regional report > Lombardy
Biological products in Lombardy: economic analysis of the transformation and distribution sector
(This research has been carried on by the Dipartimento di Economia e Politica Agraria, Agro-alimentare e Ambientale (DEPAAA), Università degli Studi di Milano, co-ordinated by Prof. Alessandro Banterle in co-operation with EURO INFO CENTRE, Special Agency of the Chamber of Commerce of Milan, within the MED BIO DISTRI NET project co-financed by INTERREG III B MEDOCC Programme).
Within the framework of the MED BIO DISTRI NET project, a quantitative research has been carried out on a sample of 50 Lombardy companies operating in the organic sector (38 in processing and 12 in distribution) trying to provide as much as possible a realistic representation of the Lombardy actual situation.
The research, carried out in the first months of 2005, made it possible to gather for the first time a set of information concerning the downstream phases of the organic production that allows us to sketch a new and interesting portrait on both processing and distribution of these products, identifying its characteristics, challenger and perspectives.
The biological products market, both in Lombardy and in Italy, experienced major expansion during the second half of the 1990s, and the first years of the new century.
However, more recently, there has been a certain overall slowdown. In the Lombard context, this market stabilisation can be perceived in indicators such as: the substantial stabilisation of biological surface areas in the period 2001-2003; the reduction the number of producers; the closure of specialised stores; and reduced biological turnover in economically significant industrial companies.
Lombardy, from the biological point of view, is a region that enjoys limited importance, within the national context, as regards biological agricultural production, but assumes a significant role in terms of transformation and distribution of the said products and, therefore, the final consumption market.
As regards the distribution of biological products in Lombardy, in the survey, the main motivations that drive companies towards the choice of biological products include concern for environmental problems, especially as regards specialised stores, and communication strategies aimed at valorising company image, offering quality products, particularly in the case of the SCS. For the most part, one also perceives an intention to reinforce the commercialisation of biological products.
The majority of distribution companies interviewed display considerable attention relative to biological product quality specifications. This is indicated by the diffusion of production regulations, which in the case of the SCS are realised internally. In addition, in the majority of cases, quality controls are carried out on products by means of laboratory analyses, and as regards SCS companies one notes that many of them have ISO 9000 certification. It is also important to note how quality aspects assume particular significance for product lines with SCS own brands or those of specialised distributors, since it is the distributor who guarantees the product to the consumer. In this sense, distribution increasingly represents the strategic centre of the biological production chain.
Supplies of biological products for distribution companies are realised, for the most part i.e. almost 80%, within the national market, while the remaining part involves imports.
A crucial element in the choice of biological products on the part of consumers is represented by price. In this regard, those distributors interviewed indicate a price differential between biological products and conventional products which ranges from 0% to 40%. In addition, in the SCS there is currently a tendency to reduce the price differential in order to win over consumers and make them loyal.
Moving on to the transformation of biological products in Lombardy, here too a fundamental aspect that emerges in the survey concerns the quality specifications for biological products. In those transformation companies interviewed, various instruments appear to be widely used relative to evaluating quality: 62% of companies have adopted a specific production standard, 84% of companies carry out quality controls, 53% of companies have ISO 9000 certification, and 92% of companies comply with standards relative to traceability.
However, in the survey, one also notes a need to reinforce the analyses relative to product quality specifications. In this regard, one notes that the quality specifications guarantee for biological products constitutes a key element in consolidating consumer trust, given that possible scandals can seriously compromise the image of biological products, with negative effects on transformation company profitability. On the other hand, in the biological segment, one also notes a basic divergence between the Community standards, aimed at encouraging eco-compatible processes, and the needs of consumers, for the most part aimed, at least in the Italian market, at greater alimentary security and product quality.
Supplies for transformation companies for the most part come from the regional and national market, while purchases on foreign markets appear to be quite limited. In addition, the main modality of supplies is represented by contracts lasting 6-12 months, which permit a high level of coordination between agricultural producers and transformers.
The prices of biological products in those transformation companies interviewed are higher than those for conventional products. However, for a significant section of companies, margins are modest. In this regard, one notes a vertical competition between the SCS, on the one hand, which tends to limit prices, in order to satisfy consumer requirements, and specialised producers and transformers, on the other, who have to cover high costs.
Transformation companies attribute considerable importance to product allocation guarantees, encouraged by stable relations with the SCS, and also extending the range of their products.
The reference market for transformation companies is national in character, but there is also a discrete export tendency. Moreover, one also notes a high degree of importance attributed to packaging, as a promotion and communication vehicle in relation to customers.