Not by carrot alone

Local manufacturers tap into potential of organic foods.

By TALI COHEN, THE BUSINESS POST
Israelis have fallen in love with organic food. Some of the economy's big players have succeeded in identifying the potential, and decided to enter the sector. In the past year, for example, Tnuva acquired Harduf and Ma'abarot bought Adama. The food chains also identified the change in consumers' taste and increased the shelf space earmarked for organic products. At the same time, 10 new stores in the organic field opened in 2006; they are larger and better appointed stores than those that were established at the beginning of the decade and in the 1990s. Nearly 200 health food stores currently operate in Israel, about 20% of them as part of branded chains. Although 40% of these stores operate in the Tel Aviv and central areas, natural food stores are also popping up in the ultra-Orthodox sector, in the wake of the growing awareness of the importance of a healthy lifestyle. The natural products market is growing. The sector's sales are estimated to be about NIS 750-800 million a year. The organic food sphere is also seeing an increase, though still to a relatively small degree. The organic market accounts for 5-10% of all food categories. According to industry sources, only about 1% of total consumption is of organic food. Food industry sources believe that the organic food market will reach about 1.5-2% of the Israeli food market within five years. According to data from the Israel Bio-Organic Agricultural Association (IBOAA), in 2006 consumption of organic fruits and vegetables reached about NIS 70m., compared with about NIS 60m. in 2005. In 2006, the entire food market grew 2.9%, totaling NIS 45.5 billion. The growth of the Harduf Organic Foods Company can be used as a prominent example for the development of the Israeli organic food market in recent years. In 2003, Harduf's share of the food market was 0.25%; today it accounts for 0.4%. Harduf has grown by 30% annually, a relatively high rate of growth. Additional companies in the sector have also reported growth, but the development of the organic field in Israel to the extent reached in recent years in the Western world depends mainly on solving the problem of high prices for the consumer: high prices lead to a small number of buyers, which in turn leads to high prices from retailers. The solution to this could come through greater penetration of chain stores, which would create competition with the organic stores; direct marketing to consumers, a model that succeeded in the US; and increased awareness of organic food consumption and of healthy nutrition in general, which would increase demand. A $40 billion market Health food has been seized on by most food sector experts as one the most desirable markets. Manufacturers and retailers have apparently realized that this is not a passing fad, but rather new lifestyle and new consumption habits, which have recently been accentuated by a growing number of consumers. Now, surprisingly, just as it appeared that the sector had come into its own, British Secretary of State for Environment, Food and Rural Affairs David Miliband came out recently with a statement in which he undercut the standing of organic food. According to him, choosing organic food is connected not necessarily with health, but rather more to a lifestyle that a person chooses for himself and his family. Miliband added that organic food is not superior in quality to that of conventional food. The British minister's statements led to a storm among organic farmers in Britain and elsewhere, and reverberated loudly among the community of organic food consumers and health conscious people. However, it is hard to argue with the figures: The global organic food products market is estimated at about $40b.; in 2005 that figure was about $30b. The vast majority of the market is concentrated in the West: Consumers in the United States and EU countries constitute 95% of all consumers in the organic segment. From the start of the decade, the organic agriculture market has grown by 20%. About 100 organic farms are spread out across the world, covering an area of about 260 million dunams. Australia leads with 100 million dunams, followed by Argentina, with 30 million dunams. In Latin American there are about 58 million organic dunams; in Europe there are 55 million, and in North America there are 15 million. According to US market research company RNCOS, the organic food market is growing at a rapid pace. In 1997, the market in US was $3.7b.; in 2005 that figure had already grown to $13.8b.; and in 2009 it is expected to reach $32.3b. An analysis of organic food's rate of penetration of food market in the US reveals that in 1997 organic food accounted for 0.8% of the total; in 2005 it was 2.5%; and in 2008 it is on track to constitute about 5%. In 2005, the US market grew 9.1% in sales of natural products; in contrast, the organic food market grew by about 16%. Wall Street enters the market In light of the growth rates of recent years in the organic market segment, Wall Street has also decided to get into the action. Last year, the world's largest retailer got into natural food in general, and particularly into the organic food sector. The entry into the sector by a player the size of Wal-Mart created an immediate threat to the two organic food chains traded on NASDAQ: the larger and leading chain, Whole Foods, whose stock grew to 10 times its original value over the previous year, but which saw its shares fall by about 40% in 2006; and Wild Oats, whose shares over the past decade did not succeed in maintaining stability, but which rose 20% in 2006. Additional companies in the organic food sphere that trade on the stock exchange include Hansen Natural, from the soft drink sector, whose share price increased by about 60% over the past year; Lifeway Foods, from the dairy sector, whose stock rose by about 50% in the past year; and United Natural, a food manufacturer, whose shares jumped 37% in 2006. The positive trend of share prices in the organic food sector are a direct indicator of the market's growth and of its becoming a significant market in the food industry. However, the US is not alone: In Europe, demand for organic food is also rising. That is the situation, for example, in Britain, where sales of organic agricultural produce nearly doubled from 2000-2005, passing the half billion pound sterling mark. According to estimates, sales in the UK are expected to reach GPB2 billion by 2010. The future is organic Organic agriculture is an approach that does not use substances that do not come from plants or animals. Organic products do not undergo - from the growth process until they reach your plate - treatment with chemical substances, hormones, baking enhancers, various sprayings, food colors, preservatives, etc. This is an entire, holistic system that encourages and increases agricultural-environmental health, while addressing the variety of species, biological cycles, and the earth's biological activity. Today, increasing numbers of people around the world understand that concern for the Earth and its existence is genuine and tangible. Many caused damage, some of which is irreversible, both to the planet and to his health. Prominent examples include global warming, dwindling mineral resources, genetic engineering, and nuclear capabilities. Organic food and its consumption are a part of the green, holistic solutions, both for the planet and for mankind. Those in the organic food industry are no longer considered to be on the fringe, but just the opposite. The reason for this is not necessary to be found in the subject's green contexts, but rather in the economic potential contained in the organic food market.