MARKETING MANUAL FOR ORGANIC SPICES, CULINARY HERBS AND ESSENTIAL OILS

 In recent years the world has seen a growing awareness of health and environmental issues in particular in relation to developing countries. A constantly growing number of concerned,consumers, mainly in the industrialized countries, have generated this awareness. The international community is more conscious of these issues, and government policies in industrialized as well as developing countries are increasingly formulated to encourage organic and other forms of sustainable agriculture.

Market opportunities for organic spices, herbs and essential oils from developing countries

Most spices, herbs and essential oil crops are labour intensive and are produced mainly in the tropics, and so provide export opportunities for developing countries. Interest in organic spices, herbs and essential oils continues to grow along with the overall market for organic food and beverages.

Labour cost differentials between developing countries and target markets and demand for tropical and arid climate products provide value adding opportunities for developing countries in exporting finished products. Generally these products will need to be marketed in co-operation with marketing companies and under brands recognised in the importing markets - just as for other processed or packaged products.

As value adding requires investments of money, skills and time, the immediate marketing opportunities are currently in increasing the supply of bulk spices, herbs and essential oils for repacking or as ingredients for caterers and food manufacturers. While there are excellent opportunities for producers of organic spices, herbs and essential oils, recommendations for production of specific crops are not given in this manual. Markets are often niche rather than broad-based and can be flooded by produce from newly certified large producers changing the balance of supply and demand for crops in these dynamic markets. It is therefore important that producers keep themselves well informed of market developments, through information sharing, reading trade journals and visiting the target markets in order to determine what crops to grow, and for which markets.

Producers should seek to offer products that have organic (and when feasible also fair trade) certification, are high quality and reliably supplied. They should also endeavour to improve their marketing edge and overall company/product profile by offering their customers additional (and increasingly mandatory) quality certifications such as HACCP, EurepGAP and ISO.

Spices and herbs markets

The retail market for organic spices and herbs is likely to remain relatively small depending on the range that supermarket chains offer. The foodservice/catering sector offers potential for increased demand for organic spices and herbs, although sales are still very small. Fast food chains are likely to continue to position themselves as healthy alternatives to home-cooked meals and to distance themselves from the image of fat filled, unhealthy cooking, and offering organic options helps convey this message. Food and drink manufacturers demand consistently high quality and so tend to stay with suppliers who have proved reliable. As the ingredient percentages of spices and herbs in food products are usually low, price has mostly been of secondary importance compared with quality, but will become more important in the future. In some target markets there are opportunities for value-added processing, including the packing of private brands, but in general, market penetration can best be achieved in the industrial sector, which is still the main outlet for spices and herbs exporters in developing countries.

Essential oils and extracts markets

The flavourings market is expected to grow fairly slowly, mainly due to the following constraints: 

• lack of reliability of suppliers, 
• high price premiums, 
• and legislation allowing non-organic flavourings in organic products.

Cosmetics are probably the most promising sector for the development of the organic essential oils and extracts business. The major certification standards (EU, NOP, JAS) currently cover only food items. Some EU organic certification agencies certify cosmetics against their private standards - e.g. Ecocert’s BIO standard and the UK Soil Association’s standards. In spite of these and other problems, the market for organic essential oils extracts is increasing from a small base, and a high premium is often available for many oils.

Market size

International customs classifications do not currently distinguish between organic and conventional produce so no detailed official statistics exist as yet for foreign trade in organic products. Some of the basic data needed for such statistics is now being generated as the major markets increasingly adopt mandatory organic standards which require permits and the recording of organic imports and exports. Various working groups, including government representatives and international organizations, are considering ways of obtaining statistics on organic agriculture and trade. See for example, www.eisfom.org. Detailed estimates of trade in specific organic product categories would currently need to be based on a world survey of certification agencies’ records and information given by exporters and importers. Such surveys have not yet been made available. However, ITC has estimated the world retail market for organic food and beverages at approximately US$ 30 billion in 2006, with Europe and North America (USA and Canada) together accounting for about 95% of the total. Smaller but important markets include Japan, Australia, New Zealand and Singapore. Some developing countries, including Argentina, Brazil, Chile, China, Egypt, India, Malaysia, the Philippines and South Africa, have developed small domestic markets. World trade in organic products has grown rapidly during the last decade and is expected to do so also in the future, although growth rates will differ greatly between various markets and specific products. Organic spices, herbs and essential oils have so far probably accounted for less than 1% of the total market for these products (conventional and organic). A good statistical source for the overall spice trade is the ITC publication World Markets in the Spice Trade 2000 - 2004 More references for publications on market information and trade statistics are given in Annex IV.

Adding value in the producer country

Sourcing food products packed in the country of origin of the raw materials provides additional income to producers, generates employment, and has downstream benefits to local industries such as packaging companies. The quality requirements of the importing markets act as a stimulus to development of export industries in the developing world.

From the producer’s perspective, given the high retail price per kilo of consumer packs, producers of dried spices and herbs often consider whether packing at source in consumer packs to add value would be feasible. Niche marketing of organic spices packed ready for retail sale at source has been achieved on a small scale - e.g. spice jars with an integral grinder packed in South Africa. Opportunities also exist for export of packaged food from developing countries, such as condiments, (garlic paste, basil pesto, mustards, pasta sauce, etc.) which incorporate organic spices and herbs.

The economics of value added organic spices and herbs packed at source vs. packing in the target market are similar to those of conventional products, and a thorough analysis of prospects for these was conducted by the UK’s Natural Resources Institute: Ground and Packaged Spices: Options and Difficulties in Processing at Origin. (See Annex IV).

Constraints on opportunities include:

• The need to offer a full range of spices and herbs.
• High working capital requirement to finance stock of crops harvested annually.
• Shipment transit times.
• Holding of buffer stock to avoid shortages.

Products aimed at niche markets may have advantages where production in these markets involves a high labour input, but transport costs will be higher for retail packs. Marketing costs are high for new brands, and products will normally be marketed under brand names already recognised in the developed country market. Some buyers recognise the marketing opportunities that exist in importing fair trade and “packed at source” food products from developing countries - rather than importing commodities for value adding in the target markets.

Major markets and principal importers (spices & herbs)

European Union (EU)

The EU organic market received an early boost by the introduction of mandatory organic standards and regulations, which have been in place since 1991, much longer than those in other major markets, and mandatory standards for the USA and Japan were introduced in 2001-2002. The main importers of spices, herbs and essential oils increasingly trade throughout the EU, gradually reducing differences between individual markets within the Union.

France

France is amongst the five largest markets in the world for organic food and beverages and is a very important market for spices and herbs. It is not only a significant importer from developing countries, but also a large producer and exporter of culinary herbs. French consumption of peppers (white, black, red and green peppercorns, chillies, cayenne pepper) is relatively high. Herbal tea is widely consumed.

Germany

Germany is the world’s second largest market for organic food and beverages and the largest  spice and herb market in Europe, although it is currently growing at a slower pace than some of the neighbouring markets. There is a growing base of organic specialist shops and supermarkets, as well as the long established natural food shops (Naturkostläden) and traditional health food shops (Reformhäuser), which also carry some organic products. The demand for herbal plant materials used in organic health care remedies and cosmetic and body care is growing rapidly.

The Netherlands

The country is a traditional importer and trader in produce for the EU market, and this applies particularly to organic spices and herbs, where Dutch trading companies are among the largest EU importers. The Dutch market for organic spices and herbs has increased both in the domestic market and for re-export to the EU. Demand for organic non- food herbal plants for nutraceutical/herbal medicines and cosmetic/body care products has also increased significantly over recent years.

United Kingdom

The United Kingdom is the third largest market in the world for organic food and beverages and is a major market for spices and herbs. Supermarket chains account for the majority of organic retail sales, as they do for conventional food and beverages, but they currently carry only a limited range of organic spices and herbs (dried or in paste form). Some specialist shops, Fresh’n Wild http://wholefoodsmarket.com/stores/freshandwild/index.html and Planet Organic http://www.planetorganic.com/, stock a wide range of organic goods.

Spain

Spain is a relatively large market for conventional spices and herbs and is a major producer and trader of paprika powder and saffron - with some organic exports. As with conventional spices such as paprika, where domestic production has largely been supplanted by imports, Spain’s increasing labour costs will make organic spice and herb imports more important in the future.

Canada

Canada is the sixth largest market in the world for organic food and beverages. The market appears to be growing rapidly. Sales of organic spices and herbs are small, but the market is growing. Most imports are currently from the United States, but there is a keen interest in diversifying sources of supply.

Japan

Japan is a large market for "specially cultivated crops" or "green products" (grown with reduced use of chemical pesticides and fertilizers), which were long considered as organic products. However, with the introduction of new standards (JAS), introduced by the Japanese Ministry of Agriculture in 2001, organic products are now defined similarly to those in other major markets. The market is growing rapidly following the introduction of the JAS, and as consumers are becoming increasingly concerned not only with their health but also with the environment, but it is fairly small compared with the other major markets in the EU and USA.

United States

This is the world’s largest organic market. The introduction of a national standard, the National Organic Program (NOP), implemented in October 2002, has made a significant impact on the development of the US organic industry. Throughout the value chain, from the domestic or foreign farmer to the final consumer, the NOP standards will increase the focus on organic products and help to regulate and promote trade. Natural foods stores, dominated by the two chains Whole Foods Market Inc. http://www.wholefoodsmarket.com and Wild Oats http://www.wildoats.com still are the largest sellers of organic food sales, but mainstream supermarkets and grocery stores stock and increasing range of organic foods. Farmers’ markets, food service and other non-retail outlets are also increasingly important outlets. The USA is a substantial producer of some organic herbs and a large importer of organic spices and herbs. In 2006, Walmart (www.walmart.com) announced they would be including a wide range of organic food products in the US. As the world’s largest retailer, it purchases very high volumes and competes on cost.

ORGANIC ESSENTIAL OILS AND OLEORESINS

Market size, organic premium and structure

As with for organic spices and herbs, no official statistics exist for trade in organic essential oils. Premiums paid for organic oils vary, and prices are not easy to establish. A rough check can be done by comparing selling prices of suppliers/buyers who carry both organic and conventional oils some of which are listed in this report.

The main outlets for organic essential oils include the following: 

• aromatherapy/natural medicine, 
• cosmetics, 
• perfumery 
• flavourings/food ingredient markets. 
• used by larger companies in production of animal feed in the world, as a key component of the feed additive

The aromatherapy and cosmetics categories overlap, with many suppliers offering both types of product. Legislation on the use of the word “organic” applied to compounded products in the cosmetics and perfumery markets was not introduced with the detailed mandatory EU standards for foodstuffs.

Traditionally, essential oils used in aromatherapy were seen as “natural” and more or less organic anyway, and this perception limited the uptake of organic certified oils for this market. However, many aromatherapy companies now offer full organic essential oil ranges, in all major markets. Organic oils, with an audit trail required to be in place under certification rules, are often perceived by company buyers as having a reduced risk of adulteration. Furthermore, it is easier for larger aromatherapy companies to have direct links to producers, and thus have more influence on quality.

Perfumery and cosmetics form the largest market for organic essential oils and extracts. Regulations covering organic cosmetics are under discussion in the EU. When questions such as whether synthetic chemical preservatives may be used in organic cosmetics are resolved, demand for organic oils should increase. Some individual certification agencies have developed their own health and beauty product standards, e.g. the Soil Association in the UK. However, more stringent labelling regulations in the EU might lead to reduced use of natural essential oils with their multiple constituents and favour synthetic single ingredient chemical alternatives.

In flavourings, the market for organic essential oils and oleoresins has grown slowly and is limited by current regulations (e.g. for the EU) which allow organic foods to contain natural (but not necessarily organic) flavours as long as less than 5% is used. For example, non-organic essential oils like bergamot can currently be used with organic tea to make an Earl Grey mix that qualifies as organic. The essential oils in demand for the flavour industry are mainly spice oils, produced largely in Sri Lanka and Madagascar, and the herb oils from the Mediterranean countries. Mostconventional spice and herb oleoresins are extracted using a solvent (generally hexane) which is then largely evaporated out of the mix. Hydrocarbon solvents (except organic alcohol) are not permitted for use in organic processing. Organic alcohol based oleoresins are available and some producers of these are listed in the Annexes. Liquid carbon dioxide gas is acceptable as a solvent under organic regulations, but the process requires a high capital investment compared to standard solvent extraction.