5 Analysis of ten organic product markets in Europe in 2001
5.1 The organic cereal market
5.1.7 Prices for organic cereals
Looking at the farmer prices in Figure 5-7 it appears that the absolute price for organic cereals in 2001 was highest in Greece with 40 €/100 kg. This price was 150 percent higher than the EU average of 26 €/100 kg. Besides Greece most countries which were net importers for organic cereals had farmer prices above the EU average. This was the case in Belgium, in Germany, Luxembourg, the Netherlands and the United Kingdom. Farmer prices in these countries were high because demand was larger than supply, and the formation of the price for the domestic product is influenced by the price of the imported product which includes the transport costs. As the domestic product is not sold for a lower price than the imported product, the high price for the domestic product mainly reflects the additional transport costs for the imported product. In some countries, as for example in Germany, domestic farmer associations as Bioland and Demeter were able to charge a good price for their cereals because they have convinced their customers that they need higher prices due to their strict standards for organic production.
Figure 5-7 Farmer prices for organic and conventional cereals in €/100 kg in 2001
40
31 30 29
28 28
27 27 26
23 23
20 19 19
26 29
25 59
0 10 20 30 40 50 60
GR ES NL DE BE UK AT LU FR DK IT IE FI SE EU CZ SI CH
Organic farmer price Conventional farmer price --- = 20% above or below the EU average
In Finland, Ireland and Sweden the farmer prices for organic cereals were more than 20 percent below the EU average. In Sweden, and even more so in Finland, the yields of organic and conventional cereal production were clearly lower than the EU average. However, conventional cereal production is also quite extensive in these countries; therefore it is likely that production costs for organic cereals are similar to conventional production. Together with area-based subsidies for organic farming there was a high incentive to produce organically, even though the prices for organic cereals were relatively low. Compared to the farmer prices in the year 2000 (see Hamm et al. 2002, p. 85), it is striking that price differences for organic cereals between neighbouring countries have somewhat declined. The organic cereal market seems to have become more transparent over the years. However, price differences within a country as well as between countries is not only to be explained by the degree of market
The organic cereal market
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transparency but can also be based on different products (for example wheat and rye), on different qualities (for example high protein and low protein wheat), or on special preferences of buyers for domestically produced cereals. The difference between the average farmer prices for cereals in Denmark and Sweden can, for example, be explained by the different structure of cereal production in these countries. For organic wheat, which is more important in Denmark than in Sweden, higher prices were achieved than for organic oats which have a high importance in Sweden.
In Figure 5-8 the organic farmer price premiums for cereals are shown for 2001. The EU average price premium for organic cereals was 101 percent but it varied considerably from 19 percent in Italy to 189 in the Netherlands. Compared with the organic farmer prices for cereals (see Figure 5-7), where nine of the fifteen EU countries were within the range of 20 percent above or below the EU average, Figure 5-8 shows that the variation of the farmer price premiums was much larger due to a larger variation of conventional cereal prices between countries.
Figure 5-8 Farmer price premiums for organic over conventional cereal prices in percent in 2001
189
170 167 154
148 136
130 130 124
100
76 60
53
19 101
186
77 81
0 20 40 60 80 100 120 140 160 180 200
NL LU BE DE AT FR ES UK DK IE SE GR FI IT EU CZ SI CH
--- = 20% above or below the EU average
Huge differences of price premiums for organic cereals existed even between neighbouring countries, for example, Denmark and Sweden. The reasons for this are the above mentioned differences in the structure of cereal production and the competitive advantages of organic cereal cultivation in Sweden compared with Denmark. The cereal production in Denmark is more intensive than in Sweden due to better soil and climatic conditions. Therefore, the difference in yields between organic and conventional cereal production is stronger in Denmark than in Sweden. This means that on the one hand Swedish farmers do not have much higher production costs when they convert their cereal production from extensive production to certified organic production, and in addition they get government support. Thus, they have competitive advantages for a conversion to organic cereal production to Danish farmers leading to lower price premiums for Swedish organic cereals.
The organic cereal market
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It is striking that the price premium for organic cereals in Italy was reported with very low 19 percent. The reason for this simply was that organic durum wheat did not “offer the same technological performance features as its conventional counterpart”, i.e. it was characterised by a lower protein and gluten content (Pinton 2004, p. 2). As the largest part of the Italian organic cereal production consisted of organic durum wheat, it is not astonishing that only a low average price premium was achieved. This shows that more research is necessary how to increase the quality of organic durum wheat. As for conventional durum wheat higher prices are achieved than for conventional common wheat, an increase of the organic durum wheat quality could strongly improve the income situation of the organic producers.
Why did the farmer price premiums for organic cereals in 2001 differ that much between the investigated countries? In order to find an explanation, the percentage of cereals which had to be sold on the conventional market was studied. The hypothesis was: The farmer price premium for organic cereals is influenced negatively by a high percentage of organic cereals sold on the conventional market. This was assumed as for organic cereals which are not labelled as organic in the shops, no price premium is obtained. The hypothesis was tested by simple regression analysis. The result was a low r2 of 0.08 with the F- and T-value not being significant at the 0.1 level. However, the standard coefficient for “cereals sold on the conventional market” was negative (-0.29) supporting the assumed negative association between the two variables.
The organic cereal market
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In order to analyse consumer prices, three main cereal products were investigated. As Table 5-2 illustrates, prices were collected for wheat flour, muesli and wheat bread. Looking at the prices for wheat flour, it is obvious that this product is much cheaper than the two other cereal products which have a higher degree of processing. It is a general rule that a product becomes more expensive, the more it is processed.
Table 5-2 Consumer prices for organic cereal products in €/kg in 2001
Country Wheat flour Muesli Wheat bread
EU countries
AT 1.27 4.80 u 3.67 t
BE 1.39 5.08 u 2.59
DE 1.25 1 4.85 u 3.27 t
DK 1.01 4.00 u 3.22 t
ES nd nd nd
FI 1.30 5.21 4.88 t
FR 1.40 6.00 2.40
GR 2.05 t 8.80 t 1.61 u
IE 1.40 7.59 4.32 t
IT 1.27 8.96 t 1.69 u
LU 1.96 t 5.75 3.52 t
NL nd 3.15 u 2.11
PT 1.35 7.92 t 2.12
SE 0.73 u 3.44 u 3.33 t
UK 1.22 5.45 2.18
Weighted
EU average2 1.23 6.38 2.55
Accession countries
CZ 0.50 2.95 1.18
SI 0.53 nd 1.59
EFTA countries
CH 2.47 5.25 3.51
NO 1.89 7.69 4.31
t = more than 20% above the EU average u = more than 20% below the EU average
1 Figure from the Zentrale Markt- und Preisberichtstelle ZMP
2 Weighted by organic consumption
Muesli was disproportionately expensive in countries in Southern Europe, such as Greece, Italy and Portugal. In contrast, in countries where more muesli is usually consumed, such as Austria, Belgium, Germany, Denmark, the Netherlands and Sweden, the muesli price was low. The highest price for wheat bread was in Finland at 4.88 €/kg, although the Finnish price for wheat flour was average when compared to other EU countries. The Greek price for wheat bread was suspiciously low at just 1.61 €/kg. As one would expect, the consumer prices for wheat bread were relatively high in countries with high labour costs, such as in all Scandinavian countries, Luxembourg, Austria and Germany. It comes as no surprise to note that the prices in the Accession countries were much lower than the EU average because of lower levels of farmer prices for organic cereals, and lower incomes compared to the EU average. The price level of the EFTA countries is usually higher than the EU average, which
The organic cereal market
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aligns with the data collected. However, the muesli price in Switzerland, the home country of mueslis, was lower than the EU average.
Table 5-3 shows the consumer price premiums of the three investigated cereal products. The price premium for these cereal products was around 60 percent in the EU. What can be seen at a quick glance is that price premiums differed in a wide range for all cereal products between the countries.
Table 5-3 Consumer price premiums for organic cereal products in percent in 2001
Country Wheat flour Muesli Wheat bread
EU
AT 72 0 u 62
BE 61 97 t 37 u
DE 102 1 t 95 t 33 u
DK 48 2 u 154 t 47 2 u
ES nd nd nd
FI 54 u 63 53
FR 50 u 19 u 33 u
GR 180 t 9 u 83 t
IE 127 t 122 t 26 u
IT 82 39 u 98 t
LU 182 t 16 u 84 t
NL nd 102 t 45 u
PT 108 t 15 u 79 t
SE 68 17 u 6 u
UK 33 u 43 u 60
Weighted
EU average3 75 57 61
Accession countries
CZ 99 43 185
SI 30 nd 33
EFTA countries
CH 115 46 80
NO 100 109 140
t = more than 20% above the EU average u = more than 20% below the EU average
1 Figure from the Zentrale Markt- und Preisberichtstelle ZMP
2 Organic Today, figure from 1999
3 Weighted by organic consumption
Concerning the weighted EU averages for the different products it was expected that the farmer price premium for cereals (see Figure 5-8, EU average, 101 percent) would be higher than the consumer price premium for processed cereal products. This was confirmed by the results. The consumer price premium for the low processed product wheat flour was 75 percent and for the both more processed products muesli and wheat bread it was even lower with around 60 percent. This supports the general rule that for highly processed products, such as wheat bread, the costs for the organic raw material (wheat) do not play as dominating a role as for the less processed good (wheat flour).
The organic potato market
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