Being both an environmentalist and an agronomist, I have always been fascinated by organic agriculture. Although the organic market in Russia is in its early stages, Russia seems to be an attractive location for the development of organic agriculture, since agriculture is not as intensive as it is in the rest of Europe.
Moreover, there is a lot of fallow and abandoned land available. So moving towards organic agriculture might not be as dramatic as it seems. In this blog, I outline the most common barriers to the development of the organic food market in Russia and explore the motivations of the middle-class Russian consumers that lie behind their purchases of organic food. I also look at what influences consumers’ choice and see if they are willing to pay premium for organic food.
Despite the opportunity, only 1% of agricultural land in Russia is devoted to organic agriculture. So, I asked myself whether this was because of low demand or there are other barriers? Looking for clues, I conducted a survey in the supermarkets where middle class consumers shop for food as well as on the streets of St. Petersburg. Those who have ever conducted any kind of survey will know that it can be challenging and that people prefer to spend their time in some other way than discussing organic food with you. However, my personal interest and the fact that there has been very few studies conducted on this topic gave me strong motivation and assured me that my research worth it. So much so that I managed to complete 300 questionnaires!
The most common barriers to develop the market for organic food are: distribution channels; lack of knowledge among consumers about organic production and labelling; weak regulation; premium price; and lack of consumer trust. Let’s talk about each of these one by one.
Distribution channels. Most of the respondents answered that they would buy organic food if it was available in supermarkets and only 4% indicated they would never buy organic. Availability seems to be a very big barrier at the moment. Up to now, most organic food in the market has been imported and sold at premium prices far beyond what an average consumer can afford. This, in turn, influences knowledge and opinion about organic food among consumers. Today there are only a few premium-class supermarkets that sell organic food, and the assortment is rather poor - mostly processed food with organic ingredients.
Consumer Knowledge. One of the goal of my survey was to evaluate whether Russian consumers know about organic food and whether they know what’s behind the labels, where does it come from and what are the peculiarities of the production process. The result of my survey showed that 79% of respondents have heard about the term “organic”. 58% defined organic production in a correct way. Almost 40% of consumers declared knowledge about organic fruits and vegetables, but did not have clear ideas about the production processes.
Despite the fact that many of the consumers had some knowledge about what organic is, the survey revealed that the knowledge about labels was poor. I showed consumers the labels and asked them whether they have seen them before and whether they think that these labels are organic or not (see Table 1). Russian certification labels were the most recognised, while the Japanese organic label JAS was least recognised.
Interestingly enough, consumers associated “USDA ORGANIC” with organic labels even though it is not well-known. That might be due to the fact that the word “organic” is written on the label. Indeed, according to the literature, the most successful brands comprise the word “organic” itself which sends a clear message to consumers who might not be aware of all the certification standards. This simple trick can be very useful for developing the market for organic products in Russia.
Regulation. On the 1st of January, 2016 the National Standard for Organic production entered into force. The standard defines general principles of organic production, the requirements of the collection, packaging, transportation and storage, labelling of organic products. It seems to me that the presence of National Regulation is a great step forward. However, the standard does not specify the certification procedures; neither does it state the certification bodies that will be authorized to regulate farming and labelling. At the moment, there are several certification bodies, located in Moscow and Saint-Petersburg, that mainly work according to international (European, American and Japanese) standards. Strict regulations are still missing about using terms like “bio”, “natural”, or “eco” in promoting the products. Therefore, some producers use these definitions to market their goods. This ultimately leads to a lack of trust among consumers.
Motives behind an organic choice. The results of the survey showed that most Russians who buy organic do it because of the health concerns. There have been cases of food scams in the recent years which generated a widespread anxiety among Russian consumers concerning food safety. As a result, consumers trust organic food more and mention that it can be a possible strategy to cope with food safety problems. People also say that they buy organic because it does not contain synthetic inputs and GMO, because they trust control and regulation behind the production and because people believe these foods are good for their children and the environment. This can be a good starting point for marketing organic food in Russia.
What influences consumers’ choice when it comes to organic food? And are willing to pay premium for organic food?
In the second part of my questionnaire, I tried to figure out the preferences of consumers using the example of potato. A staple in the diet of Russians and referred to as the ‘second bread’. I offered consumers 8 cards with different characteristics of potato: organic or conventional; produced locally or imported; washed or not washed; packed in nets or in boxes; different price. I asked consumers to rank the cards according to their preferences. After that, I calculated willingness to pay of consumers for their best choices.
What came up is that Russian consumers are extremely price-sensitive. This, of course, can be a barrier for developing the market of organic products. However, a price-premium for a higher quality product is generally accepted. Consumers in Saint Petersburg preferred local (grown in Russia) potatoes to imported. An organic method of production was preferable to conventional. Other characteristics, like convenience (washed/non-washed) and packaging (in nets or in boxes) were not so significant.
Willingness to pay is maximum price a buyer accepts to pay for a given quantity of goods or services. Considering all the factors separately and independent from each other, we’ve found out that willingness to pay for locally grown potato is € 1.58 which means that consumers in Saint Petersburg are willing to pay more for the products of local origin, even though, on the market local products are less expensive than imported ones.
The max price consumers were willing to pay for the organic potato was € 1.12 which confirms that consumers accept to pay more for organic potato than for conventional. When combined, it came up that, in spite of high price sensitivity, Russian consumers are willing to pay quite high for organic and locally producted potato.
With this in mind, it looks like the best strategy to develop market for organic products in Russia is to produce organic fruits and vegetables locally. This would be the preferred strategy because it corresponds best with consumers’ choices. Moreover, lower transportation costs and lack of importation duties would make organic more affordable, which would be helpful as price sensitivity is high.
So, what next?
Demand for organic products is increasing globally. This sends a signal that the market for organic food production in Russia is starting to make business sense. Obviously, there are some challenges, but there are also good conditions for making the most out of this opportunity. I found is the answer to the question I posed in the very beginning: There is demand for organic food among Russian consumers, and I think it is time that producers take advantage of it.
Picture credits: Picutre 1-Tim Stahmer via Flickr. Picture 2, 3-Iana Perevoshchikova, Picture 4-Sampsa via Flickr