Organic Overseas: Tapping into the World Market

By Tom Chapman

Statistics abound about the huge growth of the organic marketplace. Research shows that sales of organic goods in the U.S. alone exceeds $11 billion a year, with annual growth rates hitting the 20% mark in the past several years.

However, booming sales in the U.S. aren’t the only thing organic processors should be paying attention to. The world demand for organic products is growing just as fast, and savvy organic processors are beginning to see the potential of these overseas markets as a major opportunity for the expansion of their businesses.

U.S. processors and growers export in excess of $250 million worth of organic raw materials and finished products every year, according to statistics from the Organic Trade Association (OTA). These exports run the gamut from raw commodities, such as wheat and soy, to dried fruit, juice, frozen vegetables, jelly, tea and other finished products.

U.S. organic products are being sold all over the world, with popular destinations including Canada, Japan, the European Union, Korea, and Hong Kong , where the demand for organic products continues to surge. It is expected that the market for organic exports from the U.S. will see worldwide growth, expanding in key marketplaces such as Korea and China, opening the way for new processors to ship their products overseas.

But exporting organic goods is not as easy as it is to ship them within U.S. borders. In most cases, your National Organic Program (NOP) certification is not going to win you sales overseas. Most countries have their own standards with which you must comply before your products can get through customs, and the challenges of securing these certifications range from filling out reams of official paperwork, to investing thousands of dollars and hours into complicated audit processes to meet the exacting requirements of certain governments. In some cases, the effort may not be worth the business, and in others, achieving foreign requirements is nearly impossible.

For U.S. based companies interested in exploring exporting as a market option there is much to learn. Export regulations, relationship building, and choosing a country that has a need and offers the opportunity to sell your goods are all part of the process of developing a rich export business. So, what are some of the hottest destinations for U.S.-made organic products, and what do you need to know in order to tap into them?

Europe: Huge Market, Easy Access
The EU is a thriving market right now and the possibilities for U.S. based exporters are significant. Together, the EU and the U.S. accounted for 95% of the $25 billion in world retail sales of organic food products in 2003. The EU’s organic sector—particularly Western Europe—had the fastest worldwide growth in the 1990s. Growth in organic retail sales, however, has slowed in some countries, with recent growth rates across the EU averaging 7.8% per year. Forecasts of annual growth for organic sales in the next few years range from 1.5% for Denmark to 11% for the United Kingdom.

Unlike some new or smaller markets, the EU demand for organic products is well established. The organic trend was alive and well in Europe for 10 years before it found a foothold in the U.S. It’s not a niche market that will easily disappear in a few years, which means businesses can be confidant that once they tap into the market, demand for their products will remain steady or even grow. Today, the most popular U.S. products being imported by EU member nations are raw grains and soy, teas and cereal.

For processors interested in exporting their goods to Europe, their U.S. organic certification is not enough to gain access to the market. Would-be exporters must comply with the EU organic regulation, EEC 2092/91, which covers all organic agriculture products for human consumption. Personal care products are considered outside the scope of this regulation. Even though the standards are similar, there is currently no equivalency between the U.S. and the EU regulations, largely because of differences over dairy and livestock handling. The U.S. rule is more focused on purity and has a zero tolerance policy for antibiotic use in livestock for slaughter; while the EU’s rule is focused on animal welfare and allows some limited antibiotic use in certain circumstances.

There are also differences in the way the EU regulation addresses commercial availability. Unlike the U.S., the EU has an official list of products that are not commercially available. In order to use a non-organic ingredient in a certified organic product for sale in the EU, the ingredient must be on this list. The list is regularly updated but if you are using a rare or recently discovered ingredient, such as flavoring from tree bark, it’s likely that ingredient will not yet appear on this list. It is important to make sure any non-organic minor ingredients used in a product are listed or your goods will not be accepted for export to the EU.

The good news about EEC 2092/91 is that most U.S. certifiers can certify U.S. companies to the EU regulation as long as they are ISO Guide 65 accredited. The cost for certified organic companies in the U.S. to become EU certified is usually relatively small. Most certifiers have a gap program that uses the existing U.S. organic certification as a starting point for EU certification. They then need only address the differences between the two regulations to complete the process. This often can be done for a few hundred dollars.

The biggest challenge to achieving EU certification is the paperwork. A major component of EEC 2092/91 is traceability throughout the food chain. That means that not only does the exporter need to prove its operations are certified to the regulation, it has to supply paperwork documenting that all of the suppliers of ingredients for that product, back to the farmers, are also certified in equivalence with EEC 2092/91 by a certifier who is ISO 65 accredited. As of July 2005, that requirement also includes all storage, broker and trader operations be certified as well.

If the product has only one or two direct suppliers, organic processors can deal with this easily by getting verification of EU certification directly from those suppliers. However, if you are buying raw materials from commodity brokers, who may deal with hundreds of farmers, or if your product is comprised of multiple processed ingredients, certifying your supply chain can be a monumental task that may not be worth the effort.

Once an operation is certified, it can apply to the EU member state government with the importer for an import authorization. This document is called a European Community Certificate of Inspection for Import (ECC) and serves as an organic customs clearance. It must be included with all shipments. You must also partner with an EU importer to apply to the importer’s member state government for an annual import authorization, called a “European Community Certificate of Inspection for Import” (ECC). This is the most cumbersome and time-consuming step for most exporters.

Currently, each country handles import authorizations differently. Once an import authorization is issued the client can export products to Europe covered under that authorization. Also, some certifiers of importers, such as the Soil Association in the UK, or KRAV in Sweden, require exporters meet more stringent requirements, such as the International Federation of Organic Agriculture Movements (IFOAM) certification.

Processors should also keep in mind that the EU is now considering a new standard to replace the current legislation. The original law is more than 10 years old and has been pieced together over the years. The government feels it is time to wipe the slate clean and start fresh; however, European consumers are less convinced. The proposed new rule, which is similar to the NOP in many ways, has received vocal criticisms from some European organizations, including IFOAM’s EU Group and the European Organic Certifiers Council.

A key difference is proposed changes to export requirements. The new EU rule would eliminate the need for import authorizations and would directly recognize foreign certification bodies. This would make exporting easier for U.S. countries but takes control away from the individual European countries over import decisions. Currently each country manages its own import authorization, which gives them the power to deviate from the standard, establishing unique criteria as a requirement to gaining entry. The new rule would not allow for this flexibility and would eliminate the option to create private certification claims that are stricter than the government standards for organics certification. The reason for this is to create a unified standard that exactly differentiates organic from conventional products.

If these changes are implemented, it could open the market significantly for U.S. exporters. If no action is taken by Dec. 31, 2006, the current import procedure will expire.

Japan: Proceed With Caution
Organic food is hugely popular in Japan and the country imports nearly all of the organic products it consumes. Currently, soy-based products, jams, juices, vegetables, coffee, sugar and raw commodities are the most popular organic exports to Japan. However, the small physical size of the country makes it a relatively minor market destination for U.S. exporters. Compounding the small size of the market is the fact that achieving organic certification for Japan is difficult and expensive.

The Ministry of Agriculture, Forestry and Fisheries (MAFF) regulates organic products in Japan through the Japanese Agricultural Standards (JAS). The JAS standards are split between two regulations: JAS No. 1605 that covers production, and JAS No. 1606 that covers processing. These two standards are supplemented by technical criteria of certification in several areas, including criteria for producers, processors and repackers.

To export any plant-based organic product to Japan a processor must be certified to the JAS seal. Non-plant based products, such as milk, eggs and meat, must be certified to an organic standard but cannot apply the JAS seal, and Japan has recently banned all beef exports in response to fears of bovine spongiform encephalopathy (BSE), or Mad Cow Disease. U.S. exporters can be either JAS certified by a JAS accredited certifier, which is expensive and difficult but allows for greater market accessibility; or the certifier can have a USDA/MAFF Export Arrangement Verified, which is less expensive and less difficult but allows for limited market access.

Few groups in the U.S. are JAS certified. Part of the reason for so few certifiers is that it is an expensive process. The certifiers must pay for the Japanese inspectors to complete the certification and visit their operations in the U.S. That expense usually translates to much higher certification costs for exporters. Even for processors certified to the U.S. standard, it costs thousands of dollars more for them to receive JAS accreditation.

Further complicating matters, the Japanese government revises the organic rule every five years, forcing certifiers to reapply for their MAFF accreditation to JAS certification. There were 100 certifiers prior to the first rule revision in 2005. As of March 2006, there were 17, only one of which is based in the U.S. The impact of the five year rule is significant. Those companies certified to the old rule have three years to update their compliance so there is no immediate shock to the marketplace after the 2005 revision, but over time, if the number of certifying bodies doesn’t increase, the effect may be that U.S. exporters are priced out of accessing the Japanese market.

For U.S. processors who do plan to export to Japan, another factor to consider is that many importers want their suppliers to have the same organic certifiers. That means that if you deal with multiple importers, you may be required to hold multiple organic certifications.

Canada: Conditions Could Change Soon
It’s hard to judge the potential of the Canadian organic marketplace as an export opportunity for U.S. processors because there is currently so much open trade between the two countries, and no significant trade barriers.

While there is an official organic standard in Quebec, called Conseil des appellations agroalimentaires du Québec (CAAQ), that requires all exporters to be certified by a CAAQ recognized certifier and mandates that products meet CAAQ labeling laws to export products to that region, the rest of Canada has no official organic regulation. Because it doesn’t have its own standard, processors with any recognized organic certification are free to do business in the north. However, that may soon change. Canada is now moving forward with a national regulation that would require companies to certify to a Canadian standard in order to export organic goods to that country.

The new Canadian standard is a blend of the rules from the U.S., the EU and Japan. While it follows all the same handling and processing principles set forth in the U.S. and the EU rules, certain banned substances and other details make it slightly different. Once this rule is in place it could hamper trade between the U.S. and Canada unless an equivalency agreement is reached. The Canadian government must first publish the standard, which is expected this year, then negotiations will begin.

Korea: A Road to the Future
Korea is a hot new marketplace with a growing demand for organic goods. The number of imported organic processed products to Korea doubled during 2004, resulting in a 30% to 40% increase in sales, according to the U.S. Department of Agriculture (USDA) Foreign Agricultural Service. Organic production in the country is negligible, and most processed organic products are imported. Popular products include tofu, baby food, frozen foods, cereal, crackers, cookies and other processed snacks.

The budding Korean market for organic products is small, but industry sources project a growth rate of 30% per year. The Korean government has developed an organic certification and labeling program for fresh produce and grains, which is overseen by the Ministry of Agriculture and Forestry (MAF), while organic ingredients and processed organic products need only a copy of an organic certificate issued by a USDA-accredited certifying agent to export to Korea.

The Korea Food and Drug Administration (KFDA) recognizes NOP certification for operations in the U.S., CAAQ for operations in Quebec, and IFOAM for operations located elsewhere. When submitting the import clearance application for organic food products, processors must also present a list of all ingredient names issued by the manufacturer that includes the office, name and signature of the issuer. The Korean government requires organic certification of the last processor or producer in the food chain, and will not accept a certificate from a distributor or trader. The U.S. Agricultural Affairs Office is working with Korea to gain acceptance of U.S. handlers’ certificates.

Before deciding whether to target the Korean market, processors should be aware of the country’s zero tolerance stance on products containing genetically modified organisms (GMOs). Because of crop drift, it is virtually impossible to achieve a 100 percent GMO-free product that contains U.S. grown corn or soy, which contain trace amounts of GMOs. KFDA enforces its zero tolerance policy for GMOs by collecting random samples from retail shelves and testing them for GM content. KFDA does not allow for even the “adventitious presence” of GM content in organic product, even if it has been produced and handled according to the strictest organic production and processing requirements. There is a risk that KFDA could take action against companies if their product is selected in the KFDA monitoring program and tests positive for GM content.

China: New Rule Throws Up Road Block
China has a lot of potential as a market for U.S.-made organic products. Rapid economic expansion is turning the Chinese organic market from purely exports, to a thriving import/export economy. The demand for organic products is growing steadily, and the size of the market makes it a promising place for organic processors to target in the future. Currently, however, the requirements for Chinese certification are so difficult that it is nearly impossible for U.S. exporters to gain entry.

On June 2, 2005, the Certification and Accreditation Administration of China (CNCA) published the Implementation Rules for Organic Product Certification with immediate effect. Certification bodies use these rules and national standards for organic products (GB/T 19630–2005) when certifying organic products being marketed in China. In other words, imported organic food products must be certified by a Chinese certification body or an overseas certification body authorized by CNCA.

It is a brand-new rule that is only now in the process of implementation and there are no foreign certifiers yet approved. Some are in the application process. If poorly enacted, the new Chinese organic certification law could end organic exports to China because of a lack of accredited foreign certification agencies—a problem that occurred in Japan after the JAS law was enacted in 2000. If, however, China implements a recognition of other organic standards or an equivalency option, the market could break wide open. This is definitely a country to monitor as it offers huge potential for U.S. exporters.

The Next Steps
No matter which market you choose, proceed cautiously with plans to export. It’s not enough to have certification in the destination country: you have be sure that your products meet the needs of the foreign consumer group. Taste profiles differ wildly, especially in Asian countries, and consumers are drawn to different marketing strategies and package designs. Foreign companies also may approach business partnerships very differently, and may not be willing to jump into a deal with a U.S. company without first developing a committed, trustworthy relationship.

The key is to do your research. Get advice from other companies that have already established export businesses and ask your organic certifier for guidance. You can also find export assistance and advice through the USDA’s Market Access Program (www.fas.usda.gov/mos/pro grams/map.asp) and the Foreign Agricultural Service Organic site (www.fas.usda.gov/agx/organics/index.htm); as well as individual state governments who offer market research and funding to food growers and producers interested in exporting, and trade associations such as OTA.

If you approach the export market carefully, giving yourself the time and commitment to foster long-lasting business relationships, exporting organic products can be a lucrative and exciting opportunity.

Tom Chapman is the Quality Assurance and International Programs Specialist with Quality Assurance International (QAI), one of North America’s largest organic certifiers. Chapman can be reached at tom@qai-inc.com.