Is there money in Welfare Friendly Production? - This month’s Strak report considers the issue of food producion under stringent ethical and welfare conditions and ponders whether it is possible to achieve this goal and still make a profit.

Dr John Strak Dr Strak's views on the UK and global pig markets are produced in Whole Hog every fortnight. For more details click the link at the foot of the article.

This month’s Strak report tackles a difficult but important question.

Is it possible to produce food products under stringent ethical and welfare conditions and still make a profit? This question is one that is dear to the hearts (and the wallets) of pig farmers and you would think that the industry was sure about the answer.

I raise the question now because Datamonitor produced a useful report on ethical food products at the end of last year and Oxfam has just announced that it is scrapping its own ethical product line (Fair Trade) previously sold in its own shops.

These examples of market research and commercial decisions in the “fair” food marketplace are useful guides to UK pig farmers wondering whether they will ever make a premium from stricter animal welfare regulations. That premium is important because stricter welfare rules (or ethical/ “fair” wage conditions) mean higher production costs.

According to Datamonitor the market for ethical products (generally called Fairtrade products) is very limited.

Whilst there is impressive annual growth in this section of the market the market share seldom exceeds more than 3%. This is despite 30% of consumers saying that they want to buy ethical products.

Quality coffee seems to be an exception where Fairtrade coffee has secured 12% of the US ground coffee market. It’s also true that organic baby food and organic fruit and vegetables are popular.

However, major UK supermarkets have stated that they do not expect the organic category to exceed 10% of the total market. Oxfam’s own Fair Trade label has been going since the 1960s but by 2002 the total market size for the entire Fairtrade range of products was just £53 million.

This compares with a total market for food at retail level in the UK of c. £50 billion. Even the entire organic section of the UK market is currently worth just under £1 billion.

According to the Soil Association 8% of all consumers account for 60% of all organic purchases. The Soil association is confident that inroads can be made into the majority of consumers who do not buy organic products but I am not so sure.

So, I conclude that the market for these products is relatively small and that, even after a long time raising brand awareness, farmers are nowhere near being able to sell all their production at a premium in this market for “fair” or “natural” products.

Datamonitor’s view is that, “... while consumers like the idea of helping poor farmers and protecting the environment, most like the idea of cheap prices even more.” I agree. Datamonitor make another astute observation.

In all cases where there has been significant capture of market share the ethical or “fair” products were selling a direct benefit to consumers e.g. higher quality (coffee), perceived safety for infants (baby food), organic vegetables (healthy), improved taste (chocolate).

Whilst the ethical or environmental benefits of the product were appreciated - and the fair wage conditions for the farmers - this was not, in itself, enough to sway consumers to make major shifts in their purchasing patterns. As Datamonitor says, “..show consumers a tangible benefit or find a way to make prices competitive”.

This may sound like a familiar story to farmers who have been told that it’s possible to achieve a price premium from producing welfare friendly, assured British pigmeat. Well, not according to the RSPCA’s Freedom Food organisation – or many farmers that I have spoken to.

Even though over 400 UK farmers and over 100,000 sows are signed up to the Freedom Food scheme, I have not been able to find producers, or spokesmen for Freedom Food, who maintain that a premium is secured because of their “fair” system of production.

I have found some farmers who, as well as producing pigmeat under high levels of animal welfare conditions, also produce a very high quality or distinctly flavoured product – often sold direct from the farm or through specialised outlets. But, in these cases, like Datamonitor, I wager that the consumer is buying tangible benefits like taste, presentation or “the farmer” not the animal welfare conditions.

The direct consumer benefits are taste and quality and (some) consumers will pay a premium for this.

Where does this leave us on the opening question?

The statistics and market research are, in my view, quite clear. The market for “fair” products in the UK is small and will never offer a major opportunity for price premiums or sales volume for the pig industry. It was (and is) a major strategic error for the UK industry when its labelling and promotion schemes emphasises welfare conditions.

This is not a USP and even if it was most people are not prepared to pay for it. Consumers do not see “welfare” as a sufficiently direct benefit to be worth a premium.

The decisions taken about animal welfare conditions in the UK and in the EU may be laudable but they are not the key to the consumer’s purse.

If Oxfam and the Fairtrade scheme cannot get the market share for ethical products above 0.1% after 30 years of trying, and the total market share for organic products is c. 2% this should be seen as a minority sport.

Impressive annual growth in these markets is all very well but it’s going to take a long time before demand equals supply. There is nothing wrong with trying to get some of this action but, self evidently, it’s a buyers’ market.

See you next month

Source: Strak Report - February 2003