I. INTRODUCTION

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1. The concept of organic farming is based on a holistic viewpoint. Nature is more than just the separate individual elements into which it can be split. Principles and ideas of farming are found in the science of ecology, the interrelationship of living organisms and their environments. The concept includes economic and social aspects of agricultural production, locally as well as globally.

2. Organic farming aims to support and strengthen biological processes, without replacing them using technical remedies, and to adopt a preventive approach to the control of weeds, pests and diseases. Consequently, the use of chemical inputs, such as synthetic fertilizers and pesticides, is not allowed.

3. Organic farming is based on enhancement of soil structure and fertility as well as a balanced choice of crops, for instance by the implementation of diversified crop rotation systems. The number of animals and the land area is harmonized so that farm units can cover their need for feed and nutrients are kept within the system.

4. Key characteristics of organic farming include the use of organic materials for maintaining organic matter and nutrients in the soil; nitrogen-fixing plants; appropriate soil management techniques, including mulching and fallow periods; resistant varieties; compatible cropping systems (e.g. inter-cropping) and agroforestry; practices giving due consideration to animal welfare; biological control of pests, and manual, mechanical and thermal weeding.

5. In order to ensure that products claimed to be organic are actually produced according to organic farming principles, they must be certified as such. By certification a third party gives written assurance that products labelled organic are produced according to the standards applicable in that market, making certification a necessary condition for international trade in organic products.6. This paper is meant as an introduction to the factors influencing world trade in organic food and beverages. It does not seek to provide an overview of the organic citrus business, though citrus products will be referred to whenever information is available.

II. ITC'S ACTIVITIES IN THE AREA OF ORGANIC PRODUCTS

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7. In 1997 the International Trade Centre UNCTAD/WTO (ITC) initiated a market research and development project on organic food and beverages from developing countries. The objective of the project, which is financed by a grant from the Government of Denmark, is to assist developing countries, in particular LDCs and other low-income developing countries, to improve their export performance of agro-based products.

8. The first phase of the project is a market survey, which will cover the following markets: Denmark, France, Germany, the Netherlands, Sweden, Switzerland and the United Kingdom. It is expected to be published towards the end of the year. At the time of writing, only four country studies have been completed.

9. The immediate objective of the market survey is to obtain a better understanding of market requirements and potential for specific organically-grown products and of current supply possibilities and constraints, enabling producers/exporters to initiate export development activities, and hopefully also to assist importers in sourcing from new suppliers.

III. DEMAND SITUATION

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10. Since there are no official statistics on world trade in organic products, it is impossible to give a complete picture of world trade in this product group. However, it is clear that Europe (mainly EU), the United States and Japan are, by far, the largest markets, though there are smaller but interesting markets in many other countries, including several developing countries.

11. Germany is the largest market in Europe, probably accounting for roughly one third of the total European market, followed by France, the United Kingdom, the Netherlands, and a number of smaller markets. Other countries, like Italy and Spain, are important producers (mainly of fruit, including citrus, and grains) and are also interesting markets for organic food products.

12. In most markets, organic products account for less than one per cent of the total food market. However, in some countries like Austria, Denmark, Germany, Sweden and Switzerland, the share appears to be between 2-3 per cent. Initial findings show that consumer demand for organic products is growing rapidly in most major markets. Trade estimates indicate that by the end of the century organic products could account for 5-10 per cent of the total food market in some countries. Selected markets are briefly described in the following:

(a) Denmark

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13. With a population of just over 5 million people, Denmark is a fairly small market for most food and beverages. However, sales of organic food and beverages were valued at an estimated US$300 million in 1997, corresponding to 2-2.5 percent of the total retail market for foodstuffs. This places Denmark in the top league amongst world markets, as far as per capita consumption of organic foodstuffs is concerned. Furthermore, it should be noted that consumption has been growing very rapidly in recent years. In 1998, the value of organic products is expected to reach 3 percent of total food and beverage sales.

14. There are very strong indications that the Danish market for organic foodstuffs will continue to expand for a considerable number of years. Firstly, consumer interest in healthy food and environmentally-friendly products continues to grow, and more and more people are purchasing organic products. Secondly, the major retailers are promoting organic foodstuffs quite aggressively, inter alia through heavy advertising and competitive pricing. Coop Denmark, for example, has set ambitious sales targets for specific organic products (as a percentage of total sales of a given item) to be reached by a certain target year. Thirdly, Danish farmers as well as food manufacturers are becoming increasingly aware of the market opportunities that exist in satisfying consumer requirements regarding organics. Finally, current government policy is aimed at promoting production and consumption of organic foodstuffs. Trade sources and industry experts believe that the value of sales of organic products may reach 10 percent of total food sales in the year 2000, or soon after.

(b) France

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15. According to professional sources, the retail market for organic products amounted to about US$650 million in 1996, which corresponded to about 0.5 percent of the total food market. For 1997 the value was estimated at about US$770 million. The current growth rate is believed to be around 20 percent.

16. Although France is a major producer of most food products and a very important food and beverage exporter, its organic farming is relatively less developed. Organic farming accounted for only 0.4 percent of total farmland in 1995, compared with for example 1.9 percent in Germany and 3.8 percent in Switzerland. However, government policy is in place to support and promote a rapid development in this area. It is planned, for example, to increase the number of organic farmers from the current 4 500 to about 25 000 by the year 2005. Also some of the big French food manufacturers and the major retail organizations are getting involved in the organic food business, which is likely to have a very positive effect on overall sales.

17. Due to its relatively small production, France imports a considerable amount of organic food and beverages, including many that could be produced locally. The planned increase in domestic production is unlikely to keep pace with the rapidly growing demand. Therefore, France will continue to be an important export market, not least for developing countries.

(c) Netherlands

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8. Consumption of organic foods accounts for a very small share of total food expenditure in the Netherlands. No official statistics exist, but it is estimated that the sector was valued at some US$350-400 million at the retail level in 1997, equivalent to about one percent of the total grocery market, which is relatively small compared with most neighbouring markets. The major factors limiting growth are: a) relatively high prices - Dutch consumers spend a smaller percentage of their disposable income on food than their EU neighbours, and price is a key factor influencing expenditure on groceries and b) the marginal level of involvement of the mainstream grocery trade in distribution of organics. Until recently, most supermarkets carried only a very limited range of vegetables.

19. However, 1996 marked a turning point in the Dutch organic trade: retail sales increased by 3-5 percent in that year and most estimates agree that the rate of increase accelerated to between 10-15 percent in 1997. Further development of this market will depend greatly on the expansion by supermarkets into a wider range of products and the ability of suppliers to offer organic produce to consumers at attractive prices.

20. In spite of its relatively small consumption of organic food, the Netherlands is a major importer, as it plays a major role in Europe as a re-processor, packer and re-exporter of organic food and beverages. A very large share of bulk organic foodstuffs imported from developing countries is handled by Dutch traders.

(d) United Kingdom

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21. The UK market for organic food was valued at US$400-450 million in 1997, having practically doubled in size over the previous two years. Of the total quantity, an estimated 60 - 70 percent is imported though the percentages vary significantly according to product group. The high import share is mainly explained by the fact that organic production in the United Kingdom is still fairly small, apparently less than 1 000 farms out of total of about 100 000 farms. The major product group sold is fruit and vegetables, which accounts for an estimated 45 percent of the total, followed by cereals (15 percent), meat (11 percent) and dairy products (8 percent).

22. Overall the future appears to be bright with trade estimates putting the retail value of the market at about US$10 billion within ten years - an expansion from the existing 0.3 - 0.4 percent of the total UK market held by organics to over 10 percent. These estimates appear somewhat optimistic and will depend on the availability of steady supplies, supportive and more active government policy and a gradual narrowing of price differentials vis-à-vis conventional products. The importance of distribution channels, in particular supermarkets, in the future development of this market should not be underestimated. Most of the big retail organizations are becoming increasingly committed to expanding their range of products and sales of organic food.

(e) Other major markets

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23. According to a recent study [ Protrade/GTZ, November 1997.] , the German market for organic foodstuffs reached about US$1 400 million in 1996, corresponding to a market share of about 1 percent. The share for 1997 was estimated at 1.5 percent. The United States market for organic food and beverages was estimated at US$2 800 million in 1995. According to trade sources the market has been growing since then at about 20 percent yearly, which would put the United States market at close to US$4 000 million in 1997. The Japan External Trade Organization (JETRO) has valued the Japanese market for organic products at about US$200 million in 1997, but according to other sources, the market may amount to as much as US$1 000 million. The forthcoming ITC study will provide more exact figures on these and other markets.

24. Concerning organic citrus fruit, they are sold in fresh form in all markets being researched by ITC. The main fresh fruit items are lemons and oranges, followed by grapefruit. Sales of other organic citrus fruit currently appear to be insignificant. Generally speaking, consumers are willing to pay a premium of up to 25 percent more for organic produce. In return, a good quality fruit with nice appearance is expected. As far as organic citrus juices and concentrates are concerned, orange is the most important item, followed by lemon (used for blends and as an ingredient) and grapefruit. Import prices for organic orange juice are roughly twice as high as those for conventional orange juice (FCOJ), whereas the price difference is smaller when compared with, for example, NFC (not from concentrate) or other more expensive juices. In the case of grapefruit and lemon, price differences are much lower, though still significant, according to importers.

IV. SUPPLY SITUATION IN DEVELOPING COUNTRIES

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25. All of the major markets under review offer good prospects for suppliers of organic products that are not produced domestically, for example coffee, tea, cocoa, spices, tropical fruit and vegetables, citrus fruit, etc. However, there are also very good prospects for several products that are produced in the main markets themselves. Such opportunities exist not only for off-season products, e.g. fruit and vegetables, but also for many other products, e.g. grains, cereals, pulses and seeds, for the simple reason that the rapidly growing demand in many markets cannot be met by local supply, at least in the short to medium term.

26. ITC research shows that at least 100 countries produce organic food and beverages in commercial quantities, including 27 developing countries in Africa; 15 countries, including 12 developing countries, in Asia; about 25 developing countries in Latin America and the Caribbean; 3 countries (including 1 developing country) in Australasia and the Pacific; about 20 countries in Europe and 7 transition economies; and finally the USA and Canada. The the main organically produced product groups which are traded internationally are:

• - Fresh fruit and vegetables

• - Dried fruits and nuts

• - Processed fruit and vegetables

• - Coffee, tea and cocoa

• - Spices and herbs

• - Oil crops and derived products

• - Sweeteners

• - Grains

• - Dried leguminous vegetables

• - Meat, dairy products, eggs

• - Alcoholic beverages

• - Processed food/food preparations

27. In addition, some non-food products, e.g. feeding stuff, seed grains and cotton, should also be mentioned. The forthcoming ITC study will attempt to give details on each of these product groups with regard to specific items and countries of supply. Developing countries are very important exporters of many of these product groups, e.g. fresh fruit and vegetables, spices and herbs, coffee, tea and cocoa. On the other hand, they are insignificant suppliers of meat and dairy products, alcoholic beverages and food preparations, though there are some notable exceptions.

28. As far as organic citrus fruit is concerned, several countries are already significant producers and exporters, notably the following:

Argentina: Fresh oranges (Navel, Valencia), mandarins (Champion, Ellendale, Murcot, Dancy), grapefruits.

Processed products, including juices (orange, mandarin, grapefruit), essential oils, marmalades, pickled or candied peels.

Israel: Fresh oranges (Valencia, Shamouti, Navel), lemons, white and red grapefruits, easy peelers (Satsuma, Minneola, Orlando, Topaz, Tempel), sweeties, pomelos, kumquats, limequats, limes.

Processed products, including juices and concentrates from oranges, white and red grapefruit, lemon and mandarin.

Italy: Fresh lemons, clementines, mandarins, grapefruit (Star Ruby), oranges (Tangelo, Navel, Moro, Tarocco, Sanguinello, Ovali, Valencia Late), bitter oranges, kumquats.

Processed products, including yellow and red orange juice and concentrate, lemon juice and concentrate, essential oils (orange, lemon, mandarin).

Spain: A wide range of fresh fruit and processed products.

United States: Fresh oranges (Navel, Temple, Valencia), lemons, mandarins, tangelos, ruby and white grapefruits, pomelos, limes, tangerines.

Processed products, including fresh squeezed orange juice and grapefruit juice.

29. Several other countries also produce one or more type of organic citrus fruit, including the following countries in Africa: Egypt, Morocco, Sudan and Tunisia; in Latin America: Bolivia, Brazil, Costa Rica (orange juice), Cuba, Honduras, and Mexico; as well as Australia and New Zealand. Certain other countries are also growing organic citrus, though they have not yet been certified as such.

V. CONCLUSIONS

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30. The market for organic food and beverages is growing rapidly in most countries of Western Europe, North America, Japan and Australia, as well as in some developing countries. The fact that the share of organics is still small in all markets indicates a considerable long term potential. Expectations of growth are underscored not only by increasing consumer awareness of health and environmental issues, but also by more goal-oriented and aggressive promotion by the major retail groups. Product development and innovations in packaging by food processors and manufacturers, as well as supportive government policy in many countries will also help increase world demand.

31. In the short to medium term, insufficient supply of organic products will be the main problem rather than lack of demand. Though domestic production is growing rapidly in many markets, e.g. France, demand appears to be increasing even faster. This opens up opportunities for suppliers, including exporters in developing countries, not only for those already in the business but also for others who would like to start production.

32. Developing countries already produce a wide range of organic products and many are doing relatively well. However, most of them are still very often faced by a number of constraints, such as lack of technical know-how, for example organic farming practices and production methods, and lack of market information, for example which products to grow, which markets and distribution channels to choose, competition, market access, etc. A major problem that they face in common with producers in developed countries, is that of certification, which poses not only a technical problem but adds considerable costs to the product, which have to be borne by the consumer in one way or another. Nevertheless, importers, food manufacturers, retail organizations and consumers need a guarantee of organic origin.

33. Organic citrus fruit, fresh as well as processed, have already found their niche in the market place, and it seems that good prospects exist in most markets for a considerable increase in sales over the medium as well as the longer term. It should also be noted, however, that competition in organically grown citrus fruit is likely to increase considerably in the future, in particular in those markets that are themselves citrus producers. More work is certainly needed in developing the industry, both on the growing and processing side and on the marketing and distribution side, including market research, product and market development, etc.

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