Price war in the organic sector: organic products at dumping prices

More and more organic food is being sold in supermarkets. This is putting pressure on organic chains – and soon, perhaps, on farmers.

Corn as far as the eye can see – will organic farmers soon have to switch back to monocultures? Photo: dpa

The market for organic food has changed rapidly in recent months due to the entry of discounters. Conventional organic suppliers are also lowering their prices as a result. For example, the organic supermarket chain Alnatura announced at the beginning of June that it would permanently offer 32 products at lower prices, such as coconut flour and bourbon vanilla. With sales of 822 million euros and 133 stores, the company is Germany’s second-largest organic retailer.

In doing so, Alnatura is probably also responding to new competition: organic products are now increasingly available in discounters and conventional supermarkets. The world’s largest discounter Lidl made a start last November. The company switched a large part of its own organic brand, which is sold under the low-circulation EU organic label, to Bioland products.

In February, Kaufland followed suit and has since carried Demeter goods in its assortment. Germany’s largest food retailer, Edeka, has gone one step further and announced its intention to open its own organic stores throughout the country. In addition to the EU organic label, the more stringent private-sector labels are also increasingly being found on the shelves. This increases competition for classic organic chains such as denn’s, Alnatura and Bio Company.

"Many are now focusing on this because they have noticed that organic has developed from a niche topic to a social megatrend," says Joachim Riedl, Professor of Market Research and Sales at Hof University of Applied Sciences. Last year, full-range retailers, discounters and drugstores were able to capture almost two-thirds of the sales volume of organic products, according to a study by the market research institute GfK. Organic products at rock-bottom prices are therefore well received by consumers.

The low-cost suppliers are undercutting each other. A price comparison of the regional portal infranken.de shows that the prices for organic foods at Aldi, Lidl, Kaufland, Edeka and Rewe differ greatly. Thus, the purchase of 18 comparable organic products is almost 9 euros cheaper at Aldi than at Rewe. For example, "front-runner" Aldi offers Gouda cheese with the EU organic seal for 1.65 euros, "taillight" Rewe for 2.52 euros. For many, the same applies to goods produced according to ecological criteria: the cheaper, the better. "The price spiral works better in Germany than in any other country. Retailers have turned customers into bargain hunters here," Riedl emphasizes.

The logic of the cheap principle and climate change

Manufacturers who supply discounters or supermarkets are therefore under enormous pressure. This now also increasingly applies to sustainably produced products. The cheapsters would have strong market power anyway because of the quantities they buy. "The bargaining power clearly lies with the retailer," says the market researcher. The logic of the cheap principle puts pressure on producers, he adds. "The discounter has to signal to the outside world that it is pursuing a low-price policy," Riedl emphasizes. This is dangerous for producers, he says, if they supply a majority of discounters and thus end up in a relationship of dependency.

Phillip Brandle, agricultural expert

The price is starting to decouple from production costs

"The trade price is beginning to decouple from real production costs," warns Phillip Brandle, a member of the national board of the Arbeitsgemeinschaft bauerliche Landwirtschaft (AbL). The price of a product is often no longer simply composed of production costs and trade margins, he says. The presence of cheaper organic products in discount stores is increasingly influencing prices in specialty stores, he says – possibly a reason for reductions such as in the case of Alnatura.

"The first consequence of price pressure is often that farmers specialize," says the agricultural expert. That endangers the closed farm cycle, a central guiding principle in organic farming, he says. According to this, arable farming and livestock farming are linked to each other. This is more costly and labor-intensive than monotonous farming and is therefore often the first to fall victim to the new market mechanisms. The result is monocultures that are susceptible to pests and contribute significantly to the threat to biodiversity. "How farmers are paid also influences how climate-friendly they can farm," says Brandle.