The Rise of Organics

The Rise of Organics
The mainstreaming of organic products
White paper | August 2010

Shikatani Lacroix is a leading branding and design firm located in
Toronto, Canada. The company commissions assignments from all
around the world, across CPG, retail and service industries, helping
clients achieve success within their operating markets. It does this by
enabling its clients’ brands to better connect with their consumers
through a variety of core services including corporate identity and
communication, brand experience design, packaging, naming and
product design.
About the Author
Jean-Pierre Lacroix, R.G.D., President and Founder of
Shikatani Lacroix
Jean-Pierre (JP) Lacroix provides leadership and direction to his
firm, which was founded in 1990. He has spent the last 30 years
helping organizations better connect their brands with consumers
in ways that impact the overall performance of their business. Mr.
Lacroix was the first to coin and trademark the statement “The
Blink Factor” in 1990, which today is a cornerstone principle to how
brands succeed in the marketplace. JP has authored several papers,
has been quoted in numerous branding and design articles and, in
2001 he co-authored the book “The Business of Graphic Design”
which has sold over 10,000 copies. JP can be reached at
jplacroix@sld.com and you can follow his blog at:
www.belongingexperiences.com & www.sldesignlounge.com.
Other Articles and Books
Belonging Experiences...Designing Engaged Brands
Business of Graphic Design
White paper | August 2010 | The Rise of Organics | 1

What is the future of organic products?
Organic products have been available in supermarkets for the past
twenty years, first catering to a unique group of consumers who
were concerned with the impact of conventional farming practices
on the health of their families. Today, the majority of supermarkets
from around the world carry a range of organic products that have
gained wider appeal among consumers. But are organics a
sustainable trend in light of the economic downturn and the
emergence of “natural” and “local” product offerings? In 2010,
Shikatani Lacroix was retained by Agriculture and Agri-Food
Canada to help position the organic industry to more effectively
compete in the market place. Insights gained through the firm’s
market analysis and strategic process established a framework for
insights on where the industry is heading.
This white paper will leverage some recent research and insights on
the industry, namely:
1. What is organic?
2. What is driving the need to support purchase of organic
products?
3. What is the future potential of this category?
4. Who is doing it right?
“Now that I've got
kids, it's become
really important
for me on the
health front to try
to buy as much
organic produce
as possible.”
Jamie Oliver, UK celebrity chef, in
BBC Good Food magazine

Eliminating the confusion around organics
One of the clear indications that organic products have become
mainstream and an alternative offering for mainstream consumers is
the level of standards that have been created to safeguard
consumers from misleading product claims. In 2009 the Canadian
government, following U.S. and the European Union initiatives,
established clearly defined standards for the farming and production
of organic products. The Canadian Food Inspection Agency was
mandated to oversee the certification bodies responsible for
certifying organic products, a structure very similar to the US Food
and Drug Administration’s established processes. In Canada, only
products with 95% or more organic ingredients can claim being
organic. However, in the US the guidelines that were established by
the United States Department of Agriculture’s (USDA) National
Organic Program (NOP) to assure consumers know the exact
organic content of the food they buy based on a tiered structure,
namely:
• 100% Organic - Foods bearing this label are made with 100%
organic ingredients* and may display the USDA Organic seal. In
Canada, this designation does not exist.
• Organic - These products contain at least 95–99% organic
ingredients (by weight). The remaining ingredients are not
available organically but have been approved by the NOP. These
products may display the USDA Organic seal. The Canadian
organic certification follows similar guidelines.
• Made With Organic Ingredients - Food packaging that reads
“Made With Organic Ingredients” must contain 70–94% organic
ingredients. These products will not bear the USDA Organic seal;
instead, they may list up to three ingredients on the front of the
packaging. The Canadian standards allow for similar claims on
packaging and products.
European Union Organic Seal

• Other—Products with less than 70% organic ingredients may
only list organic ingredients on the information panel of the
packaging. These products will not bear the USDA Organic seal.
The Canadian standards follow similar guidelines for products
that contain organic ingredients.
The emergence of “natural” and “local” food have created confusion
among consumers between these categories and products that are
truly “organic”. In 2010, the Shelton Group asked 1,006 US
consumers how they know if a product is green, and the top
response was: “don’t know/not sure” (22%) followed by “says so on
the package/label” (20%). Despite well-defined certification
standards, organic products have failed to win consumers’ trust: 31%
said “100 percent natural” is the most desirable eco-friendly product
label claim, compared to 14% picking “100 percent organic.” The
study concluded that shoppers think of the organic category as less
regulated and more expensive than “natural”.
This consumer confusion was further validated by a recent national
survey of U.S. consumers who shop at “natural food” stores when the
following question was posed to them (Natural Foods Merchandiser,
2008): “If you were purchasing a particular ingredient or a recipe
and you had a choice of either a local product or a non-local organic
one, which would you choose, assuming equivalent price and
quality”? 35 percent of respondents chose local and 22 percent
chose organic (41 percent chose both equally). A study conducted
in 2009 by the Ontario Ministry of Agriculture, Food and Rural
Affairs may shed some light on one of the fundamental reasons for
the confusion. The study found that the cost of organic foods was a
big barrier, with 83 percent indicating that they would buy more
organics if they were cheaper. A key reason for the price barrier issue
is that most consumers do not believe that organic foods are that
much healthier than conventional foods.
In a recent
consumer study, it
seems American
consumers have
confused “natural”
as a better
indicator of an eco-
friendly product
than “organic.”
2010 Study, The Shelton Group

New Organic
Experienced Organic
Seasoned Organic
Non-buyers
1 10 100
27
21
20
32
Organic Segments
2009 U.S. Families’ Organic Attitudes & Beliefs
study sponsored by Kiwi Magazine and the
Organic Trade Association
Attributes such as freshness (91% rating) and price (74% rating)
topped the study list of factors determining purchase decisions. The
study does support the importance of promoting the certification of
organic products, with 16% of the respondents strongly agreeing and
39% somewhat agreeing that they would buy organic food if it was
clearly labelled with an organically-produced certification. Creating a
strong unified certification program that has consumer credibility is
one of the key factors that will help the organic sector overcome
confusion and consumers’ lack of commitment.
What are the key drivers in the category?
Although there is potential for confusion about organic, a study on
U.S. Families’ Organic Attitudes & Beliefs sponsored by Kiwi
Magazine and the Organic Trade Association identified that
consumers are committed to the category, with nearly three-
quarters (73 percent) of families buying organic products at least
occasionally, chiefly for health reasons. The study identifies that the
largest group of organic buyers are “Newly Organic” parents
(representing 32% of parents overall), are younger than other
organic buyer groups with younger children. The other groups
consist of Experienced Organic parents (20%), with between 2 and 5
years’ experience purchasing organic products, who are slightly
more educated, wealthier and racially-diverse compared to the
Newly Organic segment. Seasoned Organic parents (21%) are the
most experienced organic buyers with a range of 5 to 15 years
experience in the category and follow the stereo-typical profile of
the Caucasian, highly educated, wealthy organic consumer. Non-
buyers of organic represent 27% of consumers who have never
purchased organic products. Finally, an overarching category termed
“Organic Influencers”, comprised of parents who are extremely well
informed about organic products and likely to influence others into
the category, represent 13% of U.S. parents.

The study identified that health
was the primary motivator for
consumers who currently buy
organic products (55% of parents),
presenting a logical platform for
the industry to build market share
and category loyalty. Parents of
very young children in particular
(under 3 years) are more likely to
incorporate organic into their
children’s lives over a growing
concern regarding the use of
pesticides, hormone growth, and
artificial flavors and colors in
conventional foods.
The study identifies that cost, low interest in healthier foods and a
strong understanding of organic are they key barriers for “Non-
Buyers,” or parents who have never purchased organic products. We
believe that the rise of “cheap foods” that provide very little
nutritional values have allowed this segment of the marketplace to
disengage in striving for a healthier lifestyle. However, the rise of
diabetes, cancer and heart problems among the young has started
to shift the perception of this group towards more sustainable and
healthier needs, all of which points well in supporting the organic
segment.

Supporting these key research findings, we can derive that an
increase in health and wellness are the principal drivers behind the
organic movement. With the aging population in the markets with
some of the largest and fastest growing organic segments (Europe
and Australia) and the increase in this segment’s discretionary
spending, the level of education and increased sophistication of
young families, these regions clearly understand that organic and
natural foods are healthier, better for the environment, and more
sustainable, than conventionally-grown foods.
Our review of trade publications and research support the belief that
organic industry should leverage the following benefits to ensure
relevance and a clear point-of-difference:
1. Safer: Natural and organic foods are produced without the
chemical pesticides and additives commonly used in
conventional foods. The elimination of the use of pesticides
has been the cornerstone of the promotion and
understanding of the value of organic farming.
2. Better-tasting: A study at Washington State University in
2001 found that organic apples were sweeter and had better
texture and firmness than conventionally grown apples.
Leveraging taste and freshness supports some of the key
drivers for the selection of food products.
3. Environmentally-friendly: Organic farms have been shown to
use less energy and produce less waste than conventional
farms. In addition, the elimination of pesticides and
herbicides have a positive impact on the quality of the soil
and water in the surrounding areas.
4. Farmer-friendly: Farmers who grow crops in the conventional
method generally use pesticides, which studies have linked
to various health problems.
Health and wellness
driven by a care for
the sustainable
farming practices
and a fear of
pesticides are
becoming the key
reasons people
purchase organic
products in the
world”
Investopedia, 2010

Finally, the organic sector needs to better leverage the recent food
quality scares and product recalls as a key point of the high level of
standards for the industry. For example, the recent recall of cat and
dog food by a leading manufacturer of private label pet food in
North America - made from wheat gluten imported from China - has
raised some questions about conventional farming methods.
What countries have embraced organic?
The European organic markets are the oldest and have traditionally
been one of the leaders in the growth of organic products and,
often, learning from this market are precursors to attitudes and
behaviors in North America.

In Europe, the growth of organic has been driven by the increase in
consumer buying sophistication as it relates to the following factors:
• Growing concern about the environment
• Rising demand for chemically-clean products
• Growing scrutiny of product origins
• Increasing regionalism / buy local
• Questions about carbon footprint of products
The European Organic Trade Association have identified the need for
organic growers and marketers to go beyond “organic” as
consumers become more sophisticated and markets mature,
evolving towards a sustainable value that is linked to environmental
and community needs.
When you explore the hectares allocated to organic agriculture, it is
important to note that North America lags behind other regions,
with slightly more hectares allocated to organic crops than Africa.
The lack of allocated hectares for organic agriculture has two
significant implications for North American markets.

The first represents the vast growth still available for North American
marketers and growers and may explain why this region is seeing
such a rapid growth in organic farming. The second, which is more
alarming, is the fact that North America cannot sustain the current
level of organic consumption without the reliance of more expensive
imports that have a larger carbon foot print impact due to the
greater distances the product needs to travel.
Compared to 2007, there has been an increase of almost 3 million
hectares or a 9 percent increase in organic farming hectares with the
highest increase occurring in 2008 in Latin America (1.65 million
hectares and Europe with 0.5 hectares). It was interesting to note
that Argentina, Falklands Islands, Spain and China had the highest
increase in organic agricultural lands in 2008.
Is “organic” sales sustainable?
Findings from the 2009 U.S. Families’ Organic Attitudes and Beliefs
Study, jointly sponsored by the Organic Trade Association (OTA) and
KIWI Magazine, also show that three in ten U.S. families (31 percent)
are actually buying more organic foods compared to a year ago, with
many parents preferring to reduce their spending in other areas
before targeting organic product cuts. In fact, 17 percent of U.S.
families said their largest increases in spending in the past year were
for organic products.

Statistics found on the Organic Trade Association research (Source:
Organic Trade Association’s 2010 Organic Industry Survey) supports
the growth of the “organic” segment, namely:
• U.S. sales of organic food and beverages have grown from $1
billion in 1990 to $24.8 billion in 2009. Sales in 2009 represented
5.1 percent growth over 2008 sales. Experiencing the highest
growth in sales during 2009 were organic fruits and vegetables,
up 11.4 percent over 2008 sales.
• Organic food and beverage sales represented approximately 3.7
percent of overall food and beverage sales in 2009. Leading
were organic fruits and vegetables, now representing 11.4 percent
of all U.S. fruit and vegetable sales.
• Organic non-food sales grew 9.1 percent in 2009, to reach $1.8
billion.
• Total U.S. organic sales, including food and non-food products,
were $26.6 billion in 2009, up 5.3 percent from 2008.

• Mass market retailers (mainstream supermarkets, club/
warehouse stores, and mass merchandisers) in 2009 sold 54
percent of organic food. Natural retailers were next, selling 38
percent of total organic food sales. In 2008, mass market
retailers represented 45 percent of sales, while natural food
channels represented 43 percent of sales. Other sales occur via
export, the Internet, farmers’ markets/community-supported
agriculture, mail order, boutique and specialty stores.
• Certified organic acreage in the United States reached more than
4.8 million acres in 2008, according to updated data posted by
USDA. U.S. total organic cropland reached 2,655,382 acres in
2008, while land devoted to organic pasture totaled 2,160,577
acres. California leads with the most certified organic cropland,
with over 430,000 acres, largely used for fruit and vegetable
production. Other states with the most certified organic cropland
include Wisconsin, North Dakota, Minnesota and Montana. Forty-
five states also had some certified organic rangeland and pasture
in 2008; of those, 13 states had more than 100,000 acres each,
reflecting the growth in the U.S. organic dairy sector between
2005 and 2008. Certified organic cropland acreage between
2002 and 2008 averaged 15 percent annual growth. However, it
still only represented about 0.7 percent of all U.S. cropland, while
certified organic pasture only represented 0.5 percent of all U.S.
pasture in 2008. Overall, certified organic cropland and pasture
accounted for about 0.6 percent of U.S. total farmland in 2008.
Although a small percentage of major U.S. field crops are grown
organically, organic carrots represented 25 percent of total U.S.
carrot acreage, while organic lettuce represented 8 percent of all
lettuce acreage. Fresh produce is still the top-selling organic
category in retail sales.

• Meanwhile, the organic livestock sector has seen growth, with 2.7
percent of U.S. dairy cows and 1.5 percent of layer hens managed
under certified organic systems.
Source: U.S. Department of Agriculture’s Economic Research
Service, www.ers.usda.gov/data/organic).
• Acreage managed organically in 2008 in the world totaled 35
million hectares farmed by almost 1.4 million producers in 154
countries, according to data from The World of Organic
Agriculture 2010. Organic agricultural land area increased in all
regions, and was up nearly three million hectares, or nine
percent, compared to 2007 data. Of the total area managed
organically, 22 million hectares were grassland.
In addition, 8.2 million hectares were used for cropland. The
regions with the largest area of organically managed land are
Oceania (12.1 million hectares in Australia, New Zealand, and
surrounding island states), Europe (8.2 million hectares), and
Latin America (8.1 million hectares), according to statistics in a
chapter by Dr. Helga Willer. The report also recorded 31 million
hectares that are organic wild collection areas and land for bee
keeping. The majority of this land is in developing countries.
Source: The World of Organic Agriculture: Statistics & Emerging
Trends 2010.
• Meanwhile, according to Organic Monitor estimates, global
organic sales reached $50.9 billion in 2008, double the $25
billion recorded in 2003.
Source: The World of Organic Agriculture: Statistics & Emerging
Trends 2010

• In Canada, approximately 3,700 producers working on 612,000
hectares of land produce certified organic products in Canada:
• Certified organic farms account for approximately 1.5% of the
total number of farms in Canada. Organic fruit and vegetable
farms lead the way at about 2.3%.
• Organic livestock is one of the fastest growing sectors.
• There are more than 1,200 certified organic processors and
handlers in Canada, producing a wide variety of ingredients
and consumer-ready products.
• Total annual retail sales of certified organic products in
Canada are approximately $2 billion, with about 45% moving
through mainstream supermarkets.
• Fresh vegetables account for 25% of all supermarket organic
food sales.
• Canada exports a wide selection of certified organic
products, ranging from bulk grains to pre-packaged
consumer-ready products in every category.
• The largest share of our exports goes to the United States,
the European Union and Japan.
• As can be expected from the breadbasket of the world,
organic wheat is our most popular export. However, exports
of oats, flax, barley, lentils, peas, spelt, hemp, soybeans, corn,
sunflowers, and other grains and oilseeds are also significant.

Who is doing it right?
The organic industry evolved from a wide range of small players to a
consolidated industry where ten of the top manufacturers account
for a significant portion of market share. The market has also seen
the addition of new organic products being marketed by mainstream
companies such as Kraft, Unilever, and Nestle, to name just a few.
The following chart outlines the key players in the organic segment
illustrated by Philip H. Howard, Assistant Professor, Michigan State
University.

The Hain Celestial Group
Headquartered in Melville, NY, is a leading natural and organic food
and personal care products company in North America and Europe.
Hain Celestial participates in almost all natural food categories with
well-known brands that include Celestial Seasonings®, Terra®,
Garden of Eatin’®, Health Valley®, WestSoy®, Earth’s Best®,
Arrowhead Mills®, DeBoles®, Hain Pure Foods®, FreeBird™,
Hollywood®, Spectrum Naturals®, Spectrum Essentials®, Walnut
Acres Organic™, Imagine Foods™, Rice Dream®, Soy Dream®,
Rosetto®, Ethnic Gourmet®, Yves Veggie Cuisine®, Linda
McCartney®, Realeat®, Lima®, Grains Noirs®, Natumi®, JASON®,
Zia® Natural Skincare, Avalon Organics®, Alba Botanica® and
Queen Helene® The Hain Celestial Group common stock trades on
The NASDAQ® Global Select Market.
Earth's Best
The company has led the organic baby food market for 25 years.
Their products are made from organic ingredients grown without
harmful pesticides. The company adds no salt, modified starches or
refined sugars to their products and uses no artificial flavors, colors
or preservatives. Earth's Best does not use genetically engineered
ingredients (GEI), either, so parents can rest assured that they are
giving their babies healthy, natural and delicious food.

Amy's Kitchen
Amy's Kitchen is a family business… with every member of the family
taking part. The company was started in 1987, when Amy was born.
Her mom and dad, Rachel and Andy Berliner, carefully nurtured the
company as well as the child, paying constant attention to every
aspect of its day to day activities and providing the vision that has
made Amy's so successful. Amy's organic offerings include frozen
whole meals such as organic enchilada verde and kids' meals such as
baked ziti, as well as salsas and pasta sauces, soups, burritos and
even desserts.
Green & Black's
Green & Black's is a manufacturer of the world's most decadent
organic chocolate. It all started back in London in 1991 when Craig
Sams, founder of Whole Earth – the pioneering organic food
company – was sent a sample of dark 70% chocolate made from
organic cocoa beans. His wife, environment columnist for The Times
and confirmed chocoholic, Josephine Fairley, found the half eaten
bar on Craig's desk and sampled some for herself. The intense flavor
was unique and unlike anything she had tasted before. Jo was
convinced other chocolate lovers would appreciate it in the same
way she had and the couple set about making the world's most
pioneering Organic chocolate brand. The final product was a high-
quality, bittersweet dark chocolate bar, packed with 70% cocoa
solids - enough to make chocolate fans sit up and take notice.

365 Everyday Value/Whole Foods
Our 365 Everyday Value® and 365 Organic Everyday Value®
products are the leading value organic offering from Whole Foods.
With value prices 365 days a year, these organic products are
formulated to meet all our quality standards and were developed to
build brand loyalty at Whole Foods Market. The line covers pretty
much every categories in the store. From flour. Whole Foods is
certified by CCOF, an independent, USDA-accredited, third-party
certifier. CCOF's Organic Certification Program ensures that the
company abides by strict USDA guidelines for handling organic
goods.
Organic Valley
Organic Valley is a cooperative of 1,326 farm families who produce
premium, market-certified organic food products. The vision of the
cooperative is to reflect the organic growers in each of its regions -
regional, organic, and sustainable. When you buy Organic Valley
products, the company promotes that you are enjoying the work of
1652 farmer-owners cooperating across the country, and at the
same time supporting farm families near you. In the past few years,
farmers have joined their production routes in several new states,
which means they have strong regional production in more of the
country. The company reinforce that, the more their cooperative
grows, the smaller and more local -- more "close to home" -- they
become.

Nature’s Path
The road to success for this company is paved with organic
products. Nature's Path Foods is a leading organic food maker
known for its flagship brand of hot and cold cereals. The company
also markets snacks and energy bars under the Nature's Path banner.
Under the EnviroKidz name it makes such kid-friendly products as
Koala Crisp and Panda Puffs cereals, and it sells organic ingredients
under the LifeStream label. Nature's Path has four production
facilities in Canada and the US; the company sells its products
through specialty food stores and other retail outlets in about 40
countries. Arran Stephens started the family-owned business in 1985.
Conclusion
As consumers demographics in the leading markets are getting older
and looking for healthier alternatives while younger families heighten
need for foods with no pesticides or artificial ingredients, organic
products will continue to grow as a mainstream alternative to
conventional foods. With the organic sector maturing and becoming
more sophisticated, and through the support of governments in the
promotion, standardization and conversion of conventional farming
to organics, the industry will maintain, if not exceed the past two
years’ growth. We have already seen mainstream retailers embracing
this emerging segment with the introduction of organic lines of
private label sold at a reasonable value proposition. The true
challenge for this sector will be the ability to optimize agri-output
and better margins while remaining true to the principles that
founded the sector.

We have also witnessed an increase in the marketing sophistication
of organic growers and manufacturers due to a consolidation of the
industry and an emergence of this category as a mainstream, every
day product. Organic brands have evolved from niche players with
limited brand awareness and loyalty to national and international
contenders vying for market share from established brands. The
challenge will be for the manufacturers and growers to unite behind
a common standard versus creating further confusion by supporting
regional or local accreditation standards.
For more information, contact:
Jean-Pierre Lacroix, President
Shikatani Lacroix
387 Richmond Street East
Toronto, Ontario
M5A 1P6
Telephone: 416-367-1999
Email: jplacroix@sld.com

The Rise of Organics

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