Organic is ‘in’! It seems that everywhere, consumers are clamouring for organic food products. And they are willing to pay a premium for them. Now, this didn’t just happen yesterday; it’s obviously pretty dated news. But maybe what is fresh is the hot annual growth path. Momentum is strong, and trend growth suggests this is going to be a winner for some time to come. Is Canada, as a key global food supplier, in the game?
Food exports in general are a hot topic these days. Canada is a heavy net producer of food, with much of it shipped around the world. In fact, compared with other exports, it is atypically a very globally diversified market; unlike other industries, traditional customers are not nearly as dominant in the food space. And even from today’s high base of export activity, growth prospects – from the near term out to as far as 2050 – are very strong. Why? The sustained surge in emerging market middle- and upper-class populations has created demand for higher-quality foodstuffs that outstrips their countries’ productive, distribution and quality control capacity. Naturally, they are turning to the world’s big net producers for solutions to their long-term problem. Canada is already playing in this space, but the potential for even greater sustained growth is obvious.
Canada’s organic food sector seeing strong growth
Unlike the market for general food and beverage products, organics are seeing strong growth in Canada’s traditional export markets. Health consciousness is encouraging demand growth in organic foods and beverages, as seen by its growth in overall food sector market share. Likewise, sales growth is strong at home for the same reasons. At least one large Canadian grocery chain has remarked that in discount stores in lower-income neighbourhoods, the organics section attracts a higher share of traffic and has better margins than the rest of the store. This has in turn created innovation in organic products like labelling, traceability, and so on.
All of this adds up to more than $5 billion in annual organic sales domestically, with Canada’s organic market representing about 5 per cent of total global demand. Since 2012, the market share of organic food and beverages sold through mainstream retailers in Canada has grown from 1.7 per cent to 2.6 per cent. The sector currently producing almost 3 per cent of all agricultural sales. The Canadian Organic Trade Association (COTA) estimates that we had over five thousand organic operations in 2015. The bulk of these were primary producers, but many are processors, manufacturers and retailers. Even with all this effort, Canadian production isn’t keeping pace with demand; we are actually net importers of organic foods, as domestic sellers seek out needed ingredients and inputs not always available from local suppliers.
That hasn’t stopped the export machine from humming, though. Canada currently trades organic foods with 127 countries, and accounting for over $600 million of export sales. Just 11 per cent of our organic exports go to the US. Other major markets include the European Union and Japan. In all, export sales of organics are outstripping total food exports, a trend we expect to continue.
To facilitate this trade, Canada has negotiated organic equivalency agreements with trading partners who account for 90 per cent of Canadian trade: Bilateral equivalency arrangements with the U.S., E.U. , Switzerland, Costa Rica, and Japan have opened up important export markets for Canadian organic businesses. Agreements with Mexico and South Korea are being negotiated.
Challenges for organic producers
Canada’s organic producers do face challenges, though. The industry feels that gaps in international regulations may constrain Canadian producers from reaching their full potential in key growth markets. Closing this gap will require adoption of new food safety regulations. And as in exports of other food products, successful sales to the broader world will likely depend on how we flog ‘brand Canada’ while up against other strong brands from the leading producers in the rest of the world.
The bottom line?
Health-consciousness is rising globally, creating strong demand for organic food products. It’s no longer just a wealthy-market thing; ever-richer emerging markets are a hotbed of current and future demand. This one has opportunity written all over it.