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.