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  • From: "Tradingpost" <tradingpost@gilanet.com>
  • To: livingontheland@lists.ibiblio.org
  • Subject: [Livingontheland] Seriously, now -- why aren't organics getting affordable?
  • Date: Wed, 07 Sep 2005 20:27:28 -0600

Editor's Note: If organics are consistently growing as a percentage of food
sales, why aren't prices coming down? This article from the Daily Grist
environmental magazine shows that more than economies of scale matter when
it comes to the cost of the healthiest and most sustainable food. Organics
aren't really more costly, they just aren't subsidized the way conventional
foods are nor are there the same kinds of supportive distribution and
marketing channels. Examples from EU governments on contributing to the
growth of organic markets and supporting the environmental services
sustainable agriculture accomplishes might inform North American policy.

http://www.grist.org/news/maindish/2005/08/25/harrison-organics/
Cost in Translation

Seriously, now -- why aren't organics getting affordable?
By Christy Harrison 25 Aug 2005

So you like whole-grain bread, pesticide-free plums, and low-fat meat?
Better ask for a raise.

A recent study by researchers at the University of California-Davis
reported that U.S. shoppers who consistently choose healthy foods spend
nearly 20 percent more on groceries. The study also said the higher price
of these healthier choices can consume 35 to 40 percent of a low-income
family's grocery budget. That's bad news for public health. It's also bad
news for the organic-food market, since organics usually carry the highest
price tag of all the healthy stuff out there.


Do organics make the list?Eventually, analysts keep telling us, demand for
organics will set the wheels in motion that will drive prices down. But
eventually never seems to come. Even though organics sales are growing by
about 20 percent a year -- almost 10 times the rate of increase in total
U.S. food sales, according to the Nutrition Business Journal -- these
cleaner, greener products still carry a hefty premium.

How many shoppers have to jump on the organic bandwagon before we actually
see prices fall? How long will that take? And what's the government's role
in all this? It depends who you ask.


Be Fruitful and Multiply

The organic market we know today began evolving in the 1960s and '70s, when
rising environmental awareness led to a backlash against pesticides and
increased demand for "green" products. Over the last 20 years, the market
has flourished, gaining enough stature to merit the introduction of
nationwide U.S. Department of Agriculture certification standards in 2002.
(Those guidelines have been attacked by some for being too weak; some
producers also cause confusion by claiming to be "natural" or "sustainable"
without being certified.)

Today, roughly three-quarters of conventional grocery stores carry natural
and/or organic food, according to a 2002 Food Marketing Institute study.
Restaurants across the country, from the high end to the greasy spoon, are
plunking organic ingredients onto their menus. Still, organics represent
only about 2 percent of the food industry, both in the U.S. and worldwide.
And less than 10 percent of U.S. consumers buy organic items regularly,
according to survey data from Nutrition Business Journal and the Hartman
Group, a research firm specializing in the natural-products market. The
$10.8 billion industry may be booming, but it's not even close to
overtaking conventional sales.

This is in part because of plain old economics. According to basic economic
principles, in the short term, as demand grows, prices climb along with it;
this small supply and growing demand is what's now getting us, say, $4
quarts of milk. But in the long term, if the market continues to expand,
consumption of organics should reach a higher plane where the cost per unit
of processing, marketing, and distributing products is much lower. In other
words, organic producers will build economies of scale. That price break,
in turn, "could bring many more consumers into the market," says Thomas
Dobbs, a sustainable-agriculture economist at South Dakota State
University. Trouble is, no one seems to know for sure when that will
happen.

That's because there are still so many exceptions to the rules, says Steven
Blank, an agricultural economist at UC-Davis. Most organic farms in the
U.S., for instance, are still small, often family-run operations that don't
necessarily fit the economy-of-scale model, because they don't usually have
high distribution costs that could be cut as demand rises. Many rely on
farmers' markets, community-supported agriculture, and other small-scale
distribution channels. "We're too local and hands-on for high distribution
to change our costs significantly," confirms Sarah Coddington, co-owner of
Frog Hollow Farms in northern California.

And when the little guys grow delicate crops like peaches and plums that
have to be handpicked, Blank says, they can't reach the same economies of
scale as farmers who harvest mechanically -- their labor costs are too
high. "If we have a bumper crop, everything costs more to do," says
Coddington.


Fresh, exciting.Frog Hollow's tree-ripened fruits have developed a
nationwide reputation, and a single, succulent peach can run more than $3.
But generally, "it" fruits from small farms are not the ones causing a
strain on the bank account. Most organic fruits and vegetables -- the
largest sector of the organics market -- are only 10 to 30 percent more
expensive than their conventionally grown counterparts, and Dobbs says many
people are willing to pay that kind of markup for better produce. Where
economies of scale could really make a difference is in the world of frozen
produce, processed foods, and animal products.

Those items typically cost 50 to more than 100 percent more than their
conventional counterparts, according to a 2002 USDA study. In a survey
conducted by Colorado-based Walnut Acres -- which bills itself as America's
first organic-food company -- price was a major barrier for nearly 70
percent of shoppers who didn't usually buy organic items.

So to win these folks over, do organic producers have to start offering
cheap cheese and budget bonbons? Dobbs makes a surprising estimate: if just
one-third of American shoppers bought organic foods on a regular basis,
most prices would come down to that 10 to 30 percent markup we're seeing on
produce today.

Still seems expensive, but Dobbs says a third of U.S. consumers could
afford to buy at today's prices if we chose to. The reason we can afford
more than we think? We're already paying that much -- and more -- for
supposedly cheap food.


More than Meats the Eye

Conventional crops are heavily subsidized by the federal government in the
United States, making them artificially inexpensive. Couple those subsidies
-- which have been in place since the New Deal -- with the cost of cleaning
up pollution and treating health problems created by conventional farming,
and we're paying a lot in taxes in order to pay a pittance at the grocery
store.

"When we make the argument that low-income people can't afford organics,
we're assuming that the prices of conventionals are the prices we should be
paying," says a USDA economic researcher who asked to remain anonymous.
"But those prices externalize a lot of costs, like pollution and higher
energy inputs."

A study last year by Iowa State University economists showed that the
annual external costs of U.S. agriculture -- accounting for impacts such as
erosion, water pollution, and damage to wildlife -- fall between $5 billion
and $16 billion. (For context, that's as much as twice the EPA's 2005
budget.) And Michael Duffy, a coauthor of the Iowa paper, says his team's
estimate is conservative.

So will this drive frustrated consumers to the o-side? Hardly. If anything,
the taxes consumers already pay to support conventional farming are a
disincentive to paying "double" for organics. To encourage a shopping
shift, as European agricultural researchers Stephan Dabbert, Anna Maria
Haring, and Raffaele Zanoli write in Organic Farming, government has to
throw farmers a bone.

"In Western Europe, most countries have decided that organic agriculture
needs special support to bring production [and consumption] up to a
significantly higher level," Dobbs notes. In countries including Denmark,
Sweden, Germany, Austria, and Switzerland, and also at the European Union
level, governments contribute to organic markets. In fact, many European
policy makers treat organic farming as an instrument to help mitigate
environmental problems, manage marginal lands, and address falling farmer
incomes, according to Dabbert, et al.

Meanwhile, in the U.S., scant federal money is set aside strictly for
organic farmers. The industry doesn't even have access to the type of
pricing data and guarantees available to conventional farmers, says
University of Georgia agricultural economist Luanne Lohr. "In order to
induce producers to get into the [organics] market, they need to know what
kind of prices and revenue they're looking at," she says. Without that
information, "the producers are flying blind," at the mercy of large
distributors who can set unfair prices. "A lot of people would be willing
to go into organic, but they don't want to just throw away their investment
[in their conventional farms] to get into a system in which they don't have
price guarantees," says Lohr.

The success of the USDA's Natural Resources Conservation Service, which
dispenses grants that help conventional farmers implement more sustainable
practices, suggests subsidies are a key part of encouraging such changes.
Deputy Chief Tom Christensen reports that so many farmers are interested in
the $3.9 billion program that only one in four applicants is given funding.



Loaves and Wishes

Subsidies are a useful way to increase supplies, experts say, but they're
only effective in conjunction with a well-run market. "Regulations that
promote organic agriculture by encouraging supply are not ... sufficient to
ensure the continuous growth of the organic sector," wrote Nadia Scialabba,
a senior officer of environment and sustainable development for the U.N.,
in 2001.

Scialabba cited the case of Austria, which was the leading organic producer
in the E.U. in the mid-1990s. About 10 percent of farmers in the country
decided to go organic because of subsidies offered by the government, but
this increase in supply was met with inadequate information, distribution,
and marketing channels; as a result, many threw in the trowel. They had the
money -- they just needed a market.


Spend Your $.02
Discuss this story in our blog, Gristmill.
Some other policies that would effectively increase supply have been
contentious. For instance, the USDA has been criticized for allowing dairy
farmers to be certified while still in the process of converting
conventional cows to organic status. (Such status depends on the grain fed
to the cows.) Somewhat ironically, a ruling this January that reversed that
provision could hurt the market, at least temporarily. Some of the
companies making "organic" products under the weaker standards might jump
ship due to the higher production costs under the stricter guidelines, says
Lohr. This could slow progress "as the industry reorients itself" around
the new rules, she says.

Such dilutions and confusion can cause consumers to lose trust in the
organic label and stop buying, according to a 2002 report presented by
German researchers to the U.N. Environment Program. Lohr predicts that the
rules will continue to be challenged in years to come, "because if there's
demand for organic, people want to make it easy for farmers to become
certified."

One thing is clear: though organics have been around for a half-century,
unknowns still rule. Long-range studies are few and far between, says
UC-Davis' Blank. And most economists don't wager a guess on when pricing
will change. For now, in the absence of federal support, they put their
money on consumer education driving the market.

"It's a matter of the public really knowing what they get when they buy
organic," Blank says. The necessary increase in demand, he adds, is likely
to happen only if shoppers develop a pro-organic philosophy before they
ever set foot in the store.


- - - - - - - - - -

Christy Harrison is a senior editor at Plenty magazine. She lives in
New York City.





  • [Livingontheland] Seriously, now -- why aren't organics getting affordable?, Tradingpost, 09/07/2005

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