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Shift From Organic Food Forces Company U-Turn

23 August 2011

NEW ZEALAND - A turn by shoppers to cheaper foods, in the face of financial hardship, has prompted the world's biggest dairy group to slash its organic operations - a year after encouraging farmers to make the switch from conventional milk.

New Zealand-based Fonterra, which supplies consumers in more than 140 countries, is to pull back its organic milk operations to Asian and Australasian markets, after warning that the world market had "significantly slowed" since the world economic downturn started three years ago â€" with doubts over prospects of its recovery.

According to Agrimoney, the retreat in a business which Fonterra said in May last year it was "actively recruiting" organic farmers comes amid setbacks to the organic movement worldwide, with data in the UK showing a fall of two-thirds in the amount of UK land being converted from traditional farming.

In America, the US Department of Agriculture in June warned of "dampened consumer demand resulting from the weaker US economy", besides competition from new labels such as "locally grown" which being viewed by consumers as a more affordable choice.

Kelvin Wickham, Fonterra's director of external relations, said: "The organics market was hit hard by the global financial crisis, and market indications are it will not recover to previous levels."

'Less willing to pay'

However, organic dairy, in which Fonterra has been selling mainly cheese but also products such as yoghurt, has been particularly hard hit.

"All [organic food] categories felt the effects, but particularly the category in which we sell â€" packaged dairy foods â€" where prices and volumes are still below 2008 levels," Mr Wickham said.

"Research shows people are now less willing to pay the premium for organic products."

Furthermore, shoppers are growing increasingly confident of improved practices in broader farming, believing "that everyday products are being produced more sustainably and are more acceptable so, they no longer see the need to pay the premium for most organic products".

"We have to recognise that the global market for organics has changed," he added.

Fonterra in May 2010 forecast growth in 140% in its organic business, terming dairy the "fastest growing category in the international organic market".

Lost premium

In New Zealand, Fonterra's shake-up will see it focus organic processing around its main site, Hautapu, on North Island, cutting back operations at two other plants. The number of farmers, currently more than 100, from which Fonterra buys organic milk will be halved.

Dairy farmers missing out will, after the end of their current contract, still be able to supply to Fonterra, but without an organic premium of NZ$1.05 per kilogramme of milk solids, equivalent to an extra 15% or so above prices paid for conventional milk.

TheCropSite News Desk

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