Promising Growth in the Organic Food Sector
By Ahnika LeRoy, Contributor
According to a national survey, 71% of Americans are worried about pesticides in their food, and 74% would like to eat food on which fewer pesticides are used. Given these preferences, it is no surprise to see strong growth and market share gains in the organic food industry.
In 2014, organics captured nearly 5% of the total U.S. food market, growing over 11% for the year. Despite present supply shortages, continuing growth is set to create a promising future for both consumers and producers of organic food.
From 2004 through 2014 organic food sales grew 225%, from approximately $12 billion to $39 billion in revenue. In past years, due to the high price as compared with substitutes, organic growth has been somewhat cyclical. Growth fell from 2007 through 2009, reaching a low of 4.6%. However, the past seven years have seen a strong rebound.
Quick market growth has left supply lagging, though food retailers and restaurants are taking action to alleviate supply shortages. For example, Nature’s Path Foods Inc. recently bought 2,800 acres of Montana farmland for more than $2 million to secure their future in organics. Major chain restaurants like Chipotle Mexican Grill Inc. are securing the stability of organic supply by financing farmers, offering technical training and recruiting organic growers.
Reality check: Organic food can be more expensive. Why? Primarily because of the strict certification requirements. To be organic, produce must be grown on land free of pesticides and banned fertilizers for at least three years. Farmers cannot use sewage sludge to fertilize their fields and are banned from using irradiation to kill bacteria. Additionally, they cannot use genetically modified organisms (GMOs). The lack of chemicals and higher costs for organic fertilizers make input costs higher for the producers of organic foods.
And the organic certification is neither easy nor cheap. Farm facilities and production methods must comply with certain standards that can require the modification of facilities. Employees must be hired to maintain strict daily record-keeping which must be available for inspection at any time. On top of those special costs, farmers must pay $400 to $2,000 per year to be inspected. Naturally, these input costs – lack of chemicals, higher costs for organic fertilizers, and certification requirements – will affect what price consumers pay.
However, organic isn’t always more costly. It’s important to shop smarter not harder. An article from Consumer Reports compared 100 food pairings where, on average, organic foods were 47% more expensive than conventional goods. Organic meats tend to be pricier while organic grains and rice are generally cheaper than conventional. Furthermore, options and competition are increasing quickly. More than 90% of food retailers have increased the number of organic foods they sell since 2012.
According to a Kiplinger article, where you shop for organics can make a big difference. Trader Joe’s, which has more than 400 operating locations in the US, is a popular place to get great deals on wholesome foods. In addition, more competitively priced organic food stores are sprouting up everywhere to meet the demands of their consumers. Whole Foods has created a new, smaller store plan designed to reduce costs for the consumer. These new stores are targeted at younger shoppers, primarily millennials.
Organic is now mainstream, and the trend is being recognized by major industry players. Costco now has over 150 organic food options available to consumers and is the nation’s leading seller of organic products with nearly $4 billion in annual sales. Walmart is promising organic foods at reasonable prices, and Kroger is moving into the space as well.
With increasing supply and competition, leading to lower prices it wouldn’t be a surprise to see the organic food sector pick up the pace of growth. Already strong demand is likely to continue to grow as consumers gain more exposure to organic products and have access to them at more reasonable prices. The last decade of growth, while strong, may pale in comparison to future growth.
Creative Commons: “Farmer’s Market” by Rhett Maxwel is licensed under CC BY 3.0
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Posted: June 19, 2015