Organics Deepen Veggie Roots but Struggle in Meat Aisles

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Organic foods are seizing shelf space in the fresh food sections of U.S. grocery stores, but struggling to break into the bread and meat aisles.

Organic-product sales farmers made to businesses, including Dean Foods Co. and Wal-Mart Stores Inc., totaled $5.5 billion in 2014, according to a U.S. Department of Agriculture survey of organic growers. That’s 72 percent higher than in 2008, the last time a similar survey was conducted.

Sales so far have been concentrated in fresh fruits and vegetables, as well as in perishable milk and eggs, due to consumer concerns over synthetic farm chemicals. For organics to go mainstream, they need growth in grains and meats, where genetically modified seeds and livestock production methods are harder to change.

“That’s a critical frontier for organics,” said Catherine Badgley, a University of Michigan ecology professor. “I think little by little, we’re getting there, but there are some areas where growth is more difficult to achieve.”

Producers of organic meats and grains are struggling to boost production even as big retailers such as Target Corp. and Costco Wholesale Corp. are expanding their sales of sustainable products.

That’s because of hurdles fresh foods such as fruits and vegetables don’t face, said Jeff Moyer, executive director of the Rodale Institute, which focuses on research and promotion of organic farming, in Kutztown, Pennsylvania.

Organics’ Roots

“Fresh produce is something you purchase as a whole food and consume directly,” said Moyer, a former chairman of the National Organic Standards Board that helps the USDA craft organics rules. “It was a good place for the organic movement to start, because you don’t need 10,000 acres to do it.”

Land dedicated to organics in the U.S. fell in the 2014 survey, to 3.7 million acres (1.5 million ha) from 4.1 million acres in 2008, in part because of slow adoption in grazing areas. Production also remains concentrated on the U.S. coasts and upper Midwest.

The decline in acreage may make U.S. producers less competitive with growers from overseas, said Paul Wolfe, a policy specialist with the National Sustainable Agriculture Coalition, which advocates for organics in Washington.

“The question nonetheless remains as to why we are losing organic acreage at a time when demand for organic products has never been higher and imports are increasing,” Wolfe said in a statement. “This question needs to be addressed lest we lose valuable market share.”

Producing organic grains is less attractive to farmers because commodity-crop prices have been high in recent years, the government-backed crop insurance program reduces the risk involved in growing conventional crops, and farmers lose revenue during the three-year process required to transition land to organic certification, Wolfe said.

And without organic grain to feed animals, organic livestock production is limited, he said, adding, “I don’t care if it’s agriculture or selling shoes, transitions are difficult.”

Consumer interest has driven a movement toward foods seen as more sustainable and healthy. McDonald’s Corp. has announced a plan to cut antibiotics use in poultry and Starbucks Corp. says it will pull artificial coloring from pumpkin spice lattes.

Still, organic revenues remain less than 2 percent of all U.S. farmer income, according to the USDA. The farm value of all organic foods remains less than that of the Nebraska corn crop alone. The state is the third-biggest producer of corn, the most valuable U.S. farm product.

$35.9 Billion

Retail sales of foods certified by the U.S. as free of synthetic chemicals or genetic engineering reached $35.9 billion in 2014, an 11 percent increase over 2013 and about 5.1 percent of U.S. grocery spending, according to industry group the Organic Trade Association. The higher total compared to farm income reflects transportation and other costs passed on to consumers. The sector’s average annual growth triples that of overall food sales, according to USDA and association data.

Fruits and vegetable sales continued to be the biggest retail market segment, with $13 billion in sales, 36 percent of organic income and 12 percent of the entire retail sector.

Among farm income, crops account for 60 percent of revenues, with 28 percent from livestock, mainly meat and eggs, and 12 percent from organic livestock and poultry. Milk was the single most valuable organic product, with $1.08 billion in sales. Farmers sold $420 million of organic eggs and $372 million of organic broiler chickens. Lettuce and apples were the top-two fresh-produce products.

Grain, Feed

But organics’ share of the grain and oilseed crops that dominate Midwest agriculture and provide animal feed remains minuscule. The organic corn crop was valued at $154.9 million, compared to $52.4 billion overall for the most-valuable U.S. crop. Farmers sold $71.5 million of organic soybeans, a sliver of a $40.3 billion crop.

Inventory shortages have driven buyers overseas in search of product. Companies such as Chipotle Mexican Grill Inc. have resorted to importing meat from Australia to ensure enough antibiotic-free supplies. Some of Chipotle’s stores have stopped serving carnitas, or braised and shredded pork. Meanwhile, grain necessary for organic-fed livestock is coming from Romania, Turkey, the Netherlands and Canada, top sources for imported organic corn, according to USDA data.

Farmers going organic also struggle with labor shortages, with highly mechanized grain production less friendly to organic crops that require more hands-on cultivation, said Paul Bertels, a vice president with the National Corn Growers Association in St. Louis.

Commodity Prices

“Fruit and vegetables are more labor-intensive to begin with,” he said. “If you already have a crew to harvest, you can have them hoe as well.”

Falling commodity prices may cause some farmers to give organics a second look, Bertels said. Organic feed corn was averaging $10.44 a bushel nationwide during the last week of August, according to the USDA, more than double the futures price of corn sold on the Chicago Board of Trade.

With corn futures prices at less than half their 2012 record, farmers are seeking premiums. Even so, potential yield losses, the need to add other organic plants into crop rotations, and more specialized matches between buyers and sellers present challenges, he said.

Moyer said he thinks U.S. farmers will catch up to the market. “There’s a lack of knowledge in the conventional side’s worldview on how to do organic,” he said. “People will find the demand.”

Production, Marketing

USDA’s survey, a follow-up to a twice-a-decade census of all farmers completed in 2012, was required of all growers either recognized as organic or as transitioning toward it. It covers production and marketing practices as well as income and expenses.

Organic meat, milk, fruit and vegetables are usually produced with fewer chemicals and tout more environmentally friendly farming practices than conventional crops. Seeds using modern techniques of genetic modification made by companies including Monsanto Co. are not allowed in organic farming.

About 39 percent of 14,093 farms surveyed planned to increase their production over the next five years, according to the survey.

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