The organic and natural products sector covers a broad range of product lines. These include the produce of organic agriculture, herbal products and virgin coconut oil. The organic sector broadly covers farming, processing, trading and marketing of agricultural products which conform to standards for organic farming. The herbal and natural products sector covers the manufacturing and trading of personal care, functional food and herbal drugs. In this report, the terms herbal and natural may be used to refer to the same products. The virgin coconut oil sector covers coconut farming and processing but its product can be classified either as organic
or natural product or both.

The global organic market was estimated at US$23 billion* in 2002 with an average annual growth rate of around 25%. Western Europe and North America comprised 97% of the global market for organic products. The natural products sector was estimated at US$88 billion* in 1999 with a 10%-20% annual growth rate. The market for natural products is fairly distributed across Europe, Asia and North America with Germany, China and US as the leading consumers.

The Philippine organic and natural products sector is still relatively young with most firms having an average of 2 to 5 years in operation. The "pioneers" in the sector have been established in the last 15 to 18 years. The largest sub-sector is the organic sector followed by herbal and natural products sector and virgin coconut oil.

Based on DTI estimates, the domestic market for organic products was valued at US$6.2 million in 1999. For natural products, the local market was estimated at an average of US$40 million for the same year. For virgin coconut oil, there's not enough market estimate yet for local and international markets considering that it's still a very young sector.

There are no reliable estimates of the total number of enterprises and ventures engaged in the organic and natural products sector at present. Most companies in the industry are small to medium in size. These are spread out in various parts of the country. Firms generally market their products in Metro Manila and major urban centers. The organic and natural products firms cater more to the middle range segment of the market while producers of virgin coconut oil target more the high end market.

Producers of virgin coconut oil are also more export oriented with the United States as the main export destination. Only few companies have gone into the export of organic and herbal products. Export figures for the whole sector are still not available at this time.

The value chain of the organic sector is structured in a manner similar to the agriculture industry and characterized with farmers cultivating small parcels of land. Some operations cover the entire chain of production, processing and trading. Some producers trade or sell their produce to consolidators such as private entrepreneurs or as part of the cooperative or NGO services. Consolidators in turn provide processing or trading as value adding activities and some cooperatives and non-government organizations provide financing or training support to farmer growers. This structure is also reflective of the virgin coconut oil sector and at some point for herbal and natural products sector. The latter’s value chain is characterized with more manufacturing activities that rely heavily on raw materials supply and processing operations.

There are numerous issues and concerns in the inbound logistics and operations part of the value chain for the sector. Organic producers are confronted with lack of availability and quality of organic inputs and production conversion technology to guide their shift towards organic production system. The companies in herbal and natural products sector also face problems in availability of inputs and often resort to importation of semi-processed raw materials for herbal manufacturing. The virgin coconut oil is confronted with basic issue of heat application in the extraction process.

Common issues across the sub-sectors include absence or weak product standards and regulations, ineffective marketing promotions, slow production registration procedure, absence of research and development support and insufficient equipment for expansion.

In their outbound logistics, firms find that packaging materials are inappropriate for the type of products they are marketing. Packaging design is generally poor and does not convey the right image of a healthy lifestyle that their products is supposed to support. Market research of companies is also limited to the middle and high end consumers of Metro Manila. Trade fairs afford critical exposure to both products and company personnel but the cost of participating in these events is high.

Aside from the various issues affecting the value chain of the organics and natural products sector, there is also a need to clearly define the parameters of the industry and the various sub-sectors. Since the sector is relatively young, it is in need of a clear development program to sustain growth and provide the proper directions.


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