The global organic food market is growing at a rapid clip and offers significant potential for growth. Currently valued at around US$90 billion according to London-based consultancy firm Ecovia Intelligence (formerly Organic Monitor) the market is poised to expand to over US$ 200 billion by 2020 (representing a CAGR of 15.7% between 2015 and 2020) according to projections by Market Research Globe.
The forecast figures are similar to those from a report by market research firm Technavio which projects the global organic food and beverage market to grow at a rate of 14% from 2017 until 2021.
Organic is the fastest growing sector of the U.S. food industry. Organic food sales in the United States, the world’s largest organic food market, jumped 8.4% in 2016 to reach US$ 43 billion according to the Organic Trade Association. That compares with a 0.6% increase in overall food market sales in the United States. Much of the demand for organic food is driven by millenials generating about half of U.S. organic food sales.
In Germany which is the world’s second -largest organic food market, organic food sales grew by nearly 10% in 2016, according to the German Federation of the Organic Food Industry (BÖLW).
France’s organic food market grew a whopping 20% in 2016 according to Agence Bio, and Spain’s organic food market grew 12.5% in 2016 (compared to 0.7% growth in conventional food) according to data from Spain’s Ministry of Agriculture and Fisheries, Food and Environment. UK organic food sales expanded by 7% in 2016 according to Soil Association a UK-based organic food and farming charity and certification body.
There is ample potential for the stellar growth numbers to maintain momentum going forward. In the United States, the world’s largest organic food market, organic food sales account for just 5.3% of U.S. food sales.
The situation is the same in Germany, the world’s second biggest organic food market after the United States (the United States, Germany and France together account for about 70% of global organic sales value as of 2017); organic food sales make up just about 5% of Germany’s total food sales.
In Britain, organic food sales make up about 1.5% of the country’s total food sales. In Spain, organic food sales make up just 1.7% of the country’s total food market. This compares with Sweden and Denmark where organic food sales comprise about 8.7% and 10% of the country’s total food sales respectively.
In Asia, organic food sales account for less than 1% of total food sales across Asia offering ample scope for growth. The organic food sector is poised to grow in leaps in bounds in the region, particularly in China and India, two countries which market research firm Ecovia Intelligence reveals are two of the fastest growing Asian markets for organic food products, driven by an expanding and educated middle class who are increasingly willing to pay a premium for organic products which are perceived to be healthier and safer than conventional food products.
In China, Asia’s largest organic food market and the world’s fourth largest, 72% of consumers worry about the safety of their food according to a 2016 survey by McKinsey. This presents an opportunity for the country’s organic food sector which, similar to the United States, is largely driven by a growing number of increasingly health-conscious millenials.
Meanwhile in India which created its first organic state, Sikkim, in 2016 (in Sikkim farmers are 100% organic), market research firm TechSci projects the country’s organic food market to grow at a CAGR of 25% between 2016-2021.
On a country level, Denmark and Bhutan have ambitious plans to be 100% organic by 2020, a positive trend for the global organic food market.
The underlying driving force behind the global organic food revolution is the millennial generation (those born between 1980 to 2000). In the United States, for instance, the world’s biggest organic food market, over 52% of organic food shoppers are millenials according to a survey by the Organic Trade Association. An estimated 25% of American millenials are parents and this figure is expected to increase to 80% over the next 10-15 years. As the percentage of millenials with children grows in the coming years, organic food sales are projected to rise as well.
To meet rising organic food demand, the number of organic food producers and the amount of organic acreage continue to increase globally.
Worldwide, the number of organic food producers increased twelve-fold in sixteen years from 200,000 producers in 1999 to 2.4 million producers in 2015 according to a report by the Research Institute of Organic Agriculture (Forschungsinstitut für biologischen Landbau or FiBL). During the same period, land used for organic farming expanded fivefold from 11 million hectares in 1999 to 50.9 million hectares in 2015. Despite this increase, organic farmland represented just 1.1% of the world’s farmland in 2015 indicating ample room for expansion.
Nearly 45% of the world’s organic farmland is located in Australia, where with 22.7 million hectares makes it the country with the world’s largest area of organic agricultural land by hectare in 2015, way ahead of second-placed Argentina which has just 3.07 million hectares of organic acreage. In third-placed United States which is the world’s biggest organic food market, just 2.03 hectares of land is used for organic farming.
The global organic food trend has been a boon for Australian food producers. Despite having the largest area of certified organic land in the world, organic food sales account for just 1% of Australia’s total food and beverage sales. Part of this may be due to the fact that most of Australia’s organic farmland is used for cattle farming (which explains why organic beef is Australia’s top organic food export by tonnage) and hence the country’s overall organic food output is relatively low.
However, it may also be due to a growing hunger for Australian organic products from export markets such as the East Asia (which accounted for 38% of Australian organic food exports by tonnage in 2017), North America (29%) and Europe (12%).
China, in particular is a major growth opportunity. Australian organic food exports by tonnage to China jumped 55% between 2016 and 2017 and China’s share of Australian organic food exports by tonnage nearly doubled from 9% in 2016 to 15% in 2017 according to data from the 2018 Australian Organic Market Report.
Much of growth in China’s organic food demand stems from the baby food category, particularly organic infant formula. China is the biggest export market for Australian organic baby food and formulas and Australian organic dairy products.
In China which is the largest market in the world for organic infant formula, it is estimated that 75% of mothers feed their babies with organic infant formula according to London-based market research firm Mintel. Younger mothers i.e., those aged 25-34 are the major driving force with 79% of them using organic infant formula. The abolition of China’s ‘one-child policy’ potentially opens opportunities for expansion in this sector.
Bubs Australia (ASX:BUB) and Bellamy’s Australia (ASX:BAL) are two Australian organic baby food and organic infant formula producers both of which have operations in China and are poised to capitalize on the opportunity. Bellamy’s Australia has seen its share price jump by over 900% since August 2014 while Bubs Australia’s share price has soared over 400% since January 2013.
With Australia boasting nearly half of the world’s certified organic farmland and enjoying strong export demand for its organic food products, Australian producers are well placed to take a big bite out of the world’s growing organic food pie going forward.
A number of organic food companies elsewhere around the world have also benefited from the trend and good prospects have attracted investment into the sector. Organic food grocer Whole Foods (NASDAQ:WFM) was acquired by Amazon (NASDAQ:AMZN) in June last year at a 27% premium to Whole Foods’ stock closing price the day the deal was announced.
French food company Danone (EPA:BN) acquired American organic food company Whitewave Foods Co (NYSE:WWAV) in April last year.
Consumer goods company Unilever (NYSE:UL) acquired UK-based organic herbal tea company Pukka Herbs and Brazilian organic food business Mae Terra last year.
American grocery company Albertsons reported that its line of private-label organic items, O Organics, saw sales grow 15% last year, reaching US$ 1 billion.
Albertsons plans on introducing 500 or more new products to the line which already encompasses a wide array of organic food items including fresh fruits and vegetables, eggs, milk, yogurt, ice cream, meats, bread, coffee, snacks, pasta sauce, and baby food.
Over in Europe, Dutch organic food company Koninklijke Wessanen NV (AMS:WES) which recently acquired Spanish organic food company Biogran, has benefited handsomely from the growing organic food market with its share price appreciating by over 600% from five years ago (in 2013). During the same period,
In Asia, Japanese organic vegetable producer Ariake Japan Co Ltd (TYO:2815) has seen its share price jump over 500% since 2013.
The organic food trend has also been a positive for e-commerce behemoth Amazon which is a relatively new entrant to the US grocery market. A report by data analytics firm Click Retail found that in 2017, organic products fared very well accounting for nearly 25% of all Amazon Fresh sales.
Nestle (VTX:NESN) has been actively re-orienting its business as it struggles with weak sales as a result of changing consumer preferences toward organic, natural food and away from prepared, mass-produced meals which make up bulk of the company’s product portfolio. Last year, Nestle acquired Chameleon Cold Brew – America’s oldest and largest purveyor of organic coffee. This year, Nestle sold its US candy business to Italian confectionery company Ferrero SpA.