The notion of going green, buying organic, and sourcing free trade products is gathering momentum in Australia and around the world, but research released in Australia suggests the added expense remains a significant deterrent.

Business information analysts IBISWorld decided to test the theory that sustainable grocery shopping was too expensive, revealing that, while the ‘organic’ food shopping basket was 70% more expensive, there are a host of cost-effective ‘green’ options.

A number of the world’s largest manufacturers and retailers have already reacted to increased consumer concern about ethical and sustainable shopping. This has seen the likes of Cadbury release Fairtrade chocolate, Unilever and McDonald’s source tea and coffee from Rainforest Alliance-accredited plantations and the world’s largest retailer – Walmart – announce plans to introduce a sustainability index.

Demand for both Fairtrade and organic products have both soared in Australia over the last couple of years, albeit off low bases, with Fairtrade sales seen up as much as 80 per cent last year alone.

But for the average shopper, faced with economic recession and rising unemployment, going green may still seem somewhat of a luxury, falling under the umbrella “discretionary purchases” – the researchers believe, with Australian sales of sustainable food and beverage lagging their UK counterparts.

Price discrepancy

Robert Bryant, IBISWorld General Manager in Australia, reported the organic food basket cost $213, compared to $125 for the conventional food basket – a premium of 70%. He noted that previous studies (2003) of retail price premiums for organic food had suggested a figure of 80%, indicating that the premium paid for organic products may be falling over time.

In the fruit and vegetable sector, the most established segment of the Australian organics market, the premium was lower – at 60%. Organic meat was twice the price of its conventional cousins, with organic chicken breasts two-and-a-half times the price and organic beef sausages nearly three times as expensive as conventional snags. Organic dairy products offered the best value for money, with a premium of 33% over conventional products, while organic cereals and legumes were typically 75% more costly, the research found.

The organic goods with the lowest premium

Mr Bryant said that individual organic products attracting smaller price premiums included bananas (33%) and truss tomatoes (43%). And the humble cabbage was similarly priced to a conventional cabbage, while a kilogram of organic pumpkin was actually cheaper than its conventional counterpart. Processed organic goods representing reasonable value for money compared to the average premium were cheese (39%), low-fat milk (18%), cereal biscuits (36%) and corn chips (40%).

And the more expensive…

The items which were seen to have the greatest discrepancy to the average premium were rice, baked beans and sugar (at double the price or more), as well as chicken breasts and beef sausages.

“This largely reflects the low supply of organic grains, which are used to feed organic livestock, and problems in accessing processors,” Mr Bryant said.

Organic potential
According to IBISWorld, the organic farming industry has posted growth of 13.8% per annum over the five years to 2008-09 to be worth $354.8 million, and yet organically-farmed products still represent less than 1% of the total value of grains, meat, horticulture and dairy production in Australia.

“In nominal terms, demand for organics is growing by between 20% and 45% each year (Rural Industries’ Research & Development Corporation), with organic food sales accounting for around 1% of total food sales in this country, putting us a long way behind the UK and the USA, where organics have a respective 2.5% and 2.8% share of total food sales,” Mr Bryant noted.

“That alone indicates the potential growth in the local market, which is being spurred on by increasing health consciousness, concern for the environment, awareness about organics and the fact organic products are becoming more widespread and convenient to purchase. We expect that a downward trend in price premiums – with growing economies of scale in organic production and increasing supermarket participation – will also help boost demand.”

Growth in the industry is being limited, however, by supply growth, as nearly half of domestic demand for organic products has typically been met by imports, the researchers noted. Local supply has been hampered by drought conditions, limited access to organic abattoirs and processors, shortages of organic grain, informal selling arrangements within the industry, small-scale organic farms and the costs involved in converting to organic farming. Mr Bryant said this variable supply was holding back the local industry’s potential, as a lack of consistency made it difficult for retailers and exporters to invest in organic infrastructure.

IBISWorld predicts industry growth to slow to 11.6% per annum over the next five years, with growth of just 8.2% this year.

“This year’s slower growth will reflect the downturn in the local economy as well as the economies of our major export markets,” Mr Bryant explained. “Australian consumers may substitute branded organic products with private label and lower quality organic items, or reduce their consumption of organic foods altogether in a bid to save money.”

“Having said that, the negative impact on the organics sector will be relatively minor compared to other industries since food is a staple purchase and consumers sacrificing in other areas may opt for a small indulgence when it comes to their eating habits. More people eating at home, rather than in restaurants, may also benefit the industry during these difficult financial times.”

“Overall, the trend towards health consciousness and environmental concern is expected to outweigh any negative impact from the economic downturn.”

Opportunities

Despite being told to eat more fresh fruit and vegetables, reality dictates that time-poor consumers are increasingly turning to processed products, which will create a key opportunity for growth within Australia’s organic farming industry in future years.

“Many overseas markets already offer a strong supply of organic convenience products, such as biscuits and frozen meals- something we’re set to see more of in Australia. Private label organic products will also be a major growth market for manufacturers targeting customers keen to make a greener choice, but who are only willing to pay a small premium for organic varieties,” predicted Mr Bryant.”

In addition, Mr Bryant anticipated organic dairy products would be a strong growth area for the future, along with organic grain, cotton, wool, meat, honey, sugar, canola, rice, farmed fish and stone fruits.