5.0 Customer and Consumer Preference for Environmental and Product Quality

5.1 Introduction

This section contains a review of factors influencing market demand for food and fibre products from farms with QA/EMS. Published material and information from contact sources has been summarised so that the current and potential future market demand for such products can be assessed. Summaries of farm and orchard schemes from New Zealand and overseas are listed in Appendix 2.

5.2 Quality

Quality encompasses several product attributes. Food safety is pre-eminent, and its nutritional value is important, as are other factors such as the organoleptic attributes (of taste, texture, smell, and appearance). Markets for many natural, fresh and organic foods have developed in response to consumer demand initiated by health and safety concerns (Roddy et al, 1994). However increased emphasis on improving production and marketing of high quality non-organic products is likely to provide a major threat to these specialist (organic) markets (Roddy et al 1994, Project 98 1997).

The concept and management of quality world-wide is changing. No longer expressing their concept of quality in terms of functions, attributes or reduction in defects, "buyers are increasingly approaching quality as a fundamental buying decision". Now, buyers "have expectations of complete customer satisfaction measured in terms of their demands for affordability, for a product ... that is essentially perfect, and for an offering whose quality is determined by users in their own terms" (Telarc Ltd, 1998). The increasing expectation is that a supplier can produce essentially perfect product quality if they have a commitment to meeting buyers' needs.

Buyers in today's markets are requiring complete customer satisfaction. Unlikely to decline in importance to buyer and consumers, quality demands and strong global quality competition, will increase (Telarc Ltd 1998, Mermelstein 1997, Project 98 1997). Quality, as with "clean and safe", will be increasingly seen as a "cost of entry" rather than a differentiator (Project 98 1997).

5.3 Nutrition & Health

Food is required to satisfy the biological need for a source of nutrition, and there is also the recognition that food and nutrition have an impact on personal health. Notable however is the fact that (US) consumers are changing their health strategies from avoiding food ingredients with negative connotations (e.g. fat, cholesterol, sodium) to actively seeking to include health-promoting ingredients (e.g. vitamins, minerals, botanicals and phytochemicals) in their foods (Sloan 1996, Littman 1998). Such a shift in consumer attitudes creates opportunities for the mainstreaming of food and food ingredients having a role in self medication and disease prevention such as fortified foods, and nutraceuticals (Sloan 1996, Sloan 1994), which have been suggested to be the "next revolution in food processing" (Narayanan 1998).

Personal health concerns are recorded as the main (45%) reason for UK consumers buying organic foods. In contrast only 9% bought organic food because of concern for the environment (Tregear et al, 1994).

5.4 Convenience

European sources state that with increasing numbers of women working outside the home there is a lack of time to prepare food at home (Grijspaardt-Vink 1996, Gentles 1997). With the increase in single and two person households they are eating out more, and to some extent have an increasingly negative attitude to in-home food preparation (Sloan 1996).

While the growth in eating out and takeaways is not new, (in 1996, food service claimed 44% of the food dollar in the U.S. (Keogh 1997)) what is new is the consumer's desire for a wide variety of fresh, complete and easily accessible meals (Sloan 1996). Food retailers are acknowledging the shift from providing meal parts to offering full replacement of in-home-prepared meals (Wishnow 1997). In a growing trend (Schurer 1997), some 22% of US consumers now get their take-home food at the supermarket, versus 21% at restaurants. The share for fast food outlets fell from 48% in 1996, to 41% in 1997 (Blaesing 1997). Similarly, of the 2 billion meals prepared "out of home" in the UK, some 46% were taken away or home delivered (Gentles 1997). This shift in purchasing is creating the opportunity for food manufacturers to create and provide for retailers and food service operators full meals or Home Meal Replacements (HMRs). The freshness or the appearance of freshness of such products is the major requirement of supermarkets (Sloan 1996). Growth is the key expectation for HMRs, with Sara Lee Corp predicting HMRs will "generate 80% of the growth in the retail food industry over the next eight years" (Blaesing 1997).

Ease and speed of preparation continue to be desired attributes of food products (Sloan 1994, Sloan 1996, Gentles 1997). Such convenience products may be classified as "ready to eat" - for immediate consumption, "ready to heat" - taking less than 5 minutes to reheat or prepare, or "ready to cook" products requiring longer to prepare. Noting that smaller portion and pack sizes re-heat faster than family size portions, manufacturer targeting of portion size and product packaging to the needs of the consumer will be an increasing key to convenience (Schurer 1997, Gentles 1997).

5.5 Organoleptic or sensory attributes

Fresh or not, a food product must taste good to sell and the fresher a product tastes from first to last selling date, the better the sales performance (Schurer 1997). While the sense appeal of food includes texture, appearance, presentation and smell, there is a growing demand for intensely flavoured foods. Growing ethnic influences (Gentles 1997) and the reduction of fat and salt from foods are creating a shift in mainstream taste preferences to more highly flavoured and/or spiced products (Sloan 1996, Gentles 1997, Keogh 1997).

5.6 Supply

The UN World Food Summit held in Rome in 1996 focussed attention on international food security - the consistent access to adequate nutrition by all people in the world. Although ensuring global food security is a complex problem, there is not expected to be a decline in international food security over the next five years (FDA, 1997).

Productivity-driven export growth in North America has been reinforced by income-driven demand growth in Asia, particularly as the trend toward westernisation of consumption patterns is likely to continue. Growing imports of finished products is favoured by enhanced storage and transport facilities (FDA, 1997).

For a large and increasing number of food goods, globalisation of products is occurring (e.g. McDonalds, Coke, Pepsi). This is attributed at least in part to the increasing ease of communication around the world, and emphasises the need for consistency in product quality. Without the power of mass communication, the leveraging of such brands would not have been possible (Nitsch 1997).

The demand for continued improvement in these facilities is predicted to continue, forced by ongoing urbanisation and the consequent need for people to live remote from their food supply. Projections for urbanised population suggest that in developed countries, urbanisation will grow from 75% to 84% of the population between 1995 and 2025, and in other countries from 37% to 57% over the same time period (United Nations, World Urbanisation Prospects, 1994).

The food industry will continue to attempt to deliver the products that urbanised people want and is moving in the direction of single-source suppliers (Mermelstein, 1997). Fast food chains are a good example of the use of single-source supply to create uniformity and consistency of outputs.

Difficulties with the availability and continuity of product supply will become increasingly unacceptable to buyers in all markets (Project 98 1997). These supply factors have, in certain markets (Roddy et al 1994), proved to be constraints to the development of markets for organic food products. For example, in the UK where the market for organic foods has doubled since 1995, and where almost three-quarters of the population are sympathetic to the notion of buying organic products, the supermarket Sainsbury has to import 75% of its organic products (FOOD 1998). Nevertheless an explosion in global organic trade is predicted. Based on the "current level of organic trade- US$11 billion- and annual average growth rates of 30%, it could reach $100 billion by the year 2006", with the US dominating world trade "after unification of its organic standards" (FOOD 1998).

5.7 Price

Quality, freshness and convenience are often rated as top value factors by survey respondents (Schurer 1997). Not that price is not important (Project 98 1997), but the price/value relationship is more critical (Project 98 1997). Apart from particular consumer segments, buyers are relatively unwilling to pay more for products produced under an EMS (Project 98 1997). The growth in UK market, for example, for organic foods is similarly constrained by price differentials (Roddy 1994, Roddy et al 1994, Tregear et al 1994), although price differentials do exist (Project 98 1997). Most of the multiple retailers in the UK charge a premium for their organic products (e.g. Sainsbury charge around 25% more). However when Tesco dropped its prices for organic products to that of conventional products, sales rose "340% in only 8 months" (FOOD 1998).

Consumer purchase intentions in the organic food market are heavily influenced by their perception of the value of the product (Kyriakopoulos & Oude-Ophuis 1997). Retailers attempt to add more perceived value to a product, while maintaining prices (Project 98 1997). While this perceived value is likely to encompass all the `quality attributes' discussed previously in this paper, environmental awareness may (Project 98 1997), or may not be part of this mix (Project 98 1997). Certainly in one US study of fresh organic produce purchase decisions, it was concluded that purchase was determined by increased health and safety perceptions of the products, there being only a casual link between appearance (and other quality attributes) and price (Estes & Smith 1996).

Again considering organic foods, 45% of purchasers in one UK survey purchased the foods because of personal health concerns, and only 9% because they were concerned for the environment (Tregear et al 1994). One might expect that the strength of such environmental concern/awareness, relative to other attributes would affect both purchasing and price. However, it has been shown that "those who claim to be concerned about the environment and those who take positive action by purchasing organic food, are not necessarily the same" (Davies et al 1995, Project 98 1997). A primary factor in organic food purchase in one market was the consumer's level of personal disposable income (Davies et al 1995). This was also a major factor in the choice of location of organic supermarkets in the UK (Seaton 1996).

5.8 Products

Increasing consumption of fruits and vegetables has been emerging as one of the strongest growth trends of the decade (Potty 1995). In the US between 1995 and 1996, 77% of consumers said they were trying to eat more fruit and vegetables, up 14% from previous year (Sloan 1996). Similarly in the UK, fruit and vegetable products have shown "growth in consumer spending of between 17 and 50% year on year" (Gentles 1997). One of the most important factors driving this increase, is nutrition (Sloan 1996), and with increased awareness of the food pyramid, and dietary recommendations (Bender 1998), fruit and vegetables provide daily quotas in a very convenient way. Continued increases in the consumption of fresh fruit and vegetables are expected in the U.S. in the next five years (Mermelstein 1997), "as long as consumer confidence in safety is maintained." This interest does not relate to only fresh products. Canned and frozen vegetables and fruit are also enjoying increased sales (Sloan 1996). Convenience and economical pricing may also be factors here.

In parallel with increasing consumption of plant-based meals, (e.g. vegetarian meals are up 38% in the UK (Gentles 1997)), there is a decline in the consumption of animal based products particularly poultry and beef in the UK (Gentles 1997, Sloan 1994, Potty 1995), with dietary recommendations encouraging limiting intake (Bender 1998). Freezer space (UK) is limited, affected by growth products such as ready frozen meals, pizzas etc. To maintain freezer space products must be packaged in a format to meet consumer needs. The trend, away from roasts and family meals, is toward processed meats, which now account for 53% of all consumption (Gentles 1997).

The choice of product for sale into export markets (e.g. Japan) will be increasingly limited to those that have a demonstrably competitive advantage. "It is these, and only these, which should be promoted under a clean, green, safe banner" (Project 98 1997).

5.9 Auditing

In consideration of consumer preferences and attitudes toward organically grown produce in the U.S., testing and certification, sensory qualities and competitive pricing were found to be the most important factors that would enhance the marketing potential of the food (Chung 1996). These testing and auditing systems need to be "systematic, quantifiable, regular and documented" (Andrews 1993, Project 98 1997).

The effect of quality efforts via HACCP or other systems will need to result in "demonstrably safer food products" (Mermelstein 1997, Project 98 1997). While ISO9000 has become the accepted standard for quality assessment because it demonstrates a systematic approach to suppliers' quality efforts (Bossert 1998), the development of enhanced systems to determine the degree of a company's quality performance and degree of quality excellence are forecast (Mermelstein 1997). It is unlikely that anything less than similarly quantitative Environmental Management systems and audits will be credible in the marketplace (Project 98 1997), where consumers are reported to be confused and cynical ( Project 98 1997).

With the globalisation of world trade in food, regulatory issues are very important. The work of the Codex Alimentarius Commission is seen as crucial in developing standards that will be used as references by the World Trade Organisation under GATT (Mermelstein 1997). Therefore Codex developments with respect to EMS will need to be monitored.

Supermarkets are increasingly aware of supplier quality (Project 98 1997), and in some cases chains have their own Technical Services divisions to ensure the quality, safety and legality of the foods they handle (Heard 1996, Project 98 1997). Their emphasis is on encouraging supplier best practices (Project 98 1997), which may be expected to involve self-audit practices, as well as third party verification (Project 98 1997).

To maintain consumers' trust in manufacturers' claims (Project 98 1997, Grijspaardt-Vink 1996) they would probably only have confidence in fully independent auditing of internationally recognised Eco label standards and certification (Project 98 1997) and more information (Project 98 1997). Similarly retailers can be expected to support measures aiming to "increase standards and decrease confusion" (Project 98).

5.10 Food Safety

Consumers expect the food they buy to be safe (Project 98 1997, Byrne, 1998) and international buyers consider (Project 98 1997) this is more important than, environmental issues in importance (Project 98 1997). Generally food safety includes the absence of physical, chemical or biological hazards to the consumer. This perception of "good long term" may be worthy of further investigation as a possible platform for marketing EMS foods (Project 98 1997). Also expected is that the food can survive reasonable mishandling by others in the food chain yet still keep its quality and value in the hands of the consumer prior to consumption (Cleland pers.comm.).

The largest outbreaks ever recorded of three foodborne diseases (E Coli, Salmonella, Listeria) occurred only recently and in highly developed countries (Jay 1997). Several reasons can be offered to explain why larger outbreaks have not occurred in earlier years. Compared with the situation in the 1950's and 1960's, there is now increased concentration of food production (Mermelstein 1997) and fewer food producers. This means that foods are shipped further and held for longer periods, thus creating conditions that can lead to large outbreaks. There are older and more at-risk individuals in the population now (Mermelstein 1997), and laboratory detection and reporting is much improved. These trends may be expected to continue in the next 5 years and therefore the risk of such incidents recurring, perhaps on a larger scale, will not diminish (Mermelstein 1997). Indeed future outbreaks of food illness will continue to create demand for changing and improving food safety (Wright 1994).

Contamination from pathogens represents only part of food safety risk. Viral infections are another source of contamination; the possibility of pesticide residues remaining in foods is still a consumer concern (Byrne 1998), and radio-nuclide contamination remains a consumer fear (Project 98 1997). The long-term impacts of safety crises are difficult to evaluate. For example, the BSE crisis affected consumer confidence for beef. However such events may further accentuate existing concerns with health, food quality and safety, impacting on demand for products other than beef (FDA 1997).

Industrialisation of food production has led to great improvements in food safety, and consumers have become accustomed to very high safety standards. Thus, when there is a failure, the impact on confidence may be far more devastating than is deserved. Certainly food scientists and food processors appear to have lost credibility, and the initiative, in forming consumers' opinion on food safety matters. They must now accept that safety standards expected of them will become more exacting (Laitt 1997).

5.11 Regulatory Trends

Following widely publicised food safety incidents in recent years, Government agencies have become even more involved in food safety. The European Commission is developing a new approach to consumer health and safety and two recent documents, "Consumer Health and Food Safety" and "The General Principles of Food Law in the European Union" are the foundations for this revised food policy (Byrne 1998).

Similarly in the US, a national food safety initiative was announced by President Clinton in January 1997. This involves six agencies in the federal government working to identify risks and to design strategies to reduce them (FDA 1997). Amongst initiatives to achieve this, efforts to improve inspections and compliance have already seen the FDA's seafood HACCP regulations brought into effect and Pathogen Reduction Requirements for meat and poultry industries are being phased in. FDA and USDA will also cooperate in evaluating the feasibility of HACCP for commodities such as fresh fruit and vegetables, and other foods (FDA 1997). Further, to enhance inspection coverage of imported foods, FDA will work to increase the number of mutual recognition agreements (MRA's) with trading partners. Under MRA's, the trading countries ensure that food is produced and manufactured under equivalent systems that provide a comparable level of safety.

The regulation of food issues may not, however, be best served by governments (Project 98 1997). In a 1998 survey of public perception of biotechnology, international organisations like the UN and WHO were considered better placed to regulate modern biotechnology than national governments, in all countries of the survey. Self-regulation by scientific organisations and ethics committees was also strongly preferred over regulation by national governments (Macer 1998).

5.12 Natural Foods

There has been a decline in public confidence in modern farming and processing methods due to recent food scares (Canovan 1996). At the same time, increasing consumer awareness of other food borne hazards eg pesticides, antibiotics and hormones in foods, and artificial ingredients and additives are fuelling the consumer demand for foods in their native states (Canovan 1996).

Consumers associate natural foods with health (UK EIU 1996) and high quality (Kuntz 1996). They are more likely to buy a product labeled as "all natural" and are also willing to pay more for such products (Sloan 1996a). Growth in this category has been notable in recent years, and in the US, sales of so called `natural' foods increased by 22.7% in 1994 and by 22.6% in 1995, reaching a total of US$9.2 billion in sales (Sloan 1996a).

5.13 Fresh Food

In both the US (Sloan 1994, Sloan 1996) and Europe there is an increasing demand for fresh products. Fresh is associated with an agreeable taste, good quality, good nutrition, and above all, healthful food (Grijspaardt-Vink 1996).

Associated with fresh is the concept of minimally processed produce, and consumers in the US and other countries have increased their consumption of these (Larson et al 1997). This increased consumption is partly due to developments that have improved the quality and convenience of those products. Modified atmosphere packaging (MAP) which includes vacuum packaging, is a method that has gained popularity for increasing the shelf life and quality of various products. Some concerns exist, however, about whether this atmospheric modification may lead to products that appear edible but contain dangerously high levels of pathogenic bacteria or toxins (Larson et al 1997).

Since 1994, the term "fresh" has gained in popularity in the US and widened its lead as the most desirable food label claim (72%), over low-fat (62%), fat free (61%) and cholesterol free (52%) (Sloan 1996). The fresh market is maturing and moving across virtually every product category in US supermarkets (Sloan 1996).

Indicative of this trend is the increasing interest in premium organic food lines. This interest, once fueled by concern for food safety, now relates to these products being used as a "barometer of freshness" (Sloan 1996), by both consumers and chefs. These fresh products represent a heightened food safety risk, and their handling by relatively unskilled labour may add to such risk.

5.14 Traceability

Total traceability not only offers tremendous reassurance to the customer, it also allows for quality issues to be addressed by maintaining a register of producers causing a disproportionate level of problems (Dunn 1997), and is increasingly demanded by retailers (Project 98 1997). News of high volume recalls and food poisoning events are frequent events in our newspapers. BSE, E coli 0157, physical contaminants and chemical residues can become the focus of media interest within hours.

Retailers and manufacturers have a requirement to identify and recall non-conforming product in an effective and cost efficient manner. The need for company directors and officers to show all due diligence in the production and distribution of product, combined with increasingly common litigation, means raw materials must be traceable back to suppliers. Regulatory requirements for traceability are increasing, and EU Directives require it. Retailers are forcing traceability back down the chain to protect their reputations, for with traceability comes transfer of liability (both legal and media attention) to the supplier. This is particularly true for retailer house brands, which include all fresh meat, fruit and vegetables.

5.15 Trade and Environment

Trade and environment policy issues are also of relevance here. Following Morriss, 1994, though limited by the recent GATT agreement, growing consumer concerns with the environmental impacts of agriculture create a natural constituency for non-tariff barriers to trade (Runge, 1990) and for domestic support encouraging environmentally-friendly farming practices. Correcting environmental problems through trade policy instruments carries the danger of undoing progress being made towards freer trade. The instruments being advocated for environmental protection (border taxes, trade bans, countervailing duties, etc) are the same instruments which are being removed from international trade. The new era of liberalised world trade faces the risk that protectionist interests substitute these same instruments in the name of environmental protection.

Countries which raise their production and import standards for environmental purposes may impose restrictions on goods which previously were bought and sold quite freely. If producers in an importing country are subsidised by their governments (for reasons of environmental policy) then the exporting country may be less competitive. If exporting countries have less demanding environmental standards than importing countries, and no tax charge is imposed on their import to make up for this, then domestic producers are worse off. Some countries can thus gain from trade by importing environmentally sensitive goods rather than producing them - a process called exporting an "environmental problem".

While there are differences between the Sanitary and Phytosanitary SPS), and Technical Barriers to Trade (TBT) GATT agreements, there are also parallels between trade-restricting measures like sanitary and phytosanitary restrictions and environmentally-based restrictions on imports. Both tend to raise the cost of delivery of the final goods and reduce the potential for greater trade. In this connection, the General Agreement on Tariffs and Trade (GATT) is an important world agreement as it has specific provisions for resolving conflicts in trade caused by non-tariff policy measures. GATT provides a world forum where countries can resolve difficulties and where international rules can be established for the harmonious conduct of trade.

Proponents of freer trade argue that domestic environmental policies are the sovereign concern of individual nations, and should not be subject to countervailing measures or other pressures from other countries. The counter view is that countries wanting to maintain stringent environmental standards, while not undermining the competitiveness of their domestic industry, have but two choices. They can either:

  1. establish import tariffs to offset pollution costs so that domestic producers will not be disadvantaged when competing with imports without similar environmental regulation; or
  2. subsidise the cost of environmental protection from general revenues by underwriting pollution costs.

Should the free trade view eventuate, as advocated by New Zealand in the trade policy arena, developments in domestic policy-settings in countries to which NZ exports agricultural products may become not only a factor in relative competitiveness but will also indicate the role increased use of non-tariff trade barriers may play in market access.

5.16 Trade and Animal Welfare

The World Trade Organisation (WTO) Sanitary Phytosanitary (SPS) agreement spells out the concept of equivalency, where countries should accept those systems which have the same outcomes should be considered equivalent. MAF Regulatory Authority is actively working to have our regulatory framework accepted under SPS agreements. WTO rules state that importing countries may not use Technical Barriers to Trade (TBTs) to prevent access to markets. In some cases this requirement is being "flexibly interpreted" (e.g. EU ban on growth hormone in meat).

The animal welfare issue is an example that can be used to illustrate the distinction between market access issues and market and product positioning within the trade policy context. Bayvell, 1996, explains that existing WTO rules preclude the use of animal welfare issues as non-tariff trade barriers, to prevent market access, as evidenced by the successful Mexican challenge US attempts to block tuna fish imports, due to incidental dolphin capture. But he suggests that animal welfare issues are much more likely to impact on consumer perceptions of New Zealand agriculture in general, and specific livestock products in particular. It is the consumer-led, as against regulatory-led, influence that has resulted in the development of on-farm quality programmes and UK product labelling schemes such as "Freedom Foods" and "Star Cares", and the adoption of environmental quality systems standards such as the ISO 14000 series.

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