A key principle of ‘doing business’ is “Don’t put all your eggs in one basket”.
This comes back to one of ABDI’s 12 Pillars of Business Best Practice – Managing Risk. When a business is ‘over exposed’ to a single market or customer providing, say over 50 or even 75% of your income or gross profit, a dangerous situation is developing.
Why is this so? That level of exposure potentially leaves you highly vulnerable to the whim of markets, weather or a key customer (or even personalities).
How can we mitigate this risk? By being open to, and exploring, new market opportunities. In this case, we explore a high growth area – the organic marketplace.
Opportunities in Organics
There is no doubt that organic farming is a huge growth area. The latest Australian Organic Market Report indicates the nation’s organic industry is worth $1.72 billion, up by 35% since 2012 and growing by over 15% each year.
In addition to growing demand, organic products often offer premium returns, making them a very attractive market (as long as your operations are ‘spot-on’).
Thinking about getting into Organics?
If the organic marketplace is an avenue you would like to explore, there are a range of things to consider.
1. Do your Research
Like any market or customer relationship you want to develop, do your research. Start with the production aspects of the industry. An organic production system is potentially completely different to a conventional system and you may need to be sure you can operate at a commercially viable level.
Next, consider the possible commercial returns. Farming organically can significantly increase your costs because you will be limited to the use of organic inputs (such as certified organic animal feed) or potentially more labour intensive crop management such as dealing with weeds.
One simple equation you might use to determine profitability is:
Gross Profit = (Yield x $/Kg) – Costs
2. Invest in Relationships
The supply chain for organics may well be more complex than conventional supply chains – with components managed by a range of people and organisations. Good relationships are fundamental to marketing success and moving into organics is likely to mean starting a whole new set of relationships long before you start moving product.
Equally, it may also mean developing relationships to assure you of year-round supply – thus becoming part of a seasonal supply chain.
3. Plan your Conversion Journey
The image below gives an overview of the Australian Certified Organic conversion and certification process.
The certification of primary production land from conventional to Organic status may take anywhere from 12 months to 36 months depending on prior history.
During the conversion period, producers must adhere to standards such as the Australian Certified Organic Standard. During the in-conversion process – and potentially longer term – the cost of production may be higher than in a conventional system. Equally, the returns may be far higher – justifying the additional input costs.
One of the most common mistakes that aspiring organic producers make is not planning ahead for this certification and in-conversion process – or worse, have a lack of understanding of additional costs and changed income. Equally it is critical to examine customer, product and market opportunities – so you can be ‘pitching’ your product to a receptive marketplace.
A detailed plan describing each step of to transition through each phase is also critical.
4. Capturing the Value – No Free Lunches
An annual auditing process for organic farmers ensures compliance to the organic production system. The auditing process also ensures all inputs and outputs can be tracked – leading to transparency around the production quality. Beyond the farm gate, auditing and testing of certified organic products throughout the value chain also ensures transparency and certainty that consumers are accessing true organic products.
While this process might seem onerous, it is the key to ensuring consumers can access a consistent quality product that meets their perceptions, expectations and the reality that they get what they paid for. The consumer must know that the investment they make in higher priced organic product has been subjected to a credible audit process. This process also safeguards the #1 value of organics and in customer relationships – TRUST.
Webinar provides insights into going organic
To seriously pursue ‘going organic’, it is critical to have done your homework – including both production and business aspects of going organic.
Recently we ran a webinar where Kate Allen from Australian Organics provided some more details on going organic, with some insights into the benefits of going organic, and considerations of the certification process.