Organic market in decline

20 per cent down. This is the figure that currently has organic producers and retailers concerned. The entire industry had seen nothing but growth over the past 20 years. Sales increased by 10, 15, 20 per cent. Every year. The figures just kept on rising.

In this already favourable environment, the COVID-19 pandemic gave the market an extra boost, catapulting growth to unprecedented heights. The pandemic also impacted our business favourably, which you can read about in our 2020 Annual Report.

Convinced that the trend would continue, retailers worked diligently to fill up their warehouses in 2021, confidently ordered goods in advance and budgeted for a renewed growth of 20 per cent – and so did we.

But then the war broke out in Ukraine and brought with it the mortal enemy of growth: inflation. And things have been going downhill ever since. "If we expect 20 per cent growth and the market shrinks by 20 per cent, we're looking at a gap of 40 per cent," says Jorn van den Dop. "It's not at all easy to close a gap of that size.”

Jorn is Head of Trade at gebana BV, our subsidiary in the Netherlands. Jorn chuckles when we mention bulk packages. His team sells cashews, mangos and other goods by the container. But their customers aren't interested in such massive quantities at the moment.

People are saving on food

Anxiety about the war, rising energy prices and inflation are exacerbating the situation. More and more people are buying conventional foods rather than organic products. This is because these foods are cheaper, and people who want or need to save money tend to cut their food spending first.

This change in behaviour means that retailers are stuck with their goods and are also purchasing less. Some are even trying to get out of existing contracts, or at least receive goods later than agreed, says Jorn.

If retailers are fully stocked and purchasing less as a result, the goods also accumulate upstream with wholesalers. And once wholesalers stop purchasing, importers will be stuck with their goods. This keeps going, as is so often the case, until we reach the weakest link in the chain: the family farmers at the source.

"A retailer can exit the market at any time. But gebana can't do that," says Jorn. "We have a responsibility towards the family farmers.” In countries like Burkina Faso and Togo where we work directly with family farmers, we pre-finance nearly all of the harvest before the start of the season.

Good harvests at the worst possible moment

The harvests in Burkina Faso and Tunisia were also exceptional this year, which means that we currently have more products than we can sell. This is putting a great deal of pressure on gebana BV. In Tunisia, we originally wanted to buy 1,100 tonnes of dates. But now we're only looking at about 750 tonnes. This is not in line with our principles, but as Jorn explains, "We just can't commit to taking any more. It's too risky."

The high inventory levels that have resulted from this are a major problem. They tie up our funds, which results in low liquidity. This is why our team in the Netherlands has been on the phone around the clock, trying to find new customers at trade fairs and working on contracts in the hope of finding ways to keep selling our goods.

But in doing so, they face an even greater hurdle. "Right now, everyone in the market is undercutting each other in an attempt to offload just one or two tonnes of cashews or mangos," says Jorn. The resulting price drop is an additional concern for our team in the Netherlands.

Retailers use inflation to improve margins

If wholesale prices fall, retail prices should follow. In theory. But in reality, the opposite is true: Prices keep rising. For instance, prices in Germany increased by 20 per cent in October compared to the previous year. Certain products, such as sunflower and rapeseed oil, even went up by 81 per cent!

There are no clear reasons behind these increases. Instead, it appears that retailers are using inflation as a pretext to improve margins.

We have not yet increased a single price in our online shop. Thanks to our loyal customers, our online business is currently growing slightly compared to wholesale. Even so, it is unlikely that we will be able to avoid certain price increases in 2023. But we'll only increase our prices if our own costs go up, too – for example, if prices increase at the source or we have higher shipping costs.

Sources

Upset in the organic market – Wirtschaftswoche, https://www.wiwo.de/my/unternehmen/handel/inflation-vs-bio-maerkte-umbruch-am-bio-markt/28771508.html?ticket=ST-114149-6v6Mgv3gCMyvEwcwtOiV-cas01.example.org (accessed on 15 November 2022)

Food and inflation: Yes, but only if it's cheap: Organic Sector in Crisis – ZDF, https://www.zdf.de/nachrichten/wirtschaft/lebensmittel-bio-inflation-krise-sparen-100.html (accessed on 9 November 2022)

Organic market in crisis – the years of plenty are over – Agrar heute, https://www.agrarheute.com/markt/marktfruechte/biomarkt-krise-fetten-jahre-vorbei-597028 (accessed on 9 November 2022)

Organic market under pressure – Landesbetrieb Landwirtschaft Hessen, https://llh.hessen.de/unternehmen/marktinformation-und-preise/biomarkt-unter-druck/ (accessed on 9 November 2022)

Pressure continues to increase on organic market – SRF, https://www.srf.ch/news/wirtschaft/folge-der-inflation-bio-geraet-immer-mehr-unter-druck (accessed on 9 November 2022)

War puts organic market under pressure – Land & Forst, https://www.digitalmagazin.de/marken/landforst/hauptheft/2022-28/betriebsfuhrung/014_krieg-setzt-biomarkt-unter-druck (accessed on 9 November 2022)

Why is food so expensive? – Mein Konsumkompass, https://meinkonsumkompass.de/allgemein/teure-lebensmittel-warum-eigentlich/ (accessed on 18 November 2022)