The “Greening Economies in the Eastern Neighbourhood” (EaP-GREEN) programme is financed by the European Commission and other donors, and is jointly implemented by the Organization for Economic Cooperation and Development (OECD), the United Nations Economic Commission for Europe (UNECE), the United Nations Environment Programme (UNEP), and the United Nations Industrial Development Organization (UNIDO). Under this programme, UNEP provides support to countries to enhance their knowledge of domestic and international market opportunities and barriers of organic products, and builds trade and production capacities. European market assessment For further information visit http://www.unep.org/greeneconomy/organicagriculture or www.green-economies-eap.org for the main organic export products from Armenia, Moldova and Ukraine The EaP GREEN programme is funded by the European Union Disclaimer: The views expressed in this report can in no way and other donors, and is jointly implemented by four international be taken to reflect the official opinion of the European Union. organizations. Acknowledgements Organic Services GmbH prepared this report with Jörn Berger as lead author, under the guidance of Udo Censkowsky and Gerald A. Herrmann. Gerald A. Herrmann provided input for chapter 3.1 about global organic markets, and reviewed the report. The report benefitted from valuable inputs and comments from Gunnar Rundgren (Grolink) and Boudewijn van Elzakker (Agro Eco – Louis Bolk Institute). Claudia Assmann, Lasse Brand, James Rawles, Jennifer Abb and Verena Balke from UN Environment reviewed the final draft of the report and provided detailed feedback. The report has been edited by Elizabeth Kemf. The design of its cover page was created by Michel Favre, based on previous work by Thomas Gianninazzi. This report was made possible thanks to the companies who agreed to be interviewed, and provided their technical expertise. This report is part of the Organic Agriculture component of the project “Greening the Eastern European Neighborhood” (EaP-Green). The EaP GREEN programme assists six countries of the European Union Eastern Neighbourhood Partnership in progressing faster towards a green economy framework. Decoupling economic growth from environmental degradation should result in higher productivity and competitiveness, better natural capital management, enhanced environmental quality of life, and more resilient economies. EaP GREEN responds to commitments made by countries, the European Union and other partners in major international forums including the Rio+20 Earth Summit. The EaP GREEN project is funded by the European Union and supported by several EU and OECD countries. It is jointly implemented by four international organisations: the Organisation for Economic Co-operation and Development (OECD), the United Nations Economic Commission for Europe (UNECE), the United Nations Environment Programme (UN Environment), and the United Nations Industrial Development Organization (UNIDO). 1 European market assessment for the main organic export products from Armenia, Moldova and Ukraine TABLE OF CONTENTS LIST OF TABLES ....................................................................................................................................... 4 LIST OF FIGURES ..................................................................................................................................... 5 LIST OF ABBREVIATIONS ....................................................................................................................... 6 EXECUTIVE SUMMARY ........................................................................................................................... 8 1. INTRODUCTION ............................................................................................................................ 10 2. METHODOLOGY OF PRODUCT SELECTION FOR ASSESSMENT ....................................... 12 2.1. Selection and assessment methodology ....................................................................... 12 2.2. Product selection ................................................................................................................ 13 3. RESULTS OF THE MARKET ASSESSMENT ............................................................................ 15 3.1. Global organic market growth .......................................................................................... 15 3.1.1. The biggest single organic market............................................................................ 15 3.1.2. The biggest regional market ...................................................................................... 15 3.1.3. Other emerging organic markets around the world .............................................. 16 3.1.4. Will this market growth continue? ............................................................................. 17 3.1.5. Organic area in the world and the EU ....................................................................... 17 3.2. Market access requirements ............................................................................................ 20 3.2.1. Legal market access and food safety requirements ............................................. 20 3.2.2. Private requirements set by the industry ................................................................. 22 3.2.3. EU Import requirements for pharmaceutical and cosmetic ingredients ........... 23 3.3. Cereals, oilseeds and dried pulses ................................................................................... 25 3.3.1. Trade statistics between EU and target region ...................................................... 25 3.3.2. Product distribution and trade flow .......................................................................... 30 3.3.3. Market demand for organic grains in the EU .......................................................... 34 3.3.4. Lessons learned – the importer’s perspective ....................................................... 45 3.3.5. Key observations with regard to cereals, oilseeds and dried pulses .................. 47 3.4. Fruits, berries and nuts ...................................................................................................... 48 3.4.1. Trade statistics between EU and target region ...................................................... 49 3.4.2. Product distribution and trade flow .......................................................................... 56 3.4.3. Market demand for organic fruits and nuts in the EU ........................................... 59 3.4.4. Lessons learned – the importer’s perspective ....................................................... 68 3.4.5. Key observations with regard to fruits, berries and nuts ...................................... 70 3.5. Herbs and honey ................................................................................................................. 72 3.5.1. Trade statistics between EU and target region ...................................................... 73 3.5.2. Product distribution and trade flow .......................................................................... 75 3.5.3. Market demand for organic herbs and honey in the EU ....................................... 78 3.5.4. Lessons learned – the importer’s perspective ....................................................... 84 3.5.5. Key observations with regard to herbs and honey ................................................ 86 2 European market assessment for the main organic export products from Armenia, Moldova and Ukraine 4. CONCLUSIONS AND RECOMMENDATIONS ........................................................................... 87 4.1. Product recommendations for exporters ....................................................................... 87 4.1.1. Grains – cereals, oilseeds and pulses ...................................................................... 87 4.1.2. Fruits, berries and nuts ................................................................................................ 88 4.1.3. Herbs and honey .......................................................................................................... 88 4.2. Conclusions for an organic sector development in the target region ....................... 89 4.3. Country specific conclusions ............................................................................................ 90 4.4. The way forward .................................................................................................................. 91 5. ANNEX ............................................................................................................................................ 92 5.1. Product selection - synopsis table .................................................................................. 92 5.2. Product trees for selected products ................................................................................ 95 5.3. Main importers in Europe .................................................................................................. 97 5.4. Relevant events, organizations and useful links ......................................................... 107 5.4.1. Trade fairs and conferences for organic products in emerging markets ....... 108 5.4.2. Price information sources ........................................................................................ 109 5.4.3. Examples of organic specifications ........................................................................ 109 5.4.4. Country specific organic data from the target region ......................................... 111 3 European market assessment for the main organic export products from Armenia, Moldova and Ukraine LIST OF TABLES Table 1: Selected products for this survey ................................................................................. 13 Table 2: Leading EU countries in organic area 2011 and percentage of UAA in 2012 ...... 19 Table 3: Relevant regulations in the context of this study ...................................................... 20 Table 4: EU legislation for honey .................................................................................................. 21 Table 5: Optional private requirements set by importers with practical examples ............ 22 Table 6: Synopsis of most relevant legal requirements and standards for cosmetic and pharmaceutical ingredients ........................................................................................... 24 Table 7: Leading EU producers of organic cereals 2012 ......................................................... 36 Table 8: German organic cereal production and import share............................................... 37 Table 9: Organic cereal price levels – food grains .................................................................... 38 Table 10: Organic and non-organic cereal price levels – feed grains ..................................... 39 Table 11: Leading EU producers of organic oilseeds 2011 ....................................................... 40 Table 12: German organic oilseed production and import share ............................................. 41 Table 13: Organic price levels – oilseeds ..................................................................................... 42 Table 14: Leading EU producers of organic dried pulses 2011 ................................................ 43 Table 15: German organic production of dried pulses and import share ............................... 44 Table 16: Organic cereal price levels – dried pulses for feed use ............................................ 45 Table 17: Main permanent organic crops in the EU 2011 ......................................................... 60 Table 18: Global organic temperate fruit areas by crop group 2012 ....................................... 60 Table 19: Global organic wild collection areas of berries, fruit and nuts in 2012.................. 61 Table 20: Growth of harvest volume of organic apples in main EU producing countries ... 61 Table 21: Global organic subtropical fruit areas by crop group 2012 ..................................... 62 Table 22: German organic production and import share ........................................................... 63 Table 23: Selected organic import fruits and main supplying countries ................................ 63 Table 24: Leading EU producers of organic nuts 2011 .............................................................. 64 Table 25: Price levels – dried fruit (non-organic and organic) ................................................. 65 Table 26: Price levels – walnuts (non-organic and organic) .................................................... 66 Table 27: Organic price levels – walnut oil ................................................................................... 67 Table 28: Organic price levels – processed fruit ......................................................................... 68 Table 29: Organic price levels – fruit kernel oils .......................................................................... 68 Table 30: Global organic wild collection areas by crop group in 2012 .................................... 79 Table 31: Indicative conventional and organic price levels – herbs and spices ................... 79 Table 32: Selected organic herbal products and main supplying countries .......................... 81 Table 33: Examples of CO extracts for cosmetics ..................................................................... 82 2 Table 34: Global organic beekeeping areas by type 2012 ......................................................... 82 Table 35: Selected organic beekeeping import products and main supplying countries ... 83 Table 36: Indicative conventional and organic price levels – honey ....................................... 83 Table 37: Indicative conventional and organic price levels – beekeeping by-products ...... 84 Table 38: Quality specifications for organic cereals, oilseeds and pulses ........................... 109 Table 39: Development of organic agricultural land in the target region ............................. 111 Table 40: Total organic areas in the target region 2012 .......................................................... 111 Table 41: Organic operators in the target region 2012 ............................................................ 111 Table 42: Number of organic beehives in the target region 2012 .......................................... 111 Table 43: Export of organic products from Moldova to EU countries in 2013 ..................... 112 4 European market assessment for the main organic export products from Armenia, Moldova and Ukraine LIST OF FIGURES Figure 1: Global evolution of organic area between 2006 and 2012 in million ha ............... 18 Figure 2: Global organic agricultural land per continent in 2012............................................. 18 Figure 3: Evolution of EU organic area between 2007 and 2011 in ha ................................... 19 Figure 4: Export destinations of wheat exported by Ukraine and Moldova in 2012 ............ 26 Figure 5: Export destinations of corn exported by Ukraine and Moldova in 2012 ............... 27 Figure 6: Export destinations of sunflower seeds from Ukraine and Moldova in 2012 ...... 28 Figure 7: Export destinations of rapeseed from Ukraine and Moldova in 2012 ................... 29 Figure 8: Export destinations of soybeans from Ukraine and Moldova in 2012................... 29 Figure 9: Product tree for sunflower kernels ............................................................................... 31 Figure 10: Exemplary final organic products containing organic sunflower kernels ............. 31 Figure 11: Exemplary import supply chain grain commodities (non-organic and organic) . 33 Figure 12: Global organic cereal production in per cent of seeded area in 2012 .................. 35 Figure 13: Export destinations of dried fruit from the target region 2013 ............................... 50 Figure 14: Export destinations of walnut from Moldova and Ukraine 2013 ............................ 51 Figure 15: Export destinations of fruit & vegetable juices from the target region 2013 ........ 53 Figure 16: Export destinations of frozen fruit from Ukraine 2013 ............................................. 54 Figure 17: Export destinations of frozen raspberry / mulberry from Ukraine 2013 ............... 54 Figure 18: Export destinations of fruit preparations from the target region 2013 ................. 55 Figure 19: Product tree for apricots................................................................................................. 56 Figure 20: Exemplary final organic products containing apricots ............................................. 57 Figure 21: Exemplary import supply chain processed fruit (non-organic and organic) ........ 58 Figure 22: Export destinations of medicinal herbs from the target region 2013 .................... 73 Figure 23: Export destinations of honey from the target region 2013 ...................................... 74 Figure 24: Product tree for organic rosehip ................................................................................... 76 Figure 25: Exemplary final organic products containing organic dried rosehip ..................... 76 Figure 26: Exemplary import supply chain for medicinal herbs and aromatic plants (non- organic and organic) ....................................................................................................... 77 Figure 27: Main organic export destinations Moldova 2013 .................................................... 112 5 European market assessment for the main organic export products from Armenia, Moldova and Ukraine LIST OF ABBREVIATIONS AMI Agricultural Market Information Company, Germany BIOFACH Annual global trade fair of the organic sector (Nuremberg, Germany) BRC British Retail Consortium BSCI Business Social Compliance Initiative BNN Bundesverband Naturkost Naturwaren Herstellung und Handel e.V. (German umbrella organization for the organic specialized food sector) CA Controlled atmosphere CBI Centre for the Promotion of Imports from developing countries (an Agency of the Ministry of Foreign Affairs of the Netherlands) CEE Central and Eastern Europe CIF Cost Insurance Freight according to International Commercial Terms CN8 Combined European Nomenclature DDP Delivered Duty Paid according to International Commercial Terms EaP Green Greening Economies in the Eastern Neighbourhood programme EC European Commission EEC European Economic Community EFSA European Food Safety Authority EFTA European Free Trade Association EkoConnect International Centre for Organic Agriculture of Central and Eastern Europe EU European Union FAO Food and Agriculture Organization of the United Nations FAOSTAT The Statistics Division of the FAO FCA Free Carrier according to International Commercial Terms FiBL Research Institute of Organic Agriculture (Forschungsinstitut für biologischen Landbau) FOB Free On Board according to International Commercial Terms GACP Good Agricultural and Collection Practices GIZ German Agency for International Cooperation, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH GMO Genetically Modified Organisms GMP Good Manufacturing Practice HS group Group of codes from the Harmonized System Code Customs Tariff 6 European market assessment for the main organic export products from Armenia, Moldova and Ukraine IFOAM International Federation of Organic Agriculture Movements IFS International Featured Standards IQF Individually Quick Frozen ISO International Organization for Standardization ITC International Trade Centre MAPs Medicinal and Aromatic Plants MRLs Maximum Residue Levels OECD Organisation for Economic Co-operation and Development PGS Participatory guarantee systems Ph. Eur. Pharmacopoeia Europaea RASFF Rapid Alert System for Food and Feed R&D Research and Development SA8000 Certification standard developed by Social Accountability International SECO State Secretariat for Economic Affairs, Switzerland SME Small and Medium-sized Enterprises ToR Terms of Reference Trade Map Trade statistics for international business development - from the International Trade Centre UAA Utilised agricultural area UNECE United Nations Economic Commission for Europe UNEP United Nations Environment Programme UNIDO United Nations Industrial Development Organization USAID United States Agency for International Development WHO World Health Organization 7 European market assessment for the main organic export products from Armenia, Moldova and Ukraine EXECUTIVE SUMMARY This assessment analyses the trade opportunities for organic products exported from Ukraine, Moldova and Armenia to the EU market. The document is written for companies involved or interested in organic exports as well as for organic sector organizations and relevant national stakeholders from these countries, as a market-oriented basis for decisions concerning future programmes and interventions for enhancing a green economy transition in Eastern Europe and the Southern Caucasus. First, a systematic product selection was conducted in order to identify and focus on the most relevant products of the three pre-defined product categories: a) cereals, oilseeds and pulses; b) fruits, berries and nuts; and c) herbs and honey. As a second step, international trade statistics were analysed, as organic trade relations can be established faster if relevant non- organic value chains are already established and experience at all levels is accessible. Third, a pre-selection of products was made based on information gathered during interviews with stakeholder organizations as well as a review of trade statistics and available literature. Finally, organic EU importers were interviewed in order to assess the potential future demand, requirements and experience in the target region. The EU market demand for organic products has grown continuously over recent decades even in times of economic crises, and at a faster pace than organic production in EU Member States. Hence, demand for organic raw and pre-processed materials is increasing today. It can be assumed that the long-term prospects are also promising, as all market criteria indicate a trend towards continued positive growth. Thus, the international organic demand is strong enough to allow the conversion of an increasing share of agriculture to organic production in the countries covered in this report. Organic products, certified and labelled as such, already fetch higher prices. The rising demand for organic products and food should enable the three countries to pursue aims beyond production and trade, such as (rural) economic and social development, biodiversity conservation and environmental protection. In Ukraine and Moldova, favourable climatic conditions and ample fertile soils, together with large farm structures, contribute to their strong position for competitive production. The highest organic export potential exists for raw materials high in protein mainly for feed mixes (from press cakes, soybeans and/or dried pulses). Furthermore, cereals (e.g. wheat, corn, barley, rye, triticale, spelt and oat) and oilseeds like sunflower kernels offer good market opportunities. Considerably higher prices can be charged if domestic processing increases (e.g. de-hulled sunflower kernels as bakery ingredients instead of bulk export). Successful organic sector development in the target region should not exclusively depend on exports to consolidated organic markets in the EU. Moreover, added value products in the form of finished organic consumer goods should be positioned simultaneously on both domestic and emerging regional organic markets. Regarding Armenia, the product categories of processed fruits, herbs and honey have the highest export potential. In Armenia, with its negative trade balance for most agricultural products, domestic food security is a challenge and the production of staple food, such as grains, is limited by a lack of arable land. Nevertheless, there are single opportunities for traditional varieties of cereals and pulses, which could be exported as specialty grains. Armenian organic export strategies should consider added value products such as dried 8 European market assessment for the main organic export products from Armenia, Moldova and Ukraine apricots (wild and farmed), fruit kernel oils, herbs (ideally in form of extracts) and specialty honey. Different end uses and specific distribution channels for ingredients should be considered for added value, including food, personal care products and pharmaceuticals. The market for fruits, berries, nuts, herbs and honey from Ukraine and Moldova offer good prospects and can generate positive socio-economic impact and rural development since labour intensive activities are involved in these value chains (e.g. shelled walnuts, dried prunes, cherries and apples, juices and preserved fruit). The assessment concludes with examples of tasks and interventions that could contribute to sector development in the target region. For instance, the weakened supplier image caused by past incidents of fraud in the grain commodity trade in Ukraine and Moldova needs to be repaired. The conclusions and recommendations in this report outline approaches that could facilitate this transformation through the creation of transparent, GMO-free and fully traceable supply chains on a sector level. These must provide differentiation in the market and generate direct trade relations with EU processors. In order to seize current market opportunities successfully, the organic sector should be well coordinated by professionals with relevant training. Moldova’s strategy to ensure that it is a GMO-free country and present itself as such points in the right direction. Its efforts should be supported and strengthened in order to engender trust and credibility in the regional and international organic marketplace. 9 European market assessment for the main organic export products from Armenia, Moldova and Ukraine