Tesco’s senior buying manager for meat, fish and poultry Micheál Donohoe spoke recently at an organic farm walk about organic produce being the sleeping giant of premiumisation in the Irish food market. The problem he identified from the supermarket perspective is that there hasn’t been sufficient scale to develop the sector but if it was there, headroom to expand the category is considerable.
This is debatable but with the incentives explained in last week’s Irish Farmers Journal for organic production combined with Teagasc National Farm Survey results, we are likely to find out in the not too distant future. Building a market for any product or service can happen through the “build it and they will come” philosophy or it happens because of consumer demand.
Up until 2008, nobody realised they needed a smartphone but with the invention of the iPhone, within a few years everyone owned one.
On the other hand, two years of COVID-19 lockdown meant that there was a pent-up demand for air travel which airlines and airports have been struggling to meet.
Market or subsidy led?
The same applies to organic produce. However, the product has been available for decades at variable levels of supply.
Consumers and the market haven’t to date responded by paying sufficient premium consistently to encourage more production.
Market demand has been such that just 2% of Irish farmland is in organic production but this is likely to change.
This change will be driven by EU and Government policy that is a variation of the “build it and they will come” philosophy.
With a budget of €256m and a target of growing land farmed organically to 7.5%, incentives to farmers are estimated to be up to €250/ha for switching to organic, more in tillage and horticulture.
This is coming at a time of soaring input costs for farms and when suckler farmers are using a third of their CAP payment to subsidise the business, as revealed in the Teagasc National Farm Survey data.
This was the case for 2021 when farmgate prices were on the increase and before feed, fertiliser and diesel costs soared after the Russian invasion of Ukraine. This means that suckler farmers who in many cases are already semi-organic have to look seriously at the incentive to produce organic. With the soaring costs of fertiliser, pesticides and feed, it would mean less throughput but also less cost.
What the market will do is the big question. To date, it has at best been sporadic where premiums are involved. Committed organic farmers with long-term supply contracts have been securing premiums in beef but they are less consistent for lamb and frequently organic milk is sold in the mainstream market. The report from the Hurley farm on page 22 is an example of organic production being sold in conventional markets
Established organic farmers are concerned that a surge in production will lead to a market collapse but this is where supermarkets have a key role to play.
What this role will be is too loosely defined because no sooner than they say that they need more organic produce to grow the market than they are also saying that they have to be cost competitive. Irish vegetable growers know what that means and consequently there are very few left.
Mixed messages aren’t confined to supermarkets. Last week in an interview with Irish Country Living, Minister Malcolm Noonan extolled the virtues of being able to produce more food without more land but went on to say that “we need to localise everything” and consume locally.
The reason the world has increased food production without more land is because of technology and large-scale production which means Ireland exports 90% of its production with lower emissions per kilo of output than most other areas of the world.
Local speciality production for local markets is fine but to complement mainstream production, not as a global alternative.
To this point organic production has been a small specialist niche market in Ireland. Financial support and soaring input costs will encourage more farmers into the sector but the question remains is there a market for extra production at a premium price? Most vulnerable are organic producers with an established market for existing output. Any oversupply would hit their business the same as the others.