Organic Marketing Initiatives in Europe

In the second half of the 20th century, agriculture in Europe has undergone profound technological change, associated with and to an extent supporting the long post-war economic boom. This process has not gone unchallenged, however; some resistance to the process has come from a growing perception of environmental (and to an extent social) degradation, and some farms and businesses, particularly in Less Favoured Areas, have been simply unable to keep up. For both groups, organic farming has much to offer, and as problems of the CAP have become more apparent such alternatives have been legitimised, and this has been bolstered by growing commitment of consumers who buy organic products to safeguard their health, or make an effective contribution to environmental problems. Alongside these developments in the primary production sector, Organic Marketing Initiatives (OMIs), pioneering and innovative, have sought to consolidate and extend the benefits of the organic approach. The overall OMIaRD project aims to explore how organic marketing can contribute to the economic and social development of European rural areas; within it, our study has investigated the scope that these offer to generate sustainable employment, particularly in LFAs in two related ways: firstly investigating potential for development of the environmental, ethical and regional product identity of their farm products; secondly identifying marketing institutions and strategies that satisfy environmentally- and ethically-aware consumers. Its aim was to understand OMIs, to gain knowledge of success factors and the strategic issues they face, through three investigative approaches: a broad survey, repeated twice in all OMIs identified in 19 countries; a more detailed investigation, on a regional basis, within a narrower selection; and finally, through case studies of five individual successful businesses. The investigative method involved three steps: a clear definition of concepts, an examination of business processes to derive evidence of success factors, and identification of relevant examples. Our definition of OMIs was successively refined as more was evidence accumulated. It needed to include significant involvement with organic products, a minimum size, establishment for a minimum time period, involvement of more than one actor, and a sufficient degree of producer involvement. Ultimately, we defined OMIs as: … an organisation of actors (privately or cooperatively owned) involving participation of organic producers which aims to improve the strategic marketing position of the products by adding value to the raw product through processing or marketing. The dimensions of success are effectiveness (ability to formulate and fulfil goals) and efficiency (ability to achieve goals while maximising output at minimal cost). Three categories of objective (economic, social and environmental) were originally defined; since significant overlap and ambiguity exists in some cases, in survey work the two categories, ‘economic’ and ‘ethical’ were used. While many OMIs had one or other of these, soma also had overlapping objectives. Effectiveness has been assessed at four levels; where both ethical and economic objectives are achieved; where either ethical or economic objectives are achieved; and where no ethical or economic objective is achieved. It was difficult to obtain accurate information on OMI’s financial performance, and so an appraisal of OMIs categorising OMIs as either loss-making, breaking even, or profit making, contributed to a synthetic indicator of success, constructed to take both the diversity of OMIs objectives and ability to attain financial balance into consideration. We used a combination of the Objective One and Two criteria regarding ‘eligible rural areas’ and ‘Less Favoured Areas’ covered by EAGGF expenditure to define spatial disadvantage. The general approach to determining success is based on correlation analysis between success factors and success indicators; external factors are linked to the background environment of OMIs, such as country patterns, regional or sector conditions; internal factors are tied to OMIs’ competences, management and internal policies (marketing, supply, processing and logistics, finance, organisation and networking). In our broad survey, the sample frame was identified from expert local knowledge in each country. We used a mail questionnaire to contact OMIs, although some were contacted initially by telephone to see whether they fulfilled the screening criteria. Non-respondents were also contacted by telephone to encourage completion. Questions covered location, age of the initiative, turnover size and growth, employment and its growth, product structure and processing, and the involvement of producers, and OMI objectives and values. The latter include importance of marketing locally produced organic foods, and other stakeholder issues including preferred business partners and share of products sold within region of origin. The regional study involved two criteria; regional relevance to the overall project purpose, and within that, OMIs to be surveyed. Regions should be representative of the organic sector in the region and of economy in general (while being as close as possible to administrative regions); pragmatically, the selection was also influenced by the willingness of OMIs to cooperate. Coverage of regions aimed to include physical conditions, location, regional policy towards the organic sector and the reputation of its products, tradition and the state of development of organic farming in the region, and competitiveness and the general health of the regional economy. For comparison, a number of the regions selected were not ‘disadvantaged’ according to the definition above; these were described as ‘reference’ regions. Between 4 and 8 regions were selected in each country; in countries without LFAs, only reference regions were selected; for example, in Denmark. The first broad survey was carried out in 2001, in 2001, followed by an update conducted in 2003. Initially, 196 businesses in 19 countries provided a usable response to the survey; the update survey found 261 OMIs: of these, only 72 were also identified in the first survey. The original screening process was too strict, so more OMIs were included; however some questions remain because of the low numbers appearing in both rounds. In describing the results, we use a categorisation derived from the Delphi Inquiry carried out within the project, which identified three states of market development: established organic markets (AT, CH, DK, DE, UK); growing organic markets (FI, FR, IT, NO, SE); and emerging organic markets (BE, CZ,IE, ES, GR, PO). OMIs have predominantly been founded by farmers, although processors consumers, and social activists are also important. Most OMIs identified were established in the 1990s, and while the average founding year of the OMIs in countries with established and emerging markets is 1994, in countries with growing markets it is somewhat earlier because in a few countries some very long-established OMIs exist. Many OMIs are very small in terms of turnover; 57% of all surveyed have a turnover of less than €1m, although those in countries with established markets have a higher average turnover. There is an almost equal distribution between product groups involving meat, cereals, vegetables and milk, but the smallest product category, eggs, involves only around 10% of OMIs. In contrast to the overall market, where sometimes significant volumes of organically produced output is sold as conventional, OMIs manage to market higher proportions of their throughput under the organic symbol. OMIs are more oriented to local or regional markets than for export. More products are sold within the home region by OMIs in countries with established organic markets, whereas in growing or emerging market countries OMIs are more dependent on markets outside the region. Supermarkets play an increasingly important role (nearly 55% of the total) as a sales channel for OMIs. Health shops are also a relatively important sales channel, and internet sales and sales to catering seem to be growing quite rapidly. Many OMIs use more than one sales channel; more than half (53%) use two or more. The stage of development of the market has an influence on how products are sold. Both the internet and the catering sector are more developed in countries with established markets. OMIs contacted displayed some enthusiasm for sharing expertise through networks, although the character of information exchange anticipated varies a little, depending on maturity of markets and the organic tradition as a whole. Use of networks as a tool to promote development should reflect this, and such network needs could be most efficiently addressed and supported through EU institutions. On the basis of this broad survey, regions of particular interest were selected for study in detail. We aimed to survey up to 40, and our final set consisted of 35 regions, of which 20 include a high proportion of LFAs. To determine whether development of OMIs can offset such constraints, almost half of the 20 LFAs examined were considered to have specific advantages, such as the proximity of an urban market, good road and rail connections, a tradition for organic farming in the region, specific regional development policies or other positive regional attributes. Within each region, a number of OMIs (3 or 4) were selected for analysis. Specifically, selection criteria included physical conditions (climate, soils, slopes); geographical location (some close to population centres, others with low population density and out-migration); regional policy and other regional support in favour of OMIs (the degree of support outside common EU policies varies widely); regional identity (potential and use of regional branding which associates products with their origins); development of organic farming in the region (some regions have experienced large-scale conversions following introduction of subsidies, others have only a very brief experience of organic farming); the level of competition, either from conventional or organic products; and the overall economic vitality of the region. The analysis of success factors confirms that regional context is important, but not essential, in explaining the performance of the OMIs. It is primarily internal competences, related to policies employed, that account for the success of OMIs. OMIs can be divided into four groups with regard to the types of objectives they have; those with clear economic and ethical objectives; those with clear ethical objectives; those with clear economic objectives; and those which did not score highly on any objective. They are then synthetically categorised as to whether they actually achieve such objectives, and their corresponding economic performance. Success group 4 is made up of the OMIs achieving clear ethical and economic objectives and either breaking even or making profit; Success group 3 is made up of OMIs achieving clear ethical objectives and which break even or make a loss; Success group 2 is composed of OMIs achieving mostly economic objectives and whose financial situation is balanced or positive; and Success group 1 is made up of OMIs achieving neither clear economic objectives nor clear ethical objectives, which are largely in the ‘break-even’ category. Multi-Criteria Factor Analysis has been used to identify which the determinant variables for success are, and to treat them on a hierarchical basis. Favourable non-LFAs are home to most OMIs achieving ethical objectives, while intermediate regions (unfavourable non LFAs or favourable LFAs) are home to most OMIs achieving economic objectives. ‘Ethical’ OMIs, which are often recent business partnerships in direct contact with consumers, enjoy a good market environment and have better human resources and organisational policies than financial policies whereas ‘economic’ OMIs are in the opposite position. We use a resource-based management approach to analyse success, emphasising the importance of the firm’s decision-making capacities. Actors on the organic market have usually quite weak market power and have consequently to operate within external market forces. Evolutionists attempt to reconcile the internal (inherited skills, path dependence, learning) and external (market opportunities and selection by the environment) factors of competitiveness. Overall, structural characteristics have little effect on the ultimate success of OMIs. Some OMIs manage to compensate for poor supply conditions and have positive economic results, while others with good upstream conditions, favourable raw materials markets and favourable regions are able to achieve ethical objectives. In the UK and Germany, short supply channels and direct sales seem to be more developed in organic farming. In contrast, in France organic farmers are more closely tied in to supply chains, while the direct sales sector has long been occupied by non-organic and farm-processed products. Above all, however, the presence of specific regional product attributes (typical products such as wines, hard wheat in Italy, quality mountain meat in Austria and France, cheeses in Switzerland) provide a region with an advantage in terms of developing organic markets. More than half of OMIs successful in both economic and ethical terms are in intermediate zones, favourable LFAs and unfavourable non-LFAs, but more interestingly, most OMIs in unfavourable LFAs belong to this group. However, OMIs in favourable non-LFAs are mostly successful only in economic terms. Final market conditions affect the success of OMIs in terms of effectiveness and profitability. If the market is small, the prospects for OMI development are limited; on the other hand, if market access is not too difficult the OMI may develop more readily. Internally, the two policies that are most discriminatory for success are processing-logistics and supply. OMIs achieving strictly ethical objectives seem to attribute less competences and importance to financial matters than to the management of people and networks. Some OMIs have an effective marketing policy whereas others do not. Although marketing policy does not appear as a key success factor, the OMIs are often based on very original ideas and high quality products which meet consumers’requirements, even if several weaknesses may exist. It is also difficult to say whether the product policy affects an OMI’s success. As the market is generally expanding, competition is comparatively weak. There are some OMIs which sell predominantly through independent shops and which have wide product ranges (as well as craft products) in tourist areas ; in these cases, the OMIs move beyond the product sector to position themselves in the tourist sector. Founders of OMIs are strong characters, willing to go against the conventional wisdom, and often their objectives are not primarily economic. They are also enthusiastic in maintaining close relations with professional, social and political networks. These networks and organisations are sometimes responsible for the development of farming and economic activities. Many OMIs embark on organic farming with idealism and in a favourable market, without necessarily having solved all the difficult problems of logistics, and without having mastered techniques and equipment. Managers of OMIs who master these issues can also set their enterprises on the road to success. Generally, producers and OMIs report high and satisfactory price premiums, corresponding to the higher production costs in organic farming, although competition is now intensifying. Where low price premiums exist, they are associated with weak consumer purchasing power in the region, and OMIs sell mainly to end consumers. Very often OMIs favour short or even direct channels, but they are involved in long supply channels, sector conditions become more complex. OMIs may then form alliances, sometimes with firms in the conventional sector attempting to diversify in the organic market. Financial independence of the OMIs is decisive, and those achieving clear economic and ethical objectives and making profits are more financially independent than those which accomplish only ethical objectives. Finally, we examined five initiatives in four regions in an in-depth case study framework. Biobauern Sulzberg is a small cooperative of 14 milk producers, manufacturing organic mountain cheese (Bergkäse) in a village dairy. Traditionally Vorarlberg milk is processed into cheese in such small village dairies, but in recent decades numbers have declined to achieve scale economies and cope with increasing levels of part-time farming. The case study initiative came into being after a merger between the original dairy in Sulzberg and another local dairy; before this merger, organic farmers were in the majority, but an influx of new conventional members and a change of management made it appropriate to develop the organic business separately. The new cooperative rented vacant dairy premises in the next village. One member is also a specialist cheese marketer, and the business has developed up to capacity with relatively small capital overheads. There is an associated business delivering organic foods, which exploits synergies with the dairy, sharing premises and locally directly marketing some of its output. BioBourgogne Viande is a larger cooperative consisting of livestock producers, marketing organic meat from Burgundy (mainly Charolais cull cows). It sells mostly to supermarkets through an agro-industrial group with an established presence in the organic beef sector, but also to local organic butchers, a consumer cooperative, mail-order sales, and a wholesaler specialising in frozen organic meat. Its development was disrupted due to BSE crises in France, causing wild fluctuations in demand from which it has been difficult to recover; it has since undertaken capital investment in a cutting and boning plant to extend its influence to develop a separate organic meat supply chain. A currently high level of costs locks it into supermarket sales (capacity is under-utilised), and though it has had problems with its own direct sales outlets it is attempting to diversify its sales base. It faces a decision about whether to collaborate more widely in order to gain more security, at the expense of reduced autonomy in decision-making. In Italy, two closely related although rather different initiatives were studies in tandem, Alce Nero and La Terra e il Cielo. Both produce pasta from their members’ production of organic cereals. Producers in the Marche region were among the earliest to adopt organic farming in Italy, although after recent rapid development of the sector in Italy as a whole, faster growth is occurring elsewhere, driven less by export demand than development of the domestic market. AN was established in 1977 in a former monastery at Isola del Piano, a remote village between Pesaro and Urbino; it mills cereals and produces pasta, but also extends its brand to bought-in organic products such as tomato paste, and sells mostly to Rapunzel, a German organic wholesale chain. TC provides both similarities and contrasts; it is also a cooperative established in 1980, but although its registered office is in Senigallia (a relatively large coastal town) in 1999 its operations moved to an industrial estate in Arcevia, a rural town further inland; its premises include warehousing, a torrefaction plant for coffee and barley, and packaging equipment; it outsources milling and pasta production to independent processors. Growing with Nature is an enterprise aiming to link local Lancashire consumers and growers through a vegetable box marketing scheme. Unlike the other case studies it is not a cooperative, though there is significant collaboration between producers. Before its establishment most of the core holding’s output was sold to an organic pack house supplying supermarkets, but increasing competition led to the shift of emphasis to direct marketing in 1992, and with growth came the involvement of several more growers. On the basis of this study, a policy recommendation to the European Union would cover an integration of the needs of OMI’s in many central European institutions and food regimes. Research is one instrument to facilitate this policy, but also coordination with environmental and safety policies, which offer opportunities to promote Organic Marketing Initiatives on a European scale.