One of the significant new developments in US agriculture and the food industry has been the emergence during recent decades of a vibrant and growing sector of organic foods. From a position of relative obscurity in 1970, the organic sector has developed into one of agriculture’s most rapidly growing and interesting new areas. Though still comprising only 3% of US food sales in 2006 (OTA, 2007), organic foods have gained a solid position in the ‘hearts and minds’ of the public, the grocery industry, policymakers and farm organizations. Agricultural stakeholders of all opinions, be they supporters or detractors of organic products, nevertheless have become aware of the organic sector and its emergence. This paper will provide a brief overview of the organic sector, its history, current trends and selected projections for the future.
Organic industry overview
The organic industry comprises only a small portion of the overall grocery products industry – about 3% - but is growing at nearly 20% annually - much faster than the overall food industry. According to the Organic Trade Association (2007), organic products now total approximately $14 billion in sales (Figure 1).
There are several major reasons for the dynamic growth of the organic industry, including the following (Bloomquist and Driftmier, 2005):
a) Increased consumer interest in health, nutrition and personal safety, along with increased concerns about possible ‘bad stuff’ in food such as artificial hormones, antibiotics and pesticide residues.
b) Development of natural foods retailers and greater presence of organic products in retail venues.
c) ‘Mainstreaming’ of organic products among consumers in terms of taste, packaging, convenience and positioning. Organic products have begun to move from the fringe of American consumption toward the center (or at least have made a modest start along that path).
Figure 1. Organic retail sales growth in the US, 1997-2005 (OTA, 2007).
d) Increasing availability of organic ingredients, in terms of both quantity and variety.
e) Declining cost of organic production.
f) Implementation of organic standards, including the USDA’s National Organic Program, which lends credibility to organic products.
g) Investments from the financial community.
As the industry continues to develop, most observers conclude in general that the forces of growth will continue and that the industry will proceed on its rapid developmental path.
Growth of key organic categories
Within the overall growth trend in organic products, certain categories are benefiting much more than others from the favorable trends. Several categories have become significantly larger and are experiencing more robust growth throughout the different channels of distribution. In general, the highest growth rates and the largest segment sizes have occurred in perishable products, refrigerated products, products with high regular consumption, and those products demonstrating a stronger link with health, nutrition and wellness, including produce, non-dairy beverages and dairy products. Each of these categories has a series of properties which make it large, rapidly-growing, and of significant interest to consumers, as outlined in Figure 2 (OTA, 2006).
FIVE PRIMARY MARKETING CHANNELS FOR ORGANIC FOODS (NFM, 2006)
The retail supermarket industry has seen a significant increase in organic sales and distribution during the past decade. In fact, the majority of organic sales now occur in this channel (NFM, 2006). Almost all US supermarket chains have sections in their stores dedicated to organic products, and these chains have created staff positions for merchandising and purchasing managers to ensure that the organic sections achieve sales and profit targets.
Figure 2. Organic food sales (× 1,000,000) by category (all channels) in 2005 (OTA, 2006).
The natural food retail channel, exemplified by natural chains such as Whole Foods Market and Wild Oats Markets Inc., has grown from a small, fragmented group of independents into a well-organized channel. About 75% of channel sales occur in socalled ‘Super-Naturals,’ the largest and best-organized chains and independents, with the remainder occurring in smaller independents and community co-op stores.
Mass / club
The mass / club channel is dominated by large chains such as Wal-Mart, Target and Costco Wholesale. This channel, though late in its adoption of organic products, has initiated a significant commitment to organics for its customers. Currently, organic is growing faster in this channel than in the other retail channels (IRI, 2006).
Food service, institutional
Although the food service and institutional channel accounts for a large portion of all US consumer food spending, this channel is almost completely untapped for the organic industry. There are currently just a few scattered points of distribution and a limited assortment of products. In the future this channel holds considerable potential for significant growth in organic food sales.
CONSUMER ‘CYCLE OF ADOPTION’ OF ORGANIC PRODUCTS
When consumers decide to initiate purchase of organic foods, they do not do so randomly, but instead follow a distinct cycle of adoption depending on level of interest and familiarity with different organic products. It has been observed that consumers generally begin organic purchases with items that are less-processed, such as fresh produce and dairy products. They then extend their purchases into other types of organic products, as shown in Figure 3.
Figure 3. The cycle of organic food adoption (From Sterling-Rice Group, 2001).
Motivators for organic purchase
There is an interesting dynamic in consumer perceptions and motivations relative to organic purchase motivation. The Hartman Group (2001) has segmented organic consumers relative to the intensity of their dedication to organic. As shown in Figure 4, the ‘left’ end comprises the core organic consumers: those who value organic quite highly and are dedicated organic shoppers. These consumers are motivated principally by authenticity, knowledge (of organic, health and environmental issues) and community values. Going out to the ‘right’ end of the spectrum, another consumer group of more peripheral shoppers is motivated more by price, convenience and comparability.
Barriers to consumer adoption of organic products
Despite the growing consumer adoption of organic products, the fact remains that organic is still a very small part of the US food industry. As such, there are strong reasons why consumers choose NOT to become organic shoppers. As shown in Figure 5, there are several principal reasons why consumers do not purchase organic products, led by Lack of Awareness (“never considered organics”), Price, and Availability (or lack thereof).
Figure 4. Dimensions of consumption organizing the world of organics (Hartman Group, 2001).
Figure 5. Top barriers to organic food and beverage purchases: total population (Hartman Group, 2002).
History of the organic movement
The emergence of the organic sector, though most notable since 1970, actually began much earlier, in the first decades of the 20th century. The ‘sanitarium movement’ of the early 20th century, most notably the work of John Harvey Kellogg (1923), promoted a healthy lifestyle based on wellness and disease prevention rather than curing disease.
This lifestyle also focused on a simple vegetarian diet featuring whole grains, vegetables and fruits, and either uncooked or minimally-processed foods. These ideas far outlasted the sanitarium movement itself, and they were incorporated into the modern organic and natural foods movement. One will recognize in today’s natural foods movement a similar focus on wellness, preventing disease and eating a simple diet based on whole grains and minimally-processed foods.
During the 1920s, Rudolf Steiner, the German philosopher and writer, brought together several different agricultural and philosophical concepts into an integrated, alternative system of agriculture that he termed ‘biodynamic’ (King, 1987). In the biodynamic system, the soils, plants and living communities are all part of a greater living whole, suffused with life force and energy. Controversially, Steiner also linked agriculture with the cosmos and with astrology, a part of his system to which many later pioneers in the organic movement did not adhere. However, his ideas about agriculture as an integrated holistic system were – and continue to be – enormously influential as one of the philosophical underpinnings of the modern organic movement.
Sir Albert Howard, an English agricultural expert, made a series of important observations in the 1930s and 1940s that were consistent with Steiner’s holistic system.
Howard emphasized the primary importance of building and maintaining healthy soils.
This same period witnessed the rise of tractors, farm chemicals, industrial fertilizers and intensive (and unsustainable) industrial farming methods. Prime examples of this industrial approach to agriculture were the misuse of farmland in the US that contributed to the ‘Dust Bowl’ during the droughts of the 1930s, the collectivized farms of the Soviet Union, and ever larger plantations in India. Howard, after seeing the grave problems of soil depletion in India, wrote many influential books including the seminal work An Agricultural Testament in 1943. In it, Howard focused on soil as the fundamental treasure of all agriculture, and he highlighted soil depletion, loss of fertility, salinization, as among the greatest contributors to the collapse of previous civilizations such as ancient Sumeria, Egypt, Rome, Imperial China and the Maya.
After World War II, the development of DDT and other synthetic chemicals for weed and insect control led to a geometric increase in food production, but also to a greater concern about agricultural sustainability, and a questioning of the philosophy of using toxic and persistent chemicals in farming. In 1946, J.I. Rodale responded to these trends, and to the body of knowledge about holistic farming practices developed by Steiner, Howard and associates with a periodical called Organic Farming and Gardening. This modest newsletter grew to become Rodale Press, and the Rodale family became strongly identified with the principles of organic farming. For many years prior to the official establishment of organic standards, farmers could receive a stamp of organic certification for their farms by obtaining application materials directly from Mr. Rodale and his staff, who would examine the application and issue a Rodale-endorsed certificate of organic status. Currently, the Rodale Press is a leading publisher of organic books and magazines, and the Rodale Institute is one of the most important institutions conducting research in organic farming practices.
Concerns about chemicals in agriculture intensified with the 1962 publication of Rachel Carson’s best-selling book Silent Spring. In this book, Carson cogently and passionately described the significant environmental damage of synthetic pesticides such as DDT, both immediate and over the longer term. Carson’s book, for the first time, brought a large segment of the American population into the discussion of sustainability and led to a much more open and acrimonious debate about the long-term efficacy of industrial farming and synthetic pesticides. This book also left a deep impression on the consciousness of young people, many of whom would become the early adopters of organic foods later in the 1960s and the 1970s.
Organic farming continued during the 1960s and 1970s, with a growing – but still limited – body of knowledge and information about organic practices. However, there were no formal or universal organic standards, and the term ‘organic’ meant something different to each member of the movement. During this same period, organic farmers and thought leaders realized that the term ‘organic’ would need to be codified into a common, universally-accepted set of principles and practices. The first certification organization, California Certified Organic Farmers (CCOF), was chartered in 1973 (CCOF, 2007). Other certification organizations followed, and by the mid-1980s there were several organizations conducting on-farm audits of organic practices and issuing certificates of organic certification.
By the late 1980s, many organic food companies had formed to bring organic products to US consumers. The retail segment of the organic industry developed its basic infrastructure, with natural and organic food stores (both independent and chains), organic sections within supermarkets, distributors, trucking systems and sales organizations.
During this period, there was also general agreement that organic farming, to establish legitimacy and achieve its long-term promise, would need to be standardized and managed by the US Department of Agriculture (USDA). Accordingly, the leaders of the organic movement sought and obtained legislative action to officially launch organic agriculture as part of USDA. This was done with the Organic Foods Production Act, included in the 1990 Farm Bill. This act officially recognized organic as a sector of US agriculture, placed it within the regulatory oversight of USDA and established a National Organic Program at USDA to create rules for its regulation and to manage organic certification. The act also set up a system of independent, third party organic certification agencies (such as CCOF) to conduct the daily business of auditing and certifying organic operations. Finally, the act established a citizen’s advisory committee, the National Organic Standards Board, to advise USDA and the Secretary of Agriculture on key issues in the development of the organic industry. After another 12 years of rule-writing and development, the National Organic Program was officially adopted in 2002, and since then the USDA has managed the system by which all US organic operations are certified organic.
Looking to the future
As we look to the future, we see several important consumer, retail and societal trends indicating that organic agriculture and food will continue to grow. These trends include:
Personal health and wellness: Many consumers are taking a greater interest in proactively changing to healthier lifestyles and diets. Concurrently, there is greater frustration with the US health care system and desire to make more personal, accountable decisions.
At the same time, health care providers themselves are promoting more wellness-oriented health programs for their customers, including a greater focus on healthy diets and organic foods. As the trend towards health and wellness maintenance accelerates, a greater number of consumers will enter the organic sector and, once there, will increase their organic purchases.
Food safety: In addition to a focus on wellness, consumers are also demonstrating an increasing concern about food safety. For a certain group of highly aware consumers, negative events such as the possible presence of genetically modified ingredients or pesticide residues in food are motivators for greater purchases of organic foods. These consumers actively seek out foods that they perceive to be less ‘tainted,’ less ‘processed’ and ‘closer to nature.’ Organic foods make these consumers feel better about their food purchases. In the future, a greater number of consumers will fit into this segment, leading to increased demand for organic foods.
Value-added retailing: At the supermarket, food retail managers are searching for more value-added products that will appeal to affluent, high-spending shoppers. Organic foods fit well into this model, and organic shoppers tend to be willing to pay a little bit more for the higher quality products found in all sections of the supermarket. As such, these consumers are highly sought by retailers, who are increasing their organic and ‘better food’ offerings to appeal to this group. With this heightened attention to organic foods comes greater distribution, better shelf placement, more advertising and more merchandising focus, all leading to increased sales. Additionally, the greater focus on organic foods in mass / club channel will accelerate the growth of organic foods.
Sustainability and environmental health: Every day consumers learn about the stresses being placed by human society on the earth and its resources. The list of problems includes population growth, energy consumption, water shortages, soil depletion, water table contamination, over-fishing and disappearance of previously agricultural land. In response to these problems, there has been a dramatic increase in the commitment to sustainability and in public awareness of the importance of sustainability. Initiatives such as the Wal-Mart sustainable project serve to heighten consumer awareness. As the focus on sustainability extends to agriculture, there is greater pressure at the political end and greater interest from the public for conversion to sustainable farming methods.
Organic agriculture fulfills many of the most important goals of sustainability and serves as a positive model for new initiatives in agriculture.
Organic agriculture has come a long way from its early status as a tiny, fringe, poorly understood system. The organic movement is now front-page news in leading dailies and is included by the Secretary of Agriculture in his plans for US farming policy.
Nearly 100 independent organic certifiers audit and monitor the organic certification of thousands of farms and operations, under the auspices of the National Organic Program.
Supermarkets, natural food stores and club stores now feature a wide range of organic products, and consumers are putting organic foods in their shopping baskets at an increasing rate. That being said, organic is still a small portion of US agriculture and the purchases of American consumers. Much more remains to be accomplished at all levels for organic to fulfill its promise as a valuable future model for agriculture.
Author: JUAN S. VELEZ
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