Impact of UK cuts will determine organic market recovery

04-Apr-2011 - Last updated on 05-Apr-2011 at 09:58 GMT

The UK organic sector is ‘cautiously optimistic’ that the market is leveling off after a year of slowing decline in sales, but much depends on consumer confidence after the government spending cuts are implemented this month.

In its annual report the Soil Association put UK sales of organic products at £1.73bn, a drop of 5.9 per cent. However it points out that the rate of decline is falling: last year the drop was almost 13 per cent.

The organisation has said it is “cautiously optimistic” about 2011 sales. “The market is on course to level off,” says the report, with premium retailers Waitrose and Marks & Spencer anticipating modest growth and mid-range retailers Tesco, Sainsbury’s, Morrisons and the Co-operative predicting level sales year on year.

All the same, it is aware that consumer confidence is fragile, and with the coalition government enforcing a slate of severe spending cuts this month it remains to be seen how this will impact peoples’ food shopping habits.

“The impact of public spending cuts in April will be crucial in determining the timing and strength of recovery in the organic market,” it says, with the threat of widespread redundancies among public-sector workers being an “acid test for the recovering organic market”.

“Unemployment and the fear of unemployment are clearly key factors in consumer confidence.”

However the January VAT hike, from 17.5 to 20 per cent, “appears to have had only a marginal impact on the organic market so far”. Food is except from VAT in the UK, but rising costs of other goods does have an impact on overall grocery budgets.

After falling to an all-time low of 8.6 per cent in 2006, the proportion of UK household income spent on food and dink has grown to almost 10 per cent in the last two years.

Retailer commitment

In addition to consumer confidence and the wider economic picture, the Soil Association cites retailer commitment as one of the crucial factors that will determine how organics perform in 2011.

Overall sales through multiple retail, which accounts for 72.3 per cent of the market, fell by 7.7 per cent to £1.25bn in 2007. However the impact on independent retail sales was lower, at just 0.7 per cent decline, and sales through organic vegetable box schemes grew 1 per cent.

“Multiple retailers account for around three-quarters of the organic market, so their approach to organic,” says the report. “In 2009 and 2010 most retailers responded to a dip in consumer demand by reducing organic ranges and shelf space dramatically, and this depressed sales further by reducing availability for those who still wanted to buy.”

It points to some indications that retailer interest is reviving, however. Price and multi-buy discounts are showing success for milk and beef sales, two of the three best performing organic categories (with baby food).

“A number of retailers are considering the consistency of messages across their organic ranges. Packaging/branding changes are anticipated to address this issue in the course of the year.”

Some retailers, such as Sainsbury’s, Tesco, Waitrose and Planet Organic, have also given support to the Why I love organic campaign – a sector-wide advertising campaign with has attracted £1m EU funding and aims to boost awareness and understanding amongst consumers.

The full report from the Soil Association is available online here http://www.soilassociation.org/LinkClick.aspx?fileticket=ZnJ54dF4kfw%3d&tabid=548