Business Environment of the Organic Agriculture Industry - Essay Example

?Business Environment of the Organic Agriculture Industry [ID Table of Contents Page 2 2. Introduction: Page 3 3. Business Environment: Page 4 4. Conclusion: Page 9 5. References: Page 10 Abstract The organic industry is in a period of revolutionary, explosive growth and change. It is moving from a largely local, activist industry to big business, and the concomitant threats and opportunities that go with such a change. Guidance from organisational analysis will be essential to its long-term viability. The organic agriculture industry faces the problem of its own growth, competition from traditional agriculture, lack of infrastructure, organizational challenges such as the shift from an activist-based structure and leadership to a business-based one, and other issues. If it can navigate those issues, it can become a leader in the field of agriculture and revolutionise the relationship of humanity to its food. Introduction The organic agriculture industry, whether it be food, beverages or other elements, is an explosive new industry. “Now companies from Wal-Mart (WMT ) to General Mills (GIS ) to Kellogg (K ) are wading into the organic game, attracted by fat margins that old-fashioned food purveyors can only dream of. What was once a cottage industry of family farms has become Big Business, with all that that implies, including pressure from Wall Street to scale up and boost profits” (Bloomberg, 2006). Organic food will have to face a host of challenges, including the problem of its own growth, competition from traditional agriculture, lack of infrastructure, organizational challenges such as the shift from an activist-based structure and leadership to a business-based one, and other issues. If it can navigate those issues, it can become a leader in the field of agriculture and revolutionise the relationship of humanity to its food. Organic Agriculture A SWOT and PESTLE analysis of the difficulties facing organic agriculture may shed some light on how to proceed with analysis. SWOT Strengths Incredible growth rate Exploitation of consumer trends Major retailers like Whole Foods have tremendous numbers of outlets and market share (Novak, 2011) Weaknesses Low supply of essential infrastructure Organic food is expensive Subsidy in the US and the UK of corn or other agricultural products but not of organic products (Novak, 2011) Opportunities Increasing popularity Green consciousness spreading Change in terms of ecological risks and opportunities Any efforts to reduce costs could cause consumers to embrace whole and natural foods (Novak, 2011) Indigenous farming systems in the Third World are already largely organic: Micro-lending and investment could solve supply problems (UNEP-UCTAD) Threats Expansion of large corporations into the organic market PESTLE Political Increasing interest and popularity of green politics: Kyoto, grassroots movements, etc. BUT some degree of socio-political backlash against too green of models Less subsidy than for non-organic solutions Economic Market interest in organic, natural, free-range, local, etc. alternatives Economic costs of non-organic growth catching up with consumers Third World opportunities (UNEP-UCTAD) Social Increasing popularity and “hipiness” of green and organic agriculture Technological Development of organic food requires new technological approaches and understandings Replacing of old pesticides, fungicides, etc. with new techniques such as using predatory insects as pesticides Legal Certification and regulation of the organic food and agriculture market Definitions of what organic food is and risks of false advertising suits Environmental Organic, local, sustainable, natural, free-range requires ground-up restructuring of infrastructure, employee practices, relationship to the land, etc. Organic food has become particularly popular in the UK, partially due to shopping patterns that emphasize farmer's markets and local shops (BBC, 2001). The BBC credits this change to four primary causes. First: Health scares have caused people to take a close look at what they eat and to be afraid of anything too processed or artificial. Mad Cow/rbST/prions, salmonella, E-Coli, and food and mouth outbreaks have caused consumers to be very concerned about too much processing and too little transparency. Ironically, the actual evidence that organic food is safer from a disease perspective is mixed. There's some evidence that reducing the processing reduces the risk of BSE, and most of the Mad Cow-sourced farms were non-organic. Certainly, animals eat less fats, salt and sugar, which means that there's less of those elements passing on to the consumers, and organic farms are far less likely to have cattle stand in waste or feed cattle meat. There is also a concern over genetically modified organisms, and organics in the UK cannot be GMOs. Second: UK citizens are more and more concerned with the environment. Organic foods reduce pesticides, run-offs, fertiliser spillage, etc. Again, the UK's unique relationship to its food is part of the factor: Organic food boxes delivered from local farms match the local, island economy of the UK, and help reduce shipping costs which makes organic food both superior in quality, freshness and health and competitive in prices. Third: There is a perception that organic food tastes better. Evidence for this is scant either direction, but the market perception is that organic food is higher quality, and more and more elite restaurants are turning to locally-sourced, organic produce. Fourth: UK citisens are also increasingly interested in animal rights and mistreatment, and in the UK, organic certification is associated with better treatment of animals. There is an obvious cost disadvantage, but in the UK in particular, consumers who prefer organic food offset with smaller portions (good for avoiding obesity), less eating of meat (again, a healthier choice) and local delivery and farmer's market choices. One issue, ironically, is that the organic movement has been too successful, inspiring unrealistic expectations. “Hirshberg [CEO of Stonyfield] himself is under the gun because he has sold an 85% stake in Stonyfield to the French food giant Groupe Danone. To retain management control, he has to keep Stonyfield growing at double-digit rates. Yet faced with a supply crunch, he has drastically cut the percentage of organic products in his line. He also has scaled back annual sales growth, from almost 40% to 20%. "They're all mad at me," he says” (Bloomberg, 2006). Supply issues also plague the industry. “Sometime soon a portion of the milk used to make that organic yogurt may be taken from a chemical-free cow in New Zealand, powdered, and then shipped to the U.S. True, Stonyfield still cleaves to its organic heritage. For Chairman and CEO Gary Hirshberg, though, shipping milk powder 9,000 miles across the planet is the price you pay to conquer the supermarket dairy aisle. "It would be great to get all of our food within a 10-mile radius of our house," he says. "But once you're in organic, you have to source globally" (Bloomberg, 2006). There just aren't enough organic cows, organic pigs, and some kinds of tougher crops to master organic growing of. Demand far exceeds supply: “Just as mainstream consumers are growing hungry for untainted food that also nourishes their social conscience, it is getting harder and harder to find organic ingredients. There simply aren't enough organic cows in the U.S., never mind the organic grain to feed them, to go around. Nor are there sufficient organic strawberries, sugar, or apple pulp -- some of the other ingredients that go into the world's best-selling organic yogurt” (Bloomberg, 2006). While the crop issue is likely to resolve itself with new entrants like WalMart and the big grocery chains in America and the UK, who can bring their amassed capital to bear upon the supply issue for crops that have a relatively fast turn-around time, some crops have a high amount of amassed institutional knowledge to grow organically that may take some time to work out, and getting livestock to saleable age takes a certain amount of time. One risk that continues to face the organic, natural, local, free-range, and other movements are unclear or too broad of restrictions and definitions. “Organic” was undefined as recently as 2002, when the USDA finally created uniform standards, requiring the process to have no man-made chemicals (Bloomberg, 2006). The UK had stricter standards earlier, but there is difficulty of coordination across international lines (BBC, 2001; Food Standards Agency, 2011). Free-range, natural, and local agriculture have even laxer standards: Some “free-range” farms can allow chickens less space than regular farms, and “natural” has all sorts of competing definitions! As noted, there is a political factor at work with increasing interest in organic food (BBC, 2001). Ecological movements such as the Greens support eating organic, “small and local is beautiful”, etc. And there is an externality problem: Ultimately, non-organic agriculture externalizes costs onto citisens, producers, consumers, and countries instead of being borne by producers and direct consumers (BBC, 2001). Bargaining strategies in the organic market are changing, but in general, suppliers view their bargaining power as weak, large retailers like Whole Foods are increasing their power, and consumers have tremendous power as there are many others places to shop (Canavari and Olson, 2007; Theriault, 2010; Baourakis, 2004). There is increasing pressure on organic farmers to consolidate and enter into coops (Baourakis, 2004, p. 122). Suppliers in turn feel that their relationship to retailers and wholesalers is weak (Canavari and Olson, 2007, pg. 49). Strategies used by suppliers have traditionally emphasised structural actions aimed at increasing supply, “channel diversification and promotional action” (Canavari and Olson, 2007, pg. 49). Consumer guides to shopping at Whole Foods regularly focus on bargain hunting, indicating that organic markets are perceived as too expensive and are not promoting their deals enough, but that there are options available to the savvy consumer, which will improve the bargaining power of the retailers and wholesalers (Theriault, 2010). The Third World also deserves special mention (UNEP-UCTAD). The Third World has established, traditional farming that is already largely non-organic, unexploited or underexploited land, uncontaminated land, and so forth. Further, there are international support efforts both generally in the Third World and specifically for organic agriculture and micro-lending initiatives. There's also a change in internal culture and politics (Bloomberg, 2006; BBC, 2001). Organic agriculture founders included esoteric people like Dr. Bronner, creator of Dr. Bronner's soap (Adams, 1988). They tend to be people who work for world peace, ecological changes, human harmony, etc. But now that things are becoming big business, these people, while important to retain the marketing and corporate culture that have led the companies to current success, will need to add on people with more traditional orientations and skills. Conclusion As we have seen, the organic food market, particularly with Third World expansion, has almost nowhere to go but up. But problems relating to socioeconomic, political, legal, technology and environmental issues will be important obstacles, and their management will determine the ongoing growth of the organic industry. List of References Adams, C. 1988, “Why the weird religious ravings on Dr. Bronner's soap?”, The Straight Dope, April 22 Baourakis, G. 2004, Marketing trends for organic food in the 21st century, World Scientific. BBC H2G2. 2001, “Organic food in the UK”, Available at: http://www.bbc.co.uk/dna/h2g2/A575679 Bloomberg Businessweek. 2006, “The Organic Myth”, October 16. Canavari, M. and Olson, DM. 2007, Organic food: consumers' choice and farmers' opportunities. Food Standards Agency. 2011, “Organic food”, January 27. Novak, J. “SWOT Analysis Whole Foods”, Marketing Teacher, Available at: http://marketingteacher.com/swot/whole-foods-swot.html Organic Trade Association. 2010, “Industry Statistics and Projected Growth”, June. Theriault, M. 2010, “Bargain shopping at Whole Foods”, Frugal Living, June 3. UNEP-UCTAD. “SWOT Analysis of Organic Agriculture in Other African Countries”, Available at: http://www.unep-unctad.org/cbtf/events/dsalaam2/day%203/SWOT%20ANALYSIS %20OF%20ORGANIC%20AGRICULTURE%20IN%20OTHER%20AFRICAN.pdf Read More