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A New Commercialization Model For Organic Products In Spain

Organic ProductsOn the basis of a market study, the Ministry of Agriculture, Fisheries and Food (MAPA) in Spain defined a new commercialization model aimed at increasing the penetration of organic products on a national level, deepening market understanding and defining actions that promote the consumption of organic products.

As a result of the model, a 2 million euros marketing campaign will be targeted at consumers and distribution agents, an Organic Observation Center and Portal may be launched and a single logo may be used for all organic produce in Spain.

“Better taste, contributing to the protection of the environment, healthier products”: these are the main reasons why a buyer chooses organic products.


1. The Spanish and European Organic Market

Organic farming is the new trend. There is a significant growth in demand and the large supermarkets are trying to enter the market and fight to create a market position which was formerly monopolized by the specialized organic store. The growth of organic products in the north of Europe ranges from 15 to 20% per year. In Germany, the growth is around 15%, while in the United Kingdom it is close to 30%. The growth rate in the US is 20% per year.

Things are a little different in Spain. Spain is the second largest producer in Europe and the seventh worldwide. Over the last 5 years, Spanish production in organic products has grown 125%, 23% per year, and represented over 300 million euros in value in 2005. However, the consumption of organic products is very low, each Spaniard only spends 6 euros per year on organic products, compared to almost 50 euros in countries like Germany and the United Kingdom. Spain is a major exporter of organic products, exporting between 80% and 90% of their organic production, while only 3% of total agricultural land is used for organic farming.  

Despite this external success, the truth is that the domestic market for these products is been limited. The consumer alleges that supply is inconsistent and poor, hindering a consistent demand for the products to be formed and that the information on organic products is still scarce. As far as distribution is concerned, the low levels of demand are the most cited factor for the lack of commercial progress in this sector. 

Organic Products

2. The Typical Problems Associated with the Commercialization of Organic Products

Facing this seemingly impassable market situation, the Ministry of Agriculture in Spain hired the services of Leadership Business Consulting to draw up a new model for the distribution and commercialization of organic products in Spain. The objective was to identify initiatives that would encourage the national consumption of organic products and define an action plan and budget for its implementation.

The organic market can broadly be divided into 3 segments: 

1.   products (essentially fruit and vegetables);
2.   Processed products;
3.   Meat.

Each one of these segments value chain hold different challenges in terms of production, the distribution model and the commercialization of the products. 

An analysis of the European market undertaken by Leadership Business Consulting with the input of specialists from countries where organic consumption can represent as much as 5% of the food sector, namely Switzerland, United Kingdom, Denmark and Germany – highlighted the following problems associated with the commercialization of organic products: 

  1. Difficulties in production planning and sales, and subsequently, of the product supply;
  2. Reduced quantities to satisfy the requirements of the medium-sized and large distribution chains;
  3. Poor and uninformative packaging;
  4. Poor cooling distribution facilities (in particular as far as milk and dairy products were concerned);
  5. Need to guarantee freshness and quality consistency of products in the market;
  6. Lack of margin and high prices;
  7. Limited investment in brand(s).

In the more developed markets, a series of measures where successfully defined and implemented that mitigated the aforementioned problems, among others:

  1. cooperation between suppliers;
  2. standardized quality and production criteria; 
  3. consumer and wholesale committee to test packaging;
  4. shared investments in the cooling systems;
  5. Incisive Lobbying;
  6. conditions favoring the growth of specific crops to differentiate from the conventional market;  
  7. farmer specialization; 
  8. use of “Organic Ambassadors”, e.g. association of key personalities in society to organic farming.

An analysis of the Spanish market, carried out with the participation of the main players in the Spanish market, identified the following problems specific to the Spanish situation: 

3. Main Action Plans for the Commercialization of Organic Products

In order to develop the domestic sales of organic products, a program comprising a total of 12 initiatives was defined. Furthermore, an integration initiative, whose objective will be to manage the entire 12 point program, has been proposed. Each initiative has a series of targets, an implementation and follow-up plan.

The most relevant initiatives are:

 
The initiatives taken in Spain by the Ministry of Agriculture represent a significant contribution in favor of organic farming that is more competitive and sustainable, possibly acting as a reference to efforts being undertaken in other countries.

Organic Farming
 

Today Organic Farming is practiced in 120 countries worldwide. According to a 2005/2006 FiBL study, the land surface dedicated to Organic Farming already stands at 31.502.786 hectares worldwide, and the number of organic farmers has reached 622.782. Further, the same study estimates that the global market for organic products is 23.500 million euros, Europe and North America being the regions with the highest market shares.

    • limited production capacity to satisfy the needs of the national market in terms of quantities and frequency of organic supply;
    • proliferation of multiple brands for organic products in a variety of regions, which may lead to confusion among consumers;
    • production is channeled into the international market, there being limited distribution space for these products;
    • limited investment in the information to the final client, causing a lack of knowledge about these products;
    • lack of awareness about the reality of the market, sales, prices, types of products, etc;
    • limited cooperation between suppliers.
       
    1. integrated promotional campaign which aims to raise awareness and stimulate the domestic market;
    2. creation of an organic farming portal which will provide content and information on the sector; 
    3. adoption of a single logo which will help create confidence and ease the recognition of organic products;
    4. creation of an Observation Center for Organic Products to enable market analysis and understanding and act as a price and organic product reference point; 
    5. Creation of an organic production incentive scheme which looks to guarantee a consistent supply and quality of organic products to the market;
    6. fostering of distribution and local commerce through a joint negotiation with wholesalers and retailers and undertaking distribution awareness campaigns.
 

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