Export market potential for

Clean & Organic

Agricultural
Products

By S. McCoy and G. Parlevliet

Rural Industries Research and Development Corporation

Organic Produce Research and Development

RIRDC Publication No 00/76 ! RIRDC Project No DAW-85A

 2000 Rural Industries Research and Development Corporation.
All rights reserved.

ISBN 0 642 58106 1

ISSN 1440-6845

Export Market Potential for Clean and Organic Agricultural Products

Publication No. 00/76
Project No. DAW-85A

The views expressed and the conclusions reached in this publication are those of the author and not
necessarily those of persons consulted. RIRDC shall not be responsible in any way whatsoever to any person
who relies in whole or in part on the contents of this report.

This publication is copyright. However, RIRDC encourages wide dissemination of its research, providing the
Corporation is clearly acknowledged. For any other enquiries concerning reproduction, contact the
Publications Manager on phone 02 6272 3186.

Researcher Contact Details

S. McCoy and G. Parlevliet
Organic Farming Project
Centre for New Industry Development
Agriculture Western Australia
Locked Bag No. 4
BENTLEY DELIVERY CENTRE WA 6983

Phone: (08) 9368 3219

Fax: (08) 9368 3946
Email: gerryp@agric.wa.gov.au

RIRDC Contact Details

Rural Industries Research and Development Corporation
Level 1, AMA House
42 Macquarie Street
BARTON ACT 2600
PO Box 4776
KINGSTON ACT 2604

Phone: 02 6272 4539

Fax: 02 6272 5877
Email: rirdc@rirdc.gov.au.
Website: http://www.rirdc.gov.au

Published in October 2000

Printed on environmentally friendly paper by Union Offset Printers
Foreword
Consumer interest in agricultural production methods regarding safety, health and the environment has
increased in the highly developed affluent markets of the world. Agriculture Western Australia in
conjunction with RIRDC recognise this as an opportunity to develop export markets based on
organic and clean agricultural production systems.

In order to capture a share of these expanding markets, the Australian organic agriculture industry
must develop supply capability matched to market demands. Information on target markets and target
products is important to attract and focus investment in the industry.

This publication forms Stage One of a project that aims to increase the export opportunity for clean
and organic agriculture. Details are provided of the size and characteristics of key target markets
including USA, Europe and Japan. Numerous export opportunities are identified and five target
products are highlighted for priority development.

Stage Two of the project forms a companion publication - Organic Products with Export Potential -
Production System Guidelines - that reports on organic production systems for select target products.

This report, a new addition to RIRDCs diverse range of over 450 research publications, forms part of
our Global Competitiveness R&D program, which aims to identify important impediments to the
development of a globally competitive Australian agricultural sector and support research that will
lead to options and strategies that will remove these impediments.

This project was funded from RIRDC Core Funds, which are provided by the Federal Government.

This report, a new addition to RIRDCs diverse range of over 600 research publications, forms part of
our Organic Produce R&D program. This program aims to optimise the profitability of Australian
organic production in both domestic and overseas markets and to promote the utilisation of organic
farming systems as a means of enhancing the sustainability of Australian agricultural systems

Most of our publications are available for viewing, downloading or purchasing online through our
website:
downloads at www.rirdc.gov.au/reports/Index.htm
purchases at www.rirdc.gov.au/eshop

Peter Core
Managing Director
Rural Industries Research And Development Corporation

iii
Acknowledgments

The authors of this report would like to thank the many people who have provided generously of their
time and knowledge.

Especially Brian Stynes, former Program Manager of the New Industries Program, Agriculture
Western Australia who provided the support to initiate this project. The New Industries Partnership
Group who supported the direction. RIRDC for support and guidance.

The many organic industry players in both production, marketing, retail, export and certification who
provided information and guidance.

The Project Reference Panel for agreeing to take part in the decision making.

The many agency staff in Departments of Primary Industry or Agriculture in Tasmania, Victoria, New
South Wales, Queensland and Western Australia as well as AUSTRADE, JETRO and Commerce and
Trade. For providing information and assistance.

The past members of the Clean Team - Gillie Brown, Bill Woods, John Burt, John Holmes and
Eleanor Melvin-Carter and Alan Johns for early support.

Staff of AGWEST Trade and Development especially Henry Steingeisser, Besko Trhulj and Matt
Yamamoto.

iv
Contents
Foreword ............................................................................................................................... iii
Acknowledgments ................................................................................................................. iv
Contents.................................................................................................................................v
Executive Summary .............................................................................................................. vi

Section One ..........................................................................................................................1

Introduction........................................................................................................................ 1
Aims and Scope................................................................................................................. 3
Terminology and Perceptions ............................................................................................ 5
Consumer Trends and Attitudes .......................................................................................15
Business and Food Industry Trends..................................................................................20
Government Trends and Support......................................................................................23

Section Two ........................................................................................................................25

World Trade in Organic Products......................................................................................25
EUROPE General Profile .............................................................................................27
GERMANY Profile........................................................................................................31
FRANCE - Profile............................................................................................................33
UNITED KINGDOM - Profile ...........................................................................................36
The Netherlands - Profile ..................................................................................................41
JAPAN Profile ..............................................................................................................43
United States of America - Profile ...................................................................................51
Organic Agriculture in Australia.........................................................................................55
Conventional ImportExport Trade ...................................................................................63

Section Three .....................................................................................................................71

Product Group Profiles......................................................................................................71
Target Product Selection ..................................................................................................85
Selected References ........................................................................................................91
Appendix...........................................................................................................................93

v
Executive Summary
Agriculture Western Australia and RIRDC initiated a Clean Agriculture Project with the aim of
increasing the export opportunities for clean agricultural products able to be produced in Australia.

The project is divided into two stages:

Stage One: Evaluate the market potential for clean and organic agricultural products and select
target products for further development.
Stage Two: Determine production system guidelines for a limited number of selected products.

This report forms stage one of the project. Findings from stage two of the project can be found in the
companion report Organic Products with Export Potential Production System Guidelines

The study confirms that consumer demand, in the highly differentiated food markets of Europe, Asia
and North America, is increasing for food and agricultural products that are perceived to be healthy
and have low impact on the environment. A willingness to pay a premium for such products is
apparent where products carry a verifiable assurance they are safe, nutritious and produced using
systems with limited impact on the environment.

Various terms are used to convey the impression that a product has the desired attributes regarding
safety, health and the environment. Credible verification of these attributes can be achieved by the use
of independently audited quality assurance schemes. These Quality Assurance systems tend to focus
on specific criteria or quality specifications and are generally aimed at wholesale buyers or importers
rather than retail consumers. The term organic or organically produced has become widely accepted
by consumers as meaning safe, healthy and environmentally friendly. Standards and independent
verification systems for organic production and labelling of organic products are well established.
Strict regulations control trade of organic products in the European Union and national standards are
proposed for the USA and Japan.

Organic products have become clearly differentiated in many markets to the point where products
labelled as organic are being used by mainstream supermarkets as an image asset to attract
customers. The introduction of organic products into mainstream retail outlets is likely to further
stimulate demand.

The major markets for clean and organic agricultural products are Japan, Western European countries
including Germany, France, the UK and the Netherlands, as well as the USA. Other important
markets include various European countries with high per capita consumption of organic food such as
Denmark, Austria, Sweden and Switzerland. A number of South East Asian countries with potential
for Australian exports include Singapore, Malaysia, Hong Kong and Taiwan.

World trade in organic products is estimated at US$11 billion in 1997. Growth rates have been in the
order of 20% per year for the past 5 years. Organic foods are reported to be the fastest growing sector
of the food industry in the USA, Japan and a number of European countries.

Within the organic sector processed foods have emerged as a major growth area, reflecting the
underlying consumer trend for convenience. A number of major food industry companies are reported
to be taking strategic positions in the organic industry.

Europe and Japan are the fastest expanding markets with the USA and New Zealand producers the
quickest to respond to these market demands.

Australia has lagged behind other countries in responding to clean and organic market demands. The
organic industry in Australia is estimated by industry sources to be worth in the order of $A200-250

vi
million, including an estimated $A30-50 million in export trade. Australian organic standards and
related export regulations have established a good international reputation.

Australia currently exports relatively small volumes of a wide range of organic and biodynamic
products. Limited production appears to be the major impediment to capturing a greater share of these
rapidly expanding markets.

An Australian-wide reference panel helped determine target products. Products indicated as having
potential for further development are:

Priority Likely Possible

Beef Apples Broccoli
Carrots Asparagus Eggs
Citrus Banana Fish
Wheat Canola Grapes
Wine Dairy products Herbs
Honey Nectarines
Oats Pears
Rice Plums
Soybean Poultry
Safflower Potato
Sugar Sunflower
Onions

Organic production system guidelines for the five priority products; beef, carrots, citrus, wheat and
wine are provided in the companion report Organic Products with Export Potential Production
System Guidelines

However, markets exist for potentially all agricultural and horticultural products and further work will
be needed to support these in the future.

vii
 Section One
Introduction

Opportunities for clean agriculture exports

This report was produced as part of the Clean Agriculture Project jointly funded by Agriculture
Western Australia and the Rural Industries Research and Development Corporation (RIRDC).

The overall aim of the project is to Increase the export opportunities for clean agricultural product
able to be produced in Australia. The project has two stages as follows:
Stage 1: Evaluate the market potential for clean or organic food and other agricultural products for
export. Select target products and markets.
Stage 2: Determine production system guidelines for selected target products.

The second stage of the project is based on selected products determined in Stage 1, together with
recommendations from an Australia wide panel of industry members. The stage 2 report Organic
Products with Export Potential Production System Guidelines provides production guidelines
for a limited range of 5 products.

The project was initiated in recognition of a growing demand trend in export markets for products that
are distinguished by various attributes perceived as being clean. The term clean is used in a
generic sense to include the wide range of product labels and nomenclatures aimed at capturing a share
of this expanding market sector.

Consumer demand in the highly differentiated food markets of Europe, Asia and North America is
increasing for foods that are perceived to be healthy and have low environmental impact. A
willingness to pay a premium for such products is apparent where products carry verifiable assurance
that they are safe, nutritious and produced using systems with limited impact on the environment.

A wide range of terms can be used to define the concept of clean agricultural products. However,
products promoted as organically produced have emerged as a clear and distinct market sector.
Consumers increasingly perceive organic products as satisfying concerns relating to food safety,
nutrition and environmental impact. Many products formerly marketed with poorly defined terms
such as natural or green have evolved into organic products. Products labelled as organic have
become clearly defined and well recognised.

Demand for organic products has been expanding by 20% per year for at least the past five years, with
world trade estimated to be US$11 billion in 1997. Organic products are the fastest growing sector of
the food industry in a number of major food markets.

Australia has great potential to enhance its existing reputation as a supplier of clean and green
agricultural products and capture a share of the expanding organic and clean markets. However, these
typically affluent, highly sophisticated markets are very discerning regarding information, particularly
in relation to overstating benefits or loose and misleading claims about clean attributes. Markets
increasingly require objective proof of organic, clean or other quality claims.

Australia has lagged behind other nations, notably the USA and New Zealand, in developing
production systems and products to suit these markets, particularly the rapidly expanding markets for
products described as organically grown and processed.

1
The organic agriculture industry in Australia is still relatively small. However, there is growing
interest among Australian agricultural producers and processors in clean and organic production and
markets. Mainstream conventional agricultural production can benefit from opportunities arising
through the establishment of new clean or organic export markets, and from advances developed by
these production systems. For example, better use of biological control methods, net margin benefits
to farmers from lower input costs or enhanced access to export markets may result.

This report forms part of the first stage of a Clean Agriculture Project and aims to provide some
definition and detail to the concept of clean markets for agricultural products.

The report is specifically focused on markets for organic or biodynamic products, as these products
form a clear and distinct expanding market sector that encapsulates the clean concept. Products free
from GMOs (genetically modified organisms) have also emerged as a distinct market category
particularly for EU food processors.

Profiles are provided of the major markets for organic or clean products, including USA, Japan and a
number of European countries, defining their size and characteristics.

The report reviews current organic agriculture export trade from Australia and selects a range of
products considered likely to have good export potential for future export development.

2
Aims and Scope
Aim of this report
The aim of this report is to provide a market perspective of the concept of clean as related to
agricultural products, and to describe the relevant major markets, and their trends and characteristics.
This information is used to define potential Australian export market opportunities for clean
agricultural products.

Scope
The scope of this report involves three main aspects: the definition of the term clean; the extent of
markets to be reviewed; and a national Australian focus.

The term clean agricultural products is used as a generic approach intended to capture a range of
various concepts and labels that may be used in the marketing or promotion of products that aim to
portray a clean image in the mind of consumers.

A wide array of terminology can be considered to target this clean image. A chapter in this report
examines many of these terms. However, most of these terms do not provide the basis for clear
product distinction that is differentiated in market research from other product sectors.

A major exception is products labelled as organic or biodynamic. These products now form a
distinct and differentiated sector in virtually all food categories. The term organic has become
well recognised in the mainstream food industry and a considerable body of market research
identifies organic as a distinct market sector that encompasses clean agricultural attributes.

For the above reasons, the main focus of the report is on products known as organic or biodynamic.
However, identified market interest in other product descriptions including chemical free and
genetically modified organism (GMO) free is reported.

World Markets
The report is not confined to any specific target export market. The market research reported covers
the major world markets for clean and organic agricultural products including Europe, USA and Japan.
While it is not possible to cover all potential export market destinations, profiles are provided of
selected countries. A section on conventional agriculture import is included to give an insight into
where potential clean product markets may be established. Similarly conventional export patterns
may indicate potential competitors.

Australia Wide
The report is intended to have an Australian wide focus for potential clean agriculture export
opportunities. It is envisaged that different States may individually or jointly use this report to further
the development of potential export markets for clean agricultural products. Also, the report does
not focus on any one particular agricultural industry. The scope covers all agricultural products in
general, including processed products.

Methodology
Objective statistical data for clean or organic products is generally not available from normal sources,
therefore, the accuracy of many of the figures reported are difficult to determine and must be treated
with due caution. Where estimates of trade values vary, the range of values is provided.

3
The market research is based on desktop reviews of available literature, anecdotal evidence collected
and personal communications.

Information on current Australian exports of organic and biodynamic products was gathered by
telephone survey of the major organic export traders within Australia.

The methodology incorporated the following major steps:

A review of literature from a wide range of sources on clean and organic food markets world-
wide.
Examination of the regulations and standards involved in organic certification and the role of
quality assurance programs.
Telephone interviews with major Australian organic product export traders.

Formulation of a decision matrix to aid selection of target products.

4
Terminology and Perceptions
What is clean
The concept of clean agriculture products has emerged in response to increasing consumer concerns
relating mainly to safety and health aspects of food products, but can also include the impact of
agricultural production on the environment.
In its simplest sense, clean means that a product is pure or free of contamination from various residues.
Residues may be physical, chemical or microbial. Physical residues can include foreign objects and
materials from either the production or processing of foods. Chemical residues may derive from
pesticides, herbicides and fertilisers or incorrect use of cleaning agents and other chemicals used during
food processing. Microbial contamination can occur through unhygienic work practices. More recently,
some consumers may define clean food as being free of genetically engineered organisms.
In general terms the concept of clean food is defined subjectively in the poorer, less developed
countries. In contrast, the highly differentiated and sophisticated affluent markets rely on objective
definitions based on well documented standards and verification systems. The definition of clean and
relative importance of these consumer concerns can vary between different countries. In many European
markets environmental, natural resource and sustainability issues appear to have greater relative
importance than in some Asian markets. The definition and importance of clean is changing in each
market over time, becoming more clearly defined with increasing affluence.
A range of new terminology is being generated as a means of differentiating and promoting products into
clean market sectors. Developing successful export markets for clean products will require an
understanding of the major underlying consumer concerns in the target country and the adoption of
appropriate terminology in addition to meeting legal standards.

Organic related systems

The grouping of production systems loosely described as organic covers many different origins and
philosophies. They tend to have in common the desire to improve the environment they work in,
improve the soil and farmer health, rely on biological processes and agents to balance themselves, and
avoid the use of artificial chemicals and fertilisers, either from a concern about health, the environment
or to reduce the demand on energy.
Organic
Organic agricultural products are generally considered to be those produced without the application of
artificial fertilisers and chemicals and with a high degree of environmental awareness. The growers are
committed to improving soil and land. This is a generic term and growers may use techniques from a
range of philosophies to ensure they achieve their aims. There are many organic certifying bodies
around the world that tend to have similar standards but with variations in interpretation and application.
Biodynamic
Biodynamic agricultural products are those grown using the indications first given by Rudolf Steiner
and subsequently developed. The producers also use no artificial fertilisers and chemicals and use a
number of preparations to stimulate natural processes.
Biological
This term can be used to describe farming systems that encourage the use of biological systems to
improve their land and produce their products. The general organic principles of not using artificial
fertiliser and chemicals apply. They may use some biodynamic techniques. Biological farming and
bio products are terms often used in European countries as equivalent to organic farming.

5
Ecological
This is not a term used in the context of Australian production systems by many people. However it is
used in some countries as another way of referring to organic systems. It tends to have its basis in
agro-ecological/sustainable systems where companion crops are used to provide a more resilient
production system. The terms are generally associated with being produced in a environmentally
friendly way. Ecological farming and eco products are terms also used in European countries as
equivalent to organic farming.

Natural
This term is being increasingly used in three contexts:
Marketing
Products are being marketed as natural in many ways. Natural can have the illusion of fresh,
grown in nature and its associated perception of clean air, sunshine, etc. Generally the term is
not well defined. The Collins English Dictionary defines natural as in accordance with,
belonging to, or derived from, nature.

Organic equivalent
Some organisations are using this terminology to imply similar methods to biological and
organic agricultural systems but usually without independent certification of compliance with
defined standards.

Harvested from nature

Products are being marketed as natural when the product is harvested from natural populations
without production input from man. These may be fish, coconuts or fruit. The assumption is
that the product has therefore not had any contamination.

The term natural has been further utilised as a marketing tool by producers using very little
management, e.g. cattle from pastoral areas.

Green
Products and systems that are perceived to be responsible or sensitive or have low impact on
environmental processes in their production are often referred to as Green.

Earth-sustainable
This term has been created to define the middle ground between conventional and organic farming,
with a focus on sustaining resources, especially water and soil. The Hartman Group, USA, coined the
term.

Low input sustainable agriculture (LISA)

A production system that uses less inputs and relies to a greater degree on biological control measures
to manage production compared to high input, mainstream conventional production. The term is used
in the USA.

Products that are free of contamination

The food industry at all levels is becoming more aware of the risks associated with contamination of
food by chemical, physical and microbial material. Recent serious food contamination cases in
Australia and in overseas markets have heightened consumer concerns and highlighted adverse market
impact on manufactures and growers.

Quality assurance programs are being adopted by the food industry to help counter contamination
risks. There is a range of terms used to indicate that a particular product is free of, or has reduced risk
of, contamination.

6
The most commonly used ones are:

Clean
Originally used more to indicate washed and free from dirt, clean is now used to indicate agricultural
and food products that are known not to have chemical contamination.

Clean food can be defined as food that meets all the maximum residue limits (MRLs) and maximum
permitted concentrations (MPCs) for domestic and export markets.

Safe
Used more in the context of food free from contamination of dangerous microbial material and toxins
as well as physical material such as metal or glass. This term is used extensively in promotion of
personal hygiene for workers in places producing food, and food preparation techniques in retail and
manufacturing.

Nutritional food
The changing interest in health and the increasing awareness of the nutritional value of food has
resulted in a number of terms coming into common use.

Fresh
Used extensively in association with perishable products, mainly vegetables, fruit, milk and baked
products such as bread. The context is to indicate the product is free of deterioration, not stale, has
been freshly cut and therefore has more value nutritionally and is less likely to have microbial
contamination. Although the term has no recognised meaning in a regulatory sense, it has strong
commercial value for some retailers.

Healthy
Used in the context of the nutrients and health value of the products for the consumer. It has been
used in promoting consumption of less processed food to ensure consumers get adequate intake of
vitamin, minerals, fibre, energy and protein.

Health foods
This term has been used for many years to describe the specialist foods available in Health Shops.
These have generally been exotic, soybean based, unprocessed grain, bran, bulk honey, and non-
packaged muesli as well as vitamin and mineral supplements. The products rarely claim to be safe or
clean or organic. The claims were similar to those now being called functional food. The main claims
are related to better nutrition, health benefits and the like.

Nutritious
Similar to healthy in that the emphasis is on the nutritional value of food for a balanced diet.

Wholesome
Similar to health foods and nutritious with emphasis on complete nutrition without loss due to
processing or other treatments. The term has been used more in the past, prior to concerns about
contamination. The Collins English Dictionary defines wholesome as, tending to promote health,
nourishing, beneficial

Specialised terminology or new speak

In recent times new words and meanings have been introduced into the food market. They have no
standards and are seen to be a marketing communication activity to increase prices and market share.

7
Some of these are:
Functional food
A term being used to promote food products which have or claim to have specific value to the health
of the consumer beyond the basic nutrition. These include vitamin enriched products, calcium
enriched milk products, products with acidophilus bacteria, e.g. yoghurt. The term is also used to
describe products or food which is claimed to have some benefit in improving or preventing cancer or
cholesterol levels.

Terms with similar intent include Pharmafood, Designer food and Nutraceuticals.
Other terms likely to appear
In discussions on Clean Agriculture a number of other terms may appear. These include:
MRL
Maximum Residual Level (MRL) refers to the maximum residue of any toxin or chemical permitted in
a product at point of first sale. One chemical or toxin may have a different MRL for different
products. In addition, the MRLs can be set at different levels in different countries.
MPC
Maximum Permitted Concentration (MPC) is similar to MRL and refers to concentrations of
chemicals or toxins allowable in a product.
Food safety
Ensuring food is safe to eat from a microbiological and contaminant perspective.
Food quality
Has more to do with specifications relating to qualities such as appearance, taste and consistency
rather than food nutrition or safety.
Microbial contamination
Food contaminated at any stage of production, transport or preparation by bacterial, fungal or other
biological organism, particularly those that could cause ill health or spoilage.
Chemical contamination
Food contaminated at any stage of production, transport or preparation by chemicals such as
herbicides, insecticides and sterilising agents particularly those that could cause ill health.
Heavy metal contamination
Food contaminated at any stage of production, transport or preparation by heavy metals such as
mercury, lead, cadmium and others, particularly those that could cause ill health.
Genetically modified organisms (GMO's)
Also referred to as GE (genetically engineered). These are a recent development and refer to any
organism, plant, microbial or animal, that has been modified by adding or replacing genes using
recombinant DNA transfer.

In Europe, the use of GMOs in the food industry has become a major public policy issue. In 1999,
UK media focus on controversial research into the health effects of GM food resulted in the largest
food industry reaction since the BSE mad cow disease disaster. Nearly all the major UK food
processors and retailers announced a moratorium on their use and sale of GM food products.

Concern is being expressed regarding the possibility of potentially harmful/undesirable remnants of

DNA left in the organism and subsequent food products. There is also concern about the potential

8
development of super resistant target organisms. Another issue raised in the GMO debate is higher
residue levels in food products derived from GE herbicide-resistant crops.

Debate also continues over labelling requirements for products that contain ingredients derived from
GMOs. Some markets are differentiating GMO from non-GMO products in response to consumer
concerns. Trial labelling by Unilever UK on one of its frozen food items, Beanfeast, led to such a
dramatic lose of sales it was instrumental in that companies decision to cease using GMOs in all of
its product lines. Most EU countries are moving towards strict labelling requirements. This is
presently being resisted by the USA.

Organic production and processing prohibits the use of GMO's.

Conventional farming
This term is used in many discussions to distinguish the way mainstream contemporary farmers and
processors produce their products from alternative agricultural systems. Conventional techniques vary
widely ranging from high input to low input of agricultural fertiliser, chemicals or other substances.
Clean or organic
When the market wants clean it is looking for products that can be guaranteed to have a low or zero
risk of chemical contamination. Importers are looking for third party certification that documents the
status of a product. This is both for marketing purposes, if they are targeting an organic market, or as
a means of safe-guarding themselves from legal action, or because they are promoting a clean image.

Organic production and certification systems are a reliable way to ensure product is clean. This is
particularly so when organic certification systems have been accredited by a rigorous independent
authority.

It is less clear whether consumers are particularly concerned about the other values often associated
with organic products (e.g. philosophical, inherent value, etc.).

It may be possible to export products from conventional systems of production into clean markets,
provided the target market has clear specifications defining the required clean attributes, e.g.
chemical residue free. The increasing use of SQF 2000 and ISO 9000 quality assurance programs
can help develop these options.
A clean continuum
The wide range of product descriptions used to portray some notion of clean may be best categorised
according to production methods. The conceptual outline illustrated below provides some indication
of the extent of clean qualities that can be attributed to the various production systems. While the
location of a production system on the spectrum may imply more or less clean attributes, commercial
realities and practical feasibility will generally determine the predominate production system and thus
the mainstream approach adopted. Clearly, however, consumer driven safety, health and environment
concerns are shifting mainstream conventional production systems along the continuum.

The Clean continuum - a conceptual spectrum of production systems

Wild harvest CHEMICAL/INDUSTRIAL

Biodynamic
Organic
Chemical free
Reduced pesticide
Low input
Sustainable minimum till
Conventional
BIOLOGICAL/NATURAL High input chemical intensive

9
Standards, Regulations and Quality Assurance

In the highly differentiated food markets of Europe, Asia and North America consumer demand is
increasing for foods which are perceived to be healthy and have low environmental impact. A
willingness to pay a premium for such products is apparent where products carry verifiable assurance
that they are safe, nutritious and produced using systems with limited impact on the environment.

There is a trend across all markets for objective proof to support product claims of cleanliness, safety,
environmental benefits or other specified attributes. This is particularly so for imported products.

Quality assurance systems

Assurance that products do satisfy some of the above attributes can be provided by various means. A
range of internationally recognised quality assurance (QA) programmes are available in Australia that
may be designed to achieve specific quality criteria outcomes as required by target markets.

There are three QA programs that may be applied in food and agricultural production or processing as
a means of assuring certain product qualities:
SQF 2000 (Safe Quality Food) - Devised by Agriculture Western Australia, this Australia
wide Code provides a system for food based enterprises to demonstrate compliance with food
safety standards and customer quality requirements. SQF 2000 provides for an on-farm, all-of-
farm, quality system with one auditor. All businesses in the supply chain can use the system. It
includes the Hazard Analysis Critical Control Point (HACCP) System and is compatible with
the ISO 9000 standards. The system is designed to be simpler to apply to farms than ISO 9000.
There is some emphasis on economic management and preventing physical or chemical
contamination. The scheme is independently audited but relies on the management of the
company or farm setting its own levels.

ISO 9000 Series (International Organisation for Standardisation) - This series of

internationally recognised standards includes 9001, 9002, 9003 and 9004. These QA systems
are designed for the purpose of a supplier demonstrating their capability and for assessment of
the capability by external parties. The standards are generic and independent of any specific
industry and economic sector. They allow for the design and implementation of a quality
system to suit particular objectives, products and processes employed. The ISO 9002 Standard
can be implemented by growers and food manufacturers. It does not inherently require a
HACCP system and this is seen as a weakness. It is relatively complex for small business. The
standard is generally widely accepted, with the intention of allowing buyers to feel confident
that product they purchase will be of a consistent specified quality.

ISO 14000 Series - This series of standards cover environmental management and are intended
to provide organisations with the elements of an effective environmental management system
that can be integrated with other management requirements. The standards are not intended to
be used to create non-tariff trade barriers, but may be useful where importing countries have
interest in the environmental reputation of suppliers. Use of these standards may be more
appropriate for companies explicitly promoting green or environmentally friendly products
or production systems.

HACCP
The Hazard Analysis and Critical Control Points is an internationally recognised risk management
process on which a quality assurance system can be based. It identifies points in production which
may be hazardous, identifies which of these are critical and determines what action is needed to
prevent a potential problem from occurring. HACCP is essential for well-designed food industry
quality assurance systems.

10
Phytosanitary certification
These are certificates issued by quarantine services specifying that the plant products have been
inspected, or subjected to some treatment that ensures the product is free of pest, disease or other
prohibited contamination. Phytosanitary requirements can be a major impediment to the export of
fresh or raw product. They differ from country to country and also vary for different products.
Similar arrangements exist for animal products.

Organic or biodynamic certification

Increasing demand exists for products specified as organically or biodynamically produced. The
above QA systems tend to be applied to certain specific quality criteria within the broad range of
attributes clean consumers are demanding. In contrast, products certified organic or biodynamic
are increasingly perceived by consumers as satisfying the broad range of concerns relating to safety,
health and the environment.

Australia has been a world leader in putting in place systems that provide consumers in overseas
countries with verifiable assurance that Australian organic and biodynamic products are produced in
compliance with strict standards, inspection procedures and verification systems.

The Australian National Standards for Organic and Biodynamic Produce define organic farming as
follows:
Organic farming systems include those which are referred to as biodynamic,
biological, or ecological. Irrespective of which term is used, the basic principles
remain the same; namely production without the use of synthetic chemicals which
aims to achieve optimum quantities of produce and food of high nutritional quality.
Organic farming aims to nurture and maintain the land for future generations.
Emphasis is placed on the use of renewable resources, the need for conservation of
energy, soil and water resources and the maintenance of environmental quality. The
production cycle is as closed as possible, with some use of external inputs permitted.
These systems strive to be sustainable.

It is internationally accepted that the veracity of claims on the labels of organic products must be
underpinned by product and producer certification. The reputation and recognition of the organic
certification system is often of great importance to importing countries.

Three tiers of organic standards are possible: international, national and local.

International
- Setting global standards, accreditation of national or local organisations.
IFOAM (International Federation of Organic Agricultural Movements).
EU (European Union Organic Regulation 2092/91).
Codex Alimentarius (United Nations Food Standards) via Food and Agriculture Organisation
(FAO) and World Trade Organisation (WTO).

At the international level, IFOAM has historically been the driving force in pursuing uniformity of
organic standards world-wide by assessing standards, inspection procedures and audit trails used by
certification organisations. Where a certification organisation complies with IFOAM minimum
standards and requirements, accreditation is given. IFOAM accreditation can provide importers of
organic products an independent assurance that the certification system used is sufficiently stringent to
justify labelling the product as organic, regardless of the country of origin of the product.

11
The major benefits of standards (according to IFOAM) are:
increased consumer confidence;
fair competition;
non-discriminatory market access for producers;
keeping the initiative and the right to define what is organic within the organic sector.

Compliance with EU Regulations may also serve to facilitate trade by applying a uniform minimum
standard requirement. In the European Union, the production, marketing and labelling of organic
foods (from plant origin) are governed by EU Regulations 2092/91 (with amendments). This
regulation defines uniform rules governing organic production and processing for all EU member
States. The regulation requires that all imported organic products be produced, processed and labelled
under conditions equivalent to those in the EU and must meet EU production, processing and labelling
standards.

The Codex Alimentarius Commission is a body established by the Food and Agriculture
Organisation (FAO) and the World Health Organisation (WHO) of the United Nations. The
Commission is responsible for establishing minimum standards and guidelines in food related issues
and in doing so facilitates international trade. Membership of the World Trade Organisation obligates
countries to ensure that their minimum food standards comply, or endeavour to comply with Codex
specifications.

Codex guidelines for the production, processing, labelling and marketing of organically produced
foods have been adopted, except for aspects relating to animal production. The guidelines by Codex
Alimentarius may provide a framework for countries to establish organic standards and regulatory
systems based on internationally accepted criteria and should help determine equivalence in bilateral
and other agreements.

Uniform acceptance of one international standard for organic products is still developing. EU
acceptance of IFOAM standards is currently under review. IFOAM standards are reported to be more
widely acknowledged in other non-EU markets including Japan and USA.

The European Union and the USA have separately adopted provisions regulating organically produced
food products. A report comparing these provisions reveals distinctions between certifying
organisations, standards for substances used, reporting and compliance, and standards for organically-
produced products. Three significant issues are possible by one or more of these distinctions:
Particular terminology may form the basis for a controversy regarding equivalency requirements
that could preclude the marketing of foreign organically-produced products.
One or more provisions may offend the GATT; and
The effects on producers and products from third countries.

Implications for world trade may include the use of regulations for organically produced products as a
form of non-tariff trade barrier or, conversely, the imposition of less stringent organic standards to
improve potential access to some markets.

National
- Setting national standards, accreditation of local organisations.
A number of countries have established, or are in the process of establishing, uniform national
standards.
Australia - Australian Quarantine Inspection Service (AQIS), Organic Produce Export
Committee (OPEC).
UK - United Kingdom Register of Organic Food Standards Board (UKROFS).

12
 USA - Organic Food Production Act, USDA draft released.
Japan - MAFF (Ministry of Food Forestry and Fishery) Japan Agricultural Standards organic
labelling laws.
At a national level, in Australia for example, the Australian Quarantine and Inspection Service via
OPEC, in conjunction with the organic industry has created and updates National Standards for
Organic and Biodynamic Produce. These National Standards are administered by AQIS and serve as
minimum requirements that local certification organisations must satisfy in order to gain AQIS
accreditation. AQIS accreditation provides a buyer with independent assurance that the certification
system used is sufficiently stringent to justify labelling the product as organic. The AQIS National
Standards conform with EU Regulation 2092/91. Product certified by AQIS accredited organisations
can be exported with an organic label. A product cannot be exported with an organic label if the
certification system used does not have AQIS accreditation.

In the UK, local certification organisations must also comply with national standards to gain
accreditation. In the USA, national standards are in the final stages of being drafted and are intended
to bring uniformity across their organic industry.

Apart from AQIS accredited organic certification, many importing countries require additional
quarantine documentation such as phytosanitary certificates (issued by AQIS) to verify freedom from
prohibited material. It may be reasonable to expect organic products may come under closer
quarantine scrutiny than conventional products. A number of importing countries such as Hong Kong
and Singapore do not require phytosanitary certificates.

Local organisations
- Setting standards, conducting inspections and independent certification.
Australia has seven AQIS accredited organic or biodynamic certification organisations listed as
follows:
BFA (Biological Farmers Australia).
BDRI (Biodynamic Research Institute) Demeter label.
Eco-Organics of Australia (tea tree oil only).
NASAA (National Association for Sustainable Agriculture Australia Ltd).
Organic Food Chain
OHGA (Organic Herb Growers of Australia Inc.).
OVAA (Organic Vignerons Association Australia Inc.).

Contact details for all these organisations are included in the Appendix.

At a local level, certification organisations conduct actual inspection of farms, storage facilities,
transport, processors, manufacturers, input suppliers and other operations involved in the supply chain.
Local certification organisations typically have their own written organic standards and inspection
system, fee structure and ancillary services. Competition for clients exists among certification
organisations.

In a number of countries including USA, Japan and many European countries there are numerous
independent or State run organic certification organisations. Where unifying national or international
standards are not adopted, consumers are faced with a confusing array of differing levels of assurance
that products are truly organic.

13
In Australia, accreditation by AQIS ensures standards meet the minimum national requirements.
However, at present there exists no lawful requirement to apply the national standards for products to
be labelled or sold as organic on the Australian domestic market. Introduction of organic food
labelling laws for the Australian domestic market has been proposed by the organic industry.

In the USA a large number of certification organisations exist without any uniform standards or
inspection requirements. This can lead to organic standards being lowered in order to attract clients.
A similar situation may be found in many countries.

14
Consumer Trends and Attitudes
General trends
The concept of clean food moves from unimportant to increasingly important with rising affluence,
increased sophistication and changing food demand as consumers gain a wider choice in product
variety and styles.

The two major trends within the food industry, especially in affluent societies, are considered to be
toward convenience and health or safety.

Over the last decade public awareness of environmental issues has also increased significantly. In
addition, a number of incidents relating to food safety have made consumers less confident, and
trusting, of agricultural production and processing systems.

Convenience
People like to avoid effort and inconvenience in buying, preparing and consuming food. This is a
result of changing social and demographic trends. Individuals tend to have busier lifestyles. They
also live in smaller households. In the UK, 66% of all households consist of two people or less. The
role of women has also changed radically. Better educated and employed with rising incomes, women
have different options and attitudes to housework.

The consequence has been a rapid growth in the restaurants, fast food outlets and one stop
supermarket buying. It has seen an increasing share of services or processes applied to food, and the
fast development of time-saving shopping systems and habits.

There has been tremendous growth in the development and sale of convenience goods. Products such
as canned baby food, deep frozen sliced vegetables, ready to cook soups, instant noodles, complete
ready meals both fresh and frozen, are some examples of the convenience solutions supermarkets have
offered.

Safety
Growing concern about residues and additives in food has caused a deterioration of public confidence
in the integrity of its food supply. Paradoxically, food safety in general has never been at such a high
level. Consumer perceptions are subject to influence by numerous food scares compounded by
extensive media attention.

The result is a growing demand for controlled foods, health foods and organic foods, which promise
more food safety, with more transparency and less alienation in the production and distribution
system.

Perception of food safety is the critical factor. Concerns such as chemical residues in plants and
animals, the presence of BSE, GMOs, salmonella, E. Coli and other microbiological contamination,
residues of antibiotics and growth hormones in animal products, and use of artificial food additives in
processed food have all received media coverage. This can and does lead to consumers as well as
public officials reacting with serious market impacts and policy consequences for the conventional
food industry. The issue of GMOs in food production is a recent example.

15
 GMOs AND THE UK FOOD INDUSTRY
In early 1999 the use of genetically modified organisms in food products became the most serious
food scare since the mad cow disease disaster. The issue took off as a media story after the
release of some controversial research results and the active campaigning of environmental pressure
groups including Greenpeace.

Consumer response to news of Frankenstein foods was such that a number of leading supermarkets
announced policies of not stocking lines containing GMOs. A trial labelling by Unilever UK on one
of their popular brands Beanfeast, saw sales plummet.

Food manufacturers including, Unilever UK, Nestle UK and Cadbury Schweppes, the largest food
processors in the country, all announced moratoriums on their use GE foods, labelling of existing
products, and a phasing out as alternative non-GM sources were found.

Most major supermarket chains have announced an end to sale of GM products and the formation of
a consortium to access GM-free raw materials for their own-brand food lines. Many other European
environmentalists expect their own countries food industries to follow the UK lead.

Cancelled orders for products not identifying their GMO status, particularly food ingredient base
materials such as oil seeds, soya bean and thickening agents commonly used in processed products are
reported to have impacted on US, Canadian and NZ growers. Demand for organic or green products
may be enhanced by consumer concerns related to new technologies. Organic is seen as a sure way to
avoid GMOs.

Environmental awareness
Environmental awareness among an increasing number of people, particularly in the highly
industrialised regions, is another important factor for the growth of demand in clean and organic
agricultural products.

Issues of concern related to the environment include pollution of drinking water and rivers, the
greenhouse effect, depletion of the ozone layer, and the reduction of natural resources. Conventional
agriculture is considered to be partly the cause of these concerns. While most consumers do not
currently make the link between the environment and the way their food is produced that situation is
changing. Organic agriculture is increasingly perceived to be a preferable alternative. This
heightened awareness and concern of food safety and environmental issues has caused agricultural
producers, food marketers and governments to respond in a number of ways. Governments have
banned the use of some toxic chemicals and imposed tighter regulations relating to food safety and the
environment. Agricultural producers use softer, less toxic chemicals and have broadened the range of
techniques used to reduce reliance on chemicals and lessen the impact on the environment.

The marketing of agricultural products has changed as many growers and traders market products as
organic, residue free, or clean, attempting to capture a share of the green consumer niche market.

The organic consumer

The main motivating factors behind consumer interest in organic or similar quality food and
agricultural products are outlined as follows:
Safety - Free from harmful chemical residues or additives, growth promotants,
biological contaminants or other perceived harmful agents or treatments such
as irradiation or genetically modified organisms.

16
 Health - Able to provide health benefits through perceived superior nutritional
qualities, natural remedy, beneficial additives and reductions or elimination
of health risk agents (e.g. salt, fat, etc.).
Taste - Organic food, especially fresh fruits, vegetables and meats are believed to
taste better. Demand for more flavoursome foods comes from households
and quality restaurants.
Environment - Environmental concerns relate to farming and processing methods used and
their impact on the natural environment, use of resources, and general
sustainability of production systems.
Social - Issues relating to employment, rural social decline, alienation and a sceptical
view of social benefits derived from corporatisation of world agricultural
production and agribusiness.

Consumers who place a high value on all of the above factors are likely to be highly motivated to
purchase organic or similar quality products. The proportion of such consumers will vary between
different countries and market sectors within a country.

For example, in some of the highly developed organic markets of Europe, safety and health issues are
of primary concern, however strong value is also placed on issues concerning the environment. In
addition some northern European countries have considerable social motivation for supporting organic
agriculture. In contrast, some Asian organic markets value safety and health issues highly, but appear
to place little emphasis on environmental or social issues. Premium market sectors such as elite
restaurants will primarily be interested in superior taste.

Market research
In addition to variations between countries, within each country very complex and diverse market
segments may exist. The USA provides a good example of this consumer diversity. Reports by the
Hartman Group conclude that the green consumer is now mainstream and can no longer be
considered a marginal niche. Survey data shows at least 52% of consumers want to buy earth-
sustainable products, but most can not easily find such products that meet their core purchase criteria
(price, taste, quality, availability, and/or convenience). Six market segments are proposed reflecting
USA consumer attitudes towards the environment and the food they eat.

Six Segments of USA Consumers

(From: The Hartman Report Phase II Food and the Environment: A Consumers Perspective (1997))

New green Affluent Young

True naturals Overwhelmed Unconcerned
mainstream healers recyclers
7% 23% 12% 10% 30% 18%
Formerly Heartbeat of Well educated Young recyclers Not optimistic Apathetic
married America
Female Interested in the Upscale Never married Economically Reject that
environment just getting by chemicals harm
the environment
Highly educated Lack Well-being Reject paying a
opportunity focused premium
Lower and Need a reason Family and goal
upper income oriented

17
The characteristics of these market segments provide insights into which offer the most potential for
marketers of green products.

The Unconcerned reject that the environment is in danger, while the Overwhelmed are
preoccupied with personal economic survival and cannot worry about the environment. Both these
groups do not represent market opportunities in the near term.

The True Naturals are already converted and their commitment is strong enough to overcome
inconvenience and price barriers. These people are the primary core market for natural and organic
foods. Growth in this sector is expected to come eventually from the other segments as they become
more aware how purchasing green products can benefit the environment.

The Green Mainstream constitutes a large proportion of the population, and reflects the
demographics and psychographics of the USA population at large. These consumers care deeply
about the environment but do not know much about it. They are the secondary core market, however
they will not suffer inconvenience or pay higher prices unless they see added value. Their motivation
to purchase green products is limited by contradictory and confusing information. As they learn and
do more about the environment, this market sector offers enormous potential for producers of clean
and organic products.

The Affluent Healers are high income, highly educated, and care most about good nutrition, regular
exercise and the well being of their families. They care about the environment but are cynical about
all the hype associated with the promotion of environmental products. This group represents
significant purchasing power and will pay higher prices if added value is perceived. Their potential as
consumers of green products should not be underestimated.

The Young Recyclers are less concerned about food and nutrition than others but are very sensitive
to how products are packaged. They are concerned about the environment, although not always in
practice. They have good potential as consumers of green products.

Overall, the survey reported above showed that apart from the True Naturals the environment is not
the driving factor in their purchase criteria price, convenience, availability and quality are more
important. Consumers do not currently make the link between the environment and the way their food
is produced. However, the environment is gradually moving into the core purchasing criteria for those
three groups showing latent desire to purchase green products. As the Young Recyclers grow older
and gain purchasing power they may move into the True Naturals or the New Green Mainstream.
The Affluent Healers can play a significant role in leading the larger culture toward purchasing
green products provided they are presented with substantive, high quality, nutritious and genuine
earthsustainable products.

Other world markets for green/clean or organic products can be expected to display similar consumer
segmentation and dynamic development. Consumer surveys from other countries can be found in the
section of this report dealing with country profiles.

In most countries, interest in buying organic foods is much higher than sales figures. For example, in
Germany, 70% of the population expressed an interest in buying organic foods, but the market share of
organic food is less than two per cent of the total food market.

Factors limiting organic demand

A major factor limiting demand is lack of availability of organic foods where most people do their
shopping, i.e. conventional supermarkets. If consumers have to make great effort to find organic
products demand is suppressed.

18
Price premium can be another limiting factor. European evidence suggests price premiums above
30% lowers demand. In countries where lower premiums have been used such as Austria, Denmark,
Sweden and Switzerland, turnover has increased 30% to fifty per cent.

Product range can also affect demand. In most supermarkets the product range is relatively small,
often less than 100 different products, and this is another important limiting factor on demand.

The large number of trademarks for organic foods creates difficulties for consumers and hinders the
driving forces for the demand development.

Insufficient public relations and advertising campaigns will limit demand, particularly where
consumers are unaware that organic foods may satisfy some food safety or environmental concerns, or
that organic products are available.

Better merchandising must begin with an analysis of consumer preferences for organic produce.
Surveys carried out in the USA indicate that:
the quality has to meet consumer expectations;
a price premium of no more than 10% should be apparent;
consumers must be sure that produce sold as organic is authentic;
the proclaimed benefits of organic produce need to match the expected benefits that the
consumer seeks.

If a good range of organic foods can be offered with widespread distribution channels, moderate price
premiums, greater advertising campaigns and under a generic label, demand can explode.

Notes:

19
Business and Food Industry Trends
Companies have become increasingly aware that interest and concern for the environment is going to
impinge on business because consumers and the governments they elect are going to require
environmental responsibility. Any company which ignores community standards or refuses to accept
responsibility for the social consequences of its action may expect adverse consequences in sales or on
the share market.

Companies involved in the food industry are showing increasing interest in the market development of
organic and clean products. Organics is coming of age and capital markets, particularly in the USA,
are taking note and are now serious about providing resources to fuel growth. In Japan organic foods
are now categorised as one of the fastest growing areas of the food industry.

The organic agriculture sector is maturing and adopting many mainstream marketing principles and
processes.

An increasing number of Australian and overseas companies are taking a strategic position to pursue
and develop organic or clean products for some of the following reasons:
Capture new export markets.
Enhance existing product range.
Change production inputs and lower input cost.
Minimise liability and future litigation related to the use of chemicals.
Contingency against possible future trade barriers.
Market demands for clean product assurance.
Corporate image/strategic position.
R&D for future reference.

New export markets are emerging for organic and clean product where previously a company may
not have been able to penetrate the market. Alternatively, the inclusion of organic products in the
company product range can broaden sales and enhance reputation.

A number of wine producers in Australia have found the adoption of organic practices can enhance
existing reputation, particularly for premium quality wines. In France it is reported to be fashionable
for top end wine producers to follow biodynamic farming principles. A similar trend can be found in
other sectors, including apparel where Esprit, Vanity Fair and other top end fashion labels are using
organically produced fabric as a premium marketing distinction.

Changing inputs to comply with organic standards has the potential to reduce workforce exposure to
harmful chemicals, decrease reliance on chemicals that may become banned or have diminishing
effectiveness, and possibly lead to more sustainable and environmentally responsible production.

The possibility of litigation was reported to be the main motivation for converting to an organic
farming system for a large agricultural producer in the USA. Liability laws in this regard may be
applied more often as the effect of agricultural chemicals and other treatments come under closer
medical and scientific scrutiny.

New precedents under EU law may mean supermarket executives can be held liable for the health
consequences of retail products, irrespective of where fault occurred in the supply chain.

20
The requirement for various forms of quality assurance is becoming commonly accepted as a
requirement for export trade. These quality assurances usually cover defined product specifications.
Increasingly, products may also be required to meet other product or production system criteria such
as freedom from banned substances such as growth hormones or residue limits as well as sustainability
and environmental impacts. Regulation may be expected to tighten in this regard, particularly for
imported products into Europe.

A number of companies are using the development of a few organic products or devoting a small area
of production to organic systems as part of their research and development strategy, e.g. Southcorp
organic wines. Experience and knowledge gained can be applied to larger scale operations as
circumstances and commercial opportunities emerge. Involvement in these projects also provides the
basis for enhancing the image of an innovative and responsive company. Tesco, the UK supermarket
giant, sponsors an Aberdeen University research institute looking into new farming techniques
designed to allow large scale organic production.

The emergence of a wide range of organic processed products in virtually all food categories has
become an important factor in the movement of organic foods into mainstream food retailing.
Processed foods have become one of the fastest growing sectors of the organic food industry. Interest
in processed foods follows an underlying trend in the food industry. International trade in processed
foods has been the most rapidly growing portion of world food and agricultural trade during the past
decade. The value of processed foods substantially exceeds the value of unprocessed agricultural
commodities and is expanding more rapidly.

The opportunity for strategic alliances with foreign food industry companies is strong given the
international surge in foreign direct investment in plants and facilities. For example, US food
manufacturers' sales through foreign affiliates were more than quadruple the value of processed food
exports from the USA in 1996.

Retail outlets for organic products is shifting from niche speciality stores to mainstream supermarkets.
The high market growth of organic foods may be attributed to increased retail availability, the result of
a more active role of large food industry retailers such as the major supermarkets. Consumer pull on
retailers is fast developing into supermarket push as competition between supermarkets and other
retailers for a share of the organic market gains momentum. Organic products are becoming an
image asset, drawing a growing number of retailers to carry these products.

In the UK competition between the major supermarket chains has intensified as each claims to offer
the greatest range of organic products in an attempt to position themselves as the leader in safe,
healthy and environmentally responsible products.

A similar situation is emerging in other European countries such as France and Switzerland, whereas
in Germany and Holland the organic market is still dominated by smaller specialty stores.

In the USA mainstream supermarkets are just awakening to consumer interest in organic food. This
interest follows on the success of specialty natural food supermarkets which stock organic and natural
products. These specialty supermarkets now have their own chains of stores across the country with
plans for further expansion.

The movement of Japans supermarkets into organic products is also beginning. This development
appears to be in reaction to the success of other retail sectors, particularly the large consumer
cooperatives, in capturing the organic market.

Markets (supermarkets) want long lines of biologically clean product, of consistent quality with
minimal impact on the environment.
Consistent quality problems can be solved by getting growers to produce to defined
specifications.

21
 Food safety concerns are met by differentiation - offering products free of chemicals or
contaminants.
Environmental impact interest is addressed by presenting product with no or minimal
environmental damage using accreditation systems.

Retail market success of organic products depends on:

consumer relevance;
high tradability;
an extended communication policy;
acceptable value for money relationship based on reasonable price for raw materials.

The organic agriculture sector is maturing and adopting many mainstream marketing principles and
processes.

Notes:

22
Government Trends and Support
A number of governments world-wide have a strategic interest in organic agriculture for a range of
different reasons. Government support can be motivated by a range of economic and social pressures
within a country and may relate to issues such as:
reduction of surplus food production;
water contamination problems;
public health and safety risks associated with agricultural chemicals;
farm and rural employment;
environmental pollution problems;
land degradation problems;
development of sustainable agriculture systems;
ecological sustainability and biodiversity;
increasing the value of traditional low input farming in third world countries; and
potential export markets.

Over the past decade the level of support provided by governments for organic farming has risen
dramatically. In the EU virtually all countries have programs in place which provide financial support
for organic farming systems as part of their commitment to the Community Agriculture Policy (CAP)
scheme to reduce surplus food production.

In addition, a number of EU countries provide grants to farmers during the conversion phase from
conventional to organic production methods. The French government has implemented a five year
plan to rapidly expand its organic food sector to meet projected domestic demand of 3-5% of total
food market by 2005. Farm subsidies to facilitate transition to organic systems have been increased
from US$2.6 to US$10.4 million per year. The EU will provide another US$5.2 million to improve
organic food distribution channels. Other measures include an expansion of agricultural research and
training in organic production methods.

The governments of export oriented countries of the EU such as Denmark and the Netherlands are
basing their support for organic agriculture on the expectation of good potential for export of these
agricultural products. The Danish government has announced a 5 year US$325 million program to
develop organic agriculture. The Dutch government has agreed to pay US$33 million to stimulate
production.

In Germany, where local governments are responsible for their own water supply, they have found
supporting conversion to organic agriculture is much cheaper than expensive water purification
processing to remove chemicals lost from conventional agriculture.

The New Zealand Government has adopted a broad strategic approach integrating government policy,
research and development and marketing activity together with a drive from major food industry
companies. The strategy has been very successful and as a result, New Zealand may be considered a
major competitor on international markets for some organic products.

Various developing African countries have encouraged low input traditional farmers to comply with
organic standards. As a result, cash crops such as coffee and cocoa produced organically fetch a
higher price, giving greater return to these poor farmers. A similar recognition of the export market

23
potential and domestic benefits of organic agriculture has taken place in countries such as India, China
and Thailand.

Many countries are becoming increasingly aware of the export potential of organic products and will
endeavour to capture a share of the expanding world market for organic and clean agricultural
products. The latest review of the supply situation states that over 100 countries produce organic
foods and beverages in commercial quantities. These include: 27 developing countries in Africa; 18 in
the Asia-Pacific region including 13 developing nations; 25 in Latin America and the Caribbean; most
of Europe and finally, North America. Despite this, the review concludes that lack of supply is the
major market impediment for the foreseeable future.

The implications for Australian producers and exporters of organic products can be significant where
there is direct competition for market share. The Australian organic industry must remain alert to
foreign government initiatives that may influence the supply and demand of organic products onto
world markets.

New or under-supplied markets for organic products may offer good short term opportunities but over
the medium to long term increased competition may be expected. Countries of particular interest may
be those which compete with Australia on world export markets for conventional agricultural
products.

Many countries are tightening regulations in relation to environmental protection and ecological
sustainability. Countries in which environmental barriers to trade are likely to emerge include those
where there is pressure:
to protect domestic industries; or
to influence the environmental policies of other countries.

Organic products may emerge as means of overcoming future non-tariff trade barriers imposed in
relation to food safety criteria or sustainability and environmental issues.

24
Section Two
World Trade in Organic Products
World trade
World sales of organic products is estimated to be US$11 billion (1997), with a projected trade of
US$58 - US$100 billion by 2006. The major markets are the highly developed nations of Europe,
USA and Japan.

In gross terms the USA has the largest value of trade, estimated to be US$3.5-4.5 billion (1997),
having recorded sales growth rates of 20-25% per year for the previous five years. European countries
combined have an estimated trade value of US$4.5 billion (1997) in organic products, followed by
Japan with US$1.2-1.5 billion (1997).

In terms of market share, organic products are most popular in those northern European countries
where organic agriculture is encouraged and supported by government. Denmark, Austria, Sweden
and Switzerland have the highest per capita consumption, with organic products such as milk and
some vegetables expected to reach 40-50% of market share. However, Germany is the biggest market
in Europe with estimated sales of US$1.62.4 billion in 1997. Total European sales have been
forecast to reach US$45 billion by 2006.

The Japanese market for organic products is predicted to become the largest per capita consumer
world-wide. Total sales are forecast to reach US$30-40 billion within 10 years. China, which has a
large but poorly defined organic sector worth US$1.2 billion, may become a major supplier and has
been anticipated to emerge as a major force in organic agriculture. Together with Japan, these two
countries are expected to have an enormous effect on organic trade.

Europe and Japan are the fastest expanding markets, with USA and New Zealand producers the
quickest to respond to these market demands. Japanese corporations are beginning to coordinate
growers in countries like China and Brazil to supply their demand for organic product.

Increasing consumer interest and awareness of issues related health, environment and social concerns
has focused attention on food and fibre products and agricultural production or processing methods.

World trade in organic products appears to be stimulated by consumer perceptions that organic
products are safe, clean and ethical.

The UN Food and Agriculture Organisation has recently stated that it has a responsibility to increase
organic food production and give it ...a legitimate place within sustainable agriculture programs and
assist member countries in their efforts to respond to farmer and consumer demand...

The number of producers converting to organic agricultural production has increased significantly in
some countries, particularly where governments have played an active supporting role. Typically,
government involvement appears to be based on national policies in response to health, environment
or social issues affecting the country, or on policies related to the development of export markets.
Private sector interests are also considering the potential of organic production for new products or as
a means of enhancing existing products in order to maintain or increase market share.

World trade to meet this growing demand now consists of a full range of products. From bulk, raw,
unprocessed products such as wheat, oil seeds, sugar, cotton, bulk fruits and vegetables, through to
fully processed, retail ready consumer products, such as baby food, biscuits, clothes, pasta sauce, ice
cream, confectionery and wine. The emergence of a wide range of processed products in virtually all

25
food categories has become an important factor in the movement of organic foods into mainstream
food retailing. Half of all the processed baby foods on supermarket shelves in Western Europe are
now organic.

Demand for organic products may increase strongly in countries where organic products occupy more
than a small niche, as in many EU countries, Japan, USA and Australia.

Market profiles are presented for a limited number of major target markets for organic and clean
products. These target markets are:
Europe
Germany - largest organic market in Europe.
France - large organic market.
United Kingdom - expanding English speaking market with considerable imports.
Netherlands - major existing re-export within the EU.
Japan - big importer with strong and clear demand for organic.
USA - largest organic industry worldwide.

A number of other countries are reported to have good demand for organic and clean products. These
include a range of EU countries such as Italy, Switzerland, France, Sweden, Austria, Denmark,
Norway, and several Asian countries including Singapore, Malaysia, Taiwan and Hong Kong.

Australia is one of the few countries pre-approved by the EU for the purpose of organic produce
imports.

26
EUROPE General Profile
Background and definitions
Europe is arguably the birthplace of modern organic agriculture. The emergence of strong
environmental concerns and health issues related to agriculture in general and food production in
particular have given rise to rapid growth in consumer demand for bio, eco, organic, or green type
products in recent years.

Various terms are used throughout Europe to describe clean type products. The most commonly
used terms are organic, biological or bio-labels and ecological or eco-labels. Biodynamic products are
also known. All terms have similar meaning and intent, i.e. products grown or processed without the
use of synthetic fertilisers, pesticides, or other chemicals which could be damaging to the environment
or human health. The term organic is possibly the most widely recognised.

Retail sales of organic foods were estimated to be worth US$4.5 billion in Europe for 1997. Retail
sales worth US$14 billion are forecast for Europe's organic food industry by the year 2000, compared
with sales worth US$1.7 billion in 1990.

Predictions by the European Community (EC) strategy review are that this will rise to US$45 billion
by 2006 with an expected market share of 15%, an outcome accepted as both realistic and desirable.

In northern Europe, the multiple retailers (supermarkets) represent about 50% of organic food sales,
compared with the dominance by health-food shops when the market was in its infancy.

A number of European governments actively encourage conversion to organic agriculture by offering

financial and other support for organic producers. The motivation for this support varies between
countries and can include issues related to the environment and water quality, over production and
food surplus, export opportunities, and food safety or quality. Germany, Austria, Italy and France had
the most area under organic production in 1996. As a percentage of total farm area, Austria had an
estimated 10% and Switzerland 7.8% under organic cultivation in 1998.

Germany is the largest single market in the EU accounting for 38.8% of turnover in 1996, followed by
France the United Kingdom and the Netherlands. The combined organic foods market in France and
Germany exceeded US$2 billion in 1996.

The rate of development of organic markets and organic production varies between countries. Some
countries predict enormous movement towards organic products. For example Switzerland expects
organic products may account for 30% of the total market in the near future. In Denmark and Austria
the market share of some organic foods is expected to exceed conventional foods within 10-15 years.

In Sweden and Denmark, organic food consumption accounts for 3-5 per cent of total national food
consumption; in Austria it accounts for 2 per cent, in Germany 1.5 per cent, and in France 1 per cent.

Standards and regulations

In the European Union, the production, marketing and labelling of organic foods (from plant origin)
are governed by EU Regulation 2092/91. This regulation defines uniform rules governing organic
production and processing for all EU member States. The regulation requires that imported products
be produced, processed and labelled under conditions equivalent to those in the EU, and imported
products must meet EU production, processing and labelling standards.

EU Regulation 2092/91 defines in detail how products must be produced, processed and packaged to
qualify for the description organic. These regulations apply to foods of vegetable origin and are likely
to cover animal products in the future. Processed products have two categories:

27
 Organic: Product contains a minimum of 95% organic ingredients by weight. These products
can be labelled Organic.
Special emphasis: Product contains 70-95% organic ingredients by weight. These products can
be labelled Made with Organic Ingredients.

The use of genetically modified ingredients is specifically excluded in organic food.

Within the EU a large number of private and State run certification schemes exist, with various
standards, inspection and compliance programs. As a result, a multitude of organic verification labels
exist.

Access to EU markets requires equivalence to the EU regulations. Free access to approved countries
is granted where organic standards, inspection and audit comply with EU regulations. Approved
countries include Switzerland, Argentina, Israel and Australia. Suppliers from countries not approved
must undergo an individual authorisation process.

The EU is currently reviewing recognition of IFOAM standards and certification. IFOAM based
standards are used by certification organisations in a range of countries world-wide. The outcome of
this review may have implications for access to the EU for products certified by organisations
accredited by IFOAM.

The EU Common Agricultural Policy (CAP) has significant implications for clean agriculture. EU
farmers are faced with conflicting pressures from increasingly rigorous quality standards of consumers
and strict environmental, land and water conservation and animal welfare regulations on the one hand,
and fierce competition from third world countries producing under totally different conditions on the
other. Calls are being made for further changes in CAP to creating a sustainable EU agriculture and
strengthening its position in the next round of WTO negotiations. Proposals are for production and
processing regulations to be harmonised for all members and for a clear and compulsory labelling
system. Proponents argue that a price and marketing policy must be maintained which will enable
farmers to maintain these quality standards, and that farm incomes should be made up both of
payments for farm products and payments for definite conservation services. The eco-social market
economy should provide the framework for the policy.

The implications for Australian export trade into the EU are likely to be the imposition of equivalent
environmental and other quality standards. Positioning Australian products to meet such trade barriers
may be achieved through development of organic and near organic production systems and
products that are able to comply with EU regulations.

Production
In 1995 the EU had 1.2 million hectares devoted to organic food production, representing 1.2% of
farm land. Recent estimates put the European average at 1.33%. Several EU states have 5-10% of
farmland under organic cultivation and in some regional areas the figure is as high as 30%. There has
been a 70% expansion in the last five years and forecasts are that 10% of European farmland will be in
organic production by 2005.

28
Certified organic and in-conversion land in Europe 1986-1996 (1000 hectares)
From: Dr Nick Lampkin, Welsh Institute of Rural Studies quoted in the Grocer, 8.2.97.

Country 1986 1996

Germany 24.8 310

Austria 7.0 250
Italy 5.5 204
Sweden 6.5 105
France 50.0 97.0
UK 7.0 47.9
Finland 1.2 44.7
Denmark 4.8 42.1
Spain 2.5 28.1
Netherlands 2.7 13.5
Ireland 1.1 11.1
Portugal 0.4 10.2
Belgium 0.7 5.0
Greece 0 4.5
Luxembourg 0.4 0.6

In 1997, the land area in Europe under organic agriculture rose an estimated 40 per cent over the
previous year. The growth trend is highlighted by some 1998 figures. The UK has 105,000 ha
certified organic and 95,000 under conversion. France has 220,000 ha certified or in transition.

Spain is reported to now have over 269,000 ha devoted to clean agriculture. The primary focus of
this expansion is to supply Northern European consumer demands.

The market effects of rapid expansion of agricultural capacity is generally not seen as a threat by
existing growers. Demand continues to run ahead of supply as more consumers get access to organic
produce. Price premiums are expected to remain. Larger areas may help to bring down production
costs.

The recent Biofach organic trade fair in Germany demonstrated that virtually all product categories are
represented to some extent by organic production.

Domestic markets
Meat and dairy products represent major markets for the organic sector with sales estimated to be
US$339.2 million and US$690.6 million respectively for 1996. Combined sales are predicted to reach
US$3.2 billion by the year 2002.

The European organic vegetable market was worth US$200 million in 1996, and is expected to
increase to US$520 million by 2003. Recent Queensland DPI market research identified good
potential for frozen organic vegetables into the major EU markets.

On average, organic foods command a premium of 30% over conventional foods in Europe.

Multiple retailers (supermarkets) account for more than 50% of organic food sales in northern Europe,
with Germany being the only exception.

29
Demand in Europe is more sophisticated than just health issues, with the issue of production systems
and the impact on the environment also being important.

Imports
Based on 1995 EU authorisation to import organic food data, the following tables indicate the most
commonly imported products and the countries with most authorisations granted.

Source: USDA Germany Organic Food. (In: Twyford-Jones and Doolan 1998.)

Number of Exporting Number of

Rank Product authorisations to Rank country authorisations to
import import

1 Sunflower 24 1 USA 24
2 Buckwheat 22 2 Hungary 9
3 Beans 20 3 Turkey 8
4 Sugar 20 4 Canada 6
5 Soybeans 19 5 Mexico 6
6 Linseed 18 6 India 5
7 Apples 16 7 Brazil 3
8 Wheat 15 8 Dominican Rep. 3
9 Pears 13 9 Japan 3
10 Walnuts 10 10 Bolivia 2

Note: Countries including Switzerland, Argentina, Israel and Australia do not require specific import
authorisation so are not shown in the above table.

30
GERMANY Profile Exchange rate guide 1DM =
1994 1996 1998
US$ 0.62 0.70 0.62

Background and definition

Germany was reported to be the biggest market for organic products in Europe in 1995. Imported
organic product far exceeded exports.

The German natural foods market was worth DM5.4 billion in 1996, equivalent to 2.5 per cent of the
total food market. Within this sector the organic foods market in Germany had total sales of about
DM3.54.0 billion in 1997, accounting for between a 1.5 per cent and 1.7 per cent share of the total
food market by value in 1997. Other estimates put annual sales at US$1.5- US$1.8 billion.

There is a general consumer trend is towards food convenience due to the increase in single person
households and the number of working women.

Standards
AGOL, the German association for organic farming, had accredited eight farmer groups in 1995 to
consult and certify their members. These were Demeter, Bioland, Biokreis, Naturland, ANOG,
Ecovin, Gaa and Okosiegel. In addition, about 50 other independent organic control bodies existed in
Germany, all operating according to EU regulations.

Production
Germany had the largest area under organic production among EU countries in 1996.

The total area under organic or conversion to organic grew from an estimated 24,000 hectares in 1986
to 310,000 hectares in 1996.

Processing
The organic food market is developing away from primary products such as raw fruit and vegetables,
into more processed foods.

In 1994 there were 140 manufacturers producing a wide range of organic products, the most important
being; mueslis (granola), pasta, cookies, (cold pressed) oils, dried fruits and nuts, vegetarian spreads,
bars, marmalades, baby foods, juices, wines and beers, bread and a wide range of dairy products.

Rapunzel and Allos Hipp are the biggest processors of organic products in Germany and possibly
Europe. Each company produces or deals with a range of over 500 products.

Domestic market
The majority of organic food sales were through specialist shops (Bioladen) accounting for about 30%
or DM1.2 billion. Conventional supermarkets account for between 15% and 20% of sales of organic
foods in Germany. Health-food shops (Reformhauser) and drugstores together account for a further
15% or D600 million, grocery outlets account for about 14% or D500 million, with bakeries DM250
million and butchers DM 60 million. Markets, canteens, restaurants and foodcourt stores also supply
organic foods. Direct sales from farmers accounts for about 19% or DM750 million.

Another report estimated sales through supermarkets was DM1 billion in 1997, and predicted potential
sales of organic foods through supermarkets could reach DM3 billion, or 10% of total sales. The
major supermarket chains including Metro, Rewe, Edeka, Aldi and others such as Tengelmann, Spar,
Tegut (Hawege) were reported to stock organic lines since at least 1995. Most stock organic grocery
lines but increasingly organic fresh products such as dairy products, potatoes, carrots, onions,
tomatoes, etc. are being offered.

31
German consumers are considered more ecologically aware than in the past and than some other
language groups, and have strong beliefs regarding food and causes of ill health. Health and
environmental awareness are the main reasons for purchasing organic products. Ethical standards with
regard to animals are also rising leading to an increase in the avoidance of meat.

The highly concentrated food trade is seen to be producing a polarisation of consumer wishes and
markets. Three trends are seen as shaping the German food market up to the turn of the century:
The food industry will be increasingly characterised by the growing trend to individualise all
areas of life.
Food safety will become increasingly important; and
Consideration based purely on cost-benefit analysis will be superseded by a more ecological
way of thinking in continuous production cycles.

Problems in the organic market include problems of brand name recognition, high prices and problems
of distribution. The market for organic products in Germany is described as still being relatively
weak, but having potential. The success of organic product sales is considered dependent on three
factors:
An immediately recognisable brand name.
Marketing support from the State; and
Adoption of brand names by market leaders in the sector.

The Metro Group company is introducing the concept of own-brand bio-labels. Another large food
retailer Globus Group recently announced it will stock its own range of organic lines under the Tera
Pura brand.

Customer service should be given priority in the market, and special attention must be paid to
providing customers with information regarding origin, production methods, and organic standards of
products sold.

The market for organic milk in Germany is possibly a sleeping giant but considered to be developing
slowly. Reasons given include hesitation on the part of retailers faced with a wide range of products,
and untapped potential regarding demand for products. Growth in the organic sector is expected to
continue due to commitment to organic production on the part of primary/secondary producers and
retailers, and State support, however, the possibility of an eco-boom in the near future is assessed as
unlikely. Increases in organic milk sales in Denmark and Austria are possible.

32
 Exchange rate guide 1 franc =
FRANCE - Profile 1994 1996 1998
US$ 0.18 0.22 0.20

Background and definition

In 1997, total sales of organic foods in France were worth an estimated F3.94.0 billion (up 20% on
1996 and from F2.4 billion in 1995). The USDA put the figure at US$508 million. Current growth
rate is conservatively estimated at around 20% per year. Total sales were reported to be US$667
million in 1998. It is predicted that French organic-food sales will be worth F10-17 billion by the year
2000.

Known as Agriculture Biologique and using the AB logo on labels, organic products currently
represent 1% of the total French food market. It is estimated that potential for growth in the sector
means that organic products will account for as much as 2.5% of total French food consumption by the
year 2000. Government policy targets organic consumption to reach 3-5% by 2005.

Demand for organic products is reported to outstrip domestic production, with 30,000 tonnes of
organic foods being imported in 1997, up from 15,000 tonnes of imported organic foods in 1995 and
only 1,500 tonnes in 1985. Other estimates are lower, 11,500 tonnes to the third quarter in 1998, but
agreed with the trend for strong import growth.

Standards
EU Regulations apply for the production and labelling of organic foods. The principal State
accredited private organic certification organisations are Ecocert and Qualite-France.

Production
Organic farming in 1996 involved 3600 producers and covered an estimated 94,800 ha accounting for
less than 0.4% of farmland. Majority of the area is for grain production with 3,500 ha devoted to
vegetables and 2,700 for fruit production. Recent estimates put the number of producers at 6,200 with
220,000 ha under organic systems.

It is Government policy to support and promote rapid development of organic production. Planning
objectives include increasing the number of organic farmers to about 25,000, with one million ha
under cultivation by the year 2005.

Processing
An estimated 688 food processors are involved in the production of a wide range of processed organic
food products. The major processed organic foods are cereal based products and dairy products.
Other important processed products include wine, soybean based products and fruit or vegetable juice
products.

A number of big French food manufacturers are reported to be getting involved in the organic food
business.

33
Domestic market
Range and estimated value of French organic production in 1994

Product Value (francs)

Cereal-based products 1,000,000,000
Fruit and vegetables 600,000,000
Dairy-based products 200,000,000
Wine 150,000,000
Soy-based products 140,000,000
Fruit/vegetable juices 50,000,000
Poultry 40,000,000
Others 160,000,000
Total 2,400,000,000

Best selling organic products in France for 1998 in terms of value are cereals, dairy, fruits and
vegetables, meat and poultry. Market outlet sales estimates were: supermarkets US$257 million;
specialised stores US$187 million; open-air markets and bakeries US$223million.

Cereals based products had a total annual production of 30,000 t in 1994, consisting mainly of cereals
for bread-making, cookies, pasta and raw material for livestock feed. This volume was reported to be
insufficient to supply domestic demand and some product was imported. Organic bakery sales were
about F360 million, cookies and pasta represented about F590 million.

Major sectors of the dried organic-food market in France include; organic biscuits 19%, organic fruit
juices 9%, and organic flour 6%.

An estimated F500 million worth of fruit and vegetables include a wide array aromatic herbs and
spices was exported mainly to Northern European countries of Denmark, Belgium, Holland and
Germany in 1994. Imports, of mainly fresh fruit and vegetables, were valued at F100 million.

The organic dairy products market is estimated to be worth F80 million (4,000 tonnes), up from F20
million in 1994. In 1997, the French market for organic milk reached 12 million litres (up from
500,000 litres in 1995), and it is predicted to reach 24 million litres by the year 2000.

The total meat market was estimated to be valued at F60 million in 1994, consisting mainly of poultry
worth an estimated F40 million (or 1,200 t). Organic beef production was expected to rise following
the increase in organic dairy output.

Results of consumer surveys conducted in 1996 show that many French consumers are concerned
about the healthiness of their food, suggesting that there is a large and growing market for organic
products.

A recent French consumer survey on organic foods found about 51% of respondents questioned
consumed organic foods at least once a month and 35% consumed organic foods regularly. Another
recent report indicated that between 4 and 5% of French people consume the following organic
products on a regular or occasional basis: organic bread, organic fruit, organic vegetables, organic
dairy products, and organic meat.

34
The major consumer obstacles to further market expansion are considered to be; price, visual
appearance, lack of supply, confusion about organic logos and standards of local and imported
products.

Organic products were reported to attract a premium of 20-30% for vegetables and cereal products,
rising to 100% for dairy and meat products.

The main retail outlets for organic foods are Health Food stores, supermarkets, open air markets and
direct sales, and BioCoop organic cooperatives.

Supermarkets and hypermarkets are becoming increasingly important as retail outlets for organic
foods. Supermarkets account for 69% of total food sales in France. The share of organic food sales
through these channels increased from 26% in 1995, to 38% in 1997. Specialist organic-food retail
outlets accounted for 29% organic food sales. Manufacturers of organic foods have been developing
better marketing and commercial structures for dealing with supermarket chains, as well as increasing
their production capacities.

The company Distriborg has a 57% share of the organic-food market in France, with its brand Bjorg,
and is market leader in the French dried organic foods segment with a 55% share. La Vie SA is also
key players in the organic food sector. Both these companies sell a wide range of organic foods.

A number of French companies are involved in the production of organic milk products. These
include Triballat Noyal with 70-90% share of the French market for organic dairy products and the
market leader for organic fruit yoghurts, Laiterie Le Gall (part of the Entremont group) which
produces a range of 21 organic milk products including yoghurts and butter, and Laiterie d'Armor
which produces a wide range of organic yoghurts, cheeses, desserts, butter, cultured milks and fresh
milks. However, Carrefour, one of the largest supermarkets, report that 30% of their organic milk is
imported from Germany.

The first organic UHT milk in France was launched in early 1994 by Alliance Gervais Lait-Nactalia,
which followed this up with the launch of a semi-skim version in late 1995. By the end of May 1996,
the volume of the French market for organic UHT milk was estimated at 1,368,000 litres, having
experienced growth of 180% in the preceding year. Lactel has overtaken Nactalia as leader in the
organic UHT milk segment.

Notes:

35
UNITED KINGDOM - Profile Exchange rate guide 1 STG =
1994 1996 1998
US$ 1.53 1.57 1.7

Background and definition

The mainstream food industry in the UK has begun to pay attention to that sector of the industry
known as organic as a result of growing consumer interest and demand for assurances regarding food
safety. There has been a dramatic loss of trust in the food industry by consumers following numerous
food scares. Public relations disasters such as Mad cow disease (BSE), and Frankenstein foods
(GMOs) have significantly altered industry policies and the retail landscape.

The term organic is the most widely used within the United Kingdom to describe clean agricultural
products. Biodynamic foods are also known. Although organic foods have been produced since the
1960s, government support and commercial development has been limited. The situation has changed
in recent years with consumer demand increasing rapidly.

Consumer perceptions have undergone a radical shift. Organic produce used to occupy too small a
niche to interest supermarkets. Now, the increased availability of organic products is transforming not
only fresh produce but the entire range within supermarkets and provides a competitive edge between
supermarkets.Sales for organic foods almost trebled between 1992 and 1997 with an estimated total
market value of STG260-272.5 million for 1997. US estimates ranged $350-$445 million for 1997.
Markets for organic meat and dairy products grew by 189% and 250% respectively in the two years
between 1994 and 1996. Premiums have ranged from 25-50% (av. 33%) over conventional products.

The UK's organic food market increased by 40% to STG365 million in 1998. Predictions are that the
organic sector will increase to 8% of the national food market. Estimates for future sales of organic
products vary, ranging from STG490 million in 2001, STG1 billion in 2002, and as high as US$9.5-11
billion by 2006.

Domestic production has lagged well behind this increase in demand resulting in 70% of supply being
imported, mainly from European countries. With such a large proportion of organic produce
imported, only supply is holding the sector back.

Government interest has also grown, although not to the same extent as European counterparts. The
UK Government now has an Organic Aid Scheme which provides payment to growers converting to
organic production as part of its agri-environment programme. In addition, the Government provides
funds to organic producer groups, such as the Soil Association, to develop technical guides on
producing organic foods, and has proposed further support for the development of the organic
industry. However, UK growers believe they will still be at a disadvantage being the only nation in
Europe, apart from Greece, that does not give ongoing support to growers after conversion to organic
production.

Standards
The United Kingdom is bound by European Union (EU) Regulation 2092/91 relating to organic
products and production. These regulations are administered in the UK by the United Kingdom
Register of Organic Food Standards (UKROFS). UKROFS regulates the various organisations which
carry out organic certification within the United Kingdom.

There were six organic certification organisations in 1996, licensed and approved by UKROFS to
conduct organic certification on farms and processors, including the Soil Association which produced
the first written standards for organic production in 1973.

36
Production
Organic food production consisted of about 900 producers covering 52,000 hectares in 1996, with just
under half in conversion from conventional to full organic. This increased to 1027 farmers with
200,000 ha of land in 1998, representing 0.5% of total farmland. Of this area, 75% was grassland,
18% arable, 6% horticulture and 1% fruit.

Organic fresh produce was estimated to be worth STG225 million in retail sales in 1998.Expectations
are that grower numbers will increase to 3000 and production area to 1.5 per cent of total farm land by
the year 2000, and that by 2001 domestic production will supply 30-50% of the UK market. Organic
food production is expanding at the rate of 50% per annum and is predicted to be over 10% of total
agricultural land by 2007.

The UK Government has an Organic Aid Scheme which provides grants to farmers during the period
of conversion from conventional to organic production. Amounts of STG350-450 per ha are available
for five years. The Government has also proposed more cash for research and development, extra
funding for organic sector bodies, and increased resources for advising conventional farmers who are
considering conversion to organic techniques.

A centre for organic agriculture research has been created at Aberdeen University with STG5.5
million raised from the Ministry of Agriculture, Fishery and Forestry (MAFF), the EU, growers,
service industries and Tesco Supermarkets. The Tesco funds are aimed to help large scale mainstream
(conventional) farmers convert to organic production. UK supermarkets (multiples) have been a major
driving force behind the rapid development of the organic sector. Waitrose Supermarkets, for
example, has persuaded Moy Park, the biggest supplier of free range poultry to UK supermarkets, to
produce organic chickens. Plans are for all production to be organic within two years. A novel
development is wild harvested fish from Wales becoming the first in the world to be certified organic.
Products include organic cold smoked tuna. Such developments indicate that virtually all food
products can be distinguished and marketed under an organic label.

Mainstream conventional agriculture is also taking note of the rapid market growth in the organic
sector. The National Farmers Union of England and Wales (NFU) has stated organic farming offers
farmers an alternative agriculture system that, once established, has ready domestic markets and
extensive potential export opportunities. More than 2000 NFU members have registered an interest in
organic production. An organic working group is being established.

Processing
Of the 100 or so food processors in the UK in 1995 only two major food companies had an interest in
organic foods. Now that supermarkets are urging greater production, interest from manufacturers and
processors has increased, with the emergence of value added products of all kinds. Recently released
products from various manufacturers include; organic muesli, corn flakes, frozen foods, peanut
butters, infant powdered milk, cheeses, pasta sauces, pasta ready meals, pizza, coleslaw, potato salad,
other ready meals, ice-cream, chocolate, soups, biscuits, breads and a range of wheat free flours.

Supermarkets are moving to get their processors to use blemished produce for production of ready
meals, to help ensure a better return for growers. Waitrose, for example, has 11 own-label organic
products. Sainsbury has been involved in the development of organic baby foods and has found this a
useful learning curve for taking organics into the processed food area, particularly home chilled meals.

Public concern over the issue of genetically modified organisms (GMOs) in food has forced the
attention of the food industry. The UK subsidiaries of the worlds two largest food companies,
Unilever and Nestle, have announced an end to new, and a phasing out of existing, use of GMOs in
all their product lines. Cadbury-Schweppes has followed suit.

37
The frozen food retailer, Iceland, has joined a consortium with supermarket chains, Tesco, Safeway,
Sainsbury, Waitrose and Marks&Spencer to line up long-term contracts with growers who can provide
GM-free corn, potatoes, soya bean, wheat and other raw materials for their own- brand produce
ranges.

Given that organic standards prohibit the use of GMOs, the market for organic foods will be boosted
further by these developments.

Domestic markets
The most important product categories reported in 1997 were: organic vegetables account for 46% of
the market followed by fruit with 21%, cereals 12%, meat 11% and dairy products five per cent.

Estimates vary regarding the value of different organic food products in the UK for 1997. Fresh
produce made up the largest share of the market, with sales estimated to be STG120-150 million for
1997, accounting for nearly two per cent of total produce, with an annual growth of thirty per cent.
Estimates of fruit and vegetables imports range up to 80%. Cereals sales were STG36-40 million, of
which 50% were imported. Organic meat has been estimated to be worth between STG14-30 million,
with only five per cent imported. Dairy accounted for STG14-20 million, with 10-15% imported.

Actual growth in 1998 is thought to have been around 50% to STG225 million in retail sales of fresh
organic produce. According to the Fresh Fruit and Vegetable Information Bureau, organic fruit and
vegetable alone will double UK sales to STG200 million over the next few years and will eventually
account for five per cent of sales volume. Imports currently account for 70% of sales.

The average price premium for organic was 33% over conventional fruit and vegetables. However,
prices can be much higher and more stable in certain cases. For example, organic potatoes were
STG400/t ex-farm in January 1998 and January 1999, while conventional potatoes were STG78/t and
STG178/t in the corresponding periods.

Organic meat products accounted for 11% of the market in 1997 and continues to increase. The
production of organic milk is doubling every year with production at 12.5 million litres in 1996. A
wide range of processed products are available such as cheese, coffee, chocolate, herbs, flour, pasta,
tea, baby foods and wine. Frozen organic produce also has good prospects. The UK is by far the
largest per capita consumer of all types of frozen foods in Europe.

Consumer attitudes
Demand for organic products is increasing due, in a large part, to greater public awareness of food
production processes as a result of food scares such as BSE, GE and E. Coli. Consumer research
shows 75% of the population sympathetic to the idea of buying organic foods. The image of the
typical organic food consumer being a committed activist and vegetarian is outdated. Organic
products enable consumers to feel they are both buying a safer product while acting ethically and
altruistically.

There is a growing awareness among UK consumers of the benefits of organic products. A National
Consumer Council Survey found that one in three consumers is committed to organic or green
shopping, and one in five regularly buys organic or green products. Demand is considered to be
outstripping supply according to Safeway, a major supermarket chain.

Other consumer research conducted in May 1997 indicated that 28% of respondents had bought at
least one item of organic food in the previous three months (18% had bought vegetables, 12% dairy
products, and 10% meat). Reasons given for purchasing organic products included health (46% of
organic food purchasers), no chemicals or pesticides (41%), taste (40%), animal welfare (26%), and
impulse/curiosity (twenty one per cent).

38
A survey of consumers by Waitrose supermarkets found the main reasons given for buying organic
foods was that it is better for you (42%), that it tastes better (32%), and that it does not contain
chemicals (29%). The most popular types of organic foods were fruit and vegetables (87%), eggs
(17%), meat and poultry (seventeen per cent).

Another survey by A.C. Nielson found 25% of consumers buy organic foods and that limited ranges
were one factor preventing more people from buying organic food. Pre family couples and older
people are those who tend to have higher disposable income and find price less a factor, making them
more likely to choose organic food.

Supermarkets
The majority of organic foods are now sold through supermarkets. Supermarkets are finding an
organic produce range can be used to invigorate an otherwise less than lively retail sector.

During the 1970s specialty stores known as wholefood and healthfood shops catered for the health
conscious consumer. By the mid 1980s supermarkets began stocking organic foods and the number of
wholefoods declined. The distribution of organic foods has progressively increased through
supermarkets (63%) and direct or delivery sales (18%) with a corresponding decline in
greengrocer/vegetables shops (10%) and health/wholefood shops (five per cent) in 1995.

Most major supermarkets (multiples) stock organic foods or have reintroduced organic products into
their range.

Competition is increasing between supermarkets to offer the most comprehensive range of organic
products. Organic and natural food and drink took 8.8 per cent of the market in 1992, rising to 10% in
1998, and is forecast to rise to 11.2% by 2002. The organic trend is set to trigger a rethink of
supermarket layout. Sainsbury has doubled their wholefood range and now has 400 organic items. Its
organic range is being emphasised by displays on highly visible aisles. Specific organic lines such as
ready-made meals, pizza, bread, meats and cereals are promoted in its advertising.

Research for Sainsbury has revealed that interest in organic products has reached an all-time high in
the UK, with up to 40% of shoppers claiming to buy all types of organic food, not just fruit and
vegetables. The multiple stocks more than 50 different types of organic foods in all 200 stores.
Organic products generate a weekly revenue of STG1 million for Sainsbury. It reports fastest growth
in sales of baby foods, dairy products and fresh fruit and vegetables.Tesco has 30 produce lines
and 70 other lines, totalling 100 lines in 150 stores. It plans to increase this to 300 lines. Sales
increased 100% in 1998 for an annual total of STG35 million. Sales on some lines were reported to
have increased by over 200%.

Marks&Spencer has reintroduced organic fresh produce and meat, and is considering ready made
meals after abandoning organics five years ago. ASDA has also reintroduced organic foods into 13 of
its UK hypermarkets. Booths has increased its organic range to over 100 products in 24 stores.
Safeway stock organic produce in 90-265 stores depending on availability, and aims to offer a standard
staple range through the year. Fresh produce sales were more than STG5 million for 1996-97 with
volumes increasing by 17% per year. Products include butter, baked beans, wine and cheese.

Waitrose plans to double sales by 1999 and to replace conventional produce with organic wherever
possible. It now stocks 600 lines. Organic product sales account for 35% of baby foods, 8% of fruit
and vegetables, and up to 10% of dairy goods. Brown mushrooms are an example where the product
is almost entirely organic without a significant price premium.

39
Most of the supermarkets have adopted a premium pricing policy reflecting the cost of imported
products. Prices are expected to decline as domestic production increases, however supermarket
executives are supportive of grower arguments that organic foods require a premium to accurately
reflect the real cost of food production.

Several supermarkets have appointed their own specialist development managers for organics.
Waitrose, Tesco and Sainsbury all have programs in place to increase supply from UK producers.

A number of specialty independent retailers have captured organic markets. Planet Organic, the
biggest organic supermarket in the UK, stocks 10,000 products, 70% of which are organic. Top
selling lines are carrots, potatoes, eggs, apples and milk. Olivers Wholefoods has 4000 products of
which 80% are organic. Out of This World, a UK cooperative with 17,000 members, stocks over
4,000 products, of which over 30% are organic and account for 50% of sales.

40
The Netherlands - Profile Exchange rate guide 1 G =
1994 1996 1998
US$ 0.55 0.65 .067

Background and definition

Organic food production in the Netherlands had an estimated value of G90 million in 1995. Total
exports were estimated to account for 60-80% of production. Products exported included 60% of
carrot production and 52% of dairy products, mainly cheese.
Despite the relatively small consumption of organic foods, the Netherlands is a major importer. A
very large share of bulk organic foods is handled by Dutch traders in their role as major re-processors,
packers and re-exporters of organic products.

Organic food sales in Holland have been growing, but not to the same extent as sales in other EU
markets, especially, Denmark, Austria and Germany. Supply of some organic foods in Holland is
developing more quickly than demand. The sector has concentrated on developing an export base.
However, production of inputs for processing that replace imported inputs accounts for a rising
proportion of value added products.

Commodities of interest to the organic food industry include: wheat, pulses (lentils, navy beans, azuki
beans and mung beans), glutenous and basmati rice, wild rice, soybeans, amaranth, buckwheat, millet,
tomato concentrate, dried fruits (raisins, prunes and apples), popcorn, almonds, sunflower seeds,
alfalfa seeds, flax seed, animal feed and maple syrup.

Dutch imports of organic foods are growing, with USA products accounting for 34% of authorisations
granted for organic imports. The Dutch import a range of processed and packaged organic foods.
Significant opportunities exist for bulk shipments to Dutch packagers and canners, also for processed
and new-to-market organic products. Easy to prepare foods with minimal preparation time that are
still perceived as healthy are considered to have good potential.

Dutch traders are important suppliers of organic products to other growing markets in Europe and can
provide access to EU markets. In 1995, 28% of EU import authorisations for organic foods were
reported to be issued through Holland.

Standards
The Dutch government has designated Skal Inspection and Certification, a private international
inspection organisation, to approve and monitor the use of organic labelling on food products,
including imported foods. Importing companies must obtain an import authorisation from LAZER -
the Dutch Ministry of Agricultures division responsible for organic food import permits.

Skal Inspection and Certification is the only organisation permitted to grant the EKO Quality symbol
The EKO symbol for organic certification is very well recognised among Dutch consumers. The EKO
symbol is not mandatory, however many Dutch organic food importer and retailers believe the symbol
is important for marketing organic products.

Market research carried out by the Dutch Ministry of Agriculture found that the EKO label was fairly
well known. However, the rival Agri-Environment mark was less well known, with less than 25% of
the interviewees knowing what this meant.

Production
Organic agriculture production covered an estimated 12,000 ha in 1995.

The Ministry of Agriculture, Nature Management and Fisheries has designated the organic sector as a
sustainable production system and considers it prudent to support the development of the sector

41
further. However, the number of exporting countries is also increasing which is limiting export
potential. Issues under consideration include how the domestic market for organic foods can be
expanded, and how competitive Dutch organic foods are on the international market.

Domestic market
Consumption of organic foods accounts for a very small share of total food expenditure in the
Netherlands. The retail sales value is estimated to be US$350-400 million in 1997. A wide range of
both fresh produce and processed organic and natural foods is available. Fresh products such as dairy,
meat, fruit and vegetables represent 40% of total organic food sales.

An estimated 5% of Dutch consumers purchase organic foods on a regular basis. Another 40% of
consumers are familiar with the EKO Quality symbol and are regarded as potential organic consumers.

The Dutch government is actively supporting the organic food industry with a $US33 million action
plan implemented in 1997 to stimulate production, distribution and sales of organic foods. The plan
aims to increase market share from the current 1% to 610% of total food consumption. Around US$
5.5 million is spent on consumer education campaigns, television advertising restaurant promotions
and generic supermarket promotions.

The major retail sales outlets for organic foods are health food stores and reform shops accounting
for 75% of total sales. Natudis is the largest organic food distributor in Holland, and has affiliation
with the Natural Food Organisation, an organisation comprising of independent stores including two
major franchise organisations, Gimsel and Natuurwinkel.

Supermarkets account for 20% of sales. Supermarkets are beginning to take a closer interest in
organic products. A number of supermarkets, including Albert Heijn, Konmar, Nieuwe Weme and
Cowp are running consumer information campaigns and expanding their range of organic foods,
particularly in the produce, dairy and meat sections. In addition to organic foods, natural and
environmentally-friendly foods are also showing up on supermarket shelves.

Albert Heijn, the largest supermarket chain in Holland with 650 outlets, introduced their own brand
organic label AH Biologisch in early 1998. Branded products all carry the EKO label and include
bread, eggs, orange juice, apple juice, wine, coffee, tea, vinegar, tea, jam, cookies and poultry meat.
The supermarket plans to carry the range in 450 stores and expects organic foods will account for up
to 14% of own brand sales.

Konmar has also developed their own brands; Ecogrande for processed foods and Natuurzuivel for
dairy products. They aim to have an organic or environmentally-friendly alternative in virtually every
product group.

The price premium varies but is estimated at between 15-20% for fresh produce rising to between 50-
100% for processed products depending on the product. Dutch consumers are considered very price
conscious. Premiums are believed to be a critical issue influencing sales. High volume sales through
supermarkets are expected to reduce premiums on organic foods and lift the rate of growth of organic
food sales.

42
 Exchange rate guide 100Y =
JAPAN Profile 1994 1996 1998
US$ 0.98 0.92 0.81

Background and definition

The market for healthy and safe foods in Japan has increased dramatically in recent years. Consumer
perceptions have changed due in part to food safety scares and fuelled by the competition in the food
industry to offer safer, healthier foods.

The English term organic food appears the most commonly used, although the Japanese equivalent
yuki shokuhin relates more to products grown with reduced chemicals rather than to consideration of
the entire production system.

The keyword organic seems to be changing Japanese consumers long-held perception that produce
from overseas is not as safe as domestic produce.

While Japanese agriculture is highly productive, per unit area it also is the highest user of agricultural
chemicals and fertilisers in the world. Recognising this unfavourable situation, a number of Japanese
consumer co-operatives developed guidelines for minimal use of chemicals as early as 1988. In
addition, the Japanese Ministry of Agriculture, Fisheries and Forestry (MAFF) has established a
sustainable agriculture program which promotes less chemical intensive and organic farming systems.
However, production of organic foods in Japan is far exceeded by demand and imports account for
80% of organic products on the Japanese market.

Organic foods are attracting the attention of both consumers and the food industry in general. The
distinction a product gains by being labelled organic is increasingly being used as a competitive
marketing strategy within the food industry.

The popularity of organic food is spreading to the general population, particularly with the appearance
of organic processed foods. The market for organic agricultural products including processed foods is
estimated at US$1.31.7 billion (1997), with the possibility of growth rates similar to the 20% annual
growth rate in the USA. One Japanese frozen foods manufacturer, which imports and sells frozen
organic vegetables from the USA and New Zealand, reported that 1996 sales of product bearing the
organically cultivated, pesticide free label were 2.5 times the previous years sales. Japans organic
fresh fruit and vegetable market has grown steadily at an annual rate of 20-30% since the mid 1980s.

Expectations for the Japanese organic market range from US$2.6 billion to US$10 billion in 2000 and
has been forecast to grow to US$30-40 billion by 2007.

Predictions are that Japan will become the largest per capita consumer of organic foods in the world.

Standards
The term organic food is poorly defined in Japan, and is often misunderstood by consumers and the
food industry. The translation in Japanese is yuki shokuhin meaning the food product is produced
with low or no chemicals in the growing and production process. As a result, a wide range of label
variations exists in an attempt to capture a share of the organic or reduced chemical healthy food
market.

The MAFF has introduced Guidelines for Labelling on Organic Farm Products and Specially Grown
Farm Products as part of the Japan Agricultural Standards. The guidelines provide a total of six
categories:

Organic or conversion to organic - to be labelled Organic Agricultural Product; plus four specially
grown categories; without pesticides or without fertilisers, and reduced pesticides or reduced fertilisers

43
- to be labelled Specially Grown Farm Product. Previously all these categories were labelled
organically grown agricultural products (provisional translations).

The guidelines are voluntary and not legally enforceable, but do indicate the intent of MAFF to move
toward regulating the labelling of these categories to clearly distinguish organic from other clean
products.

The Japanese MAFF is going to introduce a screening system for organic food in the year 2000. With
this system, MAFF will check organic agricultural products and processed food from production
through to distribution and give an approval to the food that satisfies a certain standard. Food that
does not satisfy the certain standard is to be prohibited from using the word organic as a means of
reducing wrong labelling. Plans are to release a draft in 1998 to come into effect in the year 2000.
Sectors of the food industry would like to see these standards conform to international standards in
order to facilitate trade.

Japanese food distributors indicate that the MAFF food labelling system has not been widely used in
the past because of the confusion it caused consumers. The lack of clear organic standards in Japan
has resulted in greater confidence in organic products that are controlled by strict certification
procedures that conform to high international standards for organic production and processing.

Australian organic certified product represents new opportunities to expand into the growing Japanese
market.

Large corporations are utilising established overseas organic standards and certifying organisations to
reduce consumer confusion and provide credibility for their brand of organic products, however, the
introduction of strict organic standards may create compliance difficulties for co-op direct sanchoku
growers. In addition, many of the fake organic products on the market in Japan will be screened out in
the future as organic standards tighten.

Japan has four independent certification organisations listed as members of IFOAM:

The Japan Organic and Natural Foods Association (JONA).
Nippon Organic Agricultural Products (NOAPA).
Axis Iinkai Rengo.
Nature Farming Commercial Co-operative Organisation.

In addition, six Prefectures set their own standards for labelling of organic fresh produce.

Mokichi Okada Association (MOA) is an organisation established in 1980 which promotes holistic
health and the development of Nature Farming (organic farming). They have established three
agricultural research stations and are the largest organic organisation in Japan. MOA has established
subsidiaries in Australia.

Nippon Ecology Network (NEN) is a citizens group that operates Radish Boya, Japans largest
natural foods home delivery network; and Mothers, Japans first supermarket dedicated exclusively to
organic farm products. Products are made from foods produced based on the RADIX series of
environmental standards developed by NEN. Each product includes the name of the producer and the
production methods used.

Various Australian organic or biodynamic certification organisations including BFA, Demeter and
NASAA have appointed independent organic inspectors trained in Japan to certify production,
processing, oversee distribution and to assist in supply of information.

44
Production
The unclear definition of organic foods makes it difficult to estimate strictly organic production. No
reliable data on numbers of farmers or area is known. In 1995 organic production was estimated to
account for one per cent of total vegetable production and this reflects a sharp increase over previous
years in the number of growers converting to organic production.

It is likely that much of Japanese sanchoku co-op production would qualify under the broad category
of clean agriculture, given the co-ops emphasis on safe foods and reduced chemicals or organic
production. A number of co-ops now actively promote research and extension of organic farming
methods. For example, the farmers group supplying Tohto Co-op have 20% of production grown
without chemicals and the balance is grown using chemical rates less than 50% of the usual rates.

In 1997 the Tokyo Metropolitan Government put in place agreements with seven production areas in
Japan to ensure a stable supply of organic farm production covering 30 products. It plans to introduce
certification marks and a symbol system for packaging, distribution agents and retail outlets to clearly
distinguish organic food supply.

Japanese producers are reportedly finding difficulty competing with good quality, lower priced
organic imports from the USA and Europe. Growers fear these imported products with strict organic
certification guarantees will be preferred by consumers. For example Daiei Inc., Japans largest
supermarket chain, now sells USA rice certified organic by the USA certifier Organic Crop
Improvement Association (OCIA) in 79 of its supermarkets - in direct competition with domestic
organic rice.

Japanese trading companies are beginning to set up large scale organic agricultural production in third
countries, particularly China. Nissho Iwai Corp. imported 500 tons of eight varieties of organic
produce, mainly frozen vegetables, it had grown in Shandong Province. It is acquiring more land to
increase production to 10,000 tons worth Y2.5 billion by 2001. Kirin International Trading Co., an
affiliate of Kirin Brewing Co., contracts 570 ha in Mongolia to produce soybeans, tomatoes, rice and
other crops, frozen and processed for the restaurant trade. It also plans to contract growers in Brazil to
provide frozen vegetables, worth US$2 million in the first year of production.

Processing
Competition in this market is increasing, with success dependent on how effectively consumers can be
convinced that a product is truly organic. In order to win consumers trust an increasing number of
manufacturers are using the strict inspection standards and the well established organic certification
systems of organisations from the USA and other countries.

Food and beverage products at the Foodex Japan 98 exhibition included a number of Japanese
companies displaying a range of organic foods including: milk, coffee, tea, jam, snacks, flaxseed oil,
canola oil, sesame oil, vinegar, pasta, organic ingredients, drinks, processed foods, biodynamic pre-
mix flour, noodles, bread, tempeh, cola, beef, chicken, sauce, spreads, and general foods and drinks.
Although some of these products may have been imported, the impression is that a vast array of
organic products are available. Other similar categories included physiologically functional foods,
natural foods and healthy foods.

The major trading houses in Japan are showing more interest in organic raw materials for juice
production. There are about six juice processors producing organic juice. Organic juice in total
accounts for about 10% of the juice market and is expected to grow by 10% per year according to
Mitsubishi Corp.

Processed products are often derived from imported ingredients. For example, organic cookies, udon
noodles, pasta and bread are produced using an imported style of pre-mix. Pumpkin is imported from
New Zealand for manufacture into soup.

45
Japanese companies are participating in joint venture partnerships involving processing operations in
overseas countries to ensure long term, stable supply. Nichirei Corp., a leading frozen foods
manufacturer, has adopted a policy of developing organic foods as new product line. The USA
supplies most of its frozen organic products. Takanashi Milk Company has entered into a licensing
agreement with US organic milk producer Horizon Organic Holding Corp.

Overseas companies are establishing processing operations in Japan. The big USA fresh produce
group, Dole is establishing food processing centres around Japan, positioning itself to benefit from the
downstream value adding side of the organic food industry.

Domestic markets
Estimating the size of the market for organic foods in Japan is difficult because of the vague definition
of the term organic food. Estimates put the figure at US$1.3 billion for 1997 and US$1.7 in 1998.
Demand for organic foods has grown at an estimated 20-30% per annum. The retail prices for organic
products are estimated to attract an average of 15-30% premium over conventional product.

The majority of organic food sales is fresh fruit and vegetables (60%) while processed products
account for forty per cent. Japanese people are becoming increasingly health conscious. Major food
safety concerns such as BSE (mad cow disease) and E. Coli food poisoning, together with an ageing
population, increased rates of heart disease and diabetes have contributed to widespread and growing
demand for organic products.

A June 1996 consumer survey revealed that 94.8% were concerned with the safety of imported foods.
Of these, 87% were concerned about chemical residues, 66% about food additives and 43% were
concerned about insect and germ contamination.

General environmental concern is also rising and has been used as a marketing tool in the last few
years for a range of consumer goods.

Distribution
This consumer demand has influenced the manufacturing and distribution sectors, creating new
production and distribution systems designed to differentiate and distinguish organic products. The
main three distribution channels are: home delivery service companies, food service industry
companies, and usual retailers such as department stores and supermarkets. The home delivery service
is estimated to account for the greatest volume and value of product.

Consumer co-operatives and supermarkets are important retail outlets for organic and reduced
chemical foods and appear to be highlighting their preference for safe, healthy foods in positioning
their image in comparison to other retail outlets. In response to this position taken by consumer co-
operatives and supermarket chains, other retail outlets such as department stores, restaurant chains and
fast food stores have also been increasing their range and sales of organic foods. The most important
outlets for organic vegetables are consumer co-operatives and supermarkets.

Japanese standards are unclear and as a result there is limited correct knowledge on what are organic
foods. Strict foreign standards are being introduced by large companies and this information is being
passed to the Japanese food industry and to consumers.

Consumer trends
There appears to be wide recognition of organic products among Japanese consumers. Japans MAFF
conducted a survey on purchases of organic vegetables by housewives in 1995. The survey found
more than 60% did purchase organic vegetables, consisting of 36.4% occasionally, 21.6% once or
twice a week, 5.8% three or four times per week, 2.1% almost every day. The most common
reason for purchasing was that organic vegetables are perceived as being safe and healthy. A large
group purchased because they taste good. Respondents were most likely to buy these products at

46
consumer co-operatives and supermarkets. Reasons for not purchasing organically grown vegetables
included high price, uncertain if the product was truly organic, and not sold nearby. Price
premium affected willingness to purchase with almost 80% of respondents indicating they would
purchase at a 10% premium, falling to 17% willing to purchase at a 30% premium.

Convenience is a major consumer trend that is also influencing the organic food market. Tokyu
Department Store Co. Ltd research showed 90% of Tokyo consumers want to buy organically grown
agricultural products, however many housewives and female company employees did not have the
time needed to buy and prepare such foods. As a result the company has established a side-dish shop
in conjunction with Nippon Ecology Network. The new store uses fresh, tasty, organically grown
materials in its prepared foods to meet this latent need. Similarly, Kibun Food Products Co., a
manufacturer of side-dishes uses as many organic vegetables as possible to ensure food safety and
great taste.Another important feature of the Japanese market is consumer interest in the source of
supply of products. This direct association with the producer is a strong feature of consumer co-
operatives. Consumer co-operatives are a major retail market sector within Japan and have been at
the forefront of safe and organic food developments. There are over 600 co-ops of varying size and
sophistication throughout Japan, coordinated by the Japanese Consumer Co-operative Union (JCCU).
As a combined group, consumer co-ops had a turnover in excess of Y3293 billion and membership of
18.6 million in 1995. Co-ops can offer a range of services such as insurance, travel, medical facilities
and housing. In food retailing, the co-op philosophy is to provide a stable supply of fresh and safe
food.

One feature of consumer co-ops is sanchoku, meaning direct transaction between producer and
consumer. Reduced chemical use and organic farming have become an integral part of sanchoku.
These aspects have become a symbol of the image of co-ops as a supplier of fresher and safer foods
compared to other retail outlets.

Members join a co-op to have access to healthy and safe foods at reasonable prices. Food safety is a
high priority for co-op members. With an emphasis on safe foods, demand for organic food is strong.
In fresh produce, 10% was organic in 1997. Faced with decreased self sufficiency in food and ever
increasing food imports, sourcing safe and flavoursome imports is an important part of the
cooperatives operational management.

Price and taste are important factors in the success of an organic product in Japan. A survey at Co-op
Kobe, the largest co-op in Japan, found members were willing to pay a 20-30% premium maximum.
Co-op Kobe is establishing a special task force focusing on organic food.

Consumer co-ops are a large potential market especially for producers of organic and low chemical
and frozen produce. For example, Tokyo Co-op sales of organic produce accounted for 10% of total
fresh produce sales in 1996. Kyoto Co-op organic sales were about Y1 billion for 1996 with demand
increasing. It found only five per cent of customers were prepared to pay more than 20% premium for
organic produce.

Only a few large co-ops import directly, with most relying on the coordinating body for consumer co-
ops, the Japan Consumer Co-operative Union, to arrange imports of organic or low chemical
products, or use trading companies to reduce the risks associated with importing products. Food
safety is paramount for all co-ops and many have a strong interest in fresh organic products and frozen
organic or near-organic vegetables.

The co-ops prefer organic products but limited supplies and higher prices tend to force them to opt for
the next cheapest alternative such as low chemical. This leads to inconsistency in product descriptions
and labelling. An important factor for co-ops is that producers or suppliers see themselves as in a
relationship with the co-op rather than simply traders.

47
Concerns about genetically modified organisms (GMOs) can be found among consumer co-ops. Uni
Co-op reportedly switched from Canadian canola to supply from Australia in response to consumer
demand for GMO free product. Similarly, Shutoken Co-op in Tokyo has indicated it wants GMO
free canola and soybeans, also safe beef without growth hormones, cold pressed (no chemicals)
cooking oils, wheat and peas. The USA grain major, Cargill, is responding to these concerns and will
grow non-GMO corn for Japanese livestock feed priced at a 10% premium. Non-GMO canola is also
being considered.

Supermarkets also appear to be driving the rapid increase in the organic food market. Supermarkets
are using organic products to distinguish themselves in competition with co-ops and other
supermarkets or retail outlets. The appeal of organic foods for special in-store promotions helps
attract customers.

Jusco supermarket chain has its own brand of fresh produce marketed under the Green Eye label
with a range of 50 products. Ito-Yokado Supermarkets has established a sales area for organic
vegetables at its stores. Japans first supermarket dedicated exclusively to organic farm products,
Mothers, opened in late 1996.

Izumiya Company sells fresh produce including cabbage and lettuce cultivated with chemical
fertilisers in reduced quantities. Kentucky Fried Chicken Japan has introduced high-quality
vegetables, a generic term covering organic products and products grown with pesticides and
fertilisers in reduced quantities.

Other retail outlets including restaurants, family restaurants, bars, and fast food establishments have
followed suit using organic or specially grown vegetables hoping to appeal to health conscious
consumers by capitalising on the images of safety and good taste.

Imports
Imported products account for 80% of organic foods on the Japanese market. Major trading nations
are USA, Europe and New Zealand.

Many other countries have interests in trading organic products into Japan. A review of the Foodex
Japan 98 Food and Beverage Exhibition indicates virtually all product categories are represented by
organic products offered by a large number of countries world-wide.

Importation of fresh and raw product into Japan can be subject to quarantine barriers based on
phytosanitary requirements. Fresh products from some regions have been granted entry after pest and
disease status and quarantine protocols have been agreed. Access for fresh organic products may
require special attention to ensure organic certification integrity remains valid.

The importance of forming strategic alliances with suppliers is significant for Japanese importers.
Such relationships are developed to ensure long term supply continuity, diversity and food security.
Importers expect high standards of service.

In order to ensure long term stable supply some Japanese companies are adopting a policy of
participation in the production of products in overseas countries. For example, Sumitomo Corp. has
purchased an interest in an American edible oil company to produce organic safflower and canola
(rapeseed) oil. It has purchased organic tomatoes and other vegetables and commissioned USA
processors to produce organic sauces for the Japanese market.

The large trading houses appear to be driving import demand for organic products. A number of key
food industry players has established teams to manage the development of organic products.
Sumitomo Corp. is using USA organic standards to provide customers with correct information about
organic food, and similarly to food industry players, especially Japanese food manufacturers.

48
Sumitomo handles both bulk commodities and prepacked retail ready products. It has particular
interest in frozen organic vegetables, believing the freezing process maintains product quality when
imported from overseas countries. Other organic products of interest include chicken, eggs, dairy
products, wheat products, fruits, buckwheat and pork.

Similarly, Hissho Iwai Corporation has an organic team in their foodstuffs department. It mainly
handles bulk commodities for distribution to manufacturers, but also handles frozen vegetables, wheat,
dairy products, sugar and tea. A joint venture with the USA certifier OCIA is being established with
the aim of introducing these well respected standards to its Japanese producers and manufacturers. It
has interest in the development of international standards via Codex which will allow world-wide
compliance.

Nissho Iwai Corp. will be marketing USA organically grown rice (OCIA certified) in Japan. The
company aims to compete with domestic rice in the Japanese market. The company also imports
organic vegetables including edamame (green soybean), broccoli, carrot and haricot bean from China.
Intentions are to establish processing plants for frozen vegetables in Shandong and Jiangsu Province,
where organic produce will be processed and frozen for shipment to Japan. Product will be certified
as organic by the Organic Food Development Centre (OFDC), an authorised organisation in China
working under the guidance of the OCIA certifier from USA. The company also has a multi-million
dollar organic food deal with suppliers in France.

Mitsubishi Corp. planned to import 4000 tonnes of organic frozen foods in 1997, representing 20% of
total frozen foods imported. This was a direct response to strong demand from the food industry. The
imported organic product was sourced from USA and New Zealand to ensure year round supply. The
finished product was to sell at a 15% premium. Increased imports are expected for frozen mixed
vegetables and processed potatoes. The company also imported 20-30 tonnes per month of organic
apple and grape juice in 1997 - twice the volume for 1996. Product is organic certified and sourced
from USA, EU and Australia.

Mitsui and Co. plan to set up a supplier network to grow Mitsui-Brand organic products based on
quality control and organic guidelines provided by MAFF. Among the organic products Mitsui
imports, clear apple juice can attract about 100% premium while other juices obtain about 30%
premium.

Kunitaro Co., a Japanese tea company, has established a plant in NSW for mugicha drink production
using organically grown barley. The selection of a suitable barley variety took two years to develop.

Masumoto Co. are importing eight different organic wines from three wineries in the south of France.
These wines are certified organic by a public authorised party in France.

The Japan Food Service Association, consisting of 400 restaurant operators, has established a network
to buy organic raw materials. Bulk orders will be placed through the major trading houses such as
Mitsubishi Corp., Mitsui and Co. and Itochu Corp., thereby ensuring a stable supply of organic crops.

Nichirei Corp., a leading frozen foods manufacturer, imports from the USA frozen organic
vegetables, including corn kernels, green peas, potatoes and vegetable mix, and is considering
products such as broccoli, cauliflower, green beans and spinach.

Pel Japan, an importer of fresh vegetables for supermarket chains, imports organic fresh vegetables
from USA, New Zealand, Korea, Australia, Mexico, Tonga, Vanuatu and New Caledonia to enable
supply throughout the year.

The Skylark Companies Gusto chain of family restaurants uses heat treated and frozen organic
potatoes, onions, carrots, green beans and other vegetables imported from USA.

49
Wine made from organic grapes is attracting wider public attention because of its clean natural
origins and belief in its health promoting effects. Wine importer and wholesaler, Vin sur Vin
Masumoto, imports 30 organic wine brands mostly from France. Demand has been surging and
additional suppliers are being sought from Italy, Spain and elsewhere.

Shutoken Co-op. imports low chemical organic soybean from China, maple syrup from Canada and
post harvest, chemical free corn from USA and China. Product opportunities with consumer co-ops
were reported to exist for asparagus, broccoli, carrots and potatoes, bananas, mangoes and other
tropical fruits.

Smaller trading companies need to differentiate product and develop niche markets to survive against
larger companies. Organic certification is seen as an opportunity to supply differentiated product.
These smaller trading companies initially require smaller production volumes.

Organic foods are also gaining a solid position in the wholesale market. One major wholesaler at the
Ota market in Tokyo established a special division for organic and other select produce. In one year
sales jumped from US$250,000 per month to US$830,000 per month. Large retailers are demanding a
wide selection of fruits and vegetables, and as a result, organic foods are steadily finding their way
into market based distribution channels. Outlets are gradually spreading to include supermarkets,
department stores, restaurant chains, bars and home delivery.

50
United States of America - Profile
Background and definition
Known as the Natural Food Industry within the USA, this sector has grown very strongly in recent
years. Natural products were estimated to be worth US$8 billion in 1997. Another estimate expects
the natural food sector to grow at 30% per year and be worth up to US$6-10 billion in the year 2000.
The sector includes the full range of health foods, including the major category of organic foods. As
the natural products industry expands, a larger market is made available to organic foods.

Organic foods have become the fastest growing sector in the USA food industry. The US organic
foods market, was reported to have grown from US$178 million in 1980 to US$2.8 billion in 1995,
including US$714 million in exports. Total sales for organic products in 1997 were estimated to be
around US$3.5-4.5 billion, accounting for 1-1.5% of total food sales. Sales have risen by about 20%
per annum over the last seven years. Sales of organic foods are predicted to exceed US$6.5 billion by
2000.

The USDA predicted in 1997 that organic sales would jump from US$3.5 billion to US$10 billion
within five years. Other forecasts of future market growth range as high as US$47 by 2006. USA was
regarded as the largest global exporter and consumer of organic products.

Agribusiness capital is reported to be penetrating the most high-value segments of organic vegetable
commodity chains, despite the prevalence of practices and ideologies which countervail trends in the
conventional food industry. Agronomic and marketing practices increasingly mirror those of
conventional agriculture.

Standards
Throughout the USA there exists a large number of organisations applying various standards for
organic or similar quality production systems and products. In 1995 there were 33 private organic
certification organisations and 11 others developed by various States.

In general terms, organic foods are produced without the use of synthetic pesticides and fertilisers,
some natural poisons, growth promotants and hormones for a period of three years prior to harvest.
Physical separation from conventional product is required from farm to shop, including post harvest
and throughout processing. Farm management plans must address maintenance of soil fertility and
other production and handling issues.

The term organic has been codified in California and this has contributed to the recent growth in the
organic foods industry. However, in general the lack of consistent standards for organic products in
the USA is limiting growth, with mis-labelling having a negative impact on both consumers and
organic producers. International trade is also hampered. Proposed regulations implementing the
Organic Foods Production Act will create market conditions under which these problems can be
overcome.

Following the 1990 Federal Organic Foods Production Act, national organic standards for the USA are
being drafted.

Acceptance and adoption of standards have been delayed as the organic industry objects to US
Department of Agriculture (USDA) proposed rules allowing genetically engineered organisms
(GEOs), food irradiation, undefined toxic inert ingredients, sewage sludge and other materials
currently prohibited by existing organic certifiers.

51
Recent indications are that the proposed set of standards by the USDA may be revised so foods that
have been irradiated, genetically engineered, or grown using biosolids cannot be labelled as being
organic. Another objection relates to the USDA proposed rule to govern the National Organic
Program and thus have control over the authority granted (by the 1990 Act) to the National Organics
Standards Board to set standards for organic production.

In brief, concern has been expressed that the USDA appears to be seeking control over organic
standards and to prohibit any higher standards. Widespread organic industry objection has forced a
review of the proposed standards.

If the USDA succeeds in prohibiting higher standards, existing world trade based on higher standards
may be referred to the World Trade Organisation as a possible unfair trade barrier.

There are no formal equivalency agreements between the USA and other countries. IFOAM is the
only independent body providing international equivalency accreditation. Two USA certifiers have
IFOAM accreditation with three others under review. USDA has recently decided to implement
training programs for certifiers of produce intended for the EU. The aimed is for certifiers to become
competent authorities in line with ISO Guide 65.

Production
The number of certified organic farmers across the USA was 4050, covering an area of over 450,000
hectares, or less than one per cent in 1994. Many growers labelling their product as organic are not
certified. In California, for example, only 35% of organic growers are certified. The number of
certified growers had increased to 5,300 by 1997.

Virtually all types of fresh products are produced organically to some extent. The major organic crops
are grains and seed, dry beans, vegetables, fruit, dairy and meat. The USA produces large areas of
grapes organically as well as quantities of certified organic wine.

Organic production is expanding to meet demand, and as the market grows, more farmland is being
certified as organic.

Organic dairy production has risen sharply following consumer concerns over the use of growth
hormones in conventional dairy production. Sales jumped over 50% in 1994 to US$24 million. The
organic milk products market in the USA is growing to meet the increasing consumer demand for
these products. By 1999, the leading producer of organic milk, Horizon Organic Holding Corp., was
listed on the NASDAQ index and reported 1st quarter sales of US$16.4 million. Its marketing targets
expectant mothers and mothers with young children.

A study evaluating supply and demand factors in wholesale markets for organic broccoli, carrots and
lettuce found that in the long run, demand factors were likely to dominate supply factors. Reduced
wholesaling costs, increased margins by which organic wholesale price exceeds conventional price,
and higher consumer income were likely to stimulate both farm price and output.

Processing
Processed foods currently dominate growth in the organic sector. Organic food manufacturers are
beginning to widen their marketing options by diversifying into different retail outlets.

Food processing and manufacturing was reported in 1995 to be the fastest growing segment of the
organic industry. Virtually all product categories contain an organic equivalent. Grocery and dairy
products combined accounted for over 50% of total organic food sales. Vegetable protein products,
cereals, snacks and juices are the largest manufactured food categories.

52
Many products formerly marketed as natural have evolved into organic products. Manufacturers are
taking advantage of the credibility organic certification provides.

New trends apparent in manufactured products include frozen microwave ready organic foods suitable
for the convenience food sector.

Food industry giants like Heinz and Mars have bought into organic companies. Other large companies
are expected to follow as capital markets begin to invest in the organic food industry.

Domestic markets
There has been a phenomenal increase in the number of natural food stores during the 1990s. Natural
food stores were the dominant retail outlet for organic foods in 1994, capturing 67% of organic food
sales. In 1995, the majority of organic product sales remained through natural food retail outlets due
to the commitment of these stores to source organic products in preference to other products. Sales
through direct market outlets was the second largest outlet for organic products, with mainstream sales
accounting for only seven per cent of total organic sales.

The scale of natural food retail outlets can be large. Whole Foods Market, an organic food chain based
in Texas, has 80 stores across the country with an annual turnover of US$1.1 billion in 1997. Growth
rates have been 30% per annum and they expect to have 100 stores by the year 2000. The share price
of this public company has been bullish on the USA stock exchange.

In recent years, mainstream supermarkets have begun to stock organic foods in recognition of growing
consumer demand and in response to the success of the natural food stores. Organic and natural
products are now distributed by 60% to 85% of all grocery stores and supermarkets.

Fastest growing product categories in 1996 included dairy products, prepared meals and
convenience foods. Retail sales of organic fresh (fruit and vegetables) produce were estimated at
US$500 million in 1995, equivalent to about one per cent of total retail fresh produce sales.

In 1998, organic snack foods and desserts were reported to be the second most popular category after
organic fruit and vegetables. Sectors of this market experiencing growth were chocolate bars, other
candy, energy bars and gums and mints. The two leading organic bulk confectionery companies are
SunSpire and SunRidge.

Organic baby food sales have risen from US$1.1 million in 1989 to US$25 million in 1995.

Organic dairy products accounted for about US$210 million of sales in 1997. Horizon brands of
organic milk, Horizon Organic and Organic Cow are nationally distributed. It also produces
organic yogurts, eggs and orange juice.

Organic Valley, originally a milk and vegetable producer, now also offers frozen hot dogs and
hamburger patties. It plans to introduce organic bacon, ham, chicken and chicken breast product
lines.

Petaluma Poultry now does an organic range after initial success with antibiotic-free products.

The US organic red meat, produce and cheese market is expected to exceed US$4 billion in 1998.

Premiums for organic products were reported in 1996 to average twenty per cent.

53
Consumers
The boom in organic food sales has benefited from repeated food scares. The USA Environmental
Protection Agency was reported to be distributing a supermarket brochure, Pesticides in Food
advising shoppers to buy organic foods.

A survey reported in 1998 showed that 28% of American consumers surveyed bought organically
grown produce, with 35% saying they would pay more.

Another report in 1998 indicated that amongst US consumers, 18% were strongly interested in buying
organic products, 28% were generally interested, 16% were ambivalent, and 40% were uninterested.

An estimated 10% of USA population can be considered as core organic consumers.

Organic foods are also used to target affluent consumers demands on taste. This aspect is also
becoming important for restaurants. These groups may not be as large a market as the
environmentally concerned group, however the image of flavoursome qualities adds to demand for
organic foods.

Sales of organic baby food have been steadily increasing in the USA in spite of a price premium. A
US Department of Agriculture economic model revealed consumer attitudes regarding organic baby
food. The premium found in the study was considered to indicate the value of the organic label to
baby food purchasers.

Exports
Manufactured organic foods captured US$203 million in export sales for 1994 or nine per cent of the
total US organic production. Total organic food exports in 1995 were US$714 million.

Total exports were reported in 1997 to account for approximately one third of production, with most
going to Japan.

54
Organic Agriculture in Australia
Background and definition
Consumer interest in clean or healthy and environmentally friendly products and production in
Australia has steadily increased in recent years, although at a less dramatic pace than in other
developed nations.
The terms wholefoods and healthfoods are commonly associated with healthier foods, while the
terms green and environmentally friendly are often used to imply environmental awareness and
responsibility. The term organic is increasingly being recognised as implying a unique clean image
of safe and healthy products that are grown without chemicals and also seen to be natural without
harmful effects on the environment. To a lesser extent, the term biodynamic is known to have a
similar meaning to organic but with a more elite association.
Australia-wide the organic agriculture movement has slowly but steadily developed but still remains
on the fringe of the mainstream food industry. In recent years, strong growth in markets for organic
products, particularly in Japan and Europe and, to a lesser extent, in Australia, has prompted a
resurgence of interest in organic production.
The popularity of organic food in Australia may gain momentum as major supermarket chains show
renewed interest in organic products.
In 1995, organic production in Australia was estimated to be worth $A110 million of which $A30
million was exported. There were an estimated 1462 growers accounting for an area of 336,000
hectares devoted to organic production. Annual growth in the organic sector had been 2030% and
production was predicted to increase to almost two per cent of producers in 2005, covering 887,000
hectares or about two per cent of total agricultural land.
More recent industry sources estimate the Australian organic industry is now worth $A200-250
million although the value of exports and the number of growers may not have risen significantly. The
inclusion of a number of pastoral stations under organic certification has increased the area of organic
production dramatically.

Standards
Organic production in Australia is well regulated. National Standards for Organic and Biodynamic
Production were first developed in 1992 and have generally been adopted as minimum standards
across the industry. Implementation of these standards is carried out by a number of independent
certification organisations under the auspices of the AQIS.
Australia has established a good international reputation as a supplier of genuine organic products due
to mandatory certification and labelling requirements for export product. Australian regulations
require all products labelled as organic for export must be certified as such by an AQIS accredited
certification organisation.
At present there are seven certification organisations accredited by AQIS as authorised to inspect and
certify organic farms, production and processing systems for export.
BFA (Biological Farmers of Australia Co-operative Ltd).
Demeter BDRI (Biodynamic Research Institute).
Eco Organics of Australia (tea tree oil only).
NASAA (National Association for Sustainable Agriculture Australia Ltd).
OFC (Organic Food Chain Pty Ltd).
OHGA (Organic Herb Growers of Australia Inc.).
OVAA (Organic Vignerons Association of Australia Inc.).

55
These organisations are subject to external audit by AQIS. Contact details are included in the
appendix.
A number of these certifiers are considering the adoption of formal QA systems to further enhance
their reputation as the most credible and stringent assurance of truly organic products.
At present, few reciprocal arrangements exist between the seven different certification organisations.
As a result, mixing of raw materials from different certifiers may invalidate the certification status of
the end product. This has created problems for processors where supply shortage exists.
IFOAM accreditation is seen by a number of importing countries as a credible authority upon which to
assess the merit of any organic certification system. Access to organic markets of the USA and Japan
can be facilitated by IFOAM accreditation. International accreditation with IFOAM has been obtained
by one Australian organic certifier and another has applied for accreditation.
All AQIS accredited certification systems have access to EU markets.
Markets world-wide are increasingly looking for forms of assurance that products meet required
specification, safety obligations or environmental criteria. Assurances of product safety and other
qualities can be provided via various quality assurance schemes available within Australia and
recognised internationally. These QA programs may be designed to satisfy specific demands. Where
organic certified products are specified, QA systems may still be applied to cover other product quality
attributes such as colour, shape, size, etc. as required by individual markets.

Production
There is little in the way of export statistical data which differentiates organic or clean labelled product
from conventional product. The information available mainly comes from organic and biodynamic
industry groups, trade organisations and individuals. Most of this is anecdotal rather than statistical
and must be treated with caution.
A survey conducted by Hassell and Associates estimated organic agriculture accounted for
approximately 336,000 hectares or about one to two per cent of total agricultural land in 1995. The
greatest proportion of organic producers was involved in horticulture (75%) while broad acre and
livestock represented 12% and 10% of producers respectively. However, broad acre farming
accounted for 69% of land area while livestock and horticulture accounted for 17% and eight per cent
of land area respectively. Predictions were for production in the organic sector to increase to almost
two per cent of producers in 2005, covering 887,000 hectares or about two per cent of total
agricultural land.
In mid 1999 there were in excess of 1367 certified growers (not including BDRI and Eco-Organics)
covering and area of over 9 million ha as shown in the following table. The number of new
certifications was reported to be growing rapidly.
Organisation Certified growers Area
BFA 544 About 150,000 ha
BDRI Not available Not available
Eco-Organics Not available Not available
NASAA 355 9,213,774 ha
OFC 18 Not available
OVGA 20 123.56 ha
OHGA 430 About 4000 ha

56
The large increase in area under organic or biodynamic production can be attributed to large areas of
rangelands for cattle production.

A diverse range of organic products is grown throughout Australia although many are only produced
in small quantities, reflecting in part the small niche market occupied by organic foods. The main
products include fruit and vegetables, cereals and other grains, beef, and a wide range of related
processed products. Within the horticulture sector, the main fresh produce crops grown were oranges,
apples, bananas, potatoes, carrots, grapes, avocados and broccoli.

Price premium expected by producers was reported to be 10-50% with fresh produce, poultry, dairy
and fibres at the upper end of the range. Average actual premiums were around 35% in 1995.

Considerable effort has been devoted throughout Australia toward developing conventional production
systems that reflect the clean and green image used to promote Australian agriculture. Issues related
to chemical use, food safety, environmental impact, land degradation and sustainable farming are
being addressed through programs such as CattleCare, WoolPro, TopCrop and Landcare. In part,
these initiatives are moving Australian agriculture toward healthier and safer products. There appears
scope for a number of these programs to target organic or near organic markets by refining
production or processing systems to suit the required clean specifications.

Processing
A wide range of processed or manufactured products can be seen to carry labels conferring some
clean attributes, usually related to health or the environment.

Mainstream processors in general have yet to move into production of certified organic products.
However, the recent rapid increase in the range and volume of processed organic products in the major
world markets has prompted interest by Australian companies. A small but growing number of
processors are now manufacturing organic or biodynamic products.

A considerable portion of organic or biodynamic wheat is milled into flour and subsequently
manufactured into noodles, breads and pasta.

Oil extraction processes have been developed for a number of organic oil crops including canola,
safflower, sunflower, olive, flax, eucalyptus and other essential oils.

Organic or biodynamic fruit and vegetable juices are also being produced, together with a range of
grocery lines including mayonnaise, salad dressing, olive oil, rice cakes, sauces, preserves, soy milk,
tahini and many other products. Companies such as Pureharvest export a range of organic certified
grocery products mainly into South East Asia.

A range of dairy products including liquid milk, yoghurt and cheese have full organic or biodynamic
certification.

A number of abattoirs have been certified to handle organic or biodynamic livestock and at least one
smallgoods manufacturer has expressed interest in developing organic products.

Some food processors are showing interest in organic products as a result of marketing pressure
following the success of Heinz Watties (NZ) frozen organic vegetable range.

Apart from general shortage or uncertainty of supply quantities, processors of organic products are
often faced with the problem of raw materials from different certifiers where no reciprocal or common
certification exists. Lack of reciprocal arrangements can invalidate end product certification.

57
Domestic markets
The Australian market for organic products was estimated at $A80.5 million in 1995, up from an
estimated value of $A28 million in 1990. Current estimates suggest a market value of $A200 250
million.

The composition of organic retail sales by Australian States is provided below.

Australia - Composition of Organic Industry Retail Sales, 1995 ($A million)

Product grouping QLD NSW ACT VIC TAS SA WA Total

Livestock products 0.3 5.3 0.06 1.2 0.02 0.2 0.4 7.48
Seeds/grains/cereals 3.2 1.4 0.36 3.1 0.28 0.9 1.2 10.44
Fruits/nuts 4.9 7.9 0.39 11.4 0.35 1.3 1.2 27.44
Vegetables/herbs 6.1 6.7 0.32 11.4 0.24 1.7 1.6 28.06
Tree products/natural oils 0 2.2 0 0.3 0.01 0 0 2.51
Other 0 0.5 0.07 3.4 0.10 0.3 0.2 4.57
Total organic 14.5 24.0 1.2 30.8 0.99 4.4 4.6 80.49

Source: Hassell and Associates (1996).

The main product categories in 1995 were vegetables, fruit and nuts followed by cereals, grains and
seeds. A similar composition may be expected in 1998 with some increase in processed foods.
The market for organic products in Australia is expanding relatively slowly compared to USA, Europe
and Japan. Within Australia, consumer surveys indicate significant latent demand exists when modest
premiums are applied for equivalent (to conventional) grade product.
The main market outlets for organic foods remain specialty stores and health food shops. Home
delivery services appear to be gaining popularity in several capital cities. Interest by the major
supermarkets towards organic products does appear to be re-emerging. Several supermarket chains
have intentions of stocking fresh produce and other products in a larger number of stores. A larger
range of organic grocery lines, particularly imported products, has helped broaden the organic sector.
Coles Myer is reported to be attempting to stock organic fresh produce in 10 stores on the east coast,
and have trials under way in several WA stores, which may expand to other select stores across
Australia. Woolworths is re-assessing the prospects for organic products and do have a section on
organics in one Tasmanian store.
Nevertheless, until major retail players decide to seriously develop organic products as part of their
marketing strategic position, as appears to be the situation in the UK and Japan particularly, domestic
demand for organic products will remain outside the mainstream food industry.
Like many emerging new industries, stimulation of market demand requires a reliable supply of
suitable products. Although considerable latent demand is believed to exist, producers are less willing
to convert to organic methods unless a ready market is established. Ready markets are established
overseas and the organic industry must pursue these export opportunities as a means of stimulating
production and possibly the domestic market.

Exports
Total exports of organic products from Australia is difficult to determine due to the fragmented and
diverse nature of the industry. Also, no statistical export data is known to exist that distinguishes
organic product from conventional product within a specific commodity.
The value of organic product exports was estimated to be $A30 million in 1995. More recent
estimates by industry sources suggest this value remains in a similar range of $A30-50 million.

58
Exports of organic products in 1995 went to a range of countries including Japan, Holland, New Zealand,
Norway, Singapore, Switzerland, the United Kingdom, the USA and Germany. Products exported or at least
trialed, include barley, durum wheat, rice, rye, wheat, millet, oats, beef, grapes, citrus juice, dried vine fruits,
navel oranges, apples, pears, bananas and sunflower oil.
The relatively slow pace of development of the domestic Australian market and related production levels is
also reflected in the development of export trade. However there appears to be growing demand for export
supply.
A survey of the major companies involved in the export of organic or biodynamic products reveals Australia
is currently exporting a range of products to mostly Japanese and European destinations as shown.
Current Australian Organic and Biodynamic Exports:
Product Destination
Apples Europe, Germany, Holland, UK
Bananas Japan
Barley Switzerland, Japan
Beef Japan
Biscuit mix Japan
Canola oil Japan
Carrots Malaysia, Singapore
Chickpeas Holland
Essential oils Europe
Eucalyptus oil Europe, USA
Flax oil Japan, Hong Kong, Malaysia
Flour Japan, Italy
Flour pre-mix Japan
Honey Singapore
Juice - fruit or veg Japan
Juice - orange Japan
Linseed Holland
Malt - beverage Japan
Mayonnaise Europe, USA, Japan
Mixed fruit and vegetable Singapore, Malaysia, Hong Kong
Mung beans Holland, Germany, USA, Italy
Oats Switzerland, Japan
Orange - valencia Sweden
Oranges - navel Europe, USA, Holland, Germany, UK
Pears Germany, Holland
Processed products South East Asia, Japan, Europe
Rice Switzerland, Malaysia, Japan, Europe, USA
Safflower oil Japan, Germany, Holland, Switzerland, France
Salad dressing Europe, USA, Japan
Soybeans Japan, Holland, Germany, Europe
Sunflower oil Japan, Holland
Triticale Japan
Wheat - durum Italy
Wheat - hard Austria, Switzerland, Japan, UK, Holland, Norway, Sweden
Wheat - noodle Japan
Wine Europe, UK, Japan
Wool Germany, Japan

59
In addition to this export trade, a number of export companies surveyed indicated that considerable
quantities of product are exported directly by growers.
The previous table does not reflect volumes of trade and makes no distinction between one-off spot
market trade compared to long term stable markets.
A number of organic export companies noted that considerable immediate export opportunities are not
being captured due to inadequate supply.
The major immediate supply shortages indicated are listed as follows:
Product Destination
Alfalfa seed Europe
Apples Europe
Avocados Europe
Barley Europe
Canola oil Japan
Chickpeas USA
Dried foods Japan
Flax oil Japan
Fruit - dried Germany
Fruit - juice/puree Japan, Germany
Grapefruit Europe, USA
Lemon Europe, USA
Linseed Europe
Mangoes Europe
Milk Japan
Mung beans Europe
Nuts Germany
Onions Europe
Orange - juice Japan
Orange - navel Europe, USA
Pasta Japan
Pears Europe
Rice USA
Safflower oil Europe, Japan
Soybeans Japan, Europe, Holland
Sunflower oil Japan
Sunflower seed Germany
Wheat - hard Europe, Holland
Wheat - noodle Japan
Wine Japan
Wool - coarse Germany

Immediate demand for double the volumes of noodle wheat to Japan was reported, also demand was
indicated for pesticide residue free product. Demand for soybeans was far exceeding supply.

Smaller demand for canola, safflower and sunflower oils was noted in Singapore, Hong Kong, Taiwan
and, to a lesser extent, Malaysia.

Recent reports also noted demand for GM-free oil seed from EU markets. Australian growers are
said to be benefiting from cancelled contracts to US, Canadian and NZ seed and oil producers who
could not guarantee their GM-free status.

60
The organic or biodynamic export traders surveyed indicated a number of products were likely to have
strong long term markets.

Products noted as having good future export potential are listed as follows:
Product Destination
Apples Europe, Germany, Holland, Singapore, Hong Kong
Baby food Japan
Bananas Japan
Beef Japan, Asia
Broccoli Asia, Singapore, Hong Kong
Canola Japan, South East Asia
Carrots Japan, South East Asia
Cauliflower Singapore, Hong Kong
Citrus Europe, Germany, Holland, USA, Japan
Fruit juice Japan, South East Asia
Honey Europe
Legumes South East Asia
Lettuce South East Asia
Meat Japan, South East Asia
Milk Japan
Millet South East Asia
Mung bean Europe
Oats Switzerland, Germany
Olive oil Japan
Onions Europe, South East Asia, Japan
Orange - juice Japan
Oranges - navel Germany, Holland, USA, Japan, South East Asia
Pears Singapore, Hong Kong
Potatoes Asia
Rice Japan, USA
Safflower Europe, Japan, South East Asia
Soybean South East Asia, Holland, Europe, Japan
Sugar Most markets
Sunflower South East Asia
Triticale Japan
Wheat South East Asia
Wheat - hard Europe, Japan, South East Asia
Wheat - noodle Japan
Wine Japan

Soybean was regarded by one company as a strong emerging product, while navel oranges have huge
potential in Japan if quarantine barriers can be overcome.

Specific demand by domestic processors manufacturing organic products for export or domestic
markets may also offer good potential.

A number of Australian trade development organisations have reported strong enquiries for supply of
organic products from Australia.

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Key product categories of interest to Japanese consumers of organic products include flour-based
products such as noodles and bread, dairy products such as butter, cheese and ice cream, and
organically produced beef. There is also demand for fruit juices, edible oils and wine.

Other recent reports from Japan indicate that there are opportunities for most fruit and vegetables (and
processed), soya beans and other ingredients for food manufacturing, including dairy and grains.

Queenslands DPI reports good prospects for organic and clean frozen vegetables into Japan and the
major EU markets.

Austrade believes the greatest export potential for Australian organic foods to Japan lies in the
processed foods and food ingredient sector. Identified products include fruit juice, edible oils, grain,
flour based ingredients, dairy products and beef. Interestingly, 80% of the Japanese market is supplied
by imports.

Imports
The value of organic foods imported into Australia was estimated to be $A5.2 million in 1996.

The majority of imported organic products is derived from the USA and the UK and consists mainly
of processed organic product, particularly grocery lines including preserves, soy drink, coffee, pastes,
baked beans, beverages, pasta sauces, olive oil, confectionery and many other products.

A range of other organic products are imported on a spot basis according to domestic supply
conditions. For example, onions have been imported from Chile, sugar from Paraguay, kiwi fruit and
other fresh produce from New Zealand.

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Conventional ImportExport Trade
New opportunities for export trade in clean and organic products may be identified from examination
of the conventional agriculture import patterns for the major organic markets of Japan, Europe and
USA.

Conventional imports
The import value of conventional products into the key markets of France, the Netherlands, Germany,
the UK, Japan and the USA is presented in the tables that follow.

The import data shows that a number of products such as coffee, wine, beef and veal, soybeans, cheese
and dairy and others are major common imports for these highly developed markets.

The variations between countries reflects the range of factors involved that influence the need to
import products. Factors such as tradition, local production capability, near neighbours, or cultural
preferences and the influence of new cultural styles and trends can be important in selecting potential
products for export. For example chicken meat is a major import into all countries except the USA,
while the UK consumes twice the amount of frozen foods per capita than any other western European
nation.

Examination of the tables reveals some interesting information regarding specific products. For
example, the high value of pastry products imported into the USA and Germany, and the value of pet
food imported particularly into Japan.

Conventional exports
Another set of trade data presented relates to conventional products exported by a small selection of
potential competitor countries including some countries that have similar seasonality and production
capability.

Australia may expect competition for a share of the clean and organic markets where a specific
product is already a significant export from countries known to be developing organic production.

For example, the USA, Argentina, Paraguay and China are far more significant exporters of soybeans
than Australia. The USA and China are major exporters of chicken meat. Australia is a major wheat
exporter however the USA and Argentina are likely to be potential competitors.

Detailed examination of the conventional trade data presented is beyond the scope of this report.
However, decisions relating to target products and target markets for clean and organic products
should take into consideration Australias comparative advantage as reflected in conventional exports
and assess potential competitors into target markets.

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Trade (import values) for commodities into key markets
(Source: Food and Agriculture Organisation 1998)

NETHER-
IMPORTS (1000 US$) 1995 FRANCE IMPORTS (1000 US$) 1995
LANDS
BEEF AND VEAL 1,166,431 SOYBEANS 1,308,889
COFFEE, GREEN 964,788 DRY SKIM COW MILK 821,380
CAKE OF SOYA BEANS 766,620 COCOA BEANS 616,182
CHEESE (WHOLE COW MILK) 704,418 COFFEE, GREEN 517,605
BUTTER OF COW MILK 569,651 WHEAT 492,958
MUTTON AND LAMB 562,866 ORANGE JUICE SINGLE STRENGTH 479,480
WINE 500,049 TOBACCO LEAVES 470,914
BEEF AND VEAL, BONELESS 483,512 WINE 466,041
BANANAS 428,669 DRY WHOLE COW MILK 462,502
PIG MEAT 385,767 MAIZE 401,455
PORK 325,395 BUTTER OF COW MILK 332,860
ORANGES 320,211 CHEESE (WHOLE COW MILK) 300,171
TANG. MAND. CLEMENT. SATSMA 313,402 PALM OIL 290,176
WOOL, GREASY 311,118 TOMATOES 286,732
TOMATOES 308,221 BEEF AND VEAL, BONELESS 266,007
ORANGE JUICE SINGLE STRENGTH 280,025 CAKE OF SOYA BEANS 260,718
COW MILK, WHOLE, FRESH 272,772 BEEF AND VEAL 199,279
COFFEE ROASTED 269,936 OIL OF RAPESEED 197,942
COTTON LINT 237,001 POTATOES 191,014
BEER OF BARLEY 236,622 ORANGES 187,008
SUGAR (CENTRIFUGAL, RAW) 226,649 BARLEY 184,108
FROZEN POTATOES 224,459 GROUNDNUTS SHELLED 179,023
VEGETABLES FROZEN 209,660 WHOLE MILK, EVAPORATED 176,720
POTATOES 208,237 APPLES 167,014
SOYBEANS 207,789 CHICKEN MEAT 164,229
OLIVE OIL 204,250 SUNFLOWER SEED 163,302
BREAKFAST CEREALS 188,169 PET FOOD 157,466
PET FOOD 181,338 DRY WHEY 155,363
BACON-HAM OF PIGS 167,903 PEAS, DRY 141,939
CHICKEN MEAT 167,843 GRAPES 136,119
MILLED PADDY RICE 154,700 COW MILK, WHOLE, FRESH 134,561
CREAM, FRESH 137,560 BANANAS 133,083
MACARONI 136,872 MILLED PADDY RICE 130,786
GRAPES 135,205 COFFEE ROASTED 125,462
ICE CREAM AND EDIBLE ICE 134,457 MILLED/HUSKED RICE 104,816
AVOCADOS 130,652 MALT OF BARLEY 89,714
OIL OF SUNFLOWER SEED 129,417 ICE CREAM AND EDIBLE ICE 86,128
MARGARINE + SHORTENING 127,693 BUTTERM., CURDL., ACID. MILK 85,641
TOBACCO LEAVES 121,259 BEER OF BARLEY 84,985
DRY SKIM COW MILK 117,897 RAPESEED 84,214
FOOD PREP. FLOUR, MALT EXT. 116,713 PORK 82,315
LEMONS AND LIMES 112,066 TANG. MAND. CLEMENT. SATSMA 81,325
MAIZE 104,392 CHEESE OF SHEEP MILK 80,025

64
 IMPORTS (1000 US$) 1995 GERMANY IMPORTS (1000 US$) UK
COFFEE, GREEN 2,678,457 WINE 1,697,965
CHEESE (WHOLE COW MILK) 2,081,801 SUGAR (CENTRIFUGAL, RAW) 838,599
WINE 1,435,203 BACON-HAM OF PIGS 770,465
PORK 973,445 CHEESE (WHOLE COW MILK) 715,085
BANANAS 970,692 BANANAS 458,828
PIG MEAT 820,894 BEEF AND VEAL, BONELESS 425,007
BEEF AND VEAL, BONELESS 778,389 TOBACCO LEAVES 415,308
TOBACCO LEAVES 738,772 CHICKEN MEAT 389,759
SOYBEANS 724,856 BEER OF BARLEY 386,552
PASTRY 674,043 COFFEE, GREEN 371,970
CHICKEN MEAT 585,234 CAKE OF SOYA BEANS 363,612
TOMATOES 575,394 BUTTER OF COW MILK 348,497
BUTTER OF COW MILK 558,261 APPLES 346,651
APPLES 517,591 MUTTON AND LAMB 333,611
COCOA BEANS 440,142 MAIZE 317,751
POTATOES 407,527 BEEF PREPARATIONS 301,968
CAKE OF SOYA BEANS 379,201 TEA 296,657
GRAPES 376,643 APPLE JUICE CONCENTRATED 286,729
WOOL, GREASY 364,546 TOMATOES 283,206
CUCUMBERS AND GHERKINS 363,518 COCOA BEANS 247,025
CHILLIES + PEPPERS, GREEN 361,575 PORK 222,405
PEACHES AND NECTARINES 326,920 PALM OIL 206,902
VEGETABLES FROZEN 325,659 GRAPES 205,403
ORANGE JUICE SINGLE STRENGTH 323,462 WHEAT 200,108
SUGAR CONFECTIONERY 307,732 ORANGE JUICE SINGLE STRENGTH 197,702
BEEF AND VEAL 296,383 PET FOOD 197,390
ORANGES 291,848 ORANGE JUICE CONCENTRATED 196,535
TANG. MAND. CLEMENT. SATSMA 286,974 POTATOES 196,230
PET FOOD 285,981 FROZEN POTATOES 189,315
COTTON LINT 277,939 MEAT PREPARATIONS PIGS 178,934
LETTUCE 274,521 MEAT CANNED CHICKEN 177,959
STRAWBERRIES 258,502 COFFEE EXTRACTS 172,242
WHEAT 255,749 ORANGES 164,312
RAPESEED 245,722 SOYBEANS 162,787
HEN EGGS 243,906 WOOL, GREASY 161,560
FROZEN POTATOES 211,667 RAISINS 150,078
MEAT CANNED CHICKEN 205,251 RAPESEED 137,837
APPLE JUICE SINGLE STRENGTH 177,888 PEELED TOMATOES 127,768
BEER OF BARLEY 176,546 TANG. MAND. CLEMENT. SATSMA 123,459
SUGAR REFINED 176,215 VEGETABLES FROZEN 119,723
MUTTON AND LAMB 169,622 BEEF AND VEAL 118,902
MALT OF BARLEY 164,641
SAUSAGES PIG MEAT 164,516
BARLEY 158,934
PEARS 150,467
MEAT PREPARATIONS PIGS 142,620
ASPARAGUS 140,710

65
 IMPORTS (1000 US$) JAPAN IMPORTS (1000 US$) USA
PORK 3,726,495 COFFEE, GREEN 3,067,091
BEEF AND VEAL, BONELESS 3,188,742 BANANAS 1,329,308
MAIZE 2,404,981 BEER OF BARLEY 1,270,826
SOYBEANS 1,377,913 WINE 1,253,987
WHEAT 1,347,809 BEEF AND VEAL, BONELESS 914,960
CHICKEN MEAT 1,251,459 SUGAR (CENTRIFUGAL, RAW) 745,458
COFFEE, GREEN 1,096,444 PASTRY 585,992
COTTON LINT 710,271 TOBACCO LEAVES 581,546
RAPESEED 633,218 TOMATOES 501,868
SUGAR (CENTRIFUGAL, RAW) 618,197 CHEESE (WHOLE COW MILK) 451,131
TOBACCO LEAVES 584,569 PIG MEAT 440,628
PET FOOD 573,486 COCOA BEANS 408,984
WINE 468,843 GRAPES 396,390
CHEESE (WHOLE COW MILK) 462,060 OLIVE OIL 363,102
BANANAS 437,553 OIL OF COCONUTS 333,098
VEGETABLES FROZEN 333,768 CHILLIES + PEPPERS, GREEN 286,274
MALT OF BARLEY 330,146 MACARONI 266,779
SORGHUM 317,671 CASHEW NUTS SHELLED 253,050
FOOD PREP. FLOUR, MALT EXT. 300,806 WHEAT 250,749
MUSHROOMS 300,077 OIL OF RAPESEED 248,012
BARLEY 288,833 BEEF PREPARATIONS 231,231
WOOL, SCOURED 284,858 BEEF AND VEAL 225,507
GRAPEFRUIT AND POMELO 276,688 MEAT PREPARATIONS PIGS 222,115
BEER OF BARLEY 253,536 VEGETABLES FROZEN 218,651
MEAT CANNED CHICKEN 234,333 WATERS, ICE, ETC. 208,907
FROZEN POTATOES 216,766 OLIVES, PRESERVED 191,661
DRY SKIM COW MILK 205,450 COFFEE EXTRACTS 187,685
CAKE OF SOYA BEANS 196,813 PINEAPPLES, CANNED 185,300
ORANGES 185,297 CANNED MUSHROOMS 184,283
VEG. IN TEMP PRESERVATIVE 185,004 CANTALOUPES + OTHER MELONS 172,622
VEGETABLES DEHYDRATED 160,386 OATS 171,528
ORANGE JUICE SINGLE STRENGTH 151,208 ONIONS, DRY 141,980
APPLE JUICE SINGLE STRENGTH 150,720 WOOL, GREASY 140,091
MEAT PREPARATIONS PIGS 148,240 PET FOOD 139,385
LEMONS AND LIMES 144,133 MANGOES 137,284
CABBAGES 142,051 CHEESE OF SHEEP MILK 135,669
PASTRY 139,186 TEA 133,801
ONIONS, DRY 136,062 BARLEY 132,527
SESAME SEED 131,417 CUCUMBERS AND GHERKINS 129,793
MUTTON AND LAMB 126,051 APPLES 122,704
MILLED PADDY RICE 124,601 CAKE OF RAPESEED 110,518
ASPARAGUS 122,949 PEPPER - WHITE/LONG/BLACK 107,549
BEET PULP, DRY 122,114 MOLASSES 106,335
PUMPKINS, SQUASH, GOURDS 115,539 FROZEN POTATOES 105,020
CHERRIES 112,432 PUMPKINS, SQUASH, GOURDS 103,503
BEANS, DRY 107,031 VEGETABLES PR BY VINEGAR 100,581
TOMATO PASTE 100,499 MUTTON AND LAMB 94,378

66
Trade (export) from competitors in similar markets
(Source: Food and Agriculture Organisation 1998)

EXPORTS (1,000,000 US$) 1995

S
A A N
P O
R U E
C I A U
G S C W
H S R T
E T H Z P U
I R A H
N R I E E S
L A G A
T A N R A
E E A U F
I L A U
L L A
N I R
A A A Y
I
N C
D
A
MAIZE 682 2 25 13 1 29 1 155 7,535
WHEAT 1,005 1,196 2 20 5,458
SOYBEANS 536 2 1 100 193 5,428
BEEF AND VEAL, BONELESS 653 1,988 31 686 28 2,317 0
COTTON LINT 433 504 48 38 246 7 3,687
CHICKEN MEAT 4 7 8 578 1 0 4 1,679
WOOL, GREASY 86 1,902 11 8 0 209 0 61 4
CAKE OF SOYA BEANS 1,022 0 170 0 51 9 987
PORK 2 0 1,744 0 0 0 0 0 0
OIL OF SOYA BEANS 943 1 0 52 0 0 47 5 688
TOBACCO LEAVES 101 3 13 108 0 6 12 1,404
WOOL, SCOURED 34 636 0 36 584 0 22 9
OIL OF SUNFLOWER SEED 972 0 0 2 0 0 2 12 299 0
SUGAR (CENTRIFUGAL, RAW) 47 1,180 0 16 0 0 4 29 5
APPLES 137 26 197 45 0 301 0 110 411
MUTTON AND LAMB 3 369 5 2 0 757 0 1 8 0
MILLED PADDY RICE 119 205 0 55 0 0 4 754
DRY WHOLE COW MILK 136 187 18 8 573 0 0 22 103
WINE 74 287 182 4 27 0 0 91 224
GRAPES 10 24 345 1 16 1 0 1 111 343
PIG MEAT 0 18 6 68 0 0 0 0 2 751
PET FOOD 1 172 0 2 8 3 0 634
CHEESE (WHOLE COW MILK) 50 298 1 0 358 0 3 101
SORGHUM 18 14 0 13 0 2 682
DRY SKIM COW MILK 38 297 1 1 251 0 5 116
BEANS, DRY 133 9 24 263 1 0 8 5 213
BUTTER OF COW MILK 14 118 0 0 460 0 3 46
BEEF PREPARATIONS 368 18 0 116 20 2 4 43
ORANGES 31 59 0 4 0 0 151 322
BEER OF BARLEY 5 24 1 53 16 1 0 46 418
GROUNDNUTS SHELLED 123 2 236 0 1 15 185 0

67
Table continued
EXPORTS (1,000,000 US$) 1995
S
A A N
P O
R U E
C I A U
G S C W
H S R T
E T H Z P U
I R A H
N R I E E S
L A G A
T A N R A
E E A U
I L A U F
L L A
N I R
A A A Y
I
N
C
D
A
BEEF AND VEAL 42 130 0 2 49 13 280
PEARS 132 20 58 46 10 108 88 0
BARLEY 4 220 0 0 1 0 0 11 178
FLOUR OF WHEAT 58 17 1 56 1 0 0 36 241
VEGETABLES FROZEN 0 5 14 244 43 0 3 8 70
SUNFLOWER SEED 208 7 9 5 0 0 2 148
SUGAR REFINED 11 30 0 177 8 1 149
VEGETABLES DEHYDRATED 5 1 16 196 5 0 7 0 141
HAIR CARDED OR COMBED 3 63 9 183 8 13 75 10 0
TEA 32 7 2 293 0 0 3 18
GRAPEFRUIT AND POMELO 16 0 0 3 66 0 0 19 250
COFFEE, GREEN 0 5 1 0 1 131 2 207
DRIED MUSHROOMS 1 0 2 342 0 0 1
SILK, RAW AND WASTE 0 0 301 0 0
FROZEN POTATOES 1 6 0 1 9 0 282
RAISINS 9 22 31 6 0 24 199
KIWI FRUIT 0 66 0 203 0 22
CANNED MUSHROOMS 0 0 10 274 0 1 2
OIL OF MAIZE 5 0 2 0 2 257
ONIONS, DRY 56 27 24 23 0 3 110 0
BANANAS 0 0 0 33 0 0 201
TOMATO PASTE 2 1 92 45 11 2 79
MEAT CANNED CHICKEN 2 4 2 46 0 176 0
APPLE JUICE CONCENTRATED 103 52 0 0 67 0 0
PLUMS, DRIED (PRUNES) 13 1 26 40 0 0 139
ORANGE JUICE CONCENTRATED 7 0 3 206 0 0 0
LEMONS AND LIMES 62 4 3 0 0 0 15 131
PALM OIL 0 0 197 0 3 0 5
HONEY 70 12 2 91 5 0 19
VEG. IN TEMP. PRESERVATIVE 0 0 2 181 0 0 4
LETTUCE 0 4 2 4 0 166 0
OIL OF RAPESEED 0 138 0 0 39
MALT OF BARLEY 28 79 16 3 5 1 43

68
Table continued
EXPORTS (1,000,000 US$) 1995
S
A A N
P O
R U E
C I A U
G S C W
H S R T
E T H Z P U
I R A H
N R I E E S
L A G A
T A N R A
E E A U
I L A U F
L L A
N I R
A A A Y
I
N
C
D
A
TURKEY MEAT 1 4 2 11 0 154
GRAPE JUICE 56 8 22 6 0 7 66 0
PREPARED GROUNDNUTS 11 0 0 108 0 46
MUSHROOMS 0 0 0 139 0 1 0 21
BEET PULP, DRY 0 14 47 0 0 96
GARLIC 55 1 8 80 2 0 0 10
CHERRIES 0 2 12 0 0 4 137 0 0
SAUSAGES PIG MEAT 1 4 0 21 0 0 0 0 127
ICE CREAM AND EDIBLE ICE 2 27 6 1 28 0 0 1 88
TOMATOES 0 7 3 6 13 0 0 0 123
COFFEE ROASTED 0 4 0 1 0 0 0 147
HEN EGGS 0 2 8 34 1 0 2 2 104
CABBAGES 0 7 0 17 0 0 0 0 1 123
MEAT MEAL 26 39 0 1 0 0 1 72
ASPARAGUS 3 17 4 7 0 6 19 80 0
PEACHES AND NECTARINES 1 2 61 1 0 2 0 69
SESAME SEED 0 0 0 132 0 0 0 3
MIXES AND DOUGHS 0 19 3 0 3 0 0 0 109
TANG. MAND. CLEMENT. SATSMA 15 9 1 60 1 0 13 34
POTATOES 8 5 1 6 17 9 0 0 4 83
RICE, HUSKED 3 11 0 0 0 0 117
ORANGE JUICE SINGLE STRENGTH 0 12 1 1 2 0 110
WALNUTS 0 0 11 4 0 0 0 111
RICE, PADDY 7 0 1 0 0 109 0
VEG. PROD., FRESH OR DRIED 1 111 0 0 0 1 4
DRY WHEY 0 19 0 0 0 5 0 0 87 0
PLUMS 11 6 41 0 0 0 52 0
OIL OF GROUNDNUTS 40 0 0 13 0 0 0 12 45
PEAS, DRY 7 31 0 6 15 0 0 50
CAULIFLOWER 0 30 0 3 0 0 72
STRAWBERRIES 0 8 0 0 3 5 0 88
CANTALOUPES + OTHER MELONS 0 11 0 4 15 4 0 2 67
WALNUTS SHELLED 0 0 11 25 0 0 0 0 67

69
Table continued
EXPORTS (1,000,000 US$) 1995
N S
A A O
R U E P
C I W A U
G S C
H S R T
E T H Z P U
I R A H
N R I E E S
L A G A
T A N A R A
E E U F
I L A L U
L A
N I A R
A A Y
N I
D C
A
PIMENTO, ALLSPICE 0 0 15 67 1 0 0 0 7 8
FLOUR OF MAIZE 1 0 1 1 0 3 0 0 18 67
AVOCADOS 0 1 11 41 6 26
COW MILK, WHOLE, FRESH 17 29 0 17 5 0 1 15
FRUIT, NUT, PEEL, SUGAR PRS 0 8 2 68 0 0 0 5
CARROTS 0 21 0 12 1 0 1 44
CHESTNUTS 0 0 0 77 0 0 0 0
COTTONSEED 2 25 0 0 0 49 0 0
GROUNDNUTS IN SHELL 0 0 0 21 13 0 6 36
OLIVES, PRESERVED 65 0 3 0 0 0 0 8
RABBIT MEAT 27 0 1 48 0 0 0 0
APPLE JUICE SINGLE STRENGTH 4 26 16 15 14 0 0 0
HOPS 0 9 5 0 4 0 0 56 0
INFANT FOOD 2 2 1 2 8 0 0 0 58
COCOA BUTTER 0 32 0 0 7 0 33
BROAD BEANS, DRY 15 0 57 0 0 0
SWEET CORN FROZEN 0 0 0 0 15 0 0 2 53
GINGER 0 1 0 67 0 0 0 0 1 2
CHILLIES + PEPPERS, GREEN 0 0 1 2 5 1 0 57
RAPESEED 5 28 0 0 0 0 0 0 19
MARGARINE + SHORTENING 2 28 0 1 2 0 4 13
MOLASSES 0 21 0 1 0 0 3 25
CHICK PEAS 0 17 2 0 0 0 0 11 0

70
Section Three
Product Group Profiles
The objective of this section is to identify organic or clean agricultural products that have good
potential for the development of export trade. Information relating to various products can be used to
aid selection of the most promising products for future export development.

The identification of organic products likely to have good future export potential is based on several
approaches and information sources:
A survey of the main Australian organic exporters.
Reports by Australian export trade organisations.
Analysis of organic market information from country profiles; and
Examination of conventional agricultural import/export trade.

Other product information provided relates to market access and market competitors.

Products are presented in the following general groups:

Cereals
Pulses and Oilseeds
Horticulture
Dairy
Other products - wool, cotton, honey, sugar and wine.

All products mentioned are either organic or biodynamic unless noted otherwise.

Cereals group
This product group includes:
grains (wheat, barley, oats, rice and others);
milling products (flour, meal, malt, starch, etc.);
hay, chaff and straw;
cereal preparations (mixes, pastas, biscuits, etc.);
beverages (made from malt).

Cereals and cereal-based products comprise a major sector within the organic food industry.
Processed foods based on cereal products such as baby foods, breakfast cereals, pasta, noodles, ready
meals and flour based ingredients appear to offer good export opportunities.

Organic production of seeds, grains and cereals generally are thought to require relatively lower
premium than some other organic products in order to maintain similar incomes to conventional
production.

71
The major existing or potential Australian organic export trade within the cereals product group is as
follows:
Product Destination
Baby Food Japan
Barley Europe, Switzerland, Japan
Flour Japan, Italy
Flour noodle pre-mix Japan
Malt - beverage Japan
Millet South East Asia
Oats Switzerland, Germany, Japan
Pasta Japan
Rice Switzerland, Malaysia, Japan, Europe, USA
Triticale Japan
Wheat - durum Italy
Wheat - hard Europe, Austria, Switzerland, Japan, UK, Holland, Norway, Sweden, South East
Asia
Wheat - noodle Japan
Wheat - no pesticide Japan

The European market has strong interest in organic cereal products. Cereal products are among the
most popular lines in Denmark. In France between 4 and 5% of French people consume organic bread
on a regular or occasional basis. Sector shares of the French organic-food market include organic
biscuits 19% and organic flour 6%. The German organic food market is moving away from primary
products such as raw fruit and vegetables, into more processed foods including breakfast cereals. In
1994 there were 140 manufacturers producing a wide range of organic products, the most important
included muesli (granola), pasta, cookies, bread and baby foods. Commodities of interest to the
German organic food industry include wheat, buckwheat and millet. The Dutch EKO label includes
bread products and cookies. Notable increases in sales for ready-meals/cereal preparations have been
reported in Norway.

In the UK the main types of food include processed foods based organic and/or wholefood versions of
other types of food, such as pasta, cereal products, baby foods and ready meals. Recently released
products from various UK manufacturers include organic muesli, pasta ready meals, pizza, biscuits,
breads and a range of wheat free flours.

In the USA in 1995, food processing and manufacturing was the fastest growing segment of the
industry. Virtually all product categories now contain an organic equivalent including cereal-based
products.

Wheat types, wheat flour, pre-mix ingredients and finished processed product have established export
markets in Japan, European countries including UK, Italy, Holland, Norway, Switzerland, Sweden and
Austria, and also into South East Asia. The main current export markets for organic or similar quality
wheat are Japan, Switzerland, Germany, Holland and UK.

Wheat products offer potential in Japan. Key product categories of interest to Japanese consumers of
organic products include flour-based products such as noodles and bread. The Japanese market for
noodle wheat, and hard wheat was reported to be strong. However, current economic conditions in
Japan may suppress short-term demand. Weston Milling reported demand for double current volumes
of wheat flour. Some demand has been expressed for pesticide free product. Sumitomo Melbourne

72
has received several inquires from Japan for organic wheat for flour and noodle production. Nippon
Sanso representatives have expressed interest in organic biscuits.

Opportunities in the Japanese market exist for Udon noodles and flour products, Rosella wheat, pasta
products, biscuit manufacturing and other grains ingredients for food manufacturing.

Wheat was imported into the EU from 15 different suppliers in 1995, based on EU import
authorisations for non-recognised countries. The wheat market in Europe is predominantly for hard
wheat and includes a number of destinations. This market is reported to be very price sensitive with
prices falling when European supply (France and Germany) is good. Several countries including Italy
and Switzerland were reported to show a preference for biodynamic quality product. Demand for
large volumes of prime hard wheat was reported from Germany.

Barley is being exported to Japan for use as a beverage. The USA is expected to compete into the
barley beverage market in Japan. Malting barley for beer production may offer potential. A number
of organic beers are produced overseas. Coopers Brewery in South Australia was reported to have
expressed interest in organic beer.

Buckwheat was imported into the EU from 22 different suppliers in 1995, based on EU import
authorisations for non-recognised countries.

Rice supply currently exceeds demand. Ricegrowers Co-op at Riverina has an agronomist working
with 50 growers to increase production to estimated 1000 t for domestic markets and 1500 t for export
mostly to markets in Japan. The USA is exporting organically grown rice (OCIA certified) in Japan.
China is reported to be supplying 100,000 t of OCIA certified rice for export to USA.

Austrade believe the greatest export potential for Australian organic foods to Japan lies in the
processed foods and food ingredient sector. Identified products include grain and flour based
ingredients.

Other Trade and Development organisations report consistent inquiries for organic products
particularly from Japan but also Europe. Products likely to have export potential were reported to
include wheat and oats. Another option for consideration may be feed products for Japanese organic
beef production.

There are a number of potential competitors in the organic cereals markets. Other countries
exporting organic or similar quality wheat and related products to Japan include USA, Canada,
Argentina and Europe. In Argentina, cereals comprise 27% of organic production. Italy considers
export market for organic products to be expanding strongly, particularly for cereal products in the
USA and Japan. Belgium exports a big range of organic cookies, pastries and muesli worldwide. In
contrast the USA production is reported to be unable to keep up with its own booming organic market

Pulses and oilseeds

This product group includes:
all pulses (peas, beans, lupins, etc.);
oilseeds (canola, safflower, sunflower, etc.);
vegetable fats and oils made from oilseeds; and
soya sauce.

Good demand has been reported for organic safflower, canola and sunflower edible oils. Soybean and
other vegetable protein products appear to offer good export opportunities. Demand is increasing for
GMO free product.

73
The major existing or potential organic export trade within the pulse and oil seed product group is as
follows:
Product Destination
Alfalfa Seed Europe
Canola Japan, South East Asia, EU
Canola Oil Japan
Essential Oils Europe
Eucalyptus Oil Europe, USA
Flax Oil Japan, Hong Kong, Malaysia
Legumes (various) South East Asia
Linseed Europe Holland
Mung Beans Europe Holland, Germany, USA, Italy
Processed products South East Asia, Japan, Europe
Safflower Europe, Japan, South East Asia
Safflower Oil Japan, Europe, Germany, Holland, Switzerland, France
Soybeans South East Asia, Holland, Germany, Europe, Japan
Sunflower Oil Japan, Holland
Sunflower Seed Germany, South East Asia

There appears considerable demand and export opportunity for oil seed and edible oils particularly
into Japan and Europe. Oil seeds including canola, sunflower and safflower are all in demand from
Japan, with moderate demand in Singapore, Hong Kong and Taiwan and smaller demand in Malaysia.
Trial shipments of sunflower oil have been sent from Australia to Japan.

Strong levels of inquiry have been reported for safflower (raw and oil) from both Europe and Japan.
Unfilled demand has been reported for safflower oilseed and linseed. Shutoken Co-op in Tokyo has
indicated they want GMO free canola, also cold pressed (no chemicals) cooking oils. Sumitomo Corp.
has purchased in interest in an American edible oil company to produce organic safflower and canola
(rapeseed) oil.

Sunflower was imported into the EU from 24 different suppliers and linseed from 18 suppliers in
1995, based on EU import authorisations for non-recognised countries. Demand was reported from
Germany for high oleic sunflower seed for oil. Italy considers organic sunflower oil and extra virgin
olive oil have good potential.

Flax oil is exported from Australia to a number of markets including Japan, Hong Kong and Malaysia.
Demand is reported to be exceeding supply.

Soybean is regarded as potentially a very strong emerging product for use in a vast array of processed
products. Japanese demand for soybean is far exceeding supply. Kialla Pure Foods report that the
current market is at least 3 times current available supply. Shutoken Co-op in Tokyo has indicated
they want GMO free soybeans. The main European destinations are big traders in the Netherlands,
while the main market is Germany.

Mung beans have been in demand from Japan and USA. Australia was an exclusive supplier to
several markets until China began supplying.

Beans were imported into the EU from 20 different suppliers and soybeans from 19 suppliers in 1995,
based on EU import authorisations for non-recognised countries.

74
Alfalfa seed was reported to be in strong demand from European markets.

In Germany commodities of interest to the organic food industry include pulses (lentils, navy beans,
azuki beans and mung beans) soybeans, sunflower seeds, flax seed, animal feed.

Food processing and manufacturing was the fastest growing segment of the industry in 1995.
Virtually all product categories now contain an organic equivalent. Vegetable protein products are
included in the largest manufactured food categories.

Austrade have identified edible oils as a product category with good prospects to Japan. Other recent
reports from Japan indicate that there are opportunities for soybeans and other ingredients for food
manufacturing.

Competition on the organic pulse and oilseed market can be expected from a number of countries. In
the USA the major organic crops include grains and seed, dry beans. Safflower and canola (rapeseed)
oil is produced in USA by Sumitomo Corp using an American edible oil company. Soybeans are
exported from USA and Canada. Argentina produces soybeans and sunflower kernels.

China has been reported to be producing large volumes of legumes, peanuts, sesame, soybean and
mung beans using USA certification. Shutoken Co-op imports low chemical organic soybean from
China. Expectations are China may become a major competitor, however at present their reliability
and product quality grading is considered a problem.

Various European countries produce pulses and oilseeds. Italy produces a range of grain legumes
particularly lentils, chickpeas, beans and broad beans as well as sunflowers and is looking to develop
export markets.

75
Horticulture
This product group includes:
all vegetables and fruit (including nuts);
trees and flowers;
beverages, spirits and vinegar (excluding water and those distilled and made from malt);
preparations of fruit and vegetables.

Fresh fruit and vegetables are generally the most popular organic category. Demand also exists for
low chemical fresh fruit and vegetables. The increasing range of organic processed products such as
frozen products, juice, and other fruit or vegetable based grocery lines appears to offer good export
potential.

The major existing or potential organic export trade within the horticulture product group is as
follows:
Product Destination
Apples Europe, Germany, Holland, UK
Apples Europe, Germany, Holland, Singapore, Hong Kong
Avocados Europe
Banana Japan
Broccoli Asia, Singapore, Hong Kong
Carrots Japan, South East Asia Malaysia, Singapore
Cauliflower Singapore, Hong Kong
Citrus Europe, Germany, Holland, USA, Japan
Dried Foods Japan
Fruit - Dried Germany
Fruit - Juice/Puree Japan, Germany
Fruit Juice Japan, South East Asia
Grapefruit Europe, USA
Juice - Vegetable Japan
Juice - Orange Japan
Lemon Europe, USA
Lettuce South East Asia
Mangoes Europe
Mixed fruit and vegetables Singapore, Malaysia, Hong Kong
Nuts Germany
Olive Oil Japan
Onions Europe, South East Asia, Japan
Orange - Juice Japan
Orange - Valencia Sweden
Oranges - Navel Europe, USA, Holland, Germany, UK, Japan, South East Asia
Pears Europe Germany, Holland Singapore, Hong Kong
Potatoes Asia

Fruit and vegetables are reported by most key markets to be the major category of organic food sales.
Australia exports a wide range of organic fruit and vegetable products to Europe, USA, Japan, and
several South East Asian countries.

A number of exporters are sending mixed air containers to South East Asian countries mainly
Singapore, Malaysia, Hong Kong and Taiwan. Consignments consist mainly of fruit and vegetables
including apples, pears, onions, potatoes, oranges, broccoli, lettuce, cauliflower, celery, cabbage,
zucchini, tomato, banana, cherry and rockmelon.

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Navel oranges are reported to have huge potential in Japan if quarantine barriers can be overcome.
Fresh navel oranges to Europe and USA have been under supplied for past 6 years and this
undersupply situation limits market development. Oranges and other citrus (lemons and grapefruit)
have good demand into Germany and Holland for distribution over all Europe. Japanese demand for
fresh orange juice or concentrate was reported to be 2 or 3 times current volume.

Apples are reported to have stable increasing demand into Germany and Holland. Apple and grape
juice concentrate is in demand from a number of Asian countries. Korea was reported to be
importing $A100,000 of organic juice but stopped.

Olive oil was reported to be the number one export into Japan from big European traders. Demand
was estimated to be 10 times available supply.

In Japan there are opportunities for most fruit and vegetables (fresh and processed). The majority
of organic food sales are fresh fruit and vegetables (60%). Other products of interest include fruit
juice concentrates, strawberry puree, frozen and dried foods and jams. There is also demand for a
range of juice products including citrus, apple, carrot and grape, also fresh carrots and onions for
export into Japan and other South East Asian destinations.

Japanese consumer co-ops are a large potential market for producers of organic or low-chemical
frozen produce. Product opportunities with consumer co-ops were reported to exist for asparagus,
broccoli, carrots and potatoes, bananas, mangoes and other tropical fruits. Kyoto Co-op is looking for
year round supply of pumpkin preferably organic, also organic broccoli and asparagus.

Large retailers are demanding a wide selection of fruits and vegetables. Pel Japan, an importer of
fresh vegetables for supermarket chains, imports organic fresh vegetables from USA, New Zealand,
Korea, Australia, Mexico, Tonga, Vanuatu and New Caledonia to enable supply throughout the year.

Japanese interest has been reported for low chemical products and production systems.
Documentation of the production system must be provided to assure minimal/softer chemicals are
used, e.g. Asparagus. Some form of government endorsement is considered important, e.g. broccoli
and apples in Tasmania.

Export of fresh produce into Japan can be difficult due to quarantine restriction (better options are
Singapore, Hong Kong, Europe). Exceptions are carrots, onions and daikon which have quarantine
acceptance into Japan. Other fresh produce exported to Japan includes asparagus, broccoli, onion,
leek, cauliflower and pumpkin from Tasmania, although leek and asparagus often get fumigated. Fruit
is usually exported as juice, some green banana, mangoes and oranges (if cold treated) have been
exported.

Frozen organic vegetables are of particular interest to Japanese markets, believing the freezing
process maintains product quality when imported from overseas countries. Mitsubishi Corp. planned
to import 4000 tonnes of organic frozen foods in 1997, representing 20% of total frozen foods
imported. Increased imports are expected for frozen mixed vegetables and processed potatoes.
Skylark uses frozen organic potatoes, onions, carrots, green beans and other vegetables imported from
USA. Nichirei Corp. imports from the USA frozen organic vegetables including; corn kernels, green
peas, potatoes and vegetable mix, and is considering products such as broccoli, cauliflower, green
beans and spinach.

Austrade have identified export potential to Japan for organic fruit juice.

Organic juice in total accounts for about 10% of the juice market and is expected to grow by 10% per
year. Mitsubishi Corp. imported 20-30 t/month of organic apple and grape juice in 1997 - twice the
volume for 1996. Clear apple juice can attract about 100% premium while other juices obtain about
30% premium.

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Sumitomo Corp. have purchased organic tomatoes and other vegetables and commissioned an USA
processor to produce organic sauces for the Japanese market.

Nikken Foods Co. has expressed interest in organic herbs to be used in special drying process for anti-
aging and organic fruit and vegetables.

Other Trade and Development organisations report consistent enquiries for organic products
particularly from Japan but also Europe. Products noted as likely to have export potential included
fruits and vegetables.

Fruit and vegetables comprise a major share of European markets for organic foods. Apples were
imported into the EU from 16 different suppliers, pears from 13 and walnuts from 10 suppliers in
1995, based on EU import authorisations for non-recognised countries. In Denmark organic
vegetables are reported to be one of the most popular lines, with sales forecast to rise to 15%. Organic
vegetables are consumed by between 4% to 5% of French people on a regular or occasional basis.

The German natural foods market in 1998 has been characterised as little meat with many fruits and
vegetables. Most natural food stores stock organic grocery lines but increasingly organic fresh
products such as potatoes, carrots, onions and tomatoes are being offered. In the Netherlands fresh
products such as dairy, meat, fruit and vegetables represent 40% of total organic food sales. Organic
fruit and vegetables have a 40% share of the total Italian organic-food market. In Switzerland the
main organic crops include vegetables such as carrots, potatoes, beetroot, celery, apples, pears,
cherries and berry crops. The domestic production of bio-fruit (mainly apples) is predicted to increase
its market share from just over 1% in 1994 to 10% by the year 2000. In the USA, fruit and vegetables
were reported to be the most popular category in the organic industry in 1998. The USA also
produces large areas of grapes organically. A study evaluating supply and demand factors in
wholesale markets for organic broccoli, carrots and lettuce, found that in the long run, demand factors
were likely to dominate supply factors.

In general the European organic food market is moving from simple primary products such as raw
fruit and vegetables into more processed foods.

In 1994 there were 140 German manufacturers producing a wide range of organic products, the most
important fruit or vegetable based products included dried fruits and nuts, vegetarian spreads, bars,
marmalades, baby foods and juices. German demand was reported for large quantities of dried fruit
and nuts, apple puree and other fruit juices and purees. Commodities of interest to the organic food
industry in the Netherlands include amaranth, tomato concentrate, dried fruits (raisins, prunes and
apples), popcorn, almonds and maple syrup. EKO label products include orange juice, apple juice,
tea, vinegar and jam. Organic fruit juices accounts for 9% of the sector share of the organic-food
market in France. Recently released products from various UK manufacturers include; frozen foods,
peanut butters, pasta sauces, pasta ready meals, pizza, coleslaw, potato salad, other ready meals,
chocolate and soups.

Domestic Australian demand for organic fruit and vegetables also offers potential. Many of the
organic export traders surveyed also act as wholesale agents to the Australian domestic organic market
and commented on domestic supply. Short supply problems were reported for a range of products
most notably staple vegetables including carrots and onions. A number of major supermarket chains
are showing renewed interest in organic products including fresh fruit and vegetables, however
inconsistent supply and inadequate volumes are restricting development.

One approach suggested for Australia was to follow the example of New Zealand and target specific
crops particularly broccoli but also cauliflower, lettuce and pome fruit for export to Singapore.

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Organic fruit and vegetable competitors
Competition in world organic fruits and vegetables trade is very diverse. Major competitor trading
nations exporting organic product to Japan are USA, Europe and New Zealand. These countries
supply a large range of fresh, semi processed and retail ready fruit and vegetable products. They also
produce frozen mixed vegetables and processed potatoes, organic apple and grape juice.

Organic fresh vegetables are imported throughout the year by Pel Japan from USA, New Zealand,
Korea, Australia, Mexico, Tonga, Vanuatu and New Caledonia for distribution to supermarkets.

USA processors produce a wide range of processed products including organic tomato and other
vegetable based sauces for the Japanese market. Mitsubishi Corporation is conducting experiments in
the USA for organic strawberries and grapefruit.

NZ supply organic carrots into Japan for juicing and organic pumpkin for soup production. Strong
competition is reported to be emerging from New Zealand for apples, kiwi, non-astringent
persimmons and strawberries. New Zealand also exports mixed fruit and vegetable container loads to
Singapore.

A range of European countries are actively seeking organic export markets. Holland exports an
estimated 60-80% of total production. Products exported included 60% of carrot production. Italian
export markets are seen to be expanding strongly, particularly for fruit and vegetables into Europe.
Italy has an estimated 27 ha of biodynamic glasshouse vegetables. French fruit and vegetables,
including a wide array aromatic herbs and spices, worth an estimated F500 million were exported
mainly to Northern European countries of Denmark, Belgium, Holland and Germany in 1994.

Competition in European markets is reported to be increasing from Argentina and Chile particularly
for apples and pears. Argentina produces a range of products including apples, pears, onions, garlic,
citrus, olive oil and rockmelon. South Africa also supplies apples and produces dried fruit and fruit
juice. New Zealand was expected to have 2500 t of apples for export in 1998.

South Africa is reported to be producing organic avocados, mangoes, oranges, peach, grape, pome
fruits for markets into Europe. South African avocados are reported to be cheaper into Europe than
Australian product. Big volumes of apples and oranges are keenly traded.

Chinese organic vegetables including edamame (green soybean), broccoli, carrot and haricot bean are
planned to be imported into Japan from 1998. Japanese intentions are to establish processing plants
for frozen vegetables in Shandong and Jiangsu Province.

The major citrus producers (including processed products) are Argentina, Israel, Italy, Spain and the
USA. At least another 15 countries produce one or more types of citrus fruit. Predictions reported
from UK and Holland were that South African growers would supply citrus to Europe in competition
to Australia.

Onions were reported to have been imported into Australia in 1998 from Argentina and New Zealand.

Olive oil is produced by Argentina, Italy, Brazil, Mexico and Spain, although prices were reported to
be very high.

The growth of organic production in developing countries may be expected to increase rapidly in
future years as these countries use organic production as a means of capturing export income. A
number of developing countries are already encouraging traditional village farmers to adopt organic
techniques. Egypt is reported to be rapidly developing organic production for small-scale farmers
with government support. Various African countries produce a range of organic horticulture crops
notably coffee, cocoa and cotton. Papua New Guinea and Sri Lanka produce coffee and tea
respectively. Indonesia has several hundred village farmers producing certified organic spices.

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Meat
This product group includes:
all types of meat (fresh, frozen and processed);
live animals;
eggs;
hides and skins;
animal fats and oils.

Meat products are an important sector of the organic food market. Organic or biodynamic beef, lamb
and pork all appear to offer good export opportunities. Poultry meat and eggs may also have
potential. Demand is increasing for chemical free and free range product distinction.

The major existing or potential organic export trade within this product group is as follows:
Product Destination
Beef Japan, Asia
Lamb USA, Europe
Poultry and eggs Asia, Europe
Meat products Japan, South East Asia

Organic meat exports from Australia have mainly been confined to beef exports to Japan.

Organically produced beef is reported to be a key product category of interest to Japanese

consumers of organic products. Shutoken Co-op in Tokyo has indicated they want safe beef without
growth hormones. Nippon Sanso representatives have expressed interest in organic gourmet beef
patties. Grass fed beef was reported to be considered less tender than feedlot beef and may be more
suitable for processing rather than individual consumers.

Japanese demand has been reported for a range of clean and organic meat products. Other organic
meat products of interest to Japanese consumers include chicken, eggs and pork. Both chicken and
eggs may offer potential, although probably processed (e.g. cooked or whites). Chicken is reported to
be in demand in Japan and is imported from South East Asian countries, however product is not
classified as organic.

Lamb meat may have opportunities in the strong and expanding organic markets of the USA, UK,
Germany and Belgium and other traditional Australian conventional lamb meat markets. Several
export traders have reported demand inquires for organic lamb from USA and Europe.

Austrade believe the greatest export potential for Australian organic foods to Japan lies in the
processed foods and food ingredient sector. Identified products include beef and beef based products.

The European market for organic meat products is an important sector of the organic food market.
Organic meat is purchased on a regular or occasional basis by 4-5% of French consumers. A number
of Dutch supermarkets, including Albert Heijn, Konmar, Nieuwe Weme and Cowp are running
consumer information campaigns and expanding their range of organic meat. Eggs and poultry meat
is marketed under the EKO label for organic products. In the UK organic meat and free range eggs are
reported to be among the main types of organic or health food. The largest Danish supermarket chain,
FDB, has been selling organic products since 1993 and reported that in the two years to 1995 more
than 50% of eggs were produced by alternative means, (not caged batteries) although not necessarily
organic. Sales of organic eggs are forecast to rise to 10% of total egg sales. McDonalds in Sweden

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are reported to be interested in using organic meat in hamburgers. Meat is included as one of the
major organic products in the USA.

A recent NZ trade mission to the EU reported price premiums for organic product of 100% on beef,
20-40% on lamb and 200-300% on pork due to a shortage. Demand in all instances exceeds local
supply.

Australian domestic demand for meat products remains subdued. However renewed interest in
organic products by the major supermarkets Coles and Woolworths may stimulate demand. Coles
Supermarkets are reported to be doing trials with biodynamic beef. Some interest can be found for
organic lamb and pork. Poultry may offer potential based on consumer interest in free range
qualities.

Competition on beef export markets can be expected from USA beef producers. Trade reports from
Japan suggest USA organic grass fed beef has been considered better quality and lower price than
similar product from Australia. Argentina produces pigs and poultry and is reported to have 14
producers with 75,000 ha of land certified organic for beef production. France produces small
numbers of organic poultry.

Dairy
This product group includes:
all types of dairy products (milk, cream, cheese, whey, yogurt, baby food, etc.).
ice-cream;
animal or fats and oils.

Organic dairy products are a rapidly growing sector of the organic food market with good export
potential. A number of European countries have well developed organic dairy industries.

The major existing or potential organic export trade within this product group is as follows:

Product Destination

Milk Japan

Dairy Products Asia

Dairy products have achieved strong growth rates in most of the major organic export markets.
Although a number of gourmet organic or biodynamic cheeses are made in Australia, organic dairy
production in Australia is very limited. Japanese buyers were reported to be interest in large volumes
of milk, however Australian inability to supply resulted in product being supplied from New Zealand.

Key product categories of interest to Japanese consumers of organic products include dairy products
such as butter, cheese and ice cream. Other recent reports from Japan indicate that there are
opportunities for ingredients for food manufacturing including dairy-based products.

Austrade has also identified dairy products as having good export potential to Japan.

In Europe the organic dairy products market is expected to triple by 2002. The largest Danish
supermarket chain, FDB, reports that organic milk products are one of the most popular lines. Twenty
per cent of the total milk market is organic at present and is forecast to account for nearly half the
market in the near future. The long term goal is 100% organic milk in Denmark.

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In France the organic milk has a large and growing organic market. In 1997, the French market for
organic milk reached 12 million litres (up from 500,000 litres in 1995), and it is predicted to reach 24
million litres by the year 2000. Laiterie d'Armor produces a wide range of organic yogurts, cheeses,
desserts, butter, cultured milks and fresh milks. The French market for organic UHT milk in 1996
was estimated at 1.3 million litres, having experienced growth of 180% in the preceding year.

In contrast the market for organic milk in Germany is considered to be developing slowly. The
possibility of an 'eco-boom' in the near future is assessed as unlikely. The organic food market is
moving away from only primary products such as raw fruit and vegetables, into more processed foods.
Stores increasingly stock organic fresh products such as yogurt and other dairy products. A wide
range of dairy products is produced in Germany. One organic dairy producers' cooperative has 70
members providing organically produced milk to 3 cheese factories. Twelve types of organic cheese
are produced.

The Netherlands is reported to export an estimated 52% of dairy products, mainly cheese. A number
of supermarkets, including Albert Heijn, Konmar, Nieuwe Weme and Cowp are running consumer
information campaigns and expanding their range of organic foods, particularly in the dairy sections.

In Norway sales of organic market milk products decreased marginally (0.6%) to 687 million litres,
although there were notable increases for quarg, yogurt and cultured cream. The Schwyzer
Milchhuus dairy factory in Switzerland processes 14 million litres of milk/year from 140 farmers of
which 80% of milk is organically produced. The factory plans to go over completely to organically
produced milk when supply is sufficient to meet their needs. Half is processed for market milk, 40%
for cheese, and 10% for specialty products such as Lattella, a whey drink. In the UK the main types of
processed foods based on organic milk are cheese, yogurt and butter. Other recently released products
from various UK manufacturers include infant powdered milk, cheeses, ice cream and chocolate.

Dairy products are one of the major organic product categories in the USA. Organic dairy production
has risen sharply following consumer concerns over the use of growth hormones in conventional dairy
production.

Competition for a share of organic dairy product export markets can be expected from a number of
countries. New Zealand exports organic dairy products, including liquid milk, to Japan and other
destinations. Dairy production is particularly strong in a number of northern European countries.
Denmark had a total of 245 organic milk suppliers in 1996. Products include butter, cheese and
cultured milks. Potential export markets are being considered. Germany is reported to be looking at
possible increases in organic milk sales to Denmark and Austria. The Netherlands exports 52% of
dairy products, mainly cheese. In Austria 50% of dairy production is organic and this is expected to
rise to 80-90%. Other European countries producing organic dairy products include Belgium,
Holland, France, Italy, Switzerland and the UK. Egypt and Argentina also produce organic dairy
products.

Wool
Quantities of organic wool have been exported from Australia to markets in Germany and Japan.
Consignments have been sent to BKW of Germany for top making then manufacture into cotton blend
underwear. Demand inquiry has been reported from Germany and Japan for a range of fibre
diameters, although demand for organic wool has been subdued with little export activity, particularly
for greasy wool. Problems have been reported in establishing scouring facilities for organic tops
production. Victorian company Elite Fibres is reported to now offer this service to a finished stage of
un-dyed yarn.

The demand for low residue or chemical free wool may be expected to increase as a result of
tightening environmental regulations and pollution controls on the wool scouring and processing
industry, particularly in Europe. Interest in low residue wool has also been reported from Japan.

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Australia has the potential to supply relatively large quantities of organic wool for export. The USA is
reported to produce some organic wool and finished woollen products. New Zealand exports organic
woollen yarn and hand knitted products to USA and Japan. Tahi Organics in New Zealand export
woollen products to the UK.

Cotton
Cotton and cotton products are traded on world organic markets. Organic cotton is increasingly being
used in the production of baby clothing. Demand for organic cotton may increase based on reports
that a number of clothing fashion labels including Esprit, Vanity Fair, Ecosport and others are using or
considering the use of organic cotton to create a range of products with distinctive quality attributes as
a marketing strategy.

Interest in organic cotton has been reported from Japan.

The USA had an estimated 16,000 ha of organic cotton in 1993. Israel is reported to be producing
biodynamic cotton and considers cotton as a product for potential development. A number of
European companies and organisations particularly from Germany have been involved in the
establishment of organic cotton production in various developing countries mainly in Africa, but also
with SEKEM in Egypt. Cotton output is destined for European markets. The Sorbo Company in
Argentina produces cotton garments for baby clothing. Other countries producing organic cotton
include Mexico, Costa Rica and Uganda.

Honey
Quantities of organic honey have been exported from Australia to various markets in Europe and
South East Asia particularly Singapore.

Strong demand has been reported for large quantities of organic honey into Europe and the Middle
East. Demand has also been reported from Japan.

Australia has the capacity to produce significant quantities of organic honey from forest areas and
rangeland pastoral regions.

The New Zealand MAFF consider organic honey as a priority development product with export
potential. Other countries producing organic honey include Argentina and Costa Rica.

Sugar
Organic sugar is reported to be in strong demand as a food-processing ingredient. However, organic
sugar production in Australia is very small and is believed to be limiting the range of organic
processed food products.

Demand for sugar may be expected from most organic markets. Sugar was imported into the EU from
20 different suppliers in 1995, based on EU import authorisations for non-recognised countries. The
Japanese company Hissho Iwai Corp. is reportedly importing bulk sugar for distribution to
manufacturers.

Beet sugar is produced in northern Europe and Canada. Sugar beet production in Slovakia is
supported by Green and Black confectionery company in the UK. Costa Rica produce organic sugar
cane. Organic sugar has been imported into Australia from Paraguay.

Wine
Australia exports a range of organic wine or wines made from organic grapes mainly to Japan and
various European countries including the UK.

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Wines made from organic grapes are attracting wider public attention because of its clean natural
origins and belief in its health promoting effects. Big demand has been reported from Japan. Red
wines are particularly fashionable reflecting perceived health benefits and the current Japanese trend
towards Mediterranean style cuisine. Japanese wine importer and wholesaler, Vin sur Vin Masumoto,
imports 30 organic wine brands mostly from France. Demand has been surging and addition suppliers
are being sought from Italy, Spain and elsewhere. Swiss Air was reported to be looking to supply
organic wines on all first class flights.

A number of wine producers in Australia have found the adoption of organic practices can enhance
existing reputation, particularly for premium quality wines.

The USA produces large areas of grapes organically as well as quantities of certified organic wine.
Other countries producing organic wine include Argentina, Cyprus and Portugal.

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Target Product Selection
The aim of this section is to select a limited number of products as having high priority for further
development.

Products selected for further development form the focus of the second stage of the Clean
Agriculture Project.

For the organic export industry to expand, additional conventional growers will need to convert to
organic production. They will need to have available some initial material on organic production
techniques. The Stage Two report Organic Products with Export Potential Production
System Guidelines provides production guidelines for a limited range of five target products.

Conventional producers wishing to convert to organic methods are also likely to need details of the
conversion process, and the financial impact on whole farm economics.

Support from existing organic farmers and organic certification organisations as well as a higher
level of support from government agencies, Universities and agri-industry will be important.

A framework is provided to assist in the selection of commodities most likely to be in demand on

export markets and which can be competitively produced in Australia. The outcome of this selection
process does not deny the fact that other commodities can also be produced.

The criteria considered useful for selecting target products are as follows:
1. Demand potential (long term).
2. Number of different markets.
3. Potential for high value or premium.
4. Market access.
5. Competitors into main markets (Asia, Europe or USA).
6. Australian capacity to produce.
7. Whole farm feasibility.
8. Existing production expertise.
9. Production risk and reliability.
10. Established organic distribution system in importing countries.
11. Scope for strategic alliance between importer and producer.
12. Natural competitive advantage (seasonal, etc.).
13. Domestic market opportunity.
14. Distinctly different special quality or attributes as organic.
15. Versatility or potential for processing or value adding.

Much of the information presented in this report provides the basis for rating each selection criteria.
While the study has attempted to remain objective in all of the data collection, much of the
information is anecdotal and likely to be incomplete. Assessment is based on a national Australia
wide approach.

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The information presented in this report has been gathered on a wide, but by no means exhaustive,
range of potential products and markets. The products included for consideration are derived from
information presented in this report and indications provided by industry sources. The final selection
of the best products to target for further work includes suggestions received by an Australian wide
reference panel.

It is also likely that some of the commodities given highest priority for further development are
already being worked on by other researchers. Change in the organic industry has been very rapid in
the last 12 months with new work regularly coming to the projects attention.

The Stage Two Report of this project will not try to duplicate other work, but where appropriate
summarise findings and provide contacts. For example, soybean has featured strongly in our studies -
an information package is being produced in NSW. Bananas have also been identified as having a
good market - work is progressing rapidly in Queensland. Rod May and Jason Alexander are
conducting work on a range of crops in several States. The Kondinin Farm Improvement Group are
also involved in some work on conversion to organic farming. Agriculture Western Australia is
investigating organic carrot production.

A brief explanation of each selection criteria is presented as follows:

1. Demand potential (long term) - Level and depth of demand

The report has developed this theme in detail. The commodity needs to be supported by strong export
demand, particularly for the long term. The industry is unlikely to develop long term viability if it
relies on simply trading bulk commodities.

IS THERE A STRONG LONG TERM DEMAND FOR THE PRODUCT?

2. Number of different markets

Generally, where there are multiple markets for a product the level of risk may be reduced. If the
market in Asia declines, the European market may remain stable. This has tended to happen due to the
current financial problems the world is facing.

IS THERE A RANGE OF DIFFERENT MARKETS?

3. Potential for high value or premiums. Is it a bulk volume product or premium

product?
Market specialists emphasise that Australia needs to develop its capacity to generate products for
export that have high margins, rather than producing bulk commodities where emerging nations are
increasing capacity. An example recently presented suggested that former Soviet Union countries
loose more grain during harvesting than Australia produces. Wool is a very small market (about 3%)
in the total textile industry.

Many other countries have cheaper labour forces to produce commodities that use high levels of
labour. Australia cannot compete unless our system is more efficient.

Australia can compete if our products are differentiated in quality, or meet the markets needs better, or
have a timing or transport advantage or are seen to be reliable or cleaner and safer.

This does not mean exceptions cannot be found but often these are pursued specifically by individuals
or through strategic alliances.

Using carrots as an example, the questions are: do we produce 1000 tonne of organic carrots in a bulk
container or are the carrots grown using the preferred varieties, of uniform specifications, using a
reliable certification system with strong links between the grower and the consumer? Also what

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happens to those carrots that do not meet export standards - do they get juiced or frozen or turned
into soup?

HAS THE COMMODITY GROWN IN AUSTRALIA THE POTENTIAL TO GET PREMIUMS

OVER AND ABOVE NORMAL ORGANIC PREMIUMS?

4. Market access
The different markets into which Australia exports organic product have a range of constraints to
importation of agriculture products. These include quarantine requirements, quotas and import tariffs.
Organic products are likely to have the same restrictions.

Many examples exist where a product is known to be in demand but access to that market is difficult.
Apples, for example, may be a commodity that Japan wants but restrictions prevent export of fresh
product. Fresh vegetables may need fumigating at point of entry. Processing is seen as one strategy to
overcome these impediments.

DO IMPORT RESTRICTIONS AFFECT THE POTENTIAL FOR THE COMMODITY?

5. Competitors into markets in Asia, Europe or USA

There are significant signs that major commodity producers are also investigating and planning for
organic production. Competition is not necessarily bad. It allows the development of better
understanding of organic commodities and increases world-wide market acceptance and supply.

However Australian production needs to be competitive in price and quality for the specific markets
identified. It may not make sense to concentrate on, for example, organic rice into USA if China as an
equivalent product and is increasing its production. However there may be a market for the right
variety of rice into select Japanese markets which are more conscious of the quality and source.

ARE COMPETITORS LIKELY TO IMPACT ON THE COMMODITY?

6. Australian capacity to produce - climate, soil, etc.

Australia has a very wide range of climates that will allow production of most commodities likely to
be in demand. The great distances involved tends to result in fragmentation of supplies and
difficulties in getting timely supply of sufficient quantity to market or to processors.

In general Australia has a good range of soils for conventional production. There are many areas of
rich soils in some Eastern States that will allow organic production. However most soils in Australia
are relatively low quality with low levels of nutrients, organic matter and structure as well as microbial
activity. Management of organic systems will need to be developed to maintain or improve nutrient
levels, structure, organic matter levels, etc. particularly for less suitable soils.

DO THE SOILS ALLOW COMPETITIVE PRODUCTION OF LARGE VOLUMES OF

COMMODITIES IN THE LONG TERM?

7. Whole of farm feasibility and sustainability of the farming system

In organic farming systems it is rare for a single commodity to be produced. Considerations of
rotation systems, weed management, organic matter build-up and other management factors often
result in multiple commodities being produced. The whole farm economic outcome and sustainability
becomes a primary consideration in conversion to organic systems.

For example, cereal farms are likely to have long pasture phases that typically need sheep and cattle to
graze. Growing a legume crop may not be very profitable in its own right but it contributes nitrogen,
organic matter to following crops, and can provide protein to animal enterprises. Although wheat
prices may be good, the market for sheep meat, wool and beef will impact on the commercial

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outcomes of that whole farming system. If good markets cannot be found for the animal products then
the whole farm may not be viable.

The whole farming system needs to match the soil and land improvement requirements as defined by
organic certification standards.

DOES THE COMMODITY FIT INTO A WHOLE FARM SYSTEM?

8. Existing production expertise available

Agricultural extension and research agencies have not carried out much work in organic production,
nor are they generally confident they have the information to advise new growers.

There is a lot of information available on most commodities grown conventionally.

There are organic growers producing most products in most parts of Australia.

CAN THE EXTENSION RESOURCES BE HARNESSES FOR THE COMMODITY?

9. Production risk and reliability

When deciding on the commodities to produce, the new growers entering the organic industry need to
balance risk of the enterprise failing and the benefits of growing products which are risky but return
high premiums. The risk can be reduced when the product has previously been grown successfully for
long periods of time and there is a good level of production knowledge.

Growing wheat has lower risk than introducing new crops such as lupins. Commodities that have high
levels of insect attack such as cotton may be more risky than carrots.

Reliability of production is important both from the point of view of the grower as well as the market.
Irregular supply has been one of the more serious problems with the organic market.

IS THE COMMODITY A HIGH RISK TO PRODUCE?

10. Established organic distribution systems in importing countries

The current level of conventional exports for the product can give some indication of the market and
conventional distribution system. Organic products may follow similar distribution routes, but often
have special requirements in order to ensure organic certification integrity is maintained. Establishing
distribution systems able to comply with organic requirements can be difficult and may be an
impediment to successful export trade. The experience gained via established organic export trade
distribution systems could be very valuable.

IS THERE ORGANIC EXPORTS OF THE COMMODITY?

11. Ability to form Strategic Alliances between importer and producer

For large scale and reliable markets there can be significant advantages in developing an alliance
between the producer and the importer/ processor. This can often lead to support in technical issues
and supportive contracts to ensure risk is managed.

These alliances are being identified with Japanese importers for a wide range of products, i.e. carrots,
noodle wheat, etc. In the UK, supermarkets are the key players and companies such as Sainsbury
travel the world looking for product and developing relationships.

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HAS THE PRODUCT A PROBABILITY FOR DEVELOPING A STRATEGIC ALLIANCE?

12. Natural competitive advantage (seasonal, etc.)

Entry into export markets may be possible even when other exporting countries dominate the market if
the commodity can be grown in a time slot that complements the other exporters. Where Australian
production is counter seasonal, for example production in summer when the other northern hemisphere
producers have winter, export opportunities may be possible.

Other natural competitive advantages may occur because Australia is closer to the market, free from a
particular disease, or has special technical know-how.

DOES AUSTRALIA HAVE COMPETITIVE ADVANTAGE FOR PRODUCING THE

COMMODITY?

13. Domestic market opportunity

Although this report has focused on the export market opportunities there is increasing demand for
organic products on the domestic Australian market. The industry is estimated to be valued at around
$A200-250 million with only $A3050 million exported. The growth in the domestic market seems
likely to continue and is considered important to support expansion of the organic export industry.

The domestic market is considered particularly important in the early development phase of the
industry.

IS THERE A DOMESTIC DEMAND FOR THE COMMODITY?

14. Is there product differentiation from conventional products, e.g. taste?

The commodities that are most likely to succeed are the ones that have the additional differentiation of
better taste or other qualities compared to equivalent conventional products. These special
distinguishing features can be used as powerful promotional points to support the organically grown
difference.

Restaurants are increasingly interested in organic products because of the better taste. This better
flavour may be related to small-scale production and therefore the ability to allow extra ripening, or it
may be associated with higher sugar, smaller fruit, or other features.

It is not uncommon to hear complaints that some foods lack flavour. This is often related to the need
to transport further distance, longer storage and expectations that product is available all year. The
organic industry may need to address similar issues as production expands.

HAS THE ORGANIC PRODUCT SPECIAL FEATURES THAT DISTINGUISHES IT FROM

CONVENTIONAL?

15. Versatility or potential to value add prior to export

As indicated above we need to consider the possibility of value adding to commodities grown. Our
competitive advantage will lie strongly with the ability to place on the market in export target
countries consumer ready products. These products reflect the changing demands of the consumer for
food which requires minimum preparation. They also have higher margins.

Significantly some of our trading partners have import restrictions often due to quarantine
requirements. For example, it is difficult or impossible to get some fresh vegetables and fruit into
Japan without fumigation. Austrade have recognised this and advocate concentrating on the processed
food area. Recent examples include flour pre-mix for noodles and biscuits, frozen vegetables from
New Zealand, fruit juice, puree, dried herbs and vegetables for soup.

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CAN THE COMMODITY BE READILY PROCESSED IN AUSTRALIA? ARE THERE
SUFFICIENT PRODUCERS NEAR A PROCESSING FACILITY?

Selection of priority products

The criteria listed above are considered the major ones likely to influence the selection of organic
commodities produced in Australia for export markets. The relative importance of each criteria may
differ and invariably other criteria relevant for specific commodities and markets may also be
considered.
The reference panel
A reference panel for the product selection process was invited from a wide range of groups,
organisations and individuals. They were spread throughout Australia and have their own specialist
knowledge of trading, research, extension, production, certification, marketing and retailing.

The information in this Stage One report was provided to the panel. Each panel member was asked to
evaluate the information, then using their impressions plus their own information of the industry to
rank products in order of preference for further development.

The products generally are the raw material rather than the processed product. The ranking and
scoring reflects any desirability of concentrating on processed product.

The result of individual evaluations were collated and the top 5 products selected to be dealt with in
the stage two of the project. Where previous or current work has provided sufficient information the
project looked further down the priority list.

Products Selected for Future Development

The selection of specific products does not imply there are no export market opportunities for other
products, but for various reasons the selection ranking was not considered sufficiently high. Organic
or clean markets are likely to exist for virtually all products.
Australia

Products indicated as having a high priority for further development are:

Priority Likely Possible
Beef Apples Broccoli
Carrots Asparagus Eggs
Citrus Banana Fish
Wheat Canola Grapes
Wine Dairy products Herbs
Honey Nectarines
Oats Pears
Rice Plums
Soybean Poultry
Safflower Potato
Sugar Sunflower
Onions

Western Australia

For Western Australia most of these products can also be grown. Additional products of interest based
on existing organic production capability and expertise may include lamb.

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Selected References
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Horticultural Products. In-Market Research. A Queensland DPI, RIRDC Project December
1997.
Agriculture and Agri-food Canada 9/97.
Anon. (1998). Interest in organic foods. (UK) SuperMarketing (April 3) (1317), 18.
Anon. (1998). The state of the organic industry and understanding consumer preferences (US). Food
and Drink Weekly (March 23), 4 (11), 1-2.
Anon. (1998). USA to target European organic foods sector. Food Industry News (March), 1-2.
AS 3900.2: 1994, ISO 9000.2: 1994. Quality management and quality assurance Standards. Part 2:
Generic guidelines for the application of AS 3901/NZS 9001/ISO 9001, AS 3902/NZS
9002/ISO 9002 and AS 3903/NZS 9003/ISO 9003.
AS/NZS ISO 14001: 1996. Australian/New Zealand Standard. Environmental Management Systems
- Specification with guidance for use.
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Rica.
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in Australia.
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18: 3, 7-12.
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Lakin M. and Shannon P. (1999). Export of Frozen Low-Chemical and Organic Vegetables to East
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Appendix
Organic Industry Certification Organisations accredited by AQIS
as of June 1999

Bio-Dynamic Research Institute Phone: (03) 5966 7333

POWELLTOWN VIC 3797 Fax: (03) 5966 7433

Biological Farmers of Australia Co-Operative Ltd Phone: (07) 4639 3299

PO Box 3404 Fax: (07) 4639 3755
TOOWOOMBA VILLAGE QLD 4350 E-mail: bfa@icr.com.au

National Association for Sustainable Phone: (08) 8370 8455

Agriculture (Australia) Ltd Fax: (08) 8370 8381
PO Box 768 E-mail: nasaa@dove.mtx.net.au
STIRLING SA 5152

Organic Herb Growers of Australia Inc. Phone: (02) 6622 0100

PO Box 6171 Fax: (02) 6622 0900
SOUTH LISMORE NSW 2480 E-mail: herbs@om.com.au

Organic Vignerons Association of Australia Inc. Phone: (08) 8562 2122

1 Gawler Street Fax: (08) 8562 3034
(PO Box 503) E-mail: boss@dove.net.au
NURIOOTPA SA 5355

Eco-Organics of Australia (tea tree oil only) Phone: (02) 6683 2740
PO Box 198 Fax: (02) 6683 2814
CORAKI NSW 2471 A/h: (02) 6683 2815

Organic Food Chain Phone: (07) 4637 2600

PO Box 2390 Fax: As above
TOOWOOMBA QLD 4350 E-mail: organicfoodchain@hotmail.com

The following organisations have made application to AQIS for accreditation, and are currently being
assessed:

Tasmanian Organic-Dynamic Producers Phone: (03) 6267 9443

8 Lenborough Street E-mail: plowe@vision.net.au
BEAUTY POINT TAS 7270

For more information on the production and marketing of Australian organic produce, contact the
Organic Federation of Australia at the address below:

Organic Federation of Australia Phone: (03) 9386 6600

C/- 452 Lyton Street Fax: (03) 9384 1322
EAST BRUNSWICK WA 3057 E-mail: ofa@netspace.net.au

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