Posted by: Mahdi Ebrahimi | March 30, 2008

Going Organic is Not Profitable for Many Farmers

True lovers of organic food have always been willing to pay more for it: They spend $3.99 on a half-gallon of organic milk when a whole gallon of conventional milk costs $1 less. That devotion might soon be tested.

The forces that have driven grocery prices up sharply over the past year – growing demand for food in China and a global biofuels boom – have had an impact on the organic food market as well. Meanwhile, U.S. farmers haven’t kept pace with demand for organic food, sales of which shot up 21 percent in 2006, and that has also sent prices soaring.

And supplies of organic soybeans and grains are squeezed – not only are they needed for human consumption, they serve as feed for the animals that will be sent to market as certified organic beef, chicken, eggs and pork.

“The organic community has suffered, and enjoyed, a wonderful explosion in demand of 20 percent per year for basic raw materials, but when you look at supply in the U.S., we’re lucky if it’s growing at 1 percent per year,” said Lynn Clarkson, the president of Clarkson Grain Co., a grain-handling business based in Cerro Gordo, Ill.

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The organic market makes up nearly 3 percent of the overall food market, a share that has increased every year for the past decade. It’s a small but fast-growing segment of an otherwise sluggish food industry.

But while the farmland dedicated to organic crops has expanded, it still makes up just a sliver of the nation’s total: a half percent each of all cropland and pastureland in 2005, according to the latest statistics from the U.S. Department of Agriculture.

“We know we are not meeting demand with domestic supply,” said Caren Wilcox, the head of the Organic Trade Association.

One reason for the lagging supply is the fact that it takes a minimum of three years to transition cropland farmed conventionally to an organic operation.

“We’re working with biological realities and economic forces that work on very different timetables,” said Klaas Martens, who runs a 1,400-acre organic farm with his wife, Mary-Howell Martens, in upstate New York.

The Martenses say their farm supplies about three-quarters of the state’s organic dairy farmers with soybeans and corn. They’ve witnessed the supply crunch firsthand: An influx of livestock farmers into the market has helped push prices up sharply – a blessing for grain farmers like them but a curse for the meat and dairy producers, particularly those small dairy farmers who sell to major organic milk brands under long-term contract.

Organic corn that sold for about $200 a ton last fall now commands about $500 a ton – where it can be found, said Mary- Howell.

As a result, “more marginal livestock farms are going to get out of organic,” she said. She knows of several buckling under old debt and high prices. Others will source grains from Canada, China or South America.

The key question for organic food makers remains, how much are shoppers willing to pay?

The Natural Marketing Insti-tute conducts a survey of 26,000 consumers nationwide. Five years ago, asked whether organic food and drinks are worth paying an extra 20 percent for, 17 percent agreed or somewhat agreed. In 2006, that number rose to 26 percent – a significant increase in the general population shoppers who are willing to pay more, said Maryellen Molyneaux, NMI’s president.

But what’s really important is what she dubs the “devoted” segment of the market, the “core organic user.”

“They have almost double the spending of any other segment,” and account for roughly 75 percent of all organic spending, Ms. Molyneaux said. “They have integrated organic into their lifestyles.”

source:www.redorbit.com

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