Iceland’s Organic Gamble A Good Bet, Say Analysts

LONDON—With U.K.-based supermarket retailer Iceland Foods’ move to transform its private-label frozen foods to organic and its statement that it will absorb 40% of the green organic vegetables market on a global level, questions about supply, cost, distribution, certification and the plausibility of such a bold move have moved to the forefront.

According to Chris Bell, president and founder of Lakeworth, FL-based InterNatural Marketing, a company that advised Iceland through its shift, Iceland has done its homework, and the organics market is ready. “The organic growth in the U.K. is 40% annually, and I think the people are ready for this change.”

According to the September issue of Natural Products News’ “Organic Supplement,” total sales for organics in the U.K. were $385 million in 1999 and are projected to reach $525 million in 2001.

According to USDA estimates, world organic sales reached $23.5 billion in 2000. Iceland’s total sales as of July 2000 were $1.36 billion; organic sales were not available.

Leonard Mead, senior buyer of organics for Iceland, says this process has been well-thought-out. “A couple of years ago we started the Food You Can Trust campaign based on the fears in the U.K. market with regard to disease in foods. In a way, these scares made people more conscious,” Mead says.

Iceland conducted a survey, which showed that 80% of its customers preferred to buy organic if it was not appreciably more expensive than conventional foods, Mead says.

Currently, Iceland is subsidizing the shift to organic to ensure success, but Bell says this won’t last long.

“I believe you can produce organic as cheaply as conventional [foods]. If Iceland is successful and convinces enough farmers to grow organically, they will not have to subsidize the effort for very long,” Mead agrees. “If we achieve additional growth of 12% to 15%, it will take us about two years,” he says. “If we have the increase we are expecting, we won’t need to subsidize. Consumers don’t need to be paying what they are paying. There is a lot of profiteering going on, and people are charging ridiculous premiums,” he adds.

Simon Wright, a consultant with the London-based Organic Consultancy, doesn’t think organic products can be produced for less. “Organic food is more expensive to produce: Cheap chemicals are replaced by expensive labor,” he says.

But the potential growth for organic products on a global level is immense, says Peter LeCompte, director of buying for General Mills (GIS) Small Planet Foods’ Cascadian Farm division. “I don’t see the [growth] trend changing—the market is going to keep growing. The U.S. market is steady, as are the Japanese markets and European markets. Chains like Iceland help it to stay steady,” he says.

Additionally, when one company makes such a bold move, its competitors tend to do the same, LeCompte says. “When a company like that makes a commitment, there is immediate response from competitors such as [U.K. mainstream grocers] TESCO or Sainsbury that already have an established organic program—the pressure is on for the others to step up.”

Accreditation appears to be the biggest hindrance. “To get the U.S., U.K. and Europe aligned has been a nightmare. It is only in the U.K. and Europe that there is a governmental board for standards. Until the USDA gets the work it is doing now done, accreditation difficulties will continue to arise,” Mead says.

American companies are finding the same roadblock. LeCompte says: “Different standards are a problem. The U.K. has complex rules for documentation and organic certification, and the EU has more developed layers of regulatory approvals and accreditations than the U.S.”

Another issue is the scarcity of resources that could occur. According to Mead, land that has already been converted for organic use or is in transition for organic production is roughly 3%, while the current rate of conversion is about 10% in the U.K. But Bell doubts that there will be a scarcity of resources this year because Iceland has planned extremely well.

“Most of the deals that were set were with farms with increased acreages—ones that were organic and/or ready to go organic already,” Bell says. Iceland has signed three-year contracts with several companies in an effort to guarantee farmers the capacity to rotate crops and to show English farmers the long-term potential of moving to organic. Bell says Iceland would like to eventually get what it can from local growers, alleviating potential problems, such as trade barriers, organic certification differences between countries and shipping.

“This is a huge challenge,” LeCompte says. “Iceland is taking a huge risk, but a great risk. It is unique in that it is the first retail chain to take an active and direct roll in developing the trade.”