Institute of Rural Studies, University of Wales, Aberystwyth, Ceredigion SY23 3AL

1. In Great Britain the organic sector has recently witnessed very rapid growth. In April 1998, there were 105,000 hectares being farmed organically. This had increased to 274,519 by April 1999 (MAFF) of which approx. 60,000 ha were fully organic and 180,000 ha were in the first or second year of conversion. By the end of 1999, we estimate that ca. 3000 holdings were managed organically or in-conversion, with ca. 500,000 ha land involved – final estimates are currently being prepared.
2. Increased interest in organic production is also indicated by the number of farmers that have contacted the government-funded free helpline on organic production in England and Wales. In May 1999 the Organic Conversion Information Service (OCIS) registered its 10,000^th enquiry since its establishment in July 1996, representing ca. 10% of farmers in England and Wales.
3. Reasons suggested for the recent uptake include

• The crisis in conventional agriculture;
• Increased consumer demand for organic food, generated by a combination of greater environmental awareness and food scares. This was enhanced by increased spending power and overall positive economic development.
• "Fantastic organic prices" their comparative stability and higher relative profitability of organic farming;
• Higher conversion grants and increased government commitment to supporting organic farming under the new administration.
• Organic Conversion Information Service and increased publicity for organic farming and the Organic Farming Scheme.

1. The distribution of organic farms within England and Wales is not even. The predominantly grass-based regions in the South and West and in Scotland have a proportionately higher number of organic producers. Compared to conventional agriculture relatively more mixed farms are managed organically, whereas the percentage of specialised dairy and arable farms is lower in the organic group. The high conversion rates in the rough grazing areas of Scotland are possibly related to the more favourable support payments for land in the Less Favoured Areas under the Scottish Organic Aid Scheme, including the lack of a ceiling for payments in Scotland (now also the case in England and Wales (for rough grazing)).
2. The reasons for the lower uptake of organic farming in the arable sector are suggested to be both technical (the more specialised and intensive a system, the more difficult it is to convert) as well as economic (the better profitability of the conventional arable sector), which has made famers less motivated to introduce any change. Conventional arable systems tend to be stockless. Stockless organic farming only functions with set-aside payments for the large areas of set-aside, which goes against a common perception of arable farming. However, the current price difference for organic crops at nearly 3 times conventional prices should be encouraging more arable producers to consider conversion.

Market trends and customer demand

3. For the organic food market growth rates are reported in the range of 30% p.a., up from £93 million in 1992 to £390 million in 1998, and more recently nearer 40% annual growth, reaching ca. £550 million in 1999. The UK accounts for about 10% of the EU market for organic food, and 1-2% of total UK food sales. Larger market shares (of domestic consumption) are present in Denmark, Sweden, Germany and Austria, amongst others.
4. All sectors are facing strong demand, although the fruit and vegetables sectors are still the most important. Dairy and meat products have expanded steadily in recent years, while processed products and beverages have grown particularly strongly. The majority of organic food is imported, due to the lack of domestic supply.
5. Consumer demand is focused predominantly on personal food quality, safety and health considerations, although a significant and increasing minority emphasise more altruistic concerns such as environmental protection, animal welfare and social justice (e.g. Fair trade products).
6. It needs to be remembered that the market was developed in the absence of policy support as a means to support the ethical objectives of organic farming, in particular environmental protection, resource use sustainability, animal welfare, social justice, food quality and safety. Consumer trust has been won on the basis of a strong commitment by the sector to these ideals. Allowing the market to become the dominant issue, and effectively an objective in its own right (rather than a means to an end), could undermine consumer confidence and the long term development of organic farming.
7. In addition, it is fair to question whether a small minority of consumers should be expected to finance the environmental, social and other benefits that accrue to society as a whole. In this context, the decision of Sweden in particular to support organic farming as an agri-environment scheme independently of any market linkage is noteworthy.

Role of organic certification organisations

8. UKROFS (United Kingdom Register of Organic Food Standards) was established in 1987 at the request of the Ministry of Agriculture, Food and Fisheries (MAFF) to set a common minimum standard for the UK. On implementation of Regulation (EEC) No. 2092/91 in the UK, UKROFS was designated the Competent Authority for administering the EC Regulation.
9. Despite the substantial growth of the organic sector, UKROFS has not received corresponding increases in funding and the system is under severe pressure as a result. This also affects the clearance of imports from third countries.
10. UKROFS approves private sector bodies to carry out inspection and certification functions. There are currently 8 registered bodies (including UKROFS itself). This can be confusing for consumers, although the Soil Association has established a dominant position and the SA symbol is the most widely recognised by consumers. The situation is much worse in other countries such as Germany, where national co-ordination has been limited (until recently) and many certifiers operate directly to the EU regulations rather than more detailed standards such as those of UKROFS.
11. Despite the common framework set by UKROFS, the requirements of the certification bodies have varied standards, particularly in the livestock area, which is problematic for the retail sector and for farmers who are faced with the choice of several different certification bodies. To some extent this will be remedied by the implementation of the new EU organic livestock regulation (1804/1999).

The setting of organic standards and tolerances

12. There are now comprehensive structures in place to assist in the setting of standards and these generally work well. However, the contribution of the organic sector itself to the development of standards needs to be recognised, and there is still considerable valuable input (much of it unpaid) from groups representing organic producers and consumers, including the certification bodies. Notwithstanding the importance of consumer preferences, it is important to maintain an active involvement of producers in setting not only credible but also practical standards, based on examples of good organic practice. This need not imply the watering down of standards.

The role of farm assurance schemes

13. Organic standards and certification schemes represent some of the first and best developed farm assurance schemes, although certain aspects of current farm assurance schemes are not necessarily encompassed in organic standards as they reflect different goals and priorities. There is likely to be some convergence between the two approaches, which will help if it avoids the need for multiple certification, and the expense that that implies, as well as better meeting consumer demands. The negative side is that in the medium term the large number and possible increasing profile of farm assurance schemes in the UK and their current lack of common characteristics, is likely to significantly confuse consumers for some time to come.

The availability and suitability of public and private assistance for
organic conversion including the role of trade associations, food processors, supermarkets and the Government

14. The current level of support for conversion under the Organic Farming Scheme is appropriate for most farm types except horticulture. The failure to address the needs of the horticultural sector must be addressed.
15. There are two significant issues concerning overall funding:

1. the lack of funds in 2000/01 to continue support for conversion has seriously disrupted the development of the sector and has had knock-on impacts on processors and retailers as far as the availability of supply is concerned.
2. the failure to recognise the case for maintenance support is a symptom of seeing organic farming purely in a marketing/consumer choice context. There is a substantial body of evidence supporting the environmental case for organic farming. All other EU countries except France provide maintenance payments on this basis. It is unrealistic and inappropriate to expect the market to be the sole means of supporting these benefits and a more appropriate balance needs to be found.

1. Private sector support is limited. There are a few examples of companies, in particular the multiples, providing assurances on organic prices in the longer-term and some purchasing commitments during the conversion period. This type of support is valuable in terms of enhancing producer confidence in conversion by risk sharing, but it is not widespread and cannot be seen as a substitute for government involvement, in particular in the context of the environmental and social benefits of organic farming.

Outlets and distribution systems for organic produce and retail pricing

2. The range of outlets and distribution systems for organic produce has improved considerably in the last few years and availability is now widespread with most multiples and many smaller outlets featuring a good range of products.
3. Retail pricing is influenced by supply and demand as well as by the cost of organic food production and the cost of processing, distributing and marketing the products. Very high demand relative to supply is one of the most important factors determining price. Gathering supplies from a wide area, and the low density/small size of organic production units, adds significantly to the costs faced by retailers.
4. Some retailers have adopted a policy of bringing consumer prices closer to that of conventional products. This has more to do with inter-retailer competition than an impending over-supply in the organic market. Moves of this type tend to further stimulate demand, leading to increases in farm-gate and intermediary prices, with the difference being absorbed by the retailer, as made clear by the recent Iceland initiative.
5. A long-term reduction in consumer prices is achievable as a result of economies of scale in processing, marketing and distribution before producer prices need to be affected, although clearly if supply exceeds demand, then there will be downward pressure on producer prices. This is unlikely in the short term, except in the case of specific commodities such as store livestock.

Level of imports and exports of organic foods

6. The UK has the highest dependence on organic food imports of any EU country, with the possible exception of Denmark and Sweden. Current growth is fuelled by even greater reliance on imports. More than 85% of organic fruit and vegetables, and around 75% of all products, are imported. Even milk, dairy products and meat are imported in significant quantities – products that can be relatively easily produced in the UK.
7. There is some export of organic products, in particular processed products, but this is relatively small in comparison to the domestic market and imports.

International comparisons

8. We have participated in a detailed EU-funded study of the situation in all 15 EU countries and 3 others, the results of which are contained in the following reports. We are willing to make these reports available to the Committee if this would be of assistance.

Organic Farming in Europe: Economics and Policy

(Series published by the University of Hohenheim, Germany)

1. The policy and regulatory environment for organic farming in Europe (Lampkin, Foster, Padel, Midmore) 172p

2. The policy and regulatory environment for organic farming in Europe: Country reports (Lampkin, Foster, Padel) 419p

3. European organic production statistics 1993-1996 (Foster, Lampkin) 58p

4. Output and public expenditure implications of the development of organic farming in Europe (Zanoli, Gambelli) 61p

5. Economic performance of organic farms in Europe (Offermann, Nieberg) 202p

6. Environmental impacts of organic farming in Europe (Stolze, Piorr, Häring, Dabbert) 140p

7. The European market for organic products: growth and development (Michelsen, Hamm, Wynen, Roth) 199p

9. In summary, it is fair to say that the UK has (until recently) been the least supportive of the countries studied, and has given least recognition to the proven environmental benefits, in marked contrast to the situation in Denmark in particular, and to the Scandinavian and German-speaking countries in general. This resulted in a very slow development of the organic sector in the UK, which has only recently been transformed.

Likely future developments

10. We estimate that organic farming will reach a 5-10% share of UK agriculture by the end of 2005. Much will depend on the policies put in place. In this context, the contribution of integrated action plans such as in Denmark and more recently in Wales is of relevance. These permit the integration of supply side support with market support and other initiatives. The Welsh action plan establishes a target of 10% of Welsh agriculture by 2005 and involves policy, marketing and information initiatives.
11. At the European level, it is likely that 10% of European agriculture will be organic by 2005, although much will depend on the extent to which current high-growth countries can maintain growth, and whether those which are relatively static (e.g. Germany and Austria) re-enter a high growth phase.

Other issues

12. The lack of any questions in this Inquiry concerning the benefits of organic farming to society (environment, animal welfare, rural development, food quality and health) is a cause for concern as it implies a lack of recognition of the potential contribution of organic farming in this regard and an over-emphasis on marketing and related issues.
13. The availability of information to farmers considering conversion, existing organic producers, processors, retailers, consumers and other groups working with the agricultural sector is also a major issue. The Organic Conversion Information Service and the increased budgets for research have been a significant help in addressing part of the information deficit, but more activity is needed, particularly since farmers are left in vacuum once their OCIS eligibility is used up. Key issues that need to be addressed include:

1. the availability of ongoing advice and training for farmers
2. the availability of vocational and academic courses at colleges and universities
3. the need for appropriately qualified and informed advisors and trainers/educators (as well as inspectors and other professional groups working with farmers such as vets)

1. These issues need to be addressed in advance of widespread conversion by producers, otherwise the time lag to respond is too long and mistakes made as a consequence carry financial and environmental costs. However, commercial organisations are often unable/unwilling to address this in advance. Therefore there is a need for strategic investment in information, both to encourage farmers to take advantage of what is already available, and to ensure the development of the capacity to provide the information.
2. In Wales, this has been recognised through the establishment of the Organic Farming Centre for Wales as part of the Action Plan, with a remit to co-ordinate the dissemination of information including R&D, advice, training, education and demonstration farms.