The Australian Organic Industry: A Summary pot

Richard ColbeckParliamentary Secretary to the Minister for Agriculture, Fisheries amd Forestry The Australian Organic Industry—A Summary © Commonwealth of Australia 2004 This work is cop

The Australian Organic Industry

A Summary

There is no doubt that consumers—here andoverseas—are increasingly interested in knowingmore about where and how the food they buy

is produced

This has helped boost the appeal of organic food—so much so that there is now a significantand growing number of certified organic and biodynamic operators in Australia, representingrural industries as diverse as grains, horticulture, viticulture, meat, dairy, wool and coffee

So far there has been very little data published on the organic industry The Australian Bureau

of Statistics and the Australian Bureau of Resource Economics collect regular and detailed data

on Australian agriculture However, this data does not distinguish between conventional andorganically grown produce

This study represents a pioneering effort towards achieving reliable data for the organicindustry Not surprisingly, the study highlighted the inherent problems associated withcollecting data on organic agriculture—largely because of the extensive range of productsproduced, the variable size of the farms involved and the different levels of informationcollected by the various certifying organisations

This report can play an important role by helping to lay the foundation for a uniform datacollection system for the organic industry in this country Collecting reliable data—data thatspans several years—will help the industry develop the strategic plans and marketingstrategies that it needs to promote industry growth

As the Parliamentary Secretary for Agriculture, Fisheries and Forestry I look forward to workingclosely with Australia’s organic industry in the coming years

Senator the Hon Richard ColbeckParliamentary Secretary to the Minister for Agriculture, Fisheries amd Forestry

The Australian Organic Industry—A Summary

© Commonwealth of Australia 2004

This work is copyright The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review.

Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgement of the source

is included Major extracts or the entire document may not be reproduced by any process without the written permission

of the Executive Manager, Food and Agriculture Business, Australian Government Department of Agriculture, Fisheries and Forestry, GPO Box 858, Canberra ACT 2601.

ISBN 0 642 53955 3

A copy of this summary and the full industry profile are available from the Department’s website at http://www.daff.gov.au/foodinfo

For further information, please contact:

Food Policy and Communications Section Australian Government Department of Agriculture, Fisheries and Forestry Email: foodinfo@daff.gov.au

Phone: 02 6272 4161 Fax: 02 6272 4367

Disclaimer

The views expressed in this publication are not necessarily the views of the Australian Government This publication is made available on the understanding that the Australian Government is not thereby engaged in rendering professional advice Before relying on material in this publication, users should independently verify the accuracy, currency, completeness and relevance of the information for their purposes and obtain any appropriate professional advice.

References to information, organisations and products mentioned in this publication or associated with those mentioned

do not constitute endorsement by the Australian Government of those organisations or any associated product or service.

Readers should note that the Australian Government Department of Agriculture, Fisheries and Forestry has not investigated the nutritional qualities, health effects or environmental impacts of organic processes or products, or the financial performance of organic businesses

The Australian Government Department of Agriculture, Fisheries and Forestry seeks to publish its work to the highest professional standards However, it cannot accept responsibility for any consequences arising from the use of the information herein Readers should rely on their own skill and judgment in applying any information for analysis to particular issues or circumstances

Contents About this publication

This publication summarises the key findings of a study conducted in 2003 and 2004 that provides

a snapshot of the organic industry at this time It is designed to provide general information to current andprospective producers, processors, distributors, exporters, retailers, consumers, certifying organisations,industry associations and others interested in the organic industry

The Australian Government Department of Agriculture, Fisheries and Forestry commissioned the study

to help remedy the lack of data available on the organic industry

Acknowledgements

Staff in the Department of Agriculture, Fisheries and Forestry’s Food Policy and Communications Sectionmanaged the project and compiled this summary

The Department would like to thank, for their contributions to this work:

• Dr Darren Halpin, Central Queensland University

• Jackie Parkinson, Central Queensland University

• Dr Martin Brueckner, Curtin University of Technology

• Amarjit Sahota, Organic Monitor

• Assoc Prof Stewart Lockie, Central Queensland University

• Peter Donaghy, Central Queensland University

• Gary Hullin, Austrade

• Australian Quarantine and Inspection ServiceThe Department would also like to thank the organic certifying organisations that provided data, theOrganic Federation of Australia for instigating and assisting the project Front and back cover photographswere provided by the Biological Farmers of Australia, the National Association for Sustainable AgricultureAustralia and Tim Marshall

All organic producers included in case studies have received grants from the Australian Government’s New Industries Development Program The Department thanks those producers included in case studies

Other publications from the Food Policy and Communications Section include:

Australian Government Department of Agriculture, Fisheries and Forestry 2004, Australian Food Statistics

2004, report prepared by ABARE, Canberra.

Smith, L and Dawson, P 2004, Food Exporters’Guide to Indonesia, Australian Government Department

of Agriculture, Fisheries and Forestry, Canberra

Spencer, S 2004, Price Determination in the Australian Food Industry: A Report, Australian

Government Department of Agriculture, Fisheries and Forestry, Canberra

BRI Australia Ltd 2003, The Australian Baking Industry: A Profile, Australian Government Department

of Agriculture, Fisheries and Forestry, Canberra

Food News Bulletin (published quarterly), produced by the Australian Government Department

of Agriculture, Fisheries and Forestry, Canberra

1 Farm-gate sales volumes from certified organic farms in Australia, 2003 9

2 Three-year projected changes in certified organic production, % of farmers,

led to a system of cultivation known as biodynamic

In the middle of the 20th century enthusiasts brought organic techniques from Europe toAustralia, a place with very different climate, soils and density of settlement With growingconsumer interest in how and where food is produced, organic food has become more popular

Products offered only through health food stores or food cooperatives in the 1970s and 1980sspread to the corners of supermarkets in the 1990s Organic products now occupy prime shelfspace in the big chain supermarkets and present export opportunities for Australian

Organic products are a small but diverse range of products—including fruit, nuts andvegetables, meat from various animals, dairy products, cereals, oilseeds, plant and animalfibres, and health and body care products The products may look like their conventionalequivalents, but differ in the way they have been produced

produce and to protect consumers and organic producers from others misrepresenting theirproduce as being organic It also provides a guide to farmers contemplating converting from conventional to organic production

The standard sets out specific requirements for organic production, conversion andnatural resource management The standard includes lists for the allowable inputs for soilmanagement, pest and disease control, and animal health It also specifies the conditions for processing organic products, such as keeping certified produce separate fromconventional produce

Producers must be capable of satisfying the requirements of the standard for at least one

year before products can be labelled as organic in-conversion Producers must then continue

to meet the specified requirements for a further two years before being permitted to use the

An AQIS-approved organic certifying organisation must undergo an annual audit of itsdocumented system AQIS also audits the inspection system of certifying organisations

at various organic farms, processors, wholesalers and exporters

AQIS and industry has established Administrative Arrangements outlining the administrative

policies and operational procedures for certifying organisations These arrangements coverrequirements including objectivity and integrity, structure and training, sanctions andpenalties, inspection and certification and export requirements

Currently, there are seven AQIS-approved organic certifying organisations in Australia:

• Australian Certified Organic (Biological Farmers of Australia)

What is organic farming?

The basic principle of organic farming is achieving high yields of produce and food of high

nutritional quality without the use of artificial fertilisers or synthetic chemicals

Organic farming emphasises the use of renewable resources, the need for conservation

of energy, soil and water resources and the maintenance of environmental quality Animalwelfare is also an important consideration Products or by-products that are derived fromgenetic modification technology, treated with ionising radiation or that interfere with thenatural metabolism of livestock and plants are not compatible with the principles oforganic agriculture

Biodynamic agriculture is similar, with some additional requirements for preparing the soil and

growing conditions

Certification

The study that this publication is based on considered only those producers and products

that were certified organic or biodynamic.

Within Australia, the Australian Quarantine and Inspection Service (AQIS) is responsible for the organic inspection and certification system, in collaboration with seven approved certifyingorganisations This co-regulatory system was set up in the early 1990s to ensure buyers oforganic products could be confident that certified produce was grown and processed according

to organic or biodynamic principles The system is underpinned by Commonwealth legislation

and the National Standard for Organic and Biodynamic Produce (National Standard)

The Export Control (Organic Produce Certification) Orders 1997, made under the Export Control Act 1982, require every person who produces or manufactures organic produce for export

to be certified For the domestic market, certification is optional However, the Trade Practices

Act 1974 and the various state and territories’ fair trading laws provide legal protection against

misleading and deceptive practices The National Standard provides the relevant guidelines for labelling organic and biodynamic products

The National Standard was first published in 1992 The third edition was published in 2002

The standard aims to harmonise requirements for the production and labelling of organic

C A S E S T U D Y

Barambah Organics

Ian and Jane Campbell of Barambah Organics near Murgon in Queensland produce,process and market certified organic milk Their movement into organic productionwas born from a long family interest in sustainable agriculture and the need to create

a point of difference for their products

“Customers are often surprised by the unique taste of our milk It comes from

a balanced and healthy diet for the cows on our chemical-free broadacre pastures,”

said Ian

Soil health and weed control are important considerations and are carefully managedwith compost manures and lime Being organic also means that cows are treatedonly with natural remedies such as homeopathy and minerals to boost their strengthand vitality

Ian and Jane also became involved in processing and marketing their own productsabout five years ago They found that there is a lot to learn about running a paddock-to-plate supply chain, including hiring staff and building strategic partnerships

Employment problems, particularly recruiting and training the right people, proved to

be a significant issue for the business Barambah Organics’ much larger involvementacross the supply chain meant the business required a new range of skills and peoplewith expertise in milk processing and financial management, as well as traditionalfarm management

Ian and Jane also found that finding the time to actively market their products was

a significant challenge

“We formed a strategicalliance with a coffeechain and it has proven

a winner,” said Ian “Halfour business stems fromthat alliance They’rebuying it for its qualitybecause it enhances thetaste of their coffee.”

Adapted in part from the Department of Agriculture, Fisheries and Forestry 2004,

Made in Australia: Taking Stock,

is governed by formal conditions enforced by AQIS

How many organic farmers are there?

There were an estimated 1511 certified organic farms in Australia in 2003, not including in-conversion, pre-certified or deferred farms It is estimated there will be a 20 to 30 per centincrease in the number of certified farms within one to three years as in-conversion producerscome on stream

Where are the farms?

About three-quarters of certified organic farms were estimated to be in New South Wales,Queensland and Victoria Figure 1 shows the distribution by state in more detail

Figure 1 DISTRIBUTION OF CERTIFIED ORGANIC FARMS BY STATE, 2003

Source: certifier data, n = 1095 (including in-conversion).

What area do the farms cover?

Based on the survey data, the estimated area of certified organic farmland in Australia

in 2003 was 7.9 million hectares This is about 1.7 per cent of Australia’s agricultural area

Approximately three-quarters of the area under organic production was estimated to be

in Queensland, mainly in extensive beef grazing lands

It is worth noting that some organic farmers did not have all their land certified organic

A further 600,000 hectares of non-certified land was estimated to belong to organic farmers

What do organic farmers produce?

Organic farms produce a wide variety of products The survey indicated that the most commonproduct categories were fruit and nuts, vegetables, beef and cereals The survey only collecteddata on the product types shown in Figure 2

About the data

Data on organic production was obtained from two sources As a first step data was gatheredfrom organic certifying organisations The National Association for Sustainable AgricultureAustralia, Biological Farmers of Australia/Australian Certified Organic, Tasmanian Organic-Dynamic Producers and Safe Food Production Queensland provided data

The data gathered from certifiers has a number of limitations Firstly, only the certifyingorganisations that charge a levy based on sales were able to supply data on farm production

The data that was provided is not consistent and often incomplete In addition, the datadoes not take into account any products not sold under a certifying organisation’s label

Any producers who were customers of more than one certifying organisation may havehad their products double-counted

In order to fill some of the gaps in the data, a telephone survey of 397 organic farmers wasconducted in June 2004 The survey excluded those farmers in the process of converting toorganic production or preparing for certification The survey data has weaknesses as somesurvey respondents had difficulty supplying production and financial information on thetelephone Moreover, the data is based only on a sample of organic farmers Therefore it relies

on the assumption that those surveyed are representative of the broader organic population

Regardless of limitations, the data presented here will help bring a better understanding of thestructure and performance of the organic industry The researchers believe that, to improvecommunication and planning, the industry needs to collect and analyse data in a consistentmanner over several years

The researchers compiled the following estimates on the organic industry in Australia in 2003

by extrapolating from the data gathered from organic certifying organisations and the survey

of 397 organic farmers

1 This section is a summary of ‘Chapter 1 A farm-level view of the Australian organic industry’ by Darren Halpin

in The Australian Organic Industry—A Profile, 2004 Please refer to this chapter for detailed discussion of the

sampling method, survey methodology and basis for extrapolation.

QLD 26%

VIC 20%

SA 10%

WA 9%

Table 1 Farm-gate sales volumes from certified organic farms in Australia, 2003

Source: farm survey data, n=397.

Table 2 shows how the organic growers surveyed expected to change their production over the next three years Except for the producers of eggs, poultry and cereals, most surveyrespondents expected to increase their production The low level of increase reported forcereal production may be significant given that feed availability is a continuing limitation

to expansion in poultry, egg, milk and other livestock production

Table 2 Three-year projected changes in certified organic production, % of farmers,

Source: farm survey data, n=397.

Figure 2 ESTIMATED PROPORTIONS OF CERTIFIED ORGANIC FARMS PRODUCING DIFFERENT PRODUCTS, 2003

Source: farm survey data, n = 397

Each farm may produce multiple commodities.

Cereals include grains, pulses and oilseeds.

It is very common for one organic farm to produce a number of different commodities Somecommon patterns are identifiable from the survey, including livestock production of variouskinds and cereals and/or wool production Fruit and vegetable production is also a verycommon combination Conversely, milk, sugar, coffee and tea producers tend not to producemultiple products on their farms

Data from the certifying organisations indicated that a significantly higher proportion of farmsthan shown in Figure 2 were certified to produce fruit and nuts, vegetables, cereals and sheep

in 2003 This suggests that some producers limited production in some areas during 2003,most likely because of the drought

Table 1 shows the estimated volumes of selected organic products sold by certified organicfarms Because of the volatility of supply and demand, some organic produce is sold asconventional produce

Table 4 Estimated national farm-gate receipts from sale of certified

organic products, by product category, 2003

sum of receipts $

Source: farm survey data, n=355.

Data does not include on-farm processing or organic products sold as conventional.

What are the costs of organic production?

The survey asked farmers about the costs of organic farming Most of the farmers whoconverted from conventional farming agreed that the financial rewards of becoming a certifiedorganic producer were greater than the financial costs They disagreed that the input costs

of organic farming were higher than those of conventional farming

How do farmers become organic?

The farm survey indicated that 62 per cent of organic farmers converted their operations from conventional farms The remaining 38 per cent started farming as organic producers

The majority of livestock and broadacre farmers had converted an existing farm to organicproduction This pattern is different from fruit and vegetable producers, where around halfstarted up organic farms Relatively new enterprises in Australian agriculture, such as coffeeand tea production, have a larger proportion of growers starting up as organic rather thanconverting an existing enterprise

What are the characteristics of organic farmers?

There is a perception among some observers that the organic industry is populated by time or hobby farmers This was not borne out by the farm survey About 77 per cent of organicfarm operators stated that their farm business was their main occupation

part-One-third of farmers surveyed had a university degree or higher level of academicachievement More than 40 per cent were from a non-farming family background One-quarter

of the survey respondents were women The average age of organic farmers was 51

What is the value of organic production?

The national value of farm receipts from the sale of organic produce was estimated to be

$140.7 million in 2003 This was calculated by asking each survey respondent to estimatethe average annual receipts from their property and the percentage of that accounted for

by sales of certified organic products The results have been extrapolated to obtain a totalestimate for Australia

Table 3 Estimated national farm-gate receipts from sale

of certified organic production, by state, 2003

Source: farm survey data, n=309.

Data includes organic products sold as organic and sold as conventional

In addition to total receipts, organic farmers were asked to estimate their receipts from thesale of specific organic products The extrapolated results are shown in Table 4 Given that theTable 4 data does not include organic products sold as conventional, on-farm processing andonly specific product categories, a greater difference would be expected between the total

$127.9 million reported here and the total $140.7 million reported in Table 3 It is important

to note that these figures are estimates and not exact data and therefore either or both figuresmay be over or underestimated

On the road2

Supply chain relationships

In the early days, organic producers sold directly to consumers through roadside stalls,farmers’ markets and vegetable box arrangements As the organic market has grown anddiversified, supply chains have become more complex; involving a number of supply chainbusinesses The organic farmer’s relationships with supply chain businesses, and the flow

of information between them, has become crucial to sustaining a demand-focused industry

The farm survey looked at the relationships organic farmers have with six types of businesscustomers in the supply chain:

• agents, brokers and distributors

to specialist retailers and health food stores Fruit, vegetables and nuts are most frequentlysold through agents/distributors, or directly to wholesalers and retailers

2 This section is a summary of ‘Chapter 2 Organic food supply chain relations and collaborative marketing’

by Darren Halpin in The Australian Organic Industry—A Profile, 2004

C A S E S T U D Y

Kialla Pure Foods

Kialla Pure Foods is one of Australia’s biggest processingbusinesses dedicated to organic foods It grows, manufacturesand sells bulk and value-added organic grain products toSwitzerland, the United Kingdom, Italy, Germany, the UnitedStates, New Zealand, Taiwan, Hong Kong, Japan, Malaysia andIndonesia—as well as to Australian supermarkets Demand fortheir products has grown so much that Kialla is supplied by about 250 growers, spreadfrom Emerald in Queensland to the South Australia-Victoria border More are needed

The organic farming model used at Kialla is based on green manuring

“The two most important elements are organic matter in the soil and the soil’sbiological life, or biomass,” explains owner Graham McNally (pictured above andbelow) “So our cropping regime is based around two cash crops, winter and summer,interspersed with green manure crops The green manure we grow in the winter cycle

is fenugreek, a legume that produces 93 kilograms of nitrogen per hectare Thesummer crops are rotated with mung beans and cereal buckwheat which are goodfor phosphorous.”

To build up the soil’s biomass, cattle are also included in the rotations because rumenbacteria are needed for the soil

“Before we started biological farming our soil was like plasticine Now it’s lovelyand friable and the soil moisture retention is much higher,” said Graham

The manager of the manufacturing side of the business, John Egan, indicates thecompany could sell much more grain into the international market if more growerswere prepared to make the switch to organic production However, he says it requires

a total commitment because reliability of supply is crucial to keeping hard-wonmarkets

The company has been active in productresearch and development and in 2002received a grant from the New IndustriesDevelopment Program to build a dedicatedorganic maize mill

Adapted from Brad Collis 2003, Ground Cover, issue 44,

with the kind permission of the Grains Research and Development Corporation.

Collaborative marketing

Inconsistent supply is one of the organic industry’s major obstacles to growth Collaborationbetween farmers could capitalise on market opportunities, increase sales volumes andimprove the efficiency of distribution and marketing Types of collaborative arrangementsinclude grower cooperatives, group packing sheds, group value-adding companies, growernetworks and other marketing groups

The survey showed that a significant majority of producers are not involved and have no plansfor any type of collaboration with other farmers On average, across all commodity groupings,between 5 to 10 per cent of organic farmers are already collaborating, 20 to 25 per cent areinterested in future participation and 65 to 70 per cent are not interested in collaboration

in the future There is greatest interest in future participation among beef, cereals and fruit and vegetable growers and least interest among egg and poultry producers

Figure 4 COOPERATIVE OR COLLABORATIVE ARRANGEMENTS AMONG ORGANIC FARMERS

Source: farm survey data.

Data is an amalgamation of survey responses that were split according to the type of collaborative arrangement

According to the researchers, the apparent low level of collaboration is likely to limit theindustry’s capability to supply the volume, range and consistency of product necessary

to capture domestic and export markets Reliance on vertical chain relationships may limitthe industry to niche markets until very large growers come into production

The survey suggested that most organic farmers deal with only one type of supply chainbusiness Fruit, vegetable and nut producers were the most likely to supply multiplebusinesses along the supply chain However this was only around 30 per cent of therespondent producers

In terms of information exchange, the survey indicated that retailers are generally the best

at keeping growers informed about the quality, prices and acceptance of their produce

The exception is milk, where processors provide extensive feedback to producers Therelationships between farmers and supply chain businesses are predominantly informal,except for milk production

Figure 3 NATURE OF INFORMATION EXCHANGE WITH SUPPLY CHAIN PARTNERS

Source: farm survey data.

A = They buy my product, but I don’t know what happens afterwards.

B = They give me some feedback on what the market is looking for and how well my product is received.

C = They keep me informed of all the issues with the product including margins, quality, and market feedback.

Current Future intention Not interested