As organics expand, producers endure more competition and lower premiums

By J.J. Babb

As the organic market grows in both sales and players, the price difference between organic and conventional produce continues to decline.

Although some organic growers say they’re concerned about the shrinking premiums, others say they believe the growth can only benefit the industry.

“These huge conglomerate growers hit the market with an over abundance of grapes—of course it’s going to drive the price down.” says Johnni Soghomonian, owner of a 470-acre ranch near Fresno, Calif.

But Soghomonian, who with her husband sells organic champagne grapes under the Three Sisters label, says she thinks that as long as the growers who enter the organic market follow the rules, their presence will benefit the environment and consumers.

Thomas Benzler, who grows a variety of citrus, grapes and other crops organically near Fresno, says he hopes his personalized service will help differentiate his operation from larger ones.

“We offer direct service from the farmer to the buyer, and that’s something that’s dying out that we will preserve. And I believe and hope that it will carry us through the organic flood,” Benzler says.

Benzler Farm has grown from an initial 40-acre farm in the 1950s to 200 acres today. And its expansion mirrors the industry as a whole, experts say.

Organic market multiplies

U.S. organic food sales grew to $17 billion in 2006 from $3.5 billion in 1996, according to the Organic Trade Association in Greenfield, Mass.

Holly Givens, association public affairs adviser, says organic growth is a long-term trend.

“The sales continue to increase,” she says. “It definitely hasn’t grown as much as it’s going to yet.”

The association predicts organic fruit and vegetable sales will continue to grow 7 percent annually through 2010, Givens says.

“It’s very strong growth and higher than average food growth overall, which is about 2 to 5 percent,” she says.

California Certified Organic Farmers, a Santa Cruz-based group that certifies California organic operations, also has seen average growth of about 12 percent per year.

But it has jumped recently. In 2006, CCOF certified 351,887 acres, more than double the 170,071 acres in 2004.

In addition, the number of growers and processors certified by CCOF in 2006 grew to 1,523 from 1,247 in 2004.

"The only limit [we face] is our capacity to do the paper work,” says Viella Shipley, CCOF director of sales and marketing. “We are hiring new people to address the demand.”

Organic premiums shrink

As the demand for certification has increased, price premiums have declined as more organic product came on the market.

“I do see a little bit of decrease in the peak,” Benzler says. “For the industry, only 8 percent of growers are organic, and if it were a 50-50 split, the price of organic and the price of conventional would get closer.”

This closing of organic and conventional produce prices already is occurring, says Roberta Cook, a University of California Extension marketing economist in Davis.

“Gradually over the next decade, many of the distinctions may evaporate as traditional comes closer to organics,” she says.

During the week of June 12, a 72-count box of organic Valenciaoranges was selling for $57 wholesale in Boston, compared with $28 wholesale for the same box of conventionally produced valencias, according to The New Farm Organic Price Index.

In San Francisco, the 72-count box brought only $23.50, compared to $22 for the same sized box of conventional Valencias.

Yukon gold potatoes saw even wider price discrepencies. In Boston, a 50-pound box of organically produced spuds brought $67.25, compared with $17 for conventionally grown Yukon golds.

But in San Francisco, a 50-pound box of organic Yukon golds netted $20, $2 less than the same-sized box of conventionally grown Yukon golds.

But industries also tend to be more successful when they reach a critical mass and see added competition, Cook says.

She predicts that the price per pound of organic produce will continue to move closer to that of conventional produce.

“The unit cost for organic will come down, without a doubt, as organic production methods improve,” she says. “Therefore growers who are going to be in this industry have to be prepared for that.”

While Benzler agrees that the increasing number of players in the organic market is good for consumers, he says it may not be as healthy for the industry.

“More people are going to try to convert to organic, and I think it’s going to be up to certifiers to maintain the integrity of the sustainable product,” he says.

Food scares not a big factor

The produce industry continues to recover from recent foodborne illness outbreaks, but organic growers say they don’t feel additional pressure simply because they don’t use synthetic crop inputs.

“There are scares in all types of food and how they are grown,” Soghomonian says. “And you have to offset the liabilities of what you eat.” 

In fact, Givens says, there are no differences between organic and non-organic food when it comes to microbial contamination risks.

“People who are conscious growers will always pause and consider their processes whether they are organic or not organic farmers,” Givens says. “When big issues like that hit the news, smart people take a look at what they are doing.”

Cook says some consumers will purchase fewer organic products because of the recent food scares. But other consumers buy organics as a lifestyle choice and may not care about the chances of microbial contamination.

“The growth and awareness of microbial contamination is something that may mitigate future consumer interest in organics for those thinking of it from a food-safety standpoint,” she says.