Growth in organic food sales continues, at slower pace


Issue Date: March 18, 2009
Ching Lee

Despite the faltering economy, organic farmers and market analysts say they expect the market for organic products to continue growing, but at a slower rate.

Farmers such as Scott Park, a diversified grower in Sutter County, say that despite the sagging economy's negative effect on other businesses, the organic market is still "healthy" for the crops they grow and they don't expect the market opportunities to disappear any time soon.

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Organic Foods—U.S. Consumer Sales (PDF, 95 KB)

"I expect organic to be impacted by people checking prices, but at the same time, I think we've built a following of people who are willing to pay more," said Park, whose main organic crops include rice and tomatoes.

U.S. organic food sales have grown 17 percent to 21 percent each year for the last 10 years, according to the Organic Trade Association, which is in the process of tabulating results from its 2008 manufacturer survey, expected to be released later this month. The OTA had originally projected 18 percent growth for 2008, but as some consumers pulled back on purchases during the second half of the year, the association revised its earlier projection downward, to about 10 percent.

Compared to growth in total U.S. food sales, which has been relatively flat during the same 10-year period, the organic food sector has been doing phenomenally well and the outlook "still looks very good," said Karen Klonsky, an economist with the University of California Cooperative Extension in Davis.

Her advice to farmers who are considering going organic is first to examine their production and input costs, then determine where their premiums and outlets are.

"They need to know if they have a market for it, economic crisis or no economic crisis," Klonsky said. "They need to first look at potential buyers. And that would be true for conventional, too. You've got to make sure you can sell it before you grow it."

Park, who has been farming organically for 18 years, sells his processing tomatoes to SK Foods in Colusa County and his rice to Lundberg Family Farms in Butte County. He said he thinks he's "positioned very well" to handle the changing organic market and so far has not changed his cropping plans.

"I pretty much have everything already contracted for '09," he said. "There's not a whole lot of doubt on my end. The doubt will be on yield, depending on weather and depending on water, but not necessarily on price."

Noting that the organic business is a long-term commitment, Park said he wants to maintain a good relationship with his customers by being a reliable supplier, because if his buyers stay healthy, then "I also know I've got a good market."

While he said he doubts the organic market is impervious to the current pains of the economy, he said the sector remains relatively small and growers have not over-saturated the market by producing a huge supply. Even with the growth slowdown, Park said he's confident he's still going to have a market for his crops, although his profit margins may suffer.

"The numbers are speaking for themselves," he said. "They haven't crashed and the buyers still have their markets and they're paying a good price to the organic grower."

Louis Preston, who farms mainly organic winegrapes but has recently expanded into organic fruits and vegetables, said his direct market sales are also doing well. His Sonoma County winery and vineyard provide the primary outlet for marketing his crops, but he also sells his produce at farmers markets.

"I'm encouraged by what I see, even just in our limited realm here, and we are branching out into more products that will be certified organic," he said.

He credits the "buy local" movement as an important factor in the growth of his business and plans to capitalize further on consumers' interest in organic and local agriculture. By diversifying his crops, Preston said he's spreading his risk in case his wine sales dip.

"It's also better for the soil to rotate different crops," he said. "We have animals on the property now. It's kind of old-fashioned farming, which didn't typically grow just one crop; you grow a number of different things. So that's what we're doing."

Considering the big price drops that conventional dairy producers have seen in recent months, Scott Magneson, an organic dairy farmer from Merced County, said he remains optimistic about the future of the organic dairy market.

Magneson decided to go organic four years ago because he was discouraged by the constant volatility of the conventional dairy market with its huge price swings. He became certified last August.

"The size of the conventional dairies was getting bigger and bigger and I didn't want to get any bigger," he said. "(Going organic) was another way to market milk without having to increase my herd size and still be able to sustain our family farm."

Sales of organic milk continue to rise in California, with 2008 sales nearly 19 percent higher than the previous year, according to the California Department of Food and Agriculture, which started tracking organic milk sales in 2006. Since then, organic milk sales have increased every month.

As organic food sales have grown, the number of operations going organic also continues to rise, but at a slower rate of 11 percent in 2008, down from an 18 percent increase in 2007, according to California Certified Organic Farmers in Santa Cruz. This year, that number will likely drop to 10 percent, said Jane Baker, sales and marketing director of CCOF.

"But it's still good growth, which is enviable to many other sectors of the economy, and maybe even to the conventional produce sector," she emphasized.

Baker noted that much of that growth the last few years could be linked to the implementation of national organic standards in 2002 and introduction of the U.S. Department of Agriculture official organic seal, which provides an easy tool for consumers to distinguish and authenticate organic products.

Farmers' interest in going organic remains strong, Baker said, and many who have wanted to become certified are finally taking steps to make the transition. CCOF saw its certified organic acreage jump by 14 percent in 2008, and Baker said the organization has not seen any drop so far this year in the number of applications from farmers wanting to become certified organic.

There's also a big incentive right now to become certified organic because of federal funding available under the 2008 Farm Bill that refunds farmers up to 75 percent of their certification cost and fees, Baker noted.

And the fact that organic offerings are expanding and their price premiums are not as high as they used to be could also be driving consumer demand and sustaining the sector's growth. Klonsky noted that mainstream retailers such as Safeway have hopped on the organic bandwagon "in a really big way and they don't seem to be cutting back in any way."

"There might be some slowing" of growth in the organic market, she said, "and it's kind of at a point where you probably would expect to see some slowing because the growth has been so big. It could be that simultaneously it's hitting a growth plateau, because nobody has been able to predict what that growth plateau would be."

There could be other reasons why growth is slowing for organics, Klonsky said, although she's still unclear how much of it has to do with the current recession. More obvious factors are availability and price of land, which could stunt the growth of a sector that often features farmers who produce on a small scale.

The Hartman Group, a market research firm that has been tracking the organic market, noted in a recent report that the success of other food categories, such as local and artisan products, may be influencing the organic market.

"There's been less interest recently in organic and more now in local as the defining characteristic," said Shermain Hardesty, program director of the University of California Small Farm Program in Davis.

The Hartman study also indicates that consumers who use organic products only occasionally are "cooling off" toward organics, as the number of them using organics at least monthly decreased from 37 percent in 2006 to 26 percent in 2008. What's more, the number of regular users of organics dropped to 19 percent in 2008, compared to 23 percent in 2006.

Baker of CCOF said some consumers whose budgets are pinched might now be choosier about which organic products they buy.

Even with current economic challenges facing consumers and businesses alike, dairy farmer Magneson said he remains confident that the organic market is a good one for him.

"I think as long as the organic industry is able to maintain a quality product, people are going to stick with it," he said. "In the long run I think the organic market is going to be a lot more positive place to be."

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.