Rise of the Multinationals
The organic food industry is becoming global in that large Multinational Corporations (MNCs) like Heinz, Danone, and PepsiCo are wielding increasing influence. Most of these companies have entered the organic food industry via the acquisition route or by investing in dedicated organic companies.
The recent announcement that Dean Foods, America’s largest dairy company, is to acquire Horizon Organic, the leading organic food company in the USA, epitomises the growing power of the MNCs in the industry.
Convergence of Consumer Demand
Another facet of globalisation is convergence of consumer demand and this is also becoming increasingly evident in the organic food industry. Although consumers buy organic products for a range of reasons that vary according to geographic region, culture and socio-economic factors, there is becoming some commonality in consumer behaviour.
A picture of a global organic consumer is emerging, who typically has the following attributes:
- Location - lives in urban areas, usually in a big city
- Buyer Behaviour - discerning towards food & drink purchases, considering factors like quality, provenance and production methods
- Demographics – typically well-educated and of middle-high social class
- Purchasing Power –belongs to a medium to high-income household, which gives them the purchasing power to pay a premium for organic products
The latter attribute is very important and it is why demand for organic products is largely confined to the industrialised world.
Two trends are dampening the rate of globalisation of the organic food industry. The growing importance of regional markets is causing an increasing number of consumers to shun organic products with high air miles. There will always be a need for imported organic fresh produce because of seasonality and product variety however the transportation distance is becoming increasingly scrutinised during the buying process.
Secondly, a growing number of countries are introducing national standards for organic food production, which are being perceived as protectionism measures by some producers. For instance, the implementation of the Japanese Agricultural Regulations (JAS) in 2001 caused the vast majority of imported organic products to lose their organic status as they did not meet the new standards.
The differences between organic standards make it difficult for many organic food growers to market their products at the global level. For example, an Indian grower of organic tea has to meet the organic standards of the EU, USA, and Japan in order to export to these regions.
Role of Trading Blocks
The formation of trading blocks is having a positive and negative effect on the organic food industry becoming global. Greater integration of regional markets is facilitating trade between member countries however it is also making the trading block more fortified against non-member countries.
The entry of 10 new members to the EU in 2004 will give organic farmers in Central & Eastern Europe access to a US $12 billion market. It will also extend market opportunities to Western European organic food producers. At the same time there will be fewer opportunities for non-European organic food growers with Western European countries expected to replace Asian organic herbs & spices and North American organic cereals & grains with those from the new member countries.
In conclusion, globalisation of the organic food industry is to continue. The speed of globalisation is however to be at a slower rate than other sectors of the food industry, especially as differences continue in terms of organic standards and consumers prefer ‘to think local rather than act global’ when buying organic products.