First steps in developing an organic food supply chain in Macedonia

Blagica Sekovska1 and Gjoko Bunevski2

Department of Rural Economy and Management, Faculty of Veterinary Medicine, University “St.
Cyril and Methodius”, Lazar Pop Trajkov 5/7, Skopje bsekovska@fvm.ukim.edu.mk
² Department of Animal Breeding, Faculty of Food and Agriculture, University “St. Cyril and
Methodius”, bul. Aleksandar Makedonski, Skopje

Abstract
The organic farming sub-sector in Macedonia follows an industrial model of agriculture and
its development is mostly based on expectations of market price premiums. The organic
farming community is very small and at the beginning of a learning curve. In these
circumstances supply is seen as the biggest problem in developing a market. The research
involved an analysis of consumers’ perceptions and needs for organic agriculture. It also
focuses on opportunities for developing an organic domestic market and supply chain by
stakeholder analysis. Farmers and the supply chain are not yet ready for export and any
potential initiative that organizes collective capacities should be welcomed. The success of
any endeavour depends greatly on an increase in transparency within the organic community
and the supply chain. Development of the domestic market should be given priority at this
point as it has greater chance of short term success and would serve as a foundation for later
accessing the export market.

Keywords: Organic, potential, market, supply chain, domestic.

Introduction

Organic agricultural production can be seen as a concept of farming in which all the
components (soil, plants, animals) maintain a stable coexistence. Several driving forces can be
identified that motivate people to initiate organic production (Zanoli et al., 2004). The
motivation for organic production usually derives from consumers and the market. The
consumer dictates how the food is supposed to be produced, processed, manipulated and sold.
The products are clearly identified, certified and labelled. This could be stimulated by the
state and its institutions. In the EU there are subsidies to enhance environmental safety as well
as for a reduction of pollution of the surface water or the creation of areas with a particular
biological diversity. Further stimulation for organic farming may be initiated by the farmers
themselves. Some farmers do believe that conventional production is unsustainable so they
have created alternative methods of production with the aim of improving their family’s
health and the economics of the farm. The products are not always sold on the market, or are
sold without price differentiation and without certification. In developed countries small
farmers often directly distribute non-certified organic products to consumers. The new EU
countries have adopted EU legislation and have regulations for supporting and protecting
organic farming. Producers from these countries can offer organic products at relatively low

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prices. An increasing amount of organic products is imported into Western Europe (CBI
2005).
A set of intermediaries are used by manufacturers to make their products available for
consumption (Kotler and Keller, 2006). Intermediaries smooth the flow of goods and
services by providing several advantages to producers as a large number of producers lack
the financial resources to carry out direct marketing, and intermediaries have many
contacts and experience that enable the producers achieve more than they can achieve on
their own. (Coughlan et al., 2001) The analysis of the literature suggests that there is no
common classification of distribution channels of organic products. Supply chains of
organic products are often considered as alternative supply chains, which are shorter, more
locally oriented, and in which the producers and consumers are more tightly connected to
each other than those in the conventional food supply chains. However, the involvement of
retailing groups in the organic supply chain has increased the market share of organic
products in many European countries (Hamm et al., 2002). According to the research in
Finland (Finfood, 2003), the demand for the organic products is higher than the supply in
the quality-price ratio. Therefore the organizations should have an eye on the demand and
supply chain. Qualitative method of measuring used to determine the demand-supply chain
of organic products. They mainly concentrate on the information management to know the
performance of the business. The supply chain flow among the players in the markets is
essential to find the organizational relationship. (Anderson and Narus 1990).

The main problems of the organic supply chains identified in earlier research at European and
Finnish levels are: imbalance between supply and demand, high operating costs, lack of co-
operation between actors of the chain, incompatibility of values among actors of the chain,
lack of information flow, and poor supply reliability (Finfood 2003b, Hamm et al. 2002).
Usually, organic products sell across the channels with low demand, like specialised shops for
health food or directly from farm. Historically, organic food was only available in the form of
raw products like grains, meat, milk, eggs, fresh fruit and vegetables and as low processed
products, like dried fruit and vegetables, dried spice plants. Because the organic sector is the
fastest growing food sector in the world, it is very important to develop other distribution
channels as well. The structure of organic food distribution is worldwide mainly in special
health food departments of big supermarkets (50%). Other important channels are specialised
shops for health and organic foods (45%). The rest of organic foods are distributed by direct
marketing (5%) to the catering trade such as restaurants, hospitals and hotels (Zanoli et al.,
2004).

The low quantity and assortment of organic food did not allow important marketing strategies
to be developed for the organic sector in the Republic of Macedonia. Low domestic
production, about 1-2%, mainly consisting of herbs and berries, is a limitation to the
development of the organic chain in Republic of Macedonia and is also a limiting factor for
export.

This paper reports the results of a project commissioned by the Ministry of Agriculture of the
Republic of Macedonia. The complete supply chain management from farm to fork and all
participants in this chain, from suppliers to the consumers, were studied. The main aim of this
project was to identify weaknesses in the supply chain and to detect reasons for the slow
development of organic production in the country.

Materials and methods

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The main aim of the project is to identify factors which determine the demand and the supply
chain of organic products in Macedonia. For that purpose a survey was conducted using a
semi-structured questionnaire with closed and open questions. A statistically representative
sample of 500 consumers in Macedonia was reached. The questionnaire was divided in three
parts. The first part concerns determination questions regarding age, level of education, sex,
family size and income, which categorizes the respondents. The second part contains
questions in which you can choose yes or no answers in relation to what consumers really
know about organic food. The third part concerns attitudes and preferences connected to
organic food. The questionnaires were processed with the SPSS statistical program. For
studying weaknesses of the chain, a Round Table Conference with representatives of all
participants in the supply chain from farm to the fork was held, including farmers,
distributors, suppliers and appropriate institutions.

Results

The results are grouped in factors concerning production, certification, distribution and
buying behaviour. The outcome of the Round Table Conference is described complemented
by some results of the questionnaire from a sample of consumers.

Factors of production and certification

The main advantages of organic production in the Republic of Macedonia are satisfactory
crop yields, protection of nature and landscape, similar agri technical measures to
conventional products and future oriented production with hope for higher prices as is
common in the world market. The biggest weaknesses of organic production are expensive
production compared with yield of crops, low price for organic food, too low quantity which
does not allow the possibility for export, bad eating habits, low cooperation between
producers and other parts of the distributive network, weak market organization and low level
of education.

There are many problems along the supply chain, from the suppliers to consumers. The main
problems in the production process mentioned were supply of organic fertilizers and organic
crop protection materials. Another restriction is the unavailability of biological materials,
which are used in organic production instead of pesticides and fertilizers. It is important to
have designed a list of materials appropriate for use in organic production. To support this
development it is advised that a specialized shop for organic materials and protection
instruments be established.

When talking about production costs, it is evident that Macedonian farmers do not have data
and information on the costs of organic production compared to conventional production.
According to some farmers involved in the Round Table Conference, organic production has
a 30–50% lower productivity than conventional production. Representatives of the
distributional network stated that the Macedonian market can’t absorb a price higher than
30% above the conventional product price. The fact that organic products in Macedonia are
selling presently at the same price as conventional products, besides their lower productivity,
is a strong de-motivating factor for the Macedonian organic producers.

Organic fertilizers and protection instruments are not regulated at this moment, but a rule
book on organic fertilizers is in preparation. In the meantime it is very important to find a way

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of registering imported organic fertilizers. An additional problem is the higher price of these
fertilizers and other materials. Another obstacle to organic production is the certification
process and associated cost. The certification process is very complicated, expensive and
takes a long time. Besides the fact that the Ministry of Agriculture pays 50% of the cost of
certification, this process remains expensive for the farmers.

Distribution factors

Inappropriate sanctioning of low quality products which do appear in the market causes
problems for regular producers. An example is honey made from glucoses pushing down the
price of organic honey. In general, organic production is not so bad, because conventional
production is facing problems, too. A main factor to be improved in the organic supply chain
is the processing of organic products, and even more important is the distribution and sale of
organic products. Nearly half of the questioned consumers is not sure about availability of
organic products (no answer). An additional 26.8 % of the respondents in the survey say that
there is a poor to very poor availability of domestic organic food in the shops (Figure 1).

Figure 1. Availability of organic food in the shops.

excellent
availability
very good
availability
good
availability
poor
availability
very poor
availability
no answer

Representatives of the distribution network indicate many challenges regarding this segment
of the supply chain. The biggest challenge is to develop a good quality control system and
organize a unification of the organic products on offer from the farmers’ side. If consumers
pay more for organic food, they should be sure of the product quality. The consumers do
understand the value of organic food as indicated by the questionnaire, but the quality, the
assortment of organic products and the continuity of supply are problem points. Distributors
are prepared to organize a presentation and tasting of these products, but only if they have
continuous supply. The organic logo is also very important and it should be known to the
consumers. It is also very important to know who guarantees the quality associated with this
logo. Distributors can guarantee display of the organic products, but not the packaging and
certification of the product. For this reasons trust building in the chain is required.

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Factors influencing buying process

The dilemma is how to differentiate organic food from the huge supermarket assortments. The
Ministry of Agriculture has prepared an organic logo, so the next question to the consumers
was “Are you familiar with the organic logo”. A rather small group of consumers (33.6 %)
said that they are familiar to very familiar with the Macedonian organic logo (see Figure 2). In
fact, very often the questioned consumer was not sure what exactly the organic logo is (“don’t
know” answers), and they mix it up with the Macedonian quality logo, which symbolises the
Macedonian original product.

Figure 2. Are you familiar with organic food logo?

very familiar
familiar
familiar enough
low familiar
not familiar at all
no answer

Distributors think that farmers have unrealistic expectations regarding the price which they
state should be 30% higher than for the conventional product. Distributors see problems
regarding certification and fulfilment of the requirements for the sale of organic food. For
establishing regular cooperation between distributors and producers, the preconditions as
discussed during the Round Table Conference are: an organic products list is needed as well
as their quantities and the name and logo of producers; define a way of communication
directly with producers or with an association of producers; support in-store activities, such as
providing educational materials and exposure of a counter for tasting during the weekends.
The main precondition is the fulfilment of basic sale conditions, like appropriate packing, bar-
coding and certificates. When analyzing the price factor we discovered that it is important, but
not the most important factor (see Figure 3).

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Figure 3. Which factors are most important in the buying process.

100%

80%

60%

40%

20%

0%
important
very important

important enough

low important

not important
taste price freshness exposition packing

The survey allows us to make a gradation of buying factors by their importance. Freshness of
product appears to be the most important factor in the buying process, followed by price and
taste, while exposition in store and packaging are less important factors. But, no matter where
organic products are being sold, clear labelling and a clearly visible and understandable
organic logo are essential for a successful marketing of organic products.

Picture 1. Marketing of organic products in Macedonia.

Conclusions
From the realization of this project several conclusions with regard to the “from farm to fork
process” are drawn. The general conclusion is that there are many weaknesses in the organic
supply chain. There is very weak horizontal and vertical integration along the chain which
results in a low volume of production. The financial support from the Ministry of Agriculture
to the organic sector is the most stimulating factor. However, producers think that the
financial support is not enough to compensate for the lower productivity in combination with

6
higher cost. The strongest production motive would exist in the hope of a higher price and a
desire to produce healthy food. Problems can be summarized in several fields:
 Production issues – problems with supply of organic fertilizers and other materials
important for production exist, caused by poor regulations, low availability of
education materials, and high prices of the inputs for organic production.
 Price issues – a calculation of production costs compared to appropriate conventional
production costs will give a clear view of the existing situation.
 Distribution issues – unorganized and an uneven supply of products by the farmers is
the biggest problem for the distributors.
 Promotion issues – recognition of the organic logo is very important. This is not the
case at the moment. Consumers should be more informed and educated.

There are several very important open questions left unresolved like regular distribution,
appropriate packaging and marketing and education of the producers. These should to be dealt
with before starting a serious information campaign on promotion of organic food. Presently,
the main motivation for organic food production is the financial support for organic
production from the government. In the event of the government ceasing this subsidisation,
producers will become de-motivated towards organic food production. An insufficiency of
organic products by domestic production is a limiting factor for the use of more attractive
distribution channels on a permanent basis.

References

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apreliminary analysis, Institute of Rural Studies, University of Wales, UK.
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