What’s up with the organic market?
Next year will mark twenty years since the Organic Foods Production Act was passed by Congress, creating the National Organic Program (NOP), which standardized organic certification. It took a while, but in 2002, the final rules that now govern organic farming, food processing and handling were implemented. After that, the official green and white USDA organic label became ubiquitous on organic food. All this was intended to promote nationwide consistency in organic food production practices, facilitate interstate organic commerce and increase consumer confidence about organic products. Whether you like the system or not, there’s been a boom in sales of organic products.
The Organic Trade Association, which surveys companies with organic products, reports that industry sales of organic products went from $1 billion in 1990 to over $24.6 billion in 2008 (www.ota.com). Even though 2008 was a tough economic year, organic food sales continued to increase, by 16 percent, while sales of organic nonfood products (cosmetics, pet food, etc.) grew more than twice that much.
Currently, organic foods make up 3.5 percent of all U.S. food sales, with fruits and vegetables accounting for about a third of organic food sales. Dairy accounts for 16 percent of organic food sales, and packaged organic foods make up 13 percent of sales. Organic meat accounts for only 3 percent of organic food sales, but that’s also on the increase.
According to the U.S. Census of Agriculture, in 2007 there were over 17,000 certified organic farms with 2.6 million acres of farmland in production. Of that land, half was planted to organic crops and almost a million acres was in pasture.
The farmgate sales value of organic food was $1.7 billion in 2007, with organic crops accounting for $1.1 billion in sales. Organic livestock, poultry and associated products accounted for nearly $600 million in sales. Since overall retail sales of organic food was about $20 billion in 2007, my calculations show that farmers are capturing about 8.5 percent of consumer expenditures on organic foods.
The organic market
This past June, the Economic Research Service of the USDA took stock of the organic market, including the consumer end of things, in a report called “Emerging Issues in the U.S. Organic Industry” (www.ers.usda.gov/Publications/EIB55/EIB55_ReportSummary.pdf). The following is a summary of their findings.
Consumer demand for organic food has risen quickly over the past decade, triggered in part by the USDA’s organic regulatory program and label. Retail sales of organic foods have spread far beyond the natural products niche in urban areas and college towns and into big-box stores across the country. This fast-paced growth has led to input and product shortages in organic supply chains. In addition, concern about premium-priced product sales in a tight United States economy, as well as competition from new environmental labels, are emerging in the organic industry.
Organic consumers and the economy
Surveys suggest that many organic consumers may not be particularly sensitive to the price premium paid for organic products. However, while frequent buyers of organic products may not change their organic purchasing habits even with the current economic slowdown, infrequent buyers may limit their purchases of organic products, and the rate of gain for new organic consumers may decline. A nationwide survey of food shoppers in 2007 found that consumers who had purchased organic foods but no longer did so cited its expense as the major reason.
Interestingly, high household income is not necessarily associated with organic purchases, despite price premiums for organic products. Organic consumers are not typically shoppers in search of the lowest-priced products, but rather they want to accomplish tasks related to “procuring dinner, relaxation, an afternoon workout snack, indulging one’s child, the monthly stock-up trip and so forth.”
At the retail level, organic produce and milk, the two top organic food sales categories, receive significant price premiums over conventionally grown products. However, a 2005 study of 37 organic fruits and vegetables found that this organic premium, compared to the conventional price, was under 30 percent for over two-thirds of the produce items. The national average price premium for organic milk was 98 percent above the conventional price in 2004.
Organic and local sales
According to a 2004 survey, 24 percent of organic sales were made locally (within an hour’s drive of the organic handlers’ facilities) and another 30 percent were made regionally. A small proportion of domestic organic sales, 7 percent, was exported.
A recent national survey of U.S. consumers who shop at “natural food” stores posed the following question: “If you were purchasing a particular ingredient for a recipe and you had a choice of either a local product or a non-local organic one, which would you choose, assuming equivalent price and quality?” In this head-to-head comparison, 35 percent of respondents chose local and 22 percent chose organic; 41 percent chose both equally. Other researchers have reported similar findings on consumer preferences for local over organic food. That may be good news for farmers; according to the recent Census of Agriculture results, approximately 136,000 farmers reported selling agricultural products directly to consumers, while only about 20,000 farmers reported producing organic products.
Organic and local labels are not necessarily competitive. As the number of farmers’ markets in the United States continues to grow, many market managers report strong unmet demand for organic vendors. A variety of local-organic food initiatives are emerging in response to the unmet needs for local and organic products in farmers’ markets, supermarkets and institutional settings. Legislation to support both local and organic agriculture has been proposed in a number of states in recent years.
The author is vegetable and berry specialist with University of Vermont Extension based at the Brattleboro office.