ORGANIC MARKET TRENDS
By Vern Grubinger
Vegetable and Berry Specialist
University of Vermont Extension

One often hears that organic farming is a fast-growing segment of agriculture -- perhaps the fastest growing segment. I got to wondering about that, so I looked around for the data to support that claim

Organic farmland.  Sure enough, the Economic Research Service of USDA reports that certified organic cropland for grains, fruits, vegetables and other crops more than doubled from 1992 to 1997, and doubled again for many crops between 1997 and 2003.

In 2003, there were over 1.4 million acres in organic production as part of 8,035 certified farming operations. Sounds like a lot of land, but relatively speaking, organic farming is still small potatoes, comprising less the half of one percent of U.S. farmland. Organic fruit and vegetable producers are ahead of the organic curve, as they account for 2% and 4% of the total acres in their respective commodity groups. (For more on the trends in organic farming seewww.ers.usda.gov/Data/Organic/.)

If the acreage of organic crops is growing, it must be driven by the market for organic food, right?  For that information I went to the Organic Trade Association (OTA), which is made up of members from the organic business community in North America. Their web site (www.ota.com) offers the following information about trends in the organic marketplace

Overview of the U.S. organic industry.  This industry grew to $14.6 billion in consumer sales in 2005, up more than 17% from the year before. Organic foods, by far the largest and most clearly defined part of the organic industry, grew 16% in 2005 and accounted for $13.8 billion in consumer sales. Organic ‘non-food’ products -- including personal care products, nutritional supplements, fiber, household cleaners, flowers, and pet food -- grew more than 32% from a much smaller base of sales and totaled $744 million in consumer sales in 2005.

The organic food market.  There were $13.8 billion in consumer sales of organic foods in 2005 representing 2.5% of total U.S. food sales. That 2.5% ‘penetration rate’ (proportion of the total market) is up from just 0.8% in 1997. Sales of organic food have shown consistent annual growth of 15% to 21% since 1997 (when good data was first available).

Distribution of Organic Foods.  As organic foods become part of the American mainstream, they are increasingly found in more mainstream retail establishments. Although the independent natural grocery or health foods store laid the groundwork for the organic foods system, their share of sales has been streadily declining. In 2005, independent natural food stores represented less than 25% of all organic food sales for the first time. The largest natural food store chains, led by Whole Foods Market and Wild Oats, represent an estimated $3.2 billion of total organic food dollar sales, or 22% of sales, so together the ‘natural channel’ represented 47% of U.S. organic food sales in 2005.

Roughly 46% of total organic food dollar volume was sold through the ‘mass-market channel’ which includes supermarkets/grocery stores, mass merchandisers, and club stores. The remaining 7% was made up of farmer’s markets, food service and other non-retail store sales.

Sales of Organic Food by Category.  Fruits and vegetables account for the largest portion (by far) of organic food sales at $5.4 billion, or 39% of the $13.8 billion total. The fruit and vegetable category grew by about 11% over 2004, not as much as some of the less established categories such as organic meat, fish and poultry, which grew by 55% to $256 million in sales. Dairy is the second largest category of organic food sales at $2.1 million, up almost 24%, while beverages are number three at $1.9 million, up 13% over the previous year. Packaged foods come in fourth with $1.7 million in sales, up 19 percent.

Organic Non-Food.  The market for organic product that are not foods is quite small, with total consumer sales of $744 million in 2005, just a 0.2% penetration rate, which is only one-tenth of the market penetration rate for organic food. However, the market for organic non-foods is growing rapidly; sales increased by over 32% from 2004 to 2005.  Roughly 38% of organic non-food sales, or $282 million, were personal care products. Organic supplements accounted for 32% of organic non-food sales, linen and clothing 21%, pet food 4%, cleaners 3% and last but not least flowers at 2 percent. I’m not sure if that means that the market for organic ornamentals is weak, or if it means there’s plenty of room for growth.

Labeling and Marketing.  Over 200 companies responded to a survey about sales of their organic products. The results showed that the majority of these companies display the USDA Organic seal on some of their products. Seventeen percent reported that USDA labeling requirements and certification programs had dramatically increased their ability to generate sales of organic products. Thirty-eight percent reported that labeling increased organic sales somewhat, 43% reported that labeling and certification had not affected sales, and 1% reported that it had decreased sales. Over half the respondents reported that a lack of dependable supply of organic raw materials has restricted their company from generating more sales of organic products.

Looking Ahead. The OTA commissioned several research organizations to look into their crystal balls, and at the data, to predict the future of the organic industry. Here’s what they said: The organic industry will continue to grow and thrive at a steady rate over the next 20 years, but at a slower pace than the current 20 percent average annual sales growth. The average consumer household in 2025 will contain organic products on a regular basis, including food items, organic clothing, household cleaning products and personal care items.

By 2025 organic products will be sold anywhere and everywhere. Increased sales in restaurants will likely continue. The overall increase in organic sales and acceptance should also translate into increased organic acreage. Younger shoppers will continue to find organic food of interest, especially as ‘GenXers’ pass down their belief systems. Ethnic shoppers including Asian Americans and Hispanic Americans will also continue to be more likely to be organic shoppers, in proportion to their representation in the population.

Government support of organic agriculture will be crucial to maintain the industry’s growth potential. Specifically, the U.S. government needs to support farmers in transition to organic production, and must continue to enforce the standards to minimize consumer confusion.

On the down side.  There are some issues that could cloud the future of organic products, including consumer confusion about organic definitions; unbalanced government support and promotion of conventional farming methods in relation to support for the organic industry; and a disproportionate acceptance of organic packaged products versus perishables (fresh food) in the marketplace. But all in all (in my view) the future for organic food, and farming, is bright.

                                                                                                                                                                                                                                                                            12/06
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