Growth potential in organic dairy hampered by poor marketing

- Last updated on GMT

Related tags: Organic dairy, Milk, Organic food, Marketing

The organic food industry is reporting high levels of growth, even
managing to edge in on conventional dairy market territory. But
organic producers are worried that sales will stall, after rising
production costs have left no room for marketing. Tom Armitage
reports.

According to organic market analysts Organic Monitor​, dairy is one of the fastest growing organic categories, with 2004 sales up on the previous year by 12.5 per cent. Organic milk and yoghurt are said to be the segments reporting the highest levels of growth, with sales of organic dairy products set to remain buoyant throughout 2005.

But now profit margins are under threat. As of August 2005, stringent new EU regulations for organic dairy farmers will come into effect. The proposed changes include forcing farmers to use 100 per cent organic rations.

An end to five-year EU-funded conversion grants for organic farmers will also contribute to increased production costs, having an obvious knock-on effect on retail prices - as well as edging many smaller organic farmers out of the market.

In a bid to attract 'middle ground' consumers - i.e. those who have no preference for organic or conventional dairy products - organic dairy producers are being forced to change their marketing tactics, edging in on mainstream territory traditionally occupied by their conventional dairy rivals.

But the main problem for organic producers is that many simply do not have the necessary resources to be able to match the elaborate marketing budgets of major multinational commercial dairy producers.

This has left organic farmers with an obvious dilemma - an area of largely untapped growth potential, with no marketing budget to drive sales forward.

But the organic food industry is said to be hampering its own growth potential by intentionally toning down the marketing of its products, instead opting to emphasise its 'earth friendly' spin.

Many organic producers are fearful that excessive marketing will mask the image of organic categories as healthy and nutritional, thus eliminating their core consumer groups. Furthermore, many organic producers have no desire to compete with multinational marketing budgets, if purely for ideological reasons.

The majority of farmers prefer to plough all their sales revenues back into ingredient development and into crop growth research.

One leading UK supplier of organic dairy products Yeo Valley​, however, has proven just how fruitful an effective marketing strategy can be, estimating it holds a 60 per cent market share in the UK organic dairy sector. Selected marketing campaigns have included luxury organic ice cream and creamy organic yoghurts - unconventional territory for many organic producers.

But perhaps what stands Yeo Valley at the forefront of the organic pack is the fact that its brand strategy is geared towards pushing organic products beyond the realm of the organic market - by taking organic dairy into the mainstream arena.

Already sales of organic yoghurt occupy 7 per cent of the UK yoghurt market, which is predicted to increase by 12 per cent by 2005. The unexpected success of the Yeo Valley marketing strategy has made conventional yoghurt producers, as well as the collective dairy industry, stand up and take note.

The main problem for dairy foods is that the marketing message of organic products is being hindered by one setback - the typical UK consumer is said to be ignorant as to what actually constitutes organic and of the environmental benefits associated with organic farming. Furthermore, the majority, if given a choice, would opt for conventional dairy alternatives simply because of the marked difference in price.

In organic dairy products, rapid growth has mainly been attributed to innovation, with organic producers having to adapt their products to changing consumer dynamics.

Yeo Valley started out in 1992 with a very small product range, partly due to the limited availability of organic ingredients, with plain natural yoghurt as its core brand. Several years later, Yeo Valley discovered success through product diversification - the development of fruit flavoured yoghurts - which provided the company with a platform for expansion into the mass market for dairy based products.

Related topics: Market Trends

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