Select Committee on Agriculture Minutes of Evidence



MEMORANDUM SUBMITTED BY THE NATIONAL FARMERS' UNION OF ENGLAND AND WALES (F 31)

INTRODUCTION

  The NFU represents 75,000 farmers and growers, approximately 5 per cent of whom are currently producing to recognised UK organic standards or are in conversion. We welcome the Agriculture Committee's inquiry into organic farming in the UK and the opportunity to comment on issues related to the regulation, promotion and marketing of UK organic products.

  The NFU views organic production as a viable option for some of its members and our Organic Working Group of 10 practical organic producers, representing all commodity areas, was set up to represent the interest of members who either farm organically or who may wish to do so. Through this Organic Working Group, the NFU aims to focus primarily on the commercial and marketing opportunities available to UK organic producers and to pursue the maximum cohesion among producers to ensure the generation of the best possible returns from the market. In addition, we aim to ensure that UK organic producers have available to them, equivalent policies and marketing opportunities to those of their EU counterparts.

DEFINITION OF ORGANIC FARMING

  Organic farming is an approach to agriculture where the aim is to create integrated, humane, environmentally and economically sustainable agricultural production systems . . . with maximum reliance placed on locally or farm derived renewable resources and the management of self regulating ecological and biological processes and interactions in order to provide acceptable levels of crops, livestock and human nutrition, protection from pests and diseases, and an appropriate return to the human and other resources applied. Reliance on external inputs whether chemical or organic is reduced as far as possible[1].

EXPANSION OF ORGANIC FARMING IN ALL AGRICULTURAL SECTORS

  Organic production and marketing is a growing reality all over the world. Within the EU, likely demand for organic products far exceed supply even though the amount of land farmed organically across the region has grown by about a third since 1995.

  Specifically, within the United Kingdom, organic farming really began to show solid expansion in the mid 1990s and has continued to increase at a rate of about 25 per cent per annum since then. This expansion of organic production may be attributed to a number of factors, including but not in any order or priority:

    —  consumers concerns about safety of conventionally produced foods eg reaction to BSE, Salmonella in eggs, E.coli poisoning etc;

    —  producers/consumers concerns about the impact of conventional agriculture on the environment;

    —  introduction of genetic modification technology;

    —  deteriorating farm gate prices of non-organic products;

    —  acceptance by multiple retailers that organics is a major product area and consequent promotion of the products;

    —  improved marketing and promotion of organic farming and products;

    —  government funded research and development into organic farming;

    —  government funded conversion grant scheme.

  The rising demand and subsequent production of organic products has now edged towards self-sustaining levels of economies of scale and lower levels of retail premiums. Further expansion has also followed the growing ranges of products available and the increasing variety of processed products. For example, British sugar is currently conducting field trials of organic sugar beet with the aim of producing substantial volumes of organic beet sugar for use in processing of organic products.

  To look more closely at each agricultural sector:

  The organic livestock sector currently appears to be experiencing the greatest expansion. This information is supported by figures obtained from the Organic Conversion Information Service, which indicates that the largest number of enquiries about conversion is received from predominantly livestock farmers. The organic dairy sector in particular has enjoyed steady expansion over the last five years. This expansion has no doubt been helped by the success of the marketing initiative with Sainsbury's and the Organic Milk SuppliersCo-operative.

  Unfortunately, there are no supporting data to compare year on year conversion rates for the poultry sector. However, information received from Organic Farmers and Grower, the sector body that certifies up to 80 per cent of all organic poultry producers, indicates that there is a very steady increase in the number of poultry producers converting to organics. The largest increase has been in the area of egg production.

  The sector that has been slowest in expanding is the cropping sector; horticulture and arable. A concern here is that if this section of the market expands substantially, then price premia over conventional produce will reduce sharply.

  Another area that slows down the growth of the UK horticultural sector is that related to approved pesticides for use in organic fruit production. The UK has far stricter and more expensive pesticide registration procedures via the Pesticide Safety Directorate. As this is not the case in other member states, the result is that our competitors have access to very highly effective novel plant protection agents and so are able to increase their competitive advantage. At the same time, UK producers are unable to take advantage of many new technologies because it is uneconomical for manufacturers to register the products.

  Furthermore, producers in most other member states receive substantial ongoing aid after their conversion period ends. This effectively means that these producers will have long-term, lower production costs in comparison to UK producers, and so can more easily produce for export into the UK market. UK producers are kept out of the market because they will find it impossible to compete.

MARKET TRENDS AND CUSTOMER DEMAND

  The market for organic foods has grown from a retail value of £92 million in 1992 to £360 million in 1999 and the range of products available in the market has also increased significantly. The general trend indicates that organic food production is now much more than just marginal volumes of production and that the demand for organic food continues to exceed supply. It is currently estimated that UK retail sales are growing at a rate of 20 per cent per year. [2]

  Multiple retailers now view organics as main stream rather than as niche products and the expanding market includes both fresh and processed products in all commodity sectors.

  Opportunities for the marketing of new products continue to present themselves, but as with conventional products; marketing, product quality and packaging designs are key factors to consider for each product range.

  It is worth noting also, that the larger companies with established brands are capitalising on the organic market as well, by bringing out new product lines. In most cases, these companies have chosen to market their organic range under entirely new product brands. This is possibly in an effort to avoid questions or criticisms about the quality of their existing non-organic range.

  Marketing of organic food products is also being boosted through producer run box schemes, farmers' markets and Internet shopping. And where domestic supplies are unavailable, imported products are used to fill the gaps. Fresh and processed organic products are currently being imported from all over the world.

  The levels of organic premia vary between commodities, which may be a reflection of the balance between supply and demand for the product. For example, cereals and vegetables are typically marketed at 50 to 60 per cent premium over the conventional equivalents, whereas meat and dairy products, which are more available locally, are marketed at 15 to 20 per cent above the price of the conventional equivalent.

  Consumer demand for organic products continues to rise. This drive towards consuming more and more organic foods is largely in response to concerns about the safety of conventionally produced foods. The number of high profile food scares over recent years has caused some consumers to lose confidence in the food supply chain. They have turned to organic foods, which they perceive to be safer and healthier. Other factors influencing consumers' demand for organics include; concerns about genetic modification technology, pesticide residues in food products, use of antibiotics and general animal welfare issues. Environmental issues are of increasing importance and many consumers are now choosing to purchase organic foods as a way of registering their positive support.

  The increasing profile of organics in the media, supermarkets and other consumer-focused events has helped too to raise awareness and thus influence demand. Also, most importantly, a gradual decrease in retail price premia either deliberately set by retailers or as a result of increases in available volumes, have meant that more main stream consumers are able to afford to purchase organic products.

  Overall, the future development of organic production and consumer demand seems set to continue to rise. However, an important constraint on the development of the sector is the difficulty of ensuring efficient marketing that meet consumers' expectations. Consumers are very demanding both in terms of the range and presentation of food products and of year round availability. This however is not compatible with the long-term sustainability of local production and principles of organic farming.

THE ROLE OF ORGANIC CERTIFICATION ORGANISATIONS

  EC Regulation on organic food (2092/91) requires that each member state should have a national authority to enforce the EU legislation for organic farming. The United Kingdom Register of Organic Food Standards (UKROFS) is the body that has been appointed by UK agricultural ministers to carry out this function. UKROFS also licence and supervise private organic certification organisations that carry out farm inspections and certifications.

  There are seven approved organic certification bodies operating in the UK. They all operate privately but are all subject to inspections to ensure that their systems and the standard of all their inspections conform to the EC Regulation.

  In order to qualify to operate as a certification body, the organisation needs to satisfy UKROFS requirements regarding the adequacy of its resources in terms of staff, administrative and technical facilities. Certification organisations are also required to comply with the requirements of EN45011 or ISO 64.

  Once a certification organisation is approved, they must undergo a programme of examination by UKROFS to ensure that their farm inspections are objective and effective and that their interpretation and enforcement of the UKROFS standards is satisfactory.

  Organic Certification Organisations have played a very important role in the development of the organic sector. They have been very effective in defining standards for production, processing and direct marketing. In addition, they have helped to raise consumers' awareness and confidence in organic foods and in so doing contributed to the overall development of the market.

  There are however, some areas of concern regarding the operating of certification bodies:

    (i)  The UKROFS licensed certification organisations are basically similar in their interpretation and implementation of the UKROFS standards but ideally, the NFU would prefer to see a single UK organic standard being implemented by all the certification bodies. We feel that all the bodies should adopt the UKROFS standard, which is the UK interpretation of the EU Regulation. The NFU recommends the establishment of a properly funded mechanism by which UKROFS and all relevant organisations can continuously develop, review and co-ordinate organic standards and their implementation.

    (ii)  Variations occur in the interpretation of standards between different EU member states, and this causes producers and consumers great concerns. Added to this is the fact that producers suspect that many of the imported products, even those from approved third countries, are not produced to the same rigorous standards that apply in the UK. The NFU would recommend the urgent formation of a transparent, inclusive "equivalence procedure" for the sector.

    (iii)  There are generally long administrative delays in the certification process, which occur as a direct result of uncertainty regarding the erratic delivery of government organic aid.

THE SETTING OF ORGANIC STANDARDS AND TOLERANCES

  Prior to the establishment of EU Regulation 2092/91 for organic crop production in 1993, the national regulatory organisation in each member state was responsible for setting standards for the production and processing of organic products.

  The current situation is that the EU Commission now sets the standards for the production/processing of organic products. Standards for crops and crop-based products have been implemented since 1993, whereas the EU livestock standards were only finalised in July 1999. The UK interpretation is due to be implemented in August 2000.

  The strict EU Regulation is generally taken as the basic standard, applicable across all member states. However, there are areas of both the crop based and now the livestock based regulations that allow national discretion over the adoption of various derogations which could potentially lead to differences in standards implemented nationally. To further complicate the issue, the Regulation also allow national regulatory bodies and/or private certification bodies to implement standards that are more restrictive than the basic EU standards.

  The result of this is that a plethora of organic production standards now exists, both within the UK and across member states, which is extremely confusing to consumers and frustrating for producers.

  As pointed out above, the NFU would like to support a move toward the implementation of a single UK standard, used by all the certification organisations.

  With respect to production of perennial crops in particular, the NFU believes that there is an urgent need within the UK for a review of the standards, in order to re-evaluate the allowable inputs and their effects on the wider environment and ecology. Possible consideration should also be given to working with other member states to produce standards that are specific to perennial crops (as is currently being investigated for protected cropping).

Tolerances

  Tolerances within the standards and consequent inspections of farms and processing facilities can lead to some problems. Most inspectors however, are wholly reasonable in their interpretation during inspection visits but special circumstances in a few cases have led to the cancellation of producers' organic certificates.

THE ROLE OF FARM ASSURANCE

  Farm Assurance is a system that seeks to ensure that customers and final consumers have confidence in British farm products. Farm assurance schemes were set up in each sector, in response to consumers' concerns about specific issues related to the safety of UK farm products. This is following a number of high profile food safety cases (eg BSE and Salmonella in eggs), that have had the effect of diminishing consumers' confidence in the integrity of producers' on-farm activities.

  Farm assurance schemes require producers to demonstrate that products are produced, handled, stored and delivered in a manner that complies with all legal and voluntary codes of good practice. The standards are established by industry-wide representatives groups in each commodity sector and cover issues related to food safety, product traceability, pesticide residue in produce, use of antibiotics, storage, transportation, animal welfare as well as a response to environmental concerns.

  In all sectors, an independent registrar runs the scheme and regular on-farm inspections are carried out by independent verifiers.

  Though the schemes are designed and implemented by industry groups in each sector, they operate as totally voluntary schemes and producers therefore make their own decisions about whether or not to join. The number of producers that are registered with the various schemes however, is relatively high because many retailers and customers have tended to make scheme membership a condition of supply.

  The NFU has been very much involved in the development and implementation of the schemes and we fully support and endorse the concept.

Farm Assurance and Organics

  Farm assurance schemes operate totally independently of organic certification and though the standards in some cases are designed to achieve similar objectives, the two systems are quite different in other areas.

  For example, both farm assurance and organics have objectives that are designed to achieve high food safety standards, product traceability, reduction in pesticides usage, high animal welfare, response to environmental concerns and other positive aspects.

  A significant difference between the two is the fact that the farm assurance schemes have independent verifiers to check producers' compliance with scheme standards whereas organic farms are inspected by their certification bodies. As farm assurance grows, the advantage of a single inspection by UKAS accredited inspection body should be investigated.

THE AVAILABILITY AND SUITABILITY OF PUBLIC AND PRIVATE ASSISTANCE FOR ORGANIC CONVERSION

(i)   Public assistance for conversion

  With organic farming increasingly being accepted by producers and policy makers as a viable form of production, it is now being regarded as a model for social, environmental and financial sustainability in agriculture. Because of this, the uptake in conversion has increased dramatically over recent years. Growth of the sector has been estimated at 20 per cent increase per annum since 1996. Although the levels of inquiry appear to be levelling off or even dropping.

  The increase in organic production has partly been achieved as a result of the EU application of policies to support organic conversion and farming as part of the agri-environment programme, EC Regulation 2078/92. This Regulation was implemented in 1993 and provided the financial basis on which to support conversion and maintenance.

  Other EU policy measures through which organic farmers have received assistance include support for:

    —  marketing, processing and producer groups;

    —  advise programme initiatives;

    —  training activities; and

    —  research and development.

  Specific to the UK, there have been two main public funded schemes providing financial assistance to producers during the conversion period. The first of these initiatives was the Organic Aid Scheme (OAS); under which producers were offered a basic rate of payment, irrespective of farm type. The level of grant aid offered under this scheme was the absolute lowest when compared against similar conversion grant aid offered to producers in other member states. Needless to say that during this period ie up to 1998, the UK had the lowest rate of expansion of its organic sector. Following a 1998 review of the OAS, the UK's second programme of assistance was introduced. It was called the Organic Farming Scheme (OFS) and offered grants of up to £450/ha, ie twice that paid under the OAS. Consequently there was a rapid increase in the uptake of the grant with the resulting expansion of the UK organic supply base. Unfortunately, after only four months of operation, the scheme ran out of funds and was closed for a review and consultation with the organic sector. The objective of the MAFF review is to identify a more effective means of administering the limited financial resources available to support conversion. The scheme is expected to be reopened in April 2001.

  The conversion grants available under the OFS were very inadequate with respect to the amounts of aid paid to producers indifferent commodity sectors. For example, in the horticultural sector, conversion of an orchard of conference pears (typically suitable organic variety will cost approximately £10,000/ha over the three years conversion period. Compare this against the conversion grant of £450/ha paid over a five year period. It is no surprise therefore that 80 per cent of the horticultural products and over 90 per cent of tree fruits consumed in the UK are imported. While some of this produce could not be produced in the UK because of climatic conditions, there is still great potential for increase in the UK production of organic fruits and vegetables. This matter is addressed in some member states by offering higher rates of conversion aid to horticultural producers, particularly to growers of perennial fruit crops.

  Another area of public assistance for conversion has been the Organic Conversion Information Service, through which producers are offered a free one and a half days conversion advisory visit on their farms.

  Unless significant changes to the public support system are made, imports will continue to supply the bulk of our organic market, particularly as producers in other member states are better supported during conversion and perhaps for a longer period afterwards. This has the obvious effect of enabling those in receipt of this support, to be able to market their products at much lower prices than UK producers.

  The NFU believes that the government should structure the conversion grant scheme so that the rates of aid offered to producers are tailored to better meet the financial needs and market demand of the commodity sector to which the producers belong. It is our view that this is one way of encouraging expansion of organic production in target commodity areas. In addition, where flat rates of conversion grants have been offered in the past this has led to conversion of large areas of unimproved uplands with minimal environmental gains or benefits to the organic sector.

  We wish to point out as well, that most other member states actually offer their organic producers funding in the post-conversion period, which is not available to UK producers.

  It is our view therefore, that much more attention needs to be paid to the environmental management of organic farms than is at present the case. This should be recognised by the government and compensated for via an organic stewardship scheme, which should take into account the farm size and the level of environmental benefits delivered.

(ii)   Private assistance for conversion

  Each sector is very different with respect to the conversion assistance provided by the commercial sector. Assistance is generally in the form of advisory services or direct grant aid to assist farmers to convert.

  Regarding advisory services, farmers glean a significant amount of knowledge through contact with other organic farmers, either via demonstration farm visits or discussion groups. Some commercial groups have developed this practice into a more organised form of advisory facility; harnessing an experienced farmer and then linking him/her with a group of 10 to 20 producers who are in conversion. The Organic Milk Suppliers Co-operative has developed an effective model for this, with the objective of ensuring that farmers entering conversion and signing a contract to deliver organic milk are able to do so as confidently as possible.

  Conversion advice may also be obtained from private consultants. Both Elm Farm Research Centre and Henry Doubleday Research Association offer this service and both organisations have recently expanded to be able to meet the rise in demand for their services.

  Within the dairy sector, the milk marketing company, Axis Milk, is providing dairy farmers with interest free loans, to help them through the process of conversion. In addition, once farmers have converted, they are offered guaranteed premium prices fixed for six months.

  Wessex Water Company is also running an Organic Incentive Scheme whereby farmers are offered a £40/ha incentive payable over two years. In return for this, the farmer must convert his/her entire farm to organics over a five year period and he/she is also required to comply with a management agreement for reducing nitrate pollution.

  Increasingly more retailers and private organisations are proposing to introduce conversion incentive schemes. The bottom line however, is that there are not enough of these schemes and the level of grant aid being offered is grossly inadequate.

OUTLETS AND DISTRIBUTION SYSTEM FOR ORGANIC PRODUCE AND RETAIL PRICING

  There are predominantly three routes whereby consumers can source organic products. These are via multiple retailers, independent retailers/health food stores and direct delivery network. Farmers markets have begun to play a role but are probably still not a major organic outlet.

  In the UK, up to 67 per cent of all organic products are sold through the multiple retailers, which have been mostly responsible for the main push of organic products through the system. The supermarkets have introduced a number of measures that have served to drive the organic retail business forward. These measures include:

    —  entering long term contracts with suppliers eg Sainsbury's with Milk Co-operative;

    —  encouraging and assisting farmers to convert to organics eg Asda in meat sector;

    —  funding of organic research and development projects eg Tesco and Waitrose in produce sector;

    —  extensive advertising and marketing campaigns eg Sainsbury's and Waitrose;

    —  developing in-store marketing including dedicated shelf space—all multiples;

    —  developing private label range of products eg Asda; and

    —  traceability facilitation—all multiples.

  The range of products available in supermarkets cover mainly fresh produce and dairy products, however, significant growth in areas of grocery, baby foods and ready meals has been achieved over recent months. A full range of organic meats and meat products is still not yet available through the multiple retailers.

  The second largest outlet for organic products is the independent retailers/health food stores, which retails 18 per cent of all organic products.

  Farm shops, local marketing initiatives and farmers markets together retail 15 per cent of all organic sales. These direct marketing schemes are based on the concept of "local food for local people". This concept offers direct benefits to producers, consumers and the local community. Producer benefits come from the fact that the shorter supply chain means increased margins whereas for the consumers, the benefits include locally produced, fresh products at affordable prices.

  The key factors for each of the three main outlets are transport and scale, which also affect the final retail price of the products.

  When markets are small, the costs of processing and distribution become proportionately greater in relation to mainstream products. Furthermore, the often erratic and unplanned purchasing and production patterns lead to greater wastage at the retail end, thus exaggerating the cost of organic food. As scale of production and consumption rise to key critical mass levels, the losses will be reduced or removed altogether, thus creating the potential for cheaper organic food for consumers with little or no producer premia.

  Losses in the organic supply chain are generally at considerable cost. Some processors and retailers are attempting to sell organic produce to identical specifications as for the conventional equivalents. This is almost guaranteed to cause great wastage, in the processing stages of produce that are of sound nutritional status, simply because these products do not measure up with respect to cosmetic specification as compared to the conventional products.

  Even though these various market outlets do exist, the responsibility still rests with organic producers to find and develop them. Indications however, are that the market is growing very quickly but is grossly under-supplied with UK produced organic products. In addition, there are many opportunities for co-operatives and other farmer-controlled businesses to flourish in the marketplace.

  In summary, the NFU would emphasise the point that there are far more economic benefits yet to be delivered in the processing and retail chain, but these are only deliverable when we have more retail volume sales and products to sell. The ultimate essential ingredient is partnership. There must be acceptable margins for everyone in the chain. Critically, if farmers are unable to make an adequate return on capital—both working and fixed capital—then they will be most unlikely to continue farming organically. The most common barrier to entry into the market is fear of oversupply and lack of committed long-term support from government.

Retail Pricing

  Many people consider that all organic produce is more expensive than conventional produce. This is not necessarily true in all cases eg some brands or organic yoghurts are retailed at almost the same price as the conventional equivalent.

  There is bound to be some element of retail premium for most organic products and this is most evident when we consider the wider benefits of organic production. For many, the benefits to the rural economy and ecology that organic farming delivers justifies the organic premium prices. The consumer is paying not just for the reduced yields that organic systems deliver, but for the true cost of food production. Much needed employment is also being created in depressed rural areas.

  The NFU wishes to emphasise that organic farming is NOT simply pesticide free farming. It is an essential part of the sustainable management of all rural assets including the community (right down to the village shop/school/post office), all rural business including farming and the whole rural ecology. It would also include the management of an integrated transport policy.

THE LEVEL OF IMPORTS AND EXPORTS OF ORGANIC FOODS

  The UK consumer would not be able to get enough of the organic food they want if the market depended solely on UK production. This imports are currently strategically crucial to market supply and development but this is not a desirable long-term situation, as it is a direct contradiction of sustainable agriculture. UK consumers would prefer to buy UK produced food. Although we know that we cannot produce many lines that consumers now seek, we are aware that we could do much more than we currently do. Imports have been strategically valuable in developing the market from its infancy, given that production cannot be easily started or switched due to the time scale for conversion, the need for sound agriculture rotations and respect for what each soil type will produce.

  We need to be aware of the demand profiles and determine whether we are prepared to invest in home production or continue our dependence on imports. If we are to choose the latter, then we need to be absolutely assured that the standards of production and/or processing are equivalent to those expected of UK producers and processors. The infamous level playing field is crucial if the UK is to meet the expectations of farmers and consumers. We must not have dual standards and thus unmatchable competition. The effects of currency variations are bad enough without other barriers being raised.

  General figures indicate that up to 70 per cent of all organic foods sold in the UK is imported. The Soil Association's Food and Farming Report 1999, suggests that for the fruits and vegetables sector, as much as 80 per cent is imported, for cereals the amount is 70 per cent and within the processed dairy sector only60 per cent of the products are produced in the UK. The amount of organic meats and eggs for human consumption that are imported during the period surveyed was negligible, but cereal required for supplementary pig and poultry feed should be noted.

INTERNATIONAL COMPARISONS

  The NFU is unable to provide significant evidence regarding international comparisons, but there is anecdotal evidence which is often cited, and some areas of which have been mentioned earlier. These include variations of organic standards, financial assistance from Governments and associated bodies plus greater development budgets. There may be some countries where support for organic farmers is less than the UK but they are unlikely to be European or North American and thus there is no value in stretching comparisons further.

  The NFU therefore urges the Government to be mindful that other factors significantly affect competitiveness. These will include general regulations, costs absorbed by Governments, cheaper fuel, cheaper and more plentiful/available labour etc.

  We are most definitely not seeking financial help from Government to correct every financial difference, but we are seeking active assistance to:

    (a)  support the certifying organisations in the maintenance of the integrity of organic production systems;

    (b)  support attempts to clarify UK standards and to ensure that farm inspection procedures are as uncomplicated and undisruptive as possible;

    (c)  ensure that UK farmers achieve the fullest assistance to enable their products to be marketed as locally as possible and with minimum transportation and handling costs, whilst at all times, taking great care to preserve existing local market initiatives;

    (d)  support attempts to clarify the international variations in production and processing standards etc.

12 June 2000


1   Nic Lampkin; Welsh Organic Food Sector Strategy Plan. Back
2  Soil Association Food and Farming Report 1999. Back

 
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