For the past few years, organic and natural foods have occupied the fastest growing aisle of the supermarket. While they may still be a relatively small segment — organic sales account for somewhere around 3 percent of food and beverage purchases — they’re expanding much faster than any other part of the store. Since 2001, the organic food business has grown 150 percent, and sales last year reached $19 billion, according to a story in the May issue of Newsweek.
But what will the lagging economy do to that trend?
Some signs suggest it might cause consumers to cut back on their organic food purchases. Five years ago, when they were asked whether organic food and drinks were worth paying an extra 20 percent for, 17 percent of respondents agreed completely or somewhat, according to the Natural Marketing Institute. Two years ago, that number rose to 26 percent — a significant jump.
But now a new survey from WSL Strategic Retail shows only 27 percent of shoppers think organics are worth the money — pretty much the same number as two years ago. (That survey also revealed that 42 percent of shoppers don’t trust that products labeled organic really are organic, which could be part of the problem.) Whole Foods, which had been showing strong growth, now shows falling profits and a 20 percent drop in its stock price.
Generally speaking, the price of organic food is 20 percent to 100 percent more expensive than its conventional counterparts, with that gap narrowing a bit as organic popularity has grown. Consumers may be less willing to pay the premium for organics when, in the past year, grocery prices have increased an average of 5 percent overall, and some staples went up much more than that: 30 percent for eggs, 13 percent for milk, and 16 percent for white bread, according to the Consumer Price Index.
That index does not break out organics specifically, but certainly organic food prices are subject to the same upward pressures as conventional foods. Fuel costs are rising. Grain prices are also rising — both conventional and organic grains are bringing record prices — and are now about double what they were a year ago. A bushel of organic corn sells for about $10 today. Organic wheat and soybeans are now in the $20- to $22-per-bushel range.
Organic grain prices are also rising because of the increasing demand and steady, or even diminishing, supplies, as the growth of new organic acreage slows down and even reverses, in some cases. With conventional crops bringing record prices, farmers aren’t as interested in growing organically, eschewing the three-year transition and extensive paperwork needed for organic certification.
Like their conventional counterparts, organic grain farmers are doing well these days, but those who have to buy the organic grains — from bakers to poultry and livestock producers — are struggling to pay the rising costs. There are reports of dairy farmers giving up on organic farming practices and reverting to conventional means, and others asking retailers to raise milk prices to help producers cover their costs.
Meanwhile, all eyes are on consumers. With all the current pressures on their spending dollars, will they still reach for the $7 gallon of organic milk?