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 see: http://www.ers.usda.gov/topics/natural-resources-environment/organic-agriculture.aspx.)
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.