pakistan, to penetrate and enhance their share in the world organic market.

It is hard to find someone opposed to good food. "You are what you eat" may be one of the oldest cliches, but holds good even today. "Live your life in your prime" is the new buzz slogan. According to a research study conducted by the Tufts University, the United States uses a pyramid to show how a healthful diet should be constructed, Canada reflects its ideal diet in a rainbow. Israel uses a chalice, the Philippines uses a star, and Japan arranges foods in the number 6 to represent six food categories. Germany, Norway, and the United Kingdom put their food guides in the shape of a plate.

The National Organic Standards Board of the United States defines organic agriculture as, "an ecological production management system that promotes and enhances biodiversity, biological cycles and soil biological activity". We notice that the focus is on the ecologically compatible production systems and not on the final product itself. In common parlance organic farming denotes pesticide free agriculture (i.e.) growing fruits and vegetables or rearing livestock without the use of artificial fertilizers, synthetic herbicides/pesticides, genetically modified organisms (GMOs), growth regulators, antibiotics or hormone stimulants, etc. However, in essence it goes beyond that. It is a complete farm management system and incorporates appropriate land management practices, crop cycle, use of renewable resources and conservation of soil, energy and water.

It is pertinent here to indicate the difference between "natural" and "organic" food. As mentioned above the organic foods are grown without pesticides, preservatives, additives, colours, refined sugars and genetic engineering. To receive organic certification they must also meet rigid pre- and post-harvest growing and manufacturing standards. Such standards are less stringent for "natural foods" which are generally made without additives or preservatives, but may be grown using standard farming methods. So it can safely be inferred that all organic foods are natural, but not all natural foods are organic.

The introduction of organic food has diversified the consumers' food plate and offered them more and better choices. During the last decade there has been an increasing trend in the overall health consciousness of the people and a growing expansion of the world organic market. But is organic food nutritious? Why do people prefer to buy it? How are the organic products influencing the local and international food market? This article aims to address such questions besides identifying the potential and prospects for Pakistani agriculture to venture into this product market.

 

 

ORGANIC VS CONVENTIONAL PRODUCE:

There is no doubt that organic farming is much better for the environment than the conventional farming. Conventional farming by its abundant use of pesticides, herbicides and chemical fertilizers causes widespread environmental damage. It has already led to soil erosion, salinity, land degradation, declining soil fertility, and disturbed our ecosystem. By contrast organic and bio-dynamic agriculture is focussed on protection and preservation of our ecosystem and strives at striking a balance between land, crops and animals including the natural soil microbial flora. It largely saves the land from erosion or degradations, increases its fertility by use of organic manure and a judicious crop cycle, and promotes the overall crop growth.

The question whether the organic products are more nutritious is still unanswered fully. The scientific evidence so far is inconclusive but supports the organics. A review of the research done over the past 50 years, published in the late 1990s, reveals a trend that indicates organically grown crops to be slightly higher in some nutrients. For instance, some studies found a higher Vitamin C content in the organically grown produce, and lower level of nitrates. Nitrates can transform in the body into highly toxic nitrites or nitrosamines, which have been linked to cancer.

SITUATION ANALYSIS:

Agriculture is the largest sector in the Pakistan economy. About 27 percent of Pakistan's total land area is considered arable. Four crops dominate agricultural production namely wheat, cotton, sugar cane and rice, and account for around 39% of total agricultural output and nearly 10% of GDP. Approximately 70% of country's foreign exchange earnings come from the sale of agricultural products such as cotton, rice, fruits and vegetables etc. and agro-based industries, mainly the cotton textile industry which is the largest industrial sub-sector in the country. So Pakistan's economy remains by far a single-crop economy, based purely on cotton.

Although Pakistan enjoys a strong agriculture, it faces major difficulties with crop yields and over use of pesticides when compared to other agricultural centres in the region. For example, wheat yields are only 75% of international standards, while rice yields are approximately 66%. Outdated infrastructure and farming techniques that have not changed for decades, and inadequate irrigation and cold storage facilities compound this problem.

The world organic market is growing steadily and is expected to have a market value of $100 billion by year 2006. However, the organic agriculture is still in its infancy in Pakistan. Current products include organic rice, organic sesame seed, organic wheat, organic Kinno fruit and juice concentrate, and organic mango fruit and pulp. Tremendous opportunities exist in a wide range of organic foods including fruits and vegetables, cereals and grain, beef, poultry and eggs, honey and several other processed products. This implies that with proper guidance, support and strategies, the Pakistani farmers should be capable to cater for the domestic demand and penetrate the foreign organic food markets as well.

According to Stiftung Oekologie und Landbau (Germany), organic farming is practiced in approximately 100 countries of the world and the area under organic management is growing. Almost 23 million hectares are managed organically world-wide. Table 1 shows the state of organic farming worldwide and includes both fully converted land as well as "in-conversion" land area. Currently, the major part of this area is located in Australia (10.5 million hectares), Argentina (3.2 million hectares) and Italy (more than 1.2 million hectares). The percentages, however, are highest in Europe. The world's largest certified organic property (994,000 ha) is located in Australia. By contrast, the area under organic management is still very low in most Asian countries, but organic agriculture is in progress as the area "in-conversion" is increasing. For many Asian countries no precise figures are available, but it is assumed that no country has reached one percent yet. The total organic area in Asia is now almost 0.6 million hectares.

 

 

Table 1: State of Organic Agriculture World-wide
 

Land Area under Organic Management

 

Country

Organic Hectares

 % of agriculture land

Number oforganic farms

Australia

10,500,000

2.31

1,380

Argentina

3,192,000

1.89

1,900

Italy

1,230,000

7.94

56,440

U.S.A.

950,000

0.23

6,949

U.K.

679,631

3.96

3,981

Uruguay

678,481

4.00

334

Germany

632,165

3.70

14,703

Spain

485,079

1.66

15,607

Canada

430,600

0.58

3,236

France

419,750

1.40

10,364

China

301,295

0.06

2,910

Austria

285,500

11.30

18,292

Switzerland

102,999

9.70

6,169

India

41,000

0.03

5,661

Pakistan

2,009

0.08

405

Liechtenstein

690

17.00

35

Source: Stiftung Oekologie und Landbau-Survey, February 2003

Currently the major organic export markets include Japan, the Netherlands, Norway, Switzerland, New Zealand, Singapore, Germany, the United Kingdom and the United States. At present Japan is the biggest market for organic products in the world with an annual sales value of around $3 billion. The United Kingdom with annual sales value of $2.5 billion and Germany with a market worth of $2 billion follow the Japanese.

Demand for organic food in the European Union has increased greatly during the last decade because of food safety issues like Mad-Cow's Disease, Dioxin levels, Chernobyl disaster, GMOs, enhanced information dissemination and increased health awareness amongst the public, and environmental and animal rights issues.

CONSUMER MARKET SEGMENTATION:

The American consulting firm Healthfocus Inc. conducted a market study based on mail surveys of 1100 pre-screened health-conscious Americans to discover their food habits, shopping attitudes, company and brand perceptions. It was found that the Americans have five major reasons for buying "healthful food" namely, for preventive reasons, for medical reasons, to promote daily stamina, to lose weight, or for spiritual reasons. Similarly, in other developed countries greater awareness in the public about food safety, convenience, concerns about environment and GMOs has made organic food a suitable "substitute food" addressing their concerns. Drawing inferences from various global studies, the consumer market is differentiated into five segments:

i.) Investors or long-term health-conscious people (45%). They are likely to be college educated men who work longer or extra hours and eat well to ensure future good health.

 

 

ii.) Managers or short-term health-conscious people (36%). They are likely to be college educated managers or administrators who choose healthy foods to gain an edge in their short-term performances.

iii.) Healers (9%), mostly elderly low-income women, are the late discoverers of healthy eating and prefer this for medical reasons.

iv.) Strugglers (7%), mostly low-income parents, are the junk food lovers.

v.) Disciples (3%) are likely to be animal-rights activists, Buddhists, and Seventh-day Adventists following a dietary regimen for philosophical reasons.

CONSUMER BEHAVIOUR ATTITUDES AND PREFERENCES:

Consumer surveys indicate that consumers prefer organically grown food not merely because of taste, appearance, or personal health reasons but also because they prefer food without pesticide residues. Some consumers might also be concerned about general health and environmental issues, such as farm worker safety, soil and water quality, and wildlife habitat. With the expansion in organic markets during the last decade, it has been found that many consumers perceive that they are receiving these attributes and the desired value for their money.

The Australian Consumers' Association conducted taste tests in June 2000, to find out the taste differences between organically grown and conventionally grown produce and noted a definite difference of taste between the two.

However, organic food is generally more expensive than conventionally grown produce as it is more labour and capital-intensive to produce, requires specialised knowledge and skills to grow, and may at times be of lower yield as well. The price of organic food invariably includes these and similar hidden costs, which in fact match the real product value. The Australian Consumers' Association conducted a market survey in May 2000 to check the prices of organic food in different parts of Australia. It was found that organic fruits & vegetables on average cost 70% more than their conventional equivalent.

The organic food is generally sold at major supermarkets, some regular fruit and vegetable shops, health food shops, certified organic retailers and over the Internet as well. It is generally advisable not to pay premium prices for products labelled "naturally grown", "chemical free" or just "organic" without any certification details, rather look for the certifier's logo or name on the produce or its packaging. The Pakistani farmers, therefore, would have to develop a standardization and certification process to establish trust and confidence of the buyers in their products.

Discussion:

At present there are no uniform requirements for the labelling of organic products, and standards vary from country to country. However, broadly speaking it is usually mandatory for the export products to be labelled "organic", "biodynamic" or "biological". The certified organic or bio-dynamic products are usually labelled either as "organic" or "in-conversion to organic". Products labelled organic are grown on land that has been managed using practices appropriate to organic farming for at least three years, whereas the products labelled "in-conversion to organic" indicate that the farm has been operating on organic principles for at least one but less than three years.

The Pakistani agriculture is likely to encounter problems with quality assurance, certification, labelling, packaging, trademarks, uncertainties about production, supply and price, and would need to address these issues. Impediments to market access and information to enhance the organic market's outreach would require to be overcome.

The emerging market opportunities offer a potential challenge for the businesses and seek a swift facilitative response from the government in the areas of legislation, fiscal support and standardization. Today our agriculture needs to respond to this new opportunity by putting its investment in increasing the number and size of organic farms, promoting agribusiness and making food-marketing investments in the substitute products. New food retail houses should be fostered while the traditional ones must expand their natural and organic food product lines.

In the developed world, many mega mergers and buyouts have already taken place in the natural and organic foods industries, including Whole Foods merging with Fresh Fields ($135m), H. J. Heinz Co. first buying out Earth's Best and later acquiring a 20% stake in leading natural and organic food company Hain Food Group, Kellogg Co. acquiring Worthington Foods, and Trefoil Partners II getting a controlling stake in Cascadian Farms (Murphy). We must ponder if the Pakistani agriculture could venture into corporate farming and attract big food houses to the country.

At the same time we can not be oblivious of other emerging opportunities such as the farmers' markets, Internet sales, and public-private partnerships to develop individually or cooperatively owned wholesale markets. So there is every likelihood of small-scale farmers getting into competition with large-scale growers and producers through either direct sales/marketing or indirectly through the cooperatives or the local chain-store outlets.

Several demand and supply-side forces shall be critical in determining the future growth of organic market. Sustained increase in demand for organic food is directly linked to continued consumer preference for and growing understanding about such food. Individual income, price and health/quality standards shall be the key factors in determining the consumer responsiveness whereas lower production and farm costs, enhanced research, improved sanitary and phytosanitary conditions may shape the production side of the future organic market.

It is essential that our agriculture diverts resources to dedicated organic farmland to increase its proportion in the total Pakistani agricultural land. Meanwhile, the industry needs to evolve a strategy to boost its share in the world markets. Broadly speaking, this should focus on in the order of priority improved industry co-ordination and development, market development, including market research and marketing systems, setting up of a regulatory framework for quality assurance, an integrated, farm-based research, development and extension, strengthened communication and information services, enhanced education and skills, and improved processing of organic produce.

 

 

In a nutshell, we may conclude that the growing organic markets abroad provide an ideal opportunity for the Pakistani farmers to compete and establish their niche in the overall world market. Considering the growing size of the world organic market and the strengths of the Pakistani agriculture, we can safely infer that there exists a strong market potential for Pakistani organic produce to penetrate, expand and consolidate its share in the markets abroad.