Organic farming. Development prospects in the Russian Federation

Organic production is a dynamically developing segment of the world’s agriculture, significantly outgrowing the overall food market. And much of this is driven by the trend towards a healthy lifestyle, particularly healthy eating.

In Russia, the market is still in its formative phase and has a high potential for further growth. Considering the attractiveness of this segment, favorable natural and climatic factors of agriculture in the territory of the country, What is the place of Russia in organic agriculture? Do traditional agribusiness holdings have the potential to develop this field?

The experts of SBS Consulting answered these and other questions in the study on the assessment of the prospects for the development of organic agriculture in Russia.

Prospects for organic products in Russia and in the world

Global trends:

• Global growth of the organic market: In 2017, the market volume amounted to €93 bln, average annual growth rate is 12%.
• Main consumer markets: USA, Germany, France, China, Canada, Italy - 77% of global consumption./li>
• Reasons for demand: Trend towards healthy eating, willingness to pay a premium of 30-50% over the price of a similar product.
• Export-oriented organic agriculture: Australia, Argentina and China.

Russian market:

• Rapid growth: Russian demand for organic products is growing at 23% per year, despite the economic crisis.
• Growth potential: 28 mln hectares of fallow land suitable for organic farming.
• Logistical advantages: Proximity to EU markets.

Economic potential for the development of organic products

Advantages for agricultural holdings:

• High profit margin: The premium to the price in Russia reaches 200-300%.
• Low labour costs and availability of organic fertilisers.
• Potential for rapid development of new land: 28 mln hectares of fallow land requiring minimal transition period.

Key Challenges:

• The need to develop competences: New technologies and skills are required.
• Dependence on the environment: High risks for crop yields.
• Large investments: Switching to new methods requires significant investments..

Market dynamics and structure

Global consumption of organic products:

• Growth rate: In 2020, the market could reach 143 bln euros at an average annual growth rate of 16%.
• Main consumers: High and middle-income cities, main consumption in developed countries.
• Segments: The majority of land under organic farming is used as pasture (70%).

Russian market:

• Growth rate: The organic market in Russia grew by more than 5 times from 2008 to 2016.
• Certified land area: In 2017, the area of certified land under organic farming was about 70 thousand hectares.

SWOT analysis

Strengths:

• High profit margins and price premium.
• Competitive in international markets due to low labour cost and availability of fertilisers.
• High potential for the development of new land.

Weaknesses:

• Need to accumulate new competences.
• Long soil preparation process (up to 3 years).
• High risks of total crop loss.

Opportunities:

• Growing demand in domestic and foreign markets.
• Creation of a strong umbrella brand.
• Rapid production scale-up

Threats:

• Availability of imported goods with low production costs.
• Sanctions on the supply of seeds and other specialised raw materials.
• Deterioration of domestic demand due to unstable economic situation.

Conclusion

The development of organic agriculture in Russia has significant potential due to the high demand for organic products, low labour costs and land availability. However, in order to realise this potential, it is necessary to address problems related to the lack of competences, high dependence on nature and the need for large investments. Government support, harmonisation of legislation, and infrastructure development also play a key role in the successful development of organic agriculture in Russia. To achieve sustainable growth in this sector, it is recommended to develop strategies to reduce risks, improve the efficiency of technologies and actively promote products on international markets.