Recent Growth Patterns in the U.S. Organic Foods Market

Carolyn Dimitri and Catherine Greene

Introduction Marketplace The new U.S. Department of Agricul- Characteristics of ture standards for organic food, slated Burgeoning consumer interest in U.S. Organic Sector to be fully implemented by October organically grown foods has opened 2002, are expected to facilitate further new market opportunities for produc- The U.S. organic food industry growth in the organic foods industry. ers and is leading to a transformation crossed a threshold in 2000: for the The USDA standard defines organic in the organic foods industry. Once a first time, more organic food was pur- production as “A production system niche product sold in a limited num- chased in conventional supermarkets that is managed in accordance with ber of retail outlets, organic foods are than in any other venue. Industry esti- the [Organic Foods Production] Act currently sold in a wide variety of mates suggest that nearly half of the and regulations in this part to respond venues including farmers markets, $7.8 billion spent on organic food in to site-specific conditions by integrat- natural product supermarkets, conven- 2000 was purchased in conventional ing cultural, biological, and mechani- tional supermarkets, and club stores. retail outlets. Organic products are cal practices that foster cycling of Many U.S. manufacturers and distrib- now available in nearly 20,000 natu- resources, promote ecological bal- utors are specializing in processing ral foods stores (Natural Foods Mer- ance, and conserve biodiversity.”1 The and marketing organic products, chandiser), and are sold in 73 percent national organic standards address the while some longtime manufacturers of all conventional grocery stores methods, practices, and substances of conventional products have intro- (Food Marketing Institute). used in producing and handling duced organic items to their product crops, livestock, and processed agri- lines. As a result, an ever-widening Growing consumer demand for cultural products (see box). All agri- array of organic agricultural and food organic products has been manifested cultural products that are sold, products is now available. Since the in the market in many ways. Acreage labeled, or represented as organic early 1990s, certified organic acreage of certified organic farmland is must be in compliance with the regu- has increased as producers strive to increasing to meet growing consumer lations after October 2002. meet increasing demand for organic demand. According to the most recent agricultural and food products in the USDA estimates, U.S. certified Organic food is sold to consumers United States. The dramatic growth organic cropland doubled between through three main venues in the of the industry spurred Federal policy 1992 and 1997, to 1.3 million acres. United States—natural foods stores, to facilitate organic product market- Preliminary estimates for 2001 sug- conventional grocery stores, and ing, and is leading to new govern- gest that certified organic acreage sig- direct-to-consumer markets—and a ment activities in research and educa- nificantly increased between 1997 small amount is exported to foreign tion on organic farming systems. and 2001. From the consumer side, markets. USDA does not have nation- new products are being introduced al statistics on organic retail sales. This report summarizes growth pat- rapidly. For example, over 800 new Industry sources have reported retail terns in the U.S. organic sector in organic products were introduced in sales for organic food, but those data recent years, by market category, and the first half of 2000. Desserts made are fragmentary and, at times, incon- describes various research, regulatory, up the majority of new products in and other ongoing programs on 2000, while most new products intro- organic agriculture in the U.S. 1National Organic Program, Final Rule, duced in 1999 were beverages (Myers Federal Register 7CFR Pt 205, December 21, Department of Agriculture. and Rorie). 2000.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 1 sistent. A trade publication, the Nat- sance in the use of farmers markets ural Foods Merchandiser (NFM) Natural Product across the country. Producers capture reported estimates of total U.S. retail and Conventional a much higher share of the consumer sales of organic foods for 1990 Supermarkets food dollar when they market their through 1996. NFM estimated total produce directly to consumers. Sever- organic sales through all marketing From 1990 to 1996, natural prod- al surveys of certified organic produc- ucts retailers sold two-thirds of outlets rose steadily from about $1 ers show similar findings on their organic foods. Sales of organic billion in 1990 to $3.3 billion in food in natural products stores heavy use of direct-to-consumer mar- 1996, the last year that total sales increased 20 to 25 percent annu- keting. A 1997 survey of certified were reported. Since 1999, Packaged ally since the early 1990s. organic producers in the United Facts, a market research firm, has States conducted by the Organic been reporting organic food sales. Natural product retailers comprise Farming Research Foundation According to Packaged Facts, organic 1 percent of all foodstores in the (OFRF)—a California nonprofit food sales in all venues totaled $6.5 United States, and sold 48 per- group that sponsors research on billion in 1999 and $7.8 billion in cent of all organic food in 2000. organic farming—found that direct 2000. This increase continues the market use is extensive and varies by streak of industry growth equal to Conventional foodstores began commodity sector, with fruits and 20 percent or more annually since outselling natural products super- vegetables the highest. Organic pro- markets in several categories in 1990. ducers reported selling produce from 1999, including organic milk, half and half, cream, nondairy bever- about 23 percent of their vegetable Purveyors of natural products were ages, cold cereals, cookies and acreage directly to consumers through the primary sales force for organic snack bars, and tofu. on-farm sales (9 percent), farmers food since the beginning of the organ- markets (8 percent), “community sup- ic food movement over half a century In 2000, conventional supermar- ported agriculture” subscriptions (4 ago. Until 2000, the largest retail out- kets comprised 99 percent of all percent), and other types of direct-to- let for organic food was natural foods foodstores and sold 49 percent of consumer markets (2 percent). Also, stores followed by direct markets all organic products. produce from about 20 percent of the (such as farmers markets), according organic fruit and vegetable acreage to NFM data (fig. 1). In 2000, 49 per- was marketed directly to grocery cent of all organic products was sold ment, with sales up over 500 percent retailers and restaurants. A 1994 in conventional supermarkets, 48 per- between 1994 and 1999. Sales of USDA survey of certified organic cent was sold in health and natural organic yogurt and kefir increased vegetable producers in the United products stores, and 3 percent 56.4 percent between 1999 and 2000. States found that the use of direct-to- through direct-to-consumer methods Following closely, sales of nondairy consumer markets varied with farm (Packaged Facts). In contrast, in beverages (for example, juice and size, with 60 percent of the growers 1991, 7 percent of all organic prod- soymilk) increased 53.1 percent and with under 10 acres (three-quarters of ucts were sold in conventional super- sales of fresh produce grew by 51.4 the respondents) using this channel markets and 68 percent were sold in percent between 1999 and 2000, compared with 12 percent with 10 health and natural products stores according to industry sources. Over- acres or more (Fernandez-Cornejo et (NFM). all, according to Packaged Facts, al.). Smaller growers tended to mar- organic sales in natural product ket directly to grocery retailers (11 Fresh produce remains the top-selling supermarkets and conventional stores percent versus 6 percent for larger organic category (see fig. 2), followed increased by 20 percent between growers) and through grower cooper- by nondairy beverages, breads and 1999 and 2000. atives (10 percent versus 3 percent for grains, packaged foods (frozen and larger growers), while the larger dried prepared foods, baby food, Organic farmers market their food growers marketed more heavily to soups, and desserts), and dairy prod- directly to consumers much more fre- vegetable packer/shippers, brokers, ucts. During the 1990s, organic dairy quently than conventional farmers do, and food processors. was the most rapidly growing seg- and the last decade has seen a renais-

2 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Organically grown food is widely ing the 1990s—fostered by State and ers do. States are also producing available in farmers markets across local municipalities wanting to revi- directories of farm stands and pick- the United States, and organic-only talize neighborhoods and preserve your-own farms, including organic farmers markets have been organized regional farmland and open space— directories, and developing logos like in Oregon, Illinois, Missouri, and has been a boon to organic farmers “Jersey Fresh” to promote locally other States. The renaissance in farm- who use this marketing outlet much grown food. ers markets in the United States dur- more heavily than conventional farm- Community-supported agriculture (CSA) is an innovative direct market- Figure 1—Share of organic sales by venue ing arrangement that organic farmers Percent have been pioneering in the United 100 States for about a decade. Consumers subscribe to the harvest of a CSA Conventional retailers farmer for the entire upcoming sea- 80 son, and pay for their produce in advance. Under a CSA arrangement, 60 consumers share the production risks and variable harvests of the farmer— Other including especially abundant har- 40 vests—and sometimes participate in festivals and other social activities at Natural products the farm. Over 800 CSAs are current- retailers 20 ly listed in the U.S. database main- tained by USDA and the Robyn Van En Center at Wilson College. Most of 0 1991 1995 2000 the CSA farms use organic produc- Notes: Other is direct sales and exports. tion systems. Source: Natural Foods Merchandiser, Packaged Facts. Production Figure 2—Sales of top five organic foods, 2000 Characteristics of Million dollars U.S. Organic Sector 2,500 A growing body of research in the United States has been devoted to the 2,000 economics of organic production systems—its yields, input costs, income, profitability, and other economic 1,500 characteristics. A 1990 review of the U.S. literature concluded that the “variation within organic and conven- 1,000 tional farming systems is likely as large as the differences between the two systems” and found mixed results 500 in the comparisons for most characteristics (Knoblauch, Brown, and 0 Braster, 1990). Fresh fruits Nondairy Breads and Packaged Dairy products and vegetables beverages grains foods Several more recent U.S. studies have indicated that organic price premiums Source: Nutrition Business Journal.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 3 are key in giving organic farming sys- rational adoption of a particular prac- ing the long-term economics of tems comparable or higher whole- tice or farming system. Further organic farming systems through farm profits than conventional chemi- research is needed to improve our replicated field trial research and a cal-intensive systems, particularly for understanding of the factors influenc- multidisciplinary systems approach. crops like processed tomatoes and ing net returns to organic farming Most of these projects are less than a cotton (Klonsky and Livingston, systems. decade old, and promise to answer 1994; Batte, Forster, and Hitzhusen, basic research questions about yields 1993; Assadian, Esparza, and Ponce, The promising results from the limit- and profitability as well as to address 1999). Other studies have found that ed number of economic studies to farmer-defined management and pro- organic systems may be more prof- date have led to an increase in duction obstacles to the more wide- itable than conventional systems, research on organic farming systems. spread adoption of organic production even without price premiums. For USDA, universities, and other U.S. systems. example, some Midwestern organic institutions are increasingly examin- grain and soybean production was found to be more profitable than conventional systems, even without price Examples of U.S. long-term farming systems trials premiums, due to higher yields in drier areas or periods, lower input Rodale Institute's Farming Systems Trial™, in Kutztown, Pennsylvania, was costs, or crop mix (Welsh, 1999). begun in 1981 and is one of the longest running experiments designed Also, a recent study comparing specifically to study organic cropping systems. The project focuses on corn organic and conventional apple pro- and soybean production and studies the transition process that occurs duction in California’s Central Coast when converting from conventional to organic farming. showed higher yields as well as higher returns under the organic systems The Sustainable Agriculture Farming Systems Project, at the University of (Swezey et al., 1994). And another California, Davis, has been examining processing tomato, safflower, bean, and corn production under conventional, low-input, and organic systems recent study compared organic, con- since 1988 on a 28-acre site in the Sacramento Valley. ventional, and integrated apple production systems in Washington State Elwell Agroecology Farm, in conjunction with the University of Minnesota's over a 6-year period, and found that Lamberton Experiment Station, began adding long-term, organic cropping the organic system was more prof- systems trials in 1989; rotations include corn, soybeans, alfalfa, and oats. itable, had similar yields, better tast- ing fruit, and was more environmen- The Living Field Laboratory, a project of the C.S. Mott Chair of Sustainable tally sustainable and energy efficient Agriculture, Michigan Agricultural Experiment Station, and others, was than the other systems (Reganold et established in 1993 and is examining corn, soybean, and wheat production al.). We are not aware of recently under organic, conventional, and other management systems. published research that finds farming with organic methods is less prof- USDA's Agricultural Research Service began investigating organic farming systems through long-term farming systems trials in 1993. The Farming itable than farming with conventional Systems Project, at USDA's Beltsville (Maryland) Agricultural Research methods. Of course, net returns to Center, is a long-term comparison of seven cropping systems with various various production systems may vary rotations of corn, soybean, wheat, and alfalfa that are typical in the mid- with biophysical and economic fac- Atlantic region. tors (such as soil type, climate, and proximity to markets), and a system The West Virginia University (WVU) converted its entire 60-acre Horticul- that is optimal in one location may ture Farm to organic production in the fall of 1999. The WVU Organic not be optimal in another. Also, fac- Research Farming Project is studying market garden/vegetable production tors not captured in standard profit systems, as well as field crop/livestock systems, in replicated plots, and is calculations, such as convenience, evaluating changes in various aspects of the fauna, flora, and soil as longer-term planning horizons, and organic practices are followed. environmental ethics, can motivate

4 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Farmers in 49 States used organic acres of these crops in 44 States in corn was grown on over 42,000 acres, production methods and third-party 1997, more than double the amount and soybeans were produced on about organic certification services on 1.35 certified in 1994, with the biggest 82,000 acres. Other field crops pro- million acres of farmland in 1997, gains for cultivated and wild-harvest- duced organically in 1997 include according to an Economic Research ed herbs such as St. John’s Wort. barley, oats, sorghum, rice, spelt, mil- Service (ERS) study. Crops were let, buckwheat, rye, dry peas, lentils, grown on about two-thirds of the cer- About 2 percent of the major fruit dry beans, flax, and sunflowers. tified U.S. organic farmland, and the and vegetable crops—apples, carrots, Organic acreage of these crops, espe- rest was pasture. The ERS study ana- lettuce, and grapes—were grown cially soybeans, has undoubtedly lyzed data from 40 State and private organically, and a third of the organic increased since 1997. certifiers (see box, p. 8, on organic vegetable acreage was devoted to pro- standards and certification). Uncerti- ducing “mixed vegetables” in 1997. Thirty-nine States had certified organ- fied acreage was excluded, even Mixed vegetable farms, as defined in ic hay and silage production, with though it may represent a large seg- the census of agriculture, are small most acreage in Idaho, Wisconsin, ment of organic production, because farms—less than 50 acres—that pro- and New York. Acreage of these crops of the difficulty in determining the duce a large number of vegetables. expanded 51 percent between 1995 production criteria used by uncerti- Large farms produce processing and 1997 as the number of certified fied growers. ERS reports statistics tomatoes, organic wine grapes, and organic milk cows more than doubled on certified organic U.S. acreage in other high-value crops on a commer- during that period. the Organic Farming and Marketing cial scale, while numerous small Briefing Room (www.ers.usda.gov/ farms still specialize in mixed veg- Organic meat and poultry markets briefing/organic). etable production for direct marketing have lagged behind those for crops to consumers and restaurants. The top partly because meat and poultry could Organic farming has made deeper producer of organic fruits and vegeta- not be labeled as organic until Febru- inroads in the fruit, vegetable, and bles was California, followed by Ari- ary 1999, when a provisional label other high-value specialty crop indus- zona, Florida, Texas, and Washington. was approved by USDA. Food crops tries than in the major grain and and non-meat animal foods (eggs and oilseed industries. While less than About a third of the total certified dairy products) are regulated by the two-tenths of 1 percent of the U.S. organic vegetable acreage in 1997 U.S. Food and Drug Administration, corn, soybean, and wheat crops were was for mixed vegetables. In 1997, which allowed food packages to carry grown organically in 1997, over 1 U.S. farmers certified nearly 3,000 an organic label throughout the percent of the dry peas and tomato acres of organic mixed vegetables on 1990s.2 While the number of certified crops and about 2 percent of the farms or parcels that were 5 acres or organic beef cows, hogs, sheep, and apple, grape, lettuce and carrot crops less, and over 14,000 acres on farms lambs declined during the study peri- were organic. And nearly a third of and parcels over 5 acres. New York od (1992-97), the number of dairy the U.S. herb and “mixed vegetable” organic producers had over 1,400 cows and layer hens increased crops were grown organically in acres in the 5-acres-or-less category. sharply. The market for organic meat 1997. (A “mixed vegetable” crop is a Mixed vegetable producers often tar- products is beginning to grow now mixture of numerous horticultural get farmers markets, community-sup- that organic labeling is permitted, and crops (mostly vegetables) grown on a ported agriculture subscriptions, the growing market for organic milk small farm or parcel.) restaurants, and other direct market- and eggs has been pushing up the use ing outlets. of certified organic pasture and the The markets for organic vegetables, demand for certified organic grains fruits, and herbs have been develop- Organic farmers are also growing and oilseeds. ing for decades in the United States, major grains and oilseeds on a small and these crops are grown organically portion of the planted area in the 2Traditionally, USDA has regulated labeling in more States than any other type of United States. Wheat was produced of all meat products and FDA has regulated labeling of nonmeat animal products and other commodity. State and private certify- under certified organic farming sys- food products. The new USDA organic label, ing groups certified over 180,000 tems on over 125,000 acres in 1997, however, will apply to all food products.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 5 Farmers and ranchers raised a small chased some organic food in 2000, ous 6 months, more purchased veg- number of certified organic cows, and less than 2 percent are regular etables than fruit (according to the hogs, and sheep in 23 States in 1997. purchasers. Results of the Hartman 1996 survey, 24 percent purchased Dairy cows were raised organically in Group’s 2000 survey suggest that 3 fruit and 84 percent purchased veg- 13 States in 1997, and New York, percent of consumers regularly buy etables; according to the 2000 survey, Wisconsin, and Minnesota were the organic products. The Walnut Acres 35 percent purchased vegetables). top three producers. The number of Survey (2001) found that 63 percent Apples and tomatoes led the list of certified organic milk cows in the of respondents purchased organic fruit and vegetables purchased by the United States nearly tripled between food at least sometimes, and 57 per- shoppers surveyed by Fresh Trends. 1992 and 1994 and more than dou- cent of the purchasers had been doing According to the Hartman Survey bled between 1994 and 1997. Califor- so for at least 3 years. The Food Mar- (2000), the top 10 organic products nia was the leader in organic poultry keting Institute’s survey (2001) found purchased were strawberries, lettuce, production, followed by New York that 66 percent of surveyed shoppers carrots, other fresh fruit, broccoli, and Virginia. Other organic animal bought organically grown foods. apples, other fresh vegetables, grapes, specialties, including goats, fish, and bananas, and potatoes. The Hartman colonies of bees, were certified in In 2001, the Food Marketing Insti- survey also suggested that fruits and several States. tute’s survey indicated that 37 percent vegetables were “gateway categories” of shoppers said they purchased (typically the first organic products Consumption organically grown food to maintain purchased by consumers). The Walnut Characteristics of the their health; and 44 percent of these Acres Survey (2002) indicated that 68 U.S. Organic Sector shoppers had purchased organic food percent of consumers revealed that in the past 6 months. Consumers sur- price is the main reason they did not A number of academic and industry veyed by the Hartman Group (2000) purchase organic food. studies have been conducted to exam- gave the following reasons for pur- ine consumer behavior and identify chasing organic food: health and Academic researchers have taken a their motivation for purchasing organ- nutrition (66 percent), taste (38 per- slightly different tack in studying ic foods. Many of the industry studies cent), environment (26 percent), and organic consumers by complementing use consumer surveys, which seek to availability (16 percent).3 The Fresh surveys with statistical analysis to identify how often consumers pur- Trends (2001) survey revealed that 12 depict the typical consumer. Some chase organic food, their motivations percent of the shoppers surveyed studies reveal conflicting results, for purchasing organic food, and reported that whether a product is most likely because of the different demographic data on organic food organic is a primary factor in their methodological approaches. Con- purchasers. University studies have purchasing decision. Sixty-three per- sumers considered the following fac- adopted different approaches to cent of the respondents of the Walnut tors important when purchasing fresh assess consumer buying behavior and Acres Survey believed that organic produce: price, size and packaging, to identify which characteristics (for food and beverages were better for whether the item is on sale, and example, income, food quality, educa- them and were more healthful than whether the item is organic (Estes tional level, concern for the environ- their conventional counterparts. Fresh and Smith). Age, gender, and having ment, or family size) affect whether Trends (1996, 1998, 2000, 2002) a college degree had little impact on a consumers will purchase organic found little difference between the shopper’s decision to buy organic food. purchasing habits of men and women. produce (Thompson and Kidwell). Consumers with higher incomes and Several industry groups have sur- Over the years, Fresh Trends found higher levels of education are willing veyed consumers about their prefer- that, of the shoppers that had pur- to pay more for organic potatoes ences and buying habits for organic chased organic produce in the previ- (Loureiro and Hine), while con- food. The results of the different sur- sumers with advanced degrees are veys are not always consistent. The less likely to buy organic produce 3Consumers gave more than one reason for Nutrition Business Journal reported purchasing organic food. Thus, the percent- (Thompson and Kidwell). Appear- that 11 percent of consumers pur- ages sum to more than 100. ance of fresh produce mattered, and

6 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Summary of Methodology Used in Consumer Studies

Study Year Published Methodology Walnut Acres Survey 2001 Telephone interviews with nationally representative sample of 1,000 adults. Sample collected March 1 - March 5, 2001.

Food Marketing 2001 Telephone interviews with nationally Institute Survey representative sample of 1,200 adults.

Hartman Group, the 2000 Mail questionnaire sent to 40,000 households, Organic Consumer Profile nationwide, selected from a panel of 550,000 households. The panel conforms to a cross-section of the population based on the 2000 census; 26,434 consumers responded.

Fresh Trends Survey Biannual Two separate surveys. The first survey was a telephone survey of 1,000 nationally representative households. Average phone conversation was 10 minutes. The second survey covered 5,000 consumer in-store interviews in June 2001 and August 2001. Interviews took place in one retailer (five stores each) in five different markets across the United States.

Estes and Smith 1996 Hedonic analysis of demand for organic produce. Data collected using focus groups and mall interviews.

Thompson and Kidwell 1998 Collected data on items purchased by examining shopping carts of consumers in Tucson, AZ, and collected demographic data.

Glaser and Thompson 1999, 2000 Econometric analysis (using scanner data) of demand for organic frozen vegetables and organic milk.

Reicks, Splett, and Fishman 1999 Experimental design for effectiveness of shelf labeling.

Govindasamy and Italia 1999 Estimated consumer willingness to pay a 10-percent premium for organic produce.

Thompson and Glaser 2001 Econometric analysis (using scanner data) of demand for organic baby foods.

Loureiro and Hine 2001 Estimated the willingness to pay for Colorado potatoes.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 7 Organic Standards and Certification

Organic farming systems rely on ecologically based ucts. Although specific practices and materials used by practices, such as biological pest management and organic operations may vary, the standards require composting; virtually exclude the use of synthetic chemi- every aspect of organic production and handling to com- cals, antibiotics, and hormones in crop production; and ply with the provisions of the Organic Foods Production prohibit the use of antibiotics and hormones in livestock Act. Organically produced food cannot be produced production. Under organic farming systems, the funda- using genetic engineering and other excluded methods, mental components and natural processes of ecosys- sewage sludge, or ionizing radiation. These standards tems—such as soil organism activities, nutrient cycling, include a national list of approved synthetic, and prohib- and species distribution and competition—are used as ited nonsynthetic, substances for use in organic produc- farm management tools. For example, food and shelter tion and handling. are provided for the predators and parasites of crop pests, planting and harvesting dates are carefully USDA organic standards for food handlers require that planned and crops are rotated, and animal manure and all nonagricultural ingredients, whether synthetic or non- crop residues are cycled in organic production systems. synthetic, be included on the national list. Handlers must Organic livestock production systems attempt to accom- prevent the commingling of organic with nonorganic modate an animal’s natural nutritional and behavioral products and protect organic products from contact with requirements, requiring dairy cows and other ruminants, prohibited substances. In a processed product labeled for example, to have access to pasture. as “organic,” all agricultural ingredients must be organically produced unless the ingredient(s) is(are) not com- Private organizations, mostly nonprofit, began develop- mercially available in organic form. ing certification standards in the early 1970’s as a way to support organic farming and thwart consumer fraud. The labeling requirements under the national standards Some States began offering organic certification servic- apply to raw, fresh, and processed products that contain es in the late 1980’s for similar reasons. The resulting organic ingredients and are based on the percentage of patchwork of standards in the various certification pro- organic ingredients in a product. Agricultural products grams, however, caused a variety of marketing prob- labeled “100 percent organic” must contain (excluding lems. Congress passed the Organic Foods Production water and salt) only organically produced ingredients. Act of 1990 to establish national standards for organical- Products labeled “organic” must consist of at least 95- ly produced commodities, and USDA promulgated final percent organically produced ingredients. Products rules for implementing this legislation in December 2000. labeled “made with organic ingredients” must contain at USDA is currently implementing these organic regula- least 70-percent organic ingredients. Products with less tions, and all agricultural products that are sold, labeled, than 70-percent organic ingredients cannot use the term or represented as organic must be in compliance with organic anywhere on the principal display panel but may the regulations after the 18-month transition period is identify the specific ingredients that are organically pro- completed in October 2002. These regulations require duced on the ingredients statement on the information that organic growers and handlers (including food panel. The USDA organic seal—the words “USDA processors) be certified by a State or private agency organic” inside a circle—may be used on agricultural accredited under the uniform standards developed by products that are “100 percent organic” or “organic.” A USDA, unless the farmers and handlers sell less than civil penalty of up to $10,000 per violation can be levied $5,000 a year in organic agricultural products. Retail on any person who knowingly sells or labels as organic food establishments that sell organically produced agri- a product that is not produced and handled in accor- cultural products but do not process them are also dance with these regulations. exempt from certification. For further information, visit USDA’s Agricultural Market- The national organic standards address the methods, ing Service/National Organic Program (NOP) website at practices, and substances used in producing and han- www.ams.usda.gov/nop/. dling crops, livestock, and processed agricultural prod-

8 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA the larger the number of cosmetic and Information Resources, Inc., has to the consumer, maintaining premi- defects, the less likely would an made possible econometric studies of um product integrity along the mar- organic product be purchased (Estes consumer demand for organic food. keting chain can sometimes be a chal- and Smith, Thompson and Kidwell). Frozen organic vegetables, organic lenge. To do so, each agent along the milk, and organic baby food all marketing chain must begin by mov- One picture of the typical organic exhibited high price elasticity of ing the product to the next agent shopper is a younger household in demand, meaning that the quantity quickly. Farmers need to sell their which females do the shopping; purchased responds greatly to price perishable commodities immediately smaller and higher income house- changes (that is, quantity purchased after harvesting, while distributors, holds are the most likely purchasers increases by more than 1 percent brokers, and wholesalers need to get of organic produce (Govindasamy when prices fall by 1 percent) (Glaser fresh products to retailers as quickly and Italia) and organic apples and Thompson, 1999, 2000; Thomp- as possible. Retailers want to be able (Loureiro et al.). Households knowl- son and Glaser, 2001). For some to purchase a consistent and large edgeable about alternative agriculture frozen vegetables, there was little enough supply of a wide variety of are more likely to purchase organic crossover between purchases of uniform quality fresh food. Con- produce (Govindasamy and Italia) organic and conventional products, so sumers want to be able to buy a wide and those concerned about the envi- that changes in prices of either com- variety of fresh food that is both high ronment are more likely to purchase modity had no significant impact on quality and low priced. Organic food organic apples (Loureiro et al.). quantities purchased (Glaser and consumers, in particular, want to feel Those concerned about food safety Thompson 1999). For other products confident that they are buying food are more likely to buy organic pro- (milk and baby food), the convention- that not only was grown organically, duce (Govindasamy and Italia) and al and organic products are substi- but also has kept its organic integrity organic apples (Loureiro et al.). tutes, so that increases in the price of at each stage in its journey to the Those who enjoy trying new products the conventional product result in market. are more likely to purchase organic consumers’ purchasing a greater produce (Govindasamy and Italia). quantity of the organic products Each commodity, depending in large Households with children under 18 (Glaser and Thompson, 2000; part on whether it is fresh or are more likely to purchase organic Thompson and Glaser, 2001). processed, follows an individualized produce (Thompson and Kidwell) and path from farm to market. Because organic apples (Loureiro et al.). Con- The Marketing Chain: fresh foods rapidly deteriorate, they sumers with children are willing to From Farm to Market must be delivered to the market pay less for organic potatoes quickly. The storage and transporta- (Loureiro and Hine) and more likely Food passes through many hands as it tion systems along the way must pro- than other households to purchase moves from farm to consumer. Some vide the proper temperature and other organic apples (Loureiro et al.). foods are fresh when delivered conditions that help maintain fresh- (apples and eggs) while others are ness. Processed foods, on the other Strategies to increase purchases of processed before delivery (pasta and hand, have a longer shelf life—but organic food include shelf-labeling, bread). Regardless of whether they the products that go into them must which had a mixed effect on sales in are fresh or processed, higher quality be harvested at the right time, deliv- an upscale grocery store but a signifi- products and products with unique ered at the right time and satisfy the cantly positive effect on sales of dairy attributes (such as organic foods) gen- processor’s quality requirements. In products, pasta, bread, cereal, and erally have a higher selling price. As the next sections, we trace the pro- carrots in a discount retailer in the a result, farmers have a strong incen- duction and marketing chains for the Minneapolis and St. Paul markets tive to produce and sell commodities major organic commodities in the (Reicks, Splett, and Fishman). with quality and other price-enhanc- United States, noting applicable regu- ing attributes intact. Yet, since most lations as well as observed marketing The recent addition of organic food foods pass through a number of inter- trends. sales to scanner data, by AC Neilson mediaries as they move from the farm

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 9 Organic Fresh Fruits and Vegetables

he first stage in the organic Fruit and vegetable marketing chains: Tfresh fruit and vegetable marketing chain—the production and Fresh produce: preparation of produce for ship- ment—involves growers, packers Farm – shipper – wholesaler – natural foods retailer and shippers, working together in Farm – shipper – wholesaler – conventional retailer a number of possible combina- Farm – shipper – specialty broker – retailer tions. In some cases, one firm grows, packs, and ships the pro- Farm – shipper – natural foods retailer duce, while in others one firm Farm – shipper – conventional retailer grows and another packs and ships. After it is shipped, produce Farm – consumer farmers markets, roadside stands, U-pick, community supported agriculture can either be sold to retailers by a broker or delivered to a terminal market, where it is sold to retail- may buy fresh fruits and vegeta- What are organic fruits and vegetables? ers by wholesalers. In practice, bles directly from the produce most organic produce is sold shipper. Organic produce can also Organic fruit and vegetable production relies on through a specialty broker rather be sold directly to consumers ecologically based practices, such as biological than in a terminal market (Dimitri through farmers markets, commu- pest management and composting, and crops and Richman). In some instances, nity-supported agriculture, and are produced on land that has had no prohibit- when a specific variety, quality or farm stands. ed substances applied to it for at least 3 years quantity is desired, larger retailers prior to harvest. Soil fertility and crop nutrients are managed through tillage and cultivation practices, crop rotations, and cover crops, supplemented with manure and crop waste material and allowed synthetic substances. Crop pests, weeds, and diseases are controlled through physical, mechanical, and biological control management methods.

Organic fruits and vegetables must be stored and shipped separate from conventionally grown produce. Organic produce is shipped or packed in containers free from synthetic fungicide, preservative, or fumigant.

Credit: USDA.

10 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Figure 3—Sales of organic fruits and vegetables: 1990, 1997, 1999, and 2000 Fruit and vegetable market facts: Million dollars Organic produce accounts for 42 percent of all organic food 2,500 sales (Packaged Facts, 2001).

2,000 According to Spins, fresh produce (UPC coded) is the organic category with the third largest level of sales in conventional supermarkets, with sales equal to $93,978,272 in the 12- 1,500 month period ending June 2001.

1,000 Sales of fresh organic produce in natural foods supermarkets totaled $708 million in 1998. Fresh organic produce sales (UPC and nonUPC coded) summed to $833 million in 1999, 500 which was 69.4 percent of total fresh produce sales in natural foods supermarkets. Fresh produce was the top-selling organic food category (NFM). 0 1990 1997 1999 2000 According to Fresh Trends survey, the organic products most Source: 1997 data. Food Industrial Management Program at Cornell University; 1999, 2000, Nutrition Business Journal. often purchased are tomatoes, leafy vegetables, carrots, and apples. Certified organic acreage in 1997 According to the Hartman survey, the organic products most California had the most certified organic vegetable often purchased are strawberries, lettuce, and carrots. acreage, 22,886 acres in 1997. Colorado and Washington followed with 3,716 and 3,140 acres certified in 1997. Ari- Fruits and vegetables are the “gateway” category into organic zona, Oregon, Minnesota, New York, Illinois, and Florida foods (Hartman Group, 2001). each had over 1,000 acres of certified organic vegetables.

Almost 2 percent of U.S. lettuce acreage, 2.4 percent of carrot acreage, and 1 percent of tomato acreage was certified organic.

Over 49,000 acres of organic fruit and nut crops were cer- Price premiums for organic produce in the Boston wholesale market tified in 36 States. Organic grapes accounted for 39 per- during 2000 - 2001 cent of the acreage certified, followed by apples (18 percent), citrus (12 percent), and tree nuts (10 percent); 21 Organic broccoli – 30 percent higher, percent of the total was unclassified as to the crop grown. on average, than conventional prices Organic carrot – 25 percent higher, on Growers in California had 32,582 acres of certified organic average, than conventional prices fruit and nut acreage, over two-thirds of the total. Arizona was second (4,361 acres), and Washington third (2,978 Organic mesclun – 10 percent higher, acres). on average, than conventional prices

Source: Greene. Source: Sok and Glaser.

Credit: PhotoDisc.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 11 Organic Grains, Oilseeds, and Legumes

rganic grains, oilseeds, and Olegumes are used as inputs to Marketing chain for organic grains, oilseeds, and legumes: manufactured products, as feed Farmer – cooperative – cleaner – manufacturer – distributor grain and as final food products such as rice and tofu. Crops pro- Farmer – cleaner – manufacturer – distributor duced by organic grain and oilseed Farmer – cooperative – cleaner – broker – manufacturer – distributor farmers include traditional grains and oilseeds such as corn, soybeans, Farmer – cleaner – broker – manufacturer – distributor wheat, barley, oats, and rice, as well Farmer – marketing agent (often contracts with farmer, and cleans) – manufacturer as nontraditional grains, including Farmer – cooperative – processor of feed grain – distributor – livestock producer millet, buckwheat, rye, and spelt. Farmer – processor of feed grain – distributor – livestock producer Organic grains, oilseeds, and legumes may be contracted prior to planting. Several companies offer Top-selling products made with organic producers contracts for organic grains and legumes: wheat, corn, soybean, black bean, buckwheat, sunflower, popcorn, Soy milk and rice milk: the organic nondairy spelt, and millet crops. Contracts beverage category had sales in all venues of for organic grains vary $316 million in 1999 and $395 million in 2000 considerably— for example, some (NBJ). make producers responsible for grain cleaning or shipping charges Organic nondairy beverages made up 62 per- or both while others do not make cent of U.S. sales of nondairy beverages in all the producer responsible for either venues in 1999 (NBJ). (Born and Sullivan). Sales of organic breads and grains increased from $700 million in 1999 to $848 million in Credit: Comstock Images. 2000 (NBJ).

Sales of organic tofu totaled $40.8 million in What are organic grains, oilseeds, 1999 and $46.3 million in 2000. Slightly more and legumes? than half of organic tofu sales (52.8 percent) Organic grain, oilseed, and legume production relies on ecologically were made in conventional supermarkets based practices, such as biological pest management and composting, (NFM, 2001). and crops are produced on land that has had no prohibited substances applied to it for at least 3 years prior to harvest. Soil fertility and crop nutrients are managed through tillage and cultivation practices, crop rotations, and cover crops, supplemented with manure and crop waste material and allowed synthetic substances. Crop pests, weeds, and diseases are controlled through physical, mechanical, and biological control management methods.

When being stored and shipped, organic grains, oilseeds, and legumes must be kept from commingling with conventionally grown grain. These organic products cannot be shipped or packed in containers containing synthetic fungicide, preservative, or fumigant.

Credit: PhotoDisc.

12 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Organic grain market facts: U.S. farmers produced certified organic grain crops on over 291,000 acres in 1997. A variety of certified organic grains was grown in 35 States in 1997 (Greene).

North Dakota was the top producing State, with over 50,000 acres. Another dozen States—Montana, Minneso- ta, Idaho, Colorado, Nebraska, Iowa, Utah, Kansas, Cali- fornia, South Dakota, Wisconsin, and Texas—had at least 10,000 certified organic acres of grain crops (Greene).

Corn, wheat, and oats were grown organically in over 24 States in 1997. Wheat was produced under certified organic farming systems on over 125,000 acres in 1997, corn was grown on over 42,000 acres, and oats and barley Photo courtesy of Organic Valley FamilyTM of Farms, 2002. were each grown on almost 30,000 acres. Other certified organic grain crops—sorghum, rice (including wild rice), Organic soybean and tana and North Dakota led spelt, millet, buckwheat, and rye—were grown on under legume market facts: with over 1,500 acres each. 15,000 acres each. State and private groups certified Soybeans are the top legume Organic dry peas and lentils another 22,967 acres of organic grain crops in 1997 that crop grown under certified accounted for about 1 per- could not be broken out into acreage for specific crops organic farming systems. U.S. cent of the total dry pea and (Greene). growers produced over lentil acreage in the United 82,000 acres of certified States in 1997 (Greene). Certified organic grain acreage was well under 1 percent organic soybeans in 1997. of the U.S. total for corn, wheat, barley, and rice. However, Organic soybeans accounted Certified organic dry beans between 1 and 3.5 percent of the U.S. oats, millet, and rye for 0.1 percent of total soy- were grown on over 4,600 crops were certified organic in 1997. About a third of two bean acreage in the United acres in 1997, and California specialty grain crops—spelt (used in cereals and other States (Greene). had almost a quarter of those food products) and buckwheat—were grown under certified acres (Greene). organic farming systems in 1997 (Greene). Certified organic dry peas and lentils were grown on Certified organic oilseeds— nearly 5,200 acres in the including flax and sunflow- United States in 1997. Mon- ers—were grown on 31,400 acres in 18 States in 1997. Certified organic sunflowers Price premiums for organic grains and oilseeds for the time period between were grown on almost 11,000 1995 and 2000 acres, and flax was grown on over 8,000 acres. North 1995 1996 1997 1998 1999 2000 2001 Dakota was by far the biggest Percent producer, with over 7,000 Corn 35 43 73 88 98 89 59 acres of flax and 4,500 acres of sunflowers. Certified Soybeans 114 85 141 202 217 175 177 organic flax represented Spring wheat 54 59 73 8 87 103 94 almost 6 percent of total U.S. flax acreage in 1997, while Oats 35 59 73 83 77 71 41 organic sunflowers represent- Note: The premiums are reported as the percent higher than prices for the conventionally produced equivalent. ed 0.4 percent of the total Source: Bertramsen and Dobbs, 2002. sunflower acreage (Greene).

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 13 Processed Organic Foods

rganic processed foods include frozen vegeta- Processed products marketing chain Obles and entrees, pasta, canned vegetables, sauces in jars, and shelf-stable entrees. Specific Farm – manufacturer – wholesaler – retailer products must be used to manufacture these Farm – shipper/procurer – manufacturer – wholesaler – retailer foods—for example, pasta processors need to use a particular variety and grade of organic wheat, while frozen fruit and vegetable processors need Average price premiums for organic organic produce of a specific size and quality. All frozen vegetables, 1991-1996 processors want uniform quality, so they can offer products that consistently taste the same. Conse- Frozen broccoli 72 percent quently, the biggest challenge facing organic manufacturers is how to secure a steady supply of organ- Frozen sweet corn 25.8 percent ic ingredients of a consistent quality. Often, manu- Frozen green peas 109.7 percent facturers will recruit new farmers, assisting them with converting from conventional to organic pro- Frozen green beans 75.7 percent duction. Retailers with private label organic prod- Note: The premiums are reported as the percent ucts may also provide on-farm assistance to pro- higher than prices for the conventional equivalent. Source: Glaser and Thompson, 1999. ducers. The next biggest challenges are how to transport the processed goods to the supermarket Credit: Comstock Images. and how to secure shelf space.

There are two basic marketing channels for What are organic processed products? processed foods. In both cases, farmers first pro- A certified organic processed product, such as pasta or frozen duce raw commodities. In the first case, these com- pizza, is first prepared using at least 95 percent organic ingredi- modities are then sent to the manufacturer, who ents. Conventionally grown ingredients may be used only when converts them into a processed product. A distribu- an organic ingredient is not commercially available. For products tor acts as a middleman, moving processed prod- that contain 70 to 95 percent organic ingredients, processors ucts from manufacturers to retailers. In the second may label the organic ingredients on the package. scenario, a middleman (shipper) procures raw commodities from farmers and delivers them to manu- Organic and conventionally grown ingredients must be kept sep- facturers. After creating the processed good, the manufacturer moves the products through to retail- arate, and the organic ingredients must be stored in containers ers. The middleman secures the quantities needed; that do not compromise the organic nature of the food. Both he or she also ensures that the commodities are organic and conventional ingredients must not be treated with high quality and meet the manufacturer’s organic ionizing radiation, excluded methods, and synthetic solvents. standards.

Select manufactured organic food sales by venue

Frozen Canned Store Entrees Desserts foods & jarred*Pasta Cereal Oils Soy Percent Health/natural foods stores 42 82 47 68 59 64 75 21

Conventional stores 55 10 47 30 41 31 11 77 *The category includes soups, canned fruits and vegetables, and baby food. Note: The percentages do not sum to 100 because manufacturers sell in other venues, such as food service and club stores, which are not listed. Source: OTA 2001 Manufacturers’ Survey; for products that contain at least 50 percent organic ingredients.

14 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Where are organic manufactured foods sold? Organic processed foods market facts: In 2001, 45 percent of organic Frozen organic fruit and vegetable sales as a share of total U.S. frozen fruit and vegetable sales: 1.34 percent. manufactured products were Credit: PhotoDisc. sold in conventional grocery Canned organic fruit as share of total U.S. canned fruit: stores compared with 31 per- 0.63 percent. cent in 1998 (OTA Manufactur- Organic packaged grocery ers’ Survey, 2001). sales in natural products stores totaled $652 million in 2000 Canned organic vegetables as share of total U.S. canned vegetables: 0.43 percent. Source: Nutrition Business Journal In 2000, 51.3 percent of frozen and increased to $1.6 billion in organic entrees, pizza, and 2001. Organic frozen/refrigerat- In 2000, frozen prepared foods were among the fastest convenience foods were sold in ed product sales totaled $333 growing processed foods categories. conventional supermarkets, million in 2000 and increased which increased to 53.1 to $823 million in 2001 (NFM, percent in 2001 (NFM, 2002, 2001). Packaged groceries accounted for 15 percent of total 2001). organic sales. In 2001, 49 percent of manu- The dollar amount of frozen factured organic foods were Frozen foods accounted for 8 percent of organic sales. organic entrees, pizza, and sold in health and natural foods Source: Packaged Facts convenience foods sold in con- stores, and 45 percent in conventional stores, in the 12- ventional grocery channels. Sales of four types of frozen organic vegetables (corn, broc- month period ending June coli, peas, and green beans) increased by 58 percent per 2001, was $74 million (Spins, In 1998, 62 percent of manu- year between 1991 and 1996 (Glaser and Thompson, 1999). as quoted in Organic and Nat- factured organic foods were ural Business News).The dollar sold in health and natural foods In the first half of 2000, more than 800 organic new amount sold in all venues in stores; 31 percent through con- processed products were introduced; the number of dessert 2001 totaled $152 million ventional grocery channels items increased the most (Meyers and Rorie). (NFM, 2002). (OTA,1998).

Organic baby food Figure 4—Sales of select processed organic foods In 2000, 73.9 percent of organic baby food was sold in conventional super- Fresh fruits and 1999 vegetables markets, and 21 percent was sold in 2000 natural foods stores (NFM, 2001). In the 12-month period ending June Nondairy beverages 2001, sales of organic baby food in conventional supermarkets totaled $50.6 million. Breads and grains Organic baby food sales comprised 4.5 percent of all baby food sales in Packaged foods 1999. (NBJ, 2001).

Price premiums for organic baby food Dairy products sold in conventional supermarkets ranged from 35 to 53 percent in 1999 0 50 100 150 200 250 (Thompson and Glaser, 2001). Million dollars Source: Nutrition Business Journal.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 15 Organic Dairy Products

rganic dairy products, as The process used to bottle Odefined by the USDA, are milk and to make and pack made from the milk of animals cheese, ice cream, yogurt, and raised under organic manage- other dairy products must also ment. The cows are raised in a be certified. The processor is herd separate from convention- required to keep organic and

al dairy cows. The animals are nonorganic products separated, 2002. Farms, of not given growth hormones or and must prevent organic TM antibiotics. The animals products from contact with receive preventive medical prohibited substances. Nonor- care, such as vaccines, and ganically produced ingredients dietary supplements of vita- may be used when processing mins and minerals. All organi- an organic product if there is cally raised dairy cows must no organic equivalent. Volatile have access to pasture, the out- synthetic solvents and other doors, shade, shelter, exercise synthetic processing aids are areas, fresh air, and direct sun- prohibited. Photo courtesy of Organic Valley Family Photo courtesy of Organic Valley light suitable to their stage of production, the climate, and the environment. Organic manufacturers’ 2001 sales Sales of organic dairy products, To convert from conventional of dairy products were distributed in millions of dollars as follows: to organic production, the 1999 2000 cows must be fed a diet con- Health and natural food stores: 65% cheese, 50% sisting of at least 80 percent yogurt, butter, cheese, sour cream and kefir; 33% Milk, cheese, butter, organic feed for 9 months and milk and cream eggs, yogurt 394 480 then 100 percent organic feed Frozen dairy, for 3 additional months, or Conventional supermarkets: 33% cheese; 47% ice cream 85 106 must be grazed on land that is yogurt, butter, cheese, sour cream and kefir; managed under a certified 65% milk and cream. Canned milk 2 2 organic plan. Otherwise, organic dairy products must Source: OTA’s 2001 Manufacturers’ Survey. make use of milk from animals raised organically for at least 1 year prior to producing the milk.

Marketing Channels Milk (from one or several farms) – on-farm dairy (pasteurize and bottle) – regional distributors Milk (from one or several farms) – off-farm dairy (pasteurize and bottle) – regional distributors Milk (from one or several farms) – off-farm processors of cheese, butter, yogurt, or dry milk – distribute regionally and nationally Milk (from several farms) – dairy (pasteurize and bottle, or process into cheese or ice cream, for example) – distribute nationwide through a marketing cooperative (under a brand name), mainly through private distribution networks, sometimes with a regional label. Milk produced under contract (from several farms) – dairy (pasteurize and bottle, or process into cheese or ice cream, for example) – distribute nationwide under a brand name, mainly through private distribution networks

16 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Milk Market Facts:

Organic milk first appeared in conventional The price premium for organic milk ranged from supermarkets in 1993; 8 conventional supermar- 47 percent to 76 percent in the Twin Cities kets sold organic milk in December 1996 region of Minnesota between 1995 and 1997 (Glaser and Thompson, 2000) (Dobbs et al.).

Organic milk, half and half, and cream sales in The price premium for organic cheese ranged conventional markets: from 124 percent (1995) to 28 percent (1997) in the Twin Cities region of Minnesota (Dobbs et 1996: $15.8 million; (Glaser and Thompson, 2000) al.). 1997: $30.7 million (NFM). 1998: $46.0 million (Glaser and Thompson, 2000) Organic dairy products (milk, butter, cheese, 1999: $75.7 million (NFM) eggs, yogurt) comprised 0.9 percent of total 2000: $104 million (NFM) U.S. dairy sales in 2000 (Nutrition Business Photo courtesy of Organic Journal). Valley FamilyTM of Farms, Organic milk, cream, half and half sales in natu- 2002. ral products supermarkets: In 1997, there were 12,897 certified organic dairy cows. New York was the top producer 1999: $40 million (NFM) (3,386 dairy cows), followed by Wisconsin 2000: $55 million (NFM) (2,509) and Minnesota (2,425). Pennsylvania, California, and Maine also had over 1,000 Price premium for organic milk over branded or organic dairy cows each (Greene). private label conventional products was in the range of 50 – 72 percent between 1996 and The number of certified organic milk cows nearly 1999 (Glaser and Thompson, 2000). tripled between 1992 and 1994 and more than doubled between 1994 and 1997 (Greene).

Share of dairy product sales in natural foods supermarkets and conventional grocery stores In conventional supermarkets, milk, half & half, and cream is the second leading category of organic food sales, with sales equal to $119,315,772 in the 12-month period ending June 2001*

Product 1999 2000 2001 Natural Conventional Natural Conventional Natural Conventional Percent Milk, half and half, cream 35.1 64.6 34.6 65.3 30.53 69.25

Cheese and cheese alternatives 85.4 14.6 46.3 51.7 43.71 55.97

Yogurt and kefir 56.8 43.2 52.4 47.4 43.17 56.70 *SPINS, as quoted in Organic and Natural News, 2001. Source: Natural Foods Merchandiser, 2000, 2001, and 2002.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 17 Organic Meat, Poultry, and Eggs

roducing organic beef has three birth her litter, where the sow and her Pphases. The first is cow-calf, which litter will live for 1 week after birth. is the period from birth to weaning, After nursing for 5 weeks, the pigs are when the calf weighs approximately weaned and then pastured. Pigs not 500 pounds. The second phase is back- raised on pasture may live in indoor or grounding, or the period between wean- indoor/outdoor housing. Since hogs eat ing and the time the calf weighs 900 their bedding, it must be organically pounds. The finishing phase, done in a produced. Bedding materials might feedlot for conventionally produced include small-grain straw, corn stalks, beef, is a 3- month period prior to soybean straw, or grass hay (Gegner). slaughter, by which time the calf Pasture-raised hogs eat grass, legumes, weighs between 800 and 1,200 pounds. standing crops and other ground cover During the cow-calf and backgrounding (Gegner). The farmer may produce the phases, the animals must be fed organi- supplemental feed, such as grain or hay, cally grown pasture and hay; some may grow a portion and purchase some, Credit: USDA. farmers choose to add organically or may purchase all the feed. The hogs grown grain to the cattle’s diet during reach market weight (240 – 260 Organic Pork & Poultry Marketing the last months prior to slaughter. pounds) in 6 to 6.5 months from birth. Channels Organic farmers must maintain organic National distribution: pasture for the cattle to graze on Organic poultry (chicken and turkey) Farm – cooperative (also processes) – retailer throughout all three production stages are raised organically, beginning from (thus, the term “grass-fed”). The farmer at least the second day of life. Some Farm – processor – distributor – retailer may produce the supplemental feed, farmers purchase chicks from a certi- Local distribution such as grain or hay, may grow a por- fied organic hatchery while others tion and purchase some, or may pur- begin raising the chicks organically Farm – consumer pickup on farm chase all the feed. Organic grass-fed when they arrive on the farm. The birds Farm – consumer via farmers market beef production, from birth to slaughter, eat organically produced grain, and are Farm – consumer via internet sales takes approximately 26 – 28 months. market weight in 70 to 81 days. The farmer may produce the supplemental Organic hog production begins with the feed, such as grain or hay, may grow a gestating sow, right before giving birth portion and purchase some, or may pur- (farrowing), building a cozy place to chase all the feed.

Organic Beef Production and Marketing Channels Nationwide Distribution Cow/calf farm – pasture farm – cooperative (also processes) – retailer Cow/calf & pasture farm – cooperative (also processes) – retailer Cow/calf farm – pasture farm – farm – processor – distributor – retailer Cow/calf & pasture farm – farm – processor – distributor – retailer

Local distribution: Cow/calf farm – pasture farm – consumer Cow/calf & pasture farm – consumer Nationwide distribution often relies on a brand name or marketing cooperative. Several small, often family-run, farms raise livestock or poultry organically, Photo courtesy of Organic Valley FamilyTM of Farms, 2002. which are processed by the cooperative or firm holding the brand name. The meat products are distributed to retailers by the cooperative or a distribution firm.

18 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Organic livestock, poultry, and egg market facts:

Eleven percent of the meat sold in natu- tems increased sharply during the 1990s, ral products stores in 2000 was organic and the market for organic meat products is (NFM). expected to grow now that organic labeling Sales of organic eggs in natural foods is permitted (Greene). stores and conventional supermarkets Farmers and ranchers raised certified totaled $37.3 million in 1999, and $42.3 mil- organic cows, pigs, and sheep in 23 States lion in 2000 (NFM, 2001). In 2000, con- in 1997 (table 15). Dairy cows led, with sumers purchased 64.9 percent of all organ- 12,897 animals certified organic in 1997. ic eggs in conventional supermarkets, 35 New York was the top producer (3,386 dairy percent in natural foods stores, and 0.1 per- cows), followed by Wisconsin (2,509) and cent direct from the producer (NFM, 2001). Minnesota (2,425). Pennsylvania, California, Organic meat comprised 3 percent of and Maine also had over 1,000 organic total organic sales in 2000 (Myers and dairy cows each (Greene). Rorie). Thirteen States contained 4,429 certified According to the OTA Manufacturers’ Sur- organic beef cows in 1997, and almost 40 vey, members reported that sales of meat percent of which were in Michigan. Only 482 and poultry products increased 151 percent hogs and pigs were certified organic in 1997 between 1999 and 2000. Members also (Greene). reported that 78 percent of organic meat The United States had 537,826 certified was sold in natural foods stores and 15 per- organic layer hens in 1997, along with cent was sold in conventional supermarkets 38,285 organic broiler hens, 750 turkeys, (OTA 2001). and 221,389 unclassified organic poultry Certified organic livestock is well under 1 animals. California was the leader in organic percent of total U.S. livestock. However, the poultry production, with 350,000 organic number of dairy cows and layer hens pro- birds, followed by New York (161,304) and Photos courtesy of Organic Valley FamilyTM duced under certified organic farming sys- Pennsylvania (66,300 birds) (Greene). of Farms, 2002.

What are organic meat, poultry, and eggs?

Organic meat, poultry, and eggs, as access to pasture. Their bedding must be mal is raised organically for the last third defined by USDA, are made from animals clean and dry. Producers may not with- of gestation, and the offspring is raised raised under organic management. All hold medical treatment from a sick animal organically from birth. organically raised herds and flocks must in order to preserve its organic status. be raised separate from their convention- The producer must manage manure in a Poultry and layer hens must be under al counterparts. The animals are not way that does not contribute to soil, continuous organic management from the given growth-producing hormones or water, or crop contamination. In certain second day of life (most producers start antibiotics. The animals receive preven- cases, the producer may temporarily con- raising poultry from day-old chicks). The tive medical care, such as vaccines, and fine animals because of weather, stage of recommended method of farming is for dietary supplements of vitamins and min- development, if the animal’s well-being poultry to have access to the outdoors erals. They consume 100 percent organi- would be compromised from being out- during the months when it is feasible. In cally produced feed, free of animal doors, or if there was a risk to soil or order to become certified, the producer byproducts. Producers must provide living water quality. must demonstrate how access to the out- conditions that accommodate the health doors will be encouraged and maximized. and natural behavior of the animals. The Livestock intended for meat products animals should have access to the out- must be raised organically from the last Organically produced feed grain is creat- doors, shade, exercise areas, fresh air, third of gestation. Livestock used as ed in certified organic mills. Cows, hogs, and direct sunlight suitable to their breeder stock can be brought from a con- and poultry are processed in certified species and stage of production. All ventional operation provided that the ani- organic plants. organically raised cows must have

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 19 Organic Fibers

everal types of fiber are organically pro- Sduced, including cotton, rayon, and linen. What are organic fibers? Certified organic cotton was produced in 4 Organic fiber production relies on ecologically based practices, such as States—Texas, New Mexico, Missouri, and biological pest management and composting, and crops are produced on California—on 9,974 acres in 1997. Texas had land that has had no prohibited substances applied to it for at least 3 over three-fourths of the U.S. organic cotton years prior to harvest. Soil fertility and crop nutrients are managed acreage in 1997, much of it operated by an through tillage and cultivation practices, crop rotations, and cover crops, organic cotton marketing cooperative that supplemented with manure and crop waste material and allowed synthet- formed in the early 1990s and is still active. ic substances. Crop pests, weeds, and diseases are controlled through Certified organic cotton acreage in 1997 was physical, mechanical, and biological control management methods. 70 percent lower than in 1995, and accounted for only 0.1 percent of U.S. cotton acreage. Currently, the organic cotton market is more developed than markets for other organic Acres of certified organic and transitional land and production fibers. by State

1997 2001 2000 production Several major clothing companies tested organic cotton clothing lines without commercial Acres Acres Bales success in the mid-1990s. These companies Texas 8,134 8,338 3,128 have now switched to a new approach—blend- Arizona 0 1,303 2,122 ing organic with conventional cotton—to help stabilize the market and encourage organic pro- California 756 828 1,630 duction (Bunin, 2000). New Mexico 512 470 1,146 Missouri 572 400 510 Kansas 0 70 5 Tennessee 0 50 0 Source: 1997, Greene; 2000 and 2001, Organic Trade Association.

Figure 5—Organic cotton acreage, 1990 to 2001 Acres 25,000

20,000

15,000

10,000

Credit: Digital Stock 5,000

0 1990 92 94 96 98 2000

Source: Organic Trade Association.

20 • Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 Economic Research Service/USDA Organic Herbs and Flowers

ost organic herbs and flowers M(excluding those used as an intermediate good) are sold locally and direct to the consumer, through

internet sales, CSAs, or farmers mar- USDA. Credit: kets. Natural products supermarkets throughout the United States sell organic herbs (most of which are grown locally). Natural products supermarkets in the Pacific Northwest have just begun selling organic Marketing chain for organic herbs flowers. and flowers For herbs as a final product and flowers: Producer – consumer What are organic herbs and flowers? Producer – processor – wholesaler – retailer Organic herb and flower pro- For herbs used an intermediate good: duction relies on ecologically based practices, such as bio- Producer – processor – manufacturer logical pest management and composting, and crops are produced on land that has had Organic herb and flower market facts: no prohibited substances Organic herbs are used for culinary purposes, dietary supplements, such as St. applied to it for at least 3 years John’s Wort, and for personal care products, such as body lotion. Those used for prior to harvest. Soil fertility culinary reasons are either sold as spices to consumers or are sold in large and crop nutrients are man- quantities to manufacturers to use in manufacturing prepared foods (Frontier). aged through tillage and cultivation practices, crop rota- Certified organic herbs were cultivated on 6,407 acres in 1997, wild organic 4 tions, and cover crops, supple- herbs were also harvested from an additional 83,388 uncultivated acres (Greene). mented with manure and crop waste material and allowed Producers grew certified organic herbs for culinary and medicinal uses in 32 synthetic substances. Crop States. California was the largest producer of cultivated organic herbs, with 1,062 pests, weeds, and diseases acres, followed by Washington (846 acres) and Illinois (797 acres). Seven other are controlled through physi- States (Oregon, North Carolina, Florida, Missouri, Minnesota, Colorado, and cal, mechanical, and biological Wisconsin) had over 200 acres of cultivated herbs. Hundreds of different types and varieties are being cultivated in these States (Greene). control management methods. Idaho had 52,000 acres of wildcrafted St. John’s Wort, a popular medicinal herb, in 1997. Florida had 25,000 acres of certified organic saw palmetto berries (which have medicinal uses) and maypop (which have culinary and medicinal uses), indigo (which is used as a natural hair dye), polk (a wild salad green), and other crops. Oregon certified 6,000 acres of lake algae (which has medicinal uses) and St. John’s Wort (Greene).

Certified organic cut flowers were produced in a dozen States on 288 acres in 1997. California was the largest producer with 145 acres (Greene). 4Wild crops are plants or portions of plants that are harvested from land that is not main- tained under cultivation or other agricultural management.

Economic Research Service/USDA Recent Growth Patterns in the U.S. Organic Foods Market / AIB-777 • 21