Organic Food: A Niche Market Goes Global

By Jock O'Connell

This is the author's text of an article that appeared in the Forum section of the Sacramento Bee on Sunday, October 8, 2000.

An interesting thing has been happening lately to the small family farmer, that beacon of virtue whose impending demise has been decried by politicians and pundits at least since Pliny the Elder took stylus to parchment back in 77 A.D. to deplore the state of agriculture in the Roman Empire. In droves of suitably modest proportions, members of this perennially endangered species of entrepreneur have turned from conventional farming and embraced organic farming practices.

What's more, many of these converts are not making the transition to get in tune with nature or to supply odd- looking produce to the Birkenstock crowd at local farmers markets and quirky food co-ops. With growing frequency, organic food producers are shipping their products to consumers from Bangkok to Berlin who are becoming more discerning about what they eat. What had once been a cozy niche in which local farmers sold fresh produce to neighboring consumers is fast going global -- to the delight of many and the chagrin of some.

U.S. Department of Agriculture reports that the number of organic farmers in this country have been increasing by about 12 percent each year and now stands at about 12,200 nationwide. An additional 15,000 growers are thought to be using organic methods but, for a variety of reasons, are not formally certified. And while the organic food sector is definitely seeing the arrival of large, corporate farming operations, most growers are still small-scale. Indeed, according to a recent survey by the Santa Cruz-based Organic Farming Research Foundation, nearly 87 percent of America's organic growers are single-family operations or family partnerships.

California growers are the major suppliers of organic food products to domestic and foreign markets. Karen Klonsky, a UC Davis agricultural economist specializing in the organic farming sector, estimates there are as many as 2,000 organic farms in California today. They grow nearly half of the nation's organic vegetables, with lettuce accounting for the largest share of acreage. The state's farms also led in the production of organic fruits and nuts, including grapes, apples, citrus fruits, and tree nuts. California had the most certified organic rice production, and lead the country in organic poultry production as well as organic cultivated herbs used for culinary and medicinal purposes.

The new attractiveness of organic farming is not hard to fathom. Consumer demand for organic and natural foods in the U.S. has been exploding at double-digit rates since the early 1990's, reaching an estimated $8 billion this year. Worldwide organic food sales in 2000 will likely exceed $20 billion, up from $10.5 billion in 1997. Furthermore, both here and abroad, average annual growth in organic food sales is expected to continue at a 20-25 percent pace through the end of the decade.

Even though most U.S. growers have their hands full trying to keep customers here supplied with organic products, others are not ignoring the major export opportunities emerging in countries in the Far East and in Europe whose farmers are less able to keep pace with growing consumer demand. Because exports of organic foods are lumped in statistics with those for non-organic foods, assessing the pace of growth of this business must rely on indirect measures.

For example, sales of organic food products in the United Kingdom have been growing at a 40 percent annual clip in recent years. Yet Britain's organic farmers can supply only one-fifth of this demand. The need to look abroad has led at least one British grocery chain, Sainsbury, to take drastic measures. Earlier this year, the company announced a plan that would transform the Caribbean island of Grenada into an all-organic farming operation to help stock its stores in Britain with a wide range of organic produce.

The boom in the organic food sector is not being universally welcomed by existing organic growers and food processors, many of whom mistrust the motives of the new entrants. Pervasive changes are underway throughout the entire food chain from grower to retailer. Not only are more players entering the picture, huge food processors and supermarket chains are reshaping the market's structure. Many organic old-timers fear that rapid expansion of the sector will subvert efforts to maintain quality and organic integrity. Certainly, the premium prices commanded by organic foods are an invitation to fraudulent labeling and other misrepresentations.

To the distress of traditionalists, the industry is even spawning its own multinationals. Last year, for example, an American company, Horizon Organic Dairy, reached abroad and acquired Rachel's Organic Dairy, Britain's best-known organic yogurt maker, as part of a strategy to gain a dominant share of the European market for organic dairy products.

Some even question whether mass marketing is compatible with the values that gave rise to organics as an alternative food production system, fostered by locally or regionally based small-scale producers and businesses. Russell Libby, executive director of the Maine Organic Farmers and Gardeners Association, argues that "We figure we should feed our neighbors before we feed people in other places."

Such concerns, however endearing, are apt to be swept aside as organic foods go mainstream and attract the ministrations of the largest growers, processors and marketers.

The odd thing is that what some see as the wave of the future is, in many respects, downright retro. Food production in many poorer regions of the world is presumptively organic for the simple reason that local farmers could never afford to employ chemical fertilizers, pesticides or herbicides. The irony is almost palpable in the case of Cuba which, because of the decades-old U.S. embargo and limited financial resources, never really got away from organic farming. Now it's poised to become a major supplier to the world market.

Converting from conventional to organic farming is a perilous move for most farmers. It is a process that usually involves taking valuable land out of production for two to three years so that the soil can, in effect, cleanse itself of the chemical residues of conventional farming. It also requires that farmers and processors prepare a comprehensive organic plan detailing their management practices, maintain thorough records to document their adherence to the organic plan, and undergo an annual inspection of their operations by an independent certifier.

Most European countries have established financial support schemes to assist farmers converting to organic production. As a consequence, the European Union's organic farming community has grown rapidly in recent years. That's not been the case in America, however. Some states have begun subsidizing conversion to organic farming systems to improve the environment. In Iowa, organic crop production has been an approved state conservation practice since 1997, and is eligible for cost-share support from USDA's Environmental Quality Incentive Program. In Minnesota, the Department of Agriculture implemented an Organic Cost Share Program in 1999, which reimburses Minnesota producers for up to two-thirds of the cost for organic inspection and certification. Also, several state-run certification programs charge only nominal fees.

U.S. government efforts to boost organic production have generally focused on developing national certification standards to assure consumers of consistent product quality. In March, U.S. Agriculture Secretary Glickman announced a new proposal for uniform and consistent national standards for organic food. The proposal offers a national definition for the term "organic." Currently, organic food is certified by various private and state organizations that each use their own standards.

The USDA proposal details the methods, practices, and substances that can be used in producing and handling organic crops and livestock, as well as processed products. It establishes labeling criteria and rules intended to better inform consumers about the products they are buying. It specifically prohibits the use of genetic engineering, sewage sludge, and irradiation in the production of food products labeled "organic." The proposal also prohibits antibiotics in organic livestock production and requires 100 percent organic feed for organic livestock.

Glickman also used the occasion to announce several other steps the Clinton administration is taking to promote organic agriculture. The fiscal 2001 budget includes a modest $5 million for research to develop improved organic production and processing methods, evaluate economic benefits to farmers, and develop new organic markets. The USDA chief also promises to establish a pilot organic crop insurance program to help organic farmers better manage risk. He also revealed that the USDA and the University of California at Davis will conduct research on organic production and on ways to enhance farmers' ability to market organic fruits and vegetables.

Surveys here and overseas indicate that as many as 80 per cent of consumers, concerned by a series of heavily publicized food-contamination scandals, would buy organic produce if the prices were the same as conventional food. But therein lies the dilemma. Many of the farmers lately "going organic" are much more committed to capitalism than to any esoteric philosophy of environmentally-sound growing practices. More than anything else, the newcomers regard organic farming, with its burgeoning numbers of consumers willing to pay a 20-25 percent premium for organic products, as a way of keeping afloat at a time of declining farm prices.

The United States produces an organic counterpart to nearly every conventional agricultural product grown here. Many of these products are exported, primarily to Japan and Western Europe. Although the strongest current sales are in grains, beans, and ingredients such as flour, fruit juice and food starch, the U.S. Foreign Agricultural Service reports growing demand for fresh and dried fruits, frozen vegetables, nuts, wine, juice, snacks and prepared foods. With global demand outpacing supply in many categories, the world organic market is in a unique stage of development. California and other U.S. suppliers may find it advantageous to begin now making connections overseas and establishing a presence as part of their long-term marketing strategy.

Copyright 2000 By J. A. O'Connell

For other articles by Jock O'Connell, click on Essays