Organic certification Essay Example for Free

Organic certification Essay Marketplace Characteristics of U. S. Organic Sector The U. S. organic food industry crossed a threshold in 2000: for the first time, more organic food was purchased in conventional supermarkets than in any other venue. Industry estimates suggest that nearly half of the $7. 8 billion spent on organic food in 2000 was purchased in conventional retail outlets. Organic products are now available in nearly 20,000 natural foods stores (Natural Foods Merchandiser), and are sold in 73 percent of all conventional grocery stores (Food Marketing Institute). Growing consumer demand for organic products has been manifested in the market in many ways. Acreage of certified organic farmland is increasing to meet growing consumer demand. According to the most recent USDA estimates, U. S. certified organic cropland doubled between 1992 and 1997, to 1. 3 million acres. Preliminary estimates for 2001 suggest that certified organic acreage significantly increased between 1997 and 2001. From the consumer side, new products are being introduced rapidly. For example, over 800 new organic products were introduced in the first half of 2000. Desserts made up the majority of new products in 2000, while most new products introduced in 1999 were beverages (Myersand Rorie). The new U. S. Department of Agriculture standards for organic food, slated to be fully implemented by October 2002, are expected to facilitate further growth in the organic foods industry. The USDA standard defines organic production as â€Å"A production system that is managed in accordance with the [Organic Foods Production] Act and regulations in this part to respond to site-specific conditions by integrating cultural, biological, and mechanical practices that foster cycling of resources, promote ecological balance, and conserve biodiversity. † 1 The national organic standards address the methods, practices, and substances used in producing and handling crops, livestock, and processed agricultural products (see box). All agricultural products that are sold, labeled, or represented as organic must be in compliance with the regulations after October 2002. Organic food is sold to consumers through three main venues in the United States—natural foods stores, conventional grocery stores, and direct-to-consumer markets—and a small amount is exported to foreign markets. USDA does not have national statistics on organic retail sales. Industry sources have reported retail sales for organic food, but those data are fragmentary and, at times, inconsistent. A trade publication, the Natural Foods Merchandiser (NFM) reported estimates of total U. S. retail sales of organic foods for 1990 through 1996. NFM estimated total organic sales through all marketing outlets rose steadily from about $1 billion in 1990 to $3. 3 billion in 1996, the last year that total sales were reported. Since 1999, Packaged Facts, a market research firm, has been reporting organic food sales. According to Packaged Facts, organic food sales in all venues totaled $6. 5 billion in 1999 and $7. 8 billion in 2000. This increase continues the streak of industry growth equal to 20 percent or more annually since 1990. Purveyors of natural products were the primary sales force for organic food since the beginning of the organic food movement over half a century ago. Until 2000, the largest retail outlet for organic food was natural foods stores followed by direct markets (such as farmers markets), according to NFM data (fig. 1). In 2000, 49 percent of all organic products was sold in conventional supermarkets, 48 percent was sold in health and natural products stores, and 3 percent through direct-to-consumer methods (Packaged Facts). In contrast, in 1991, 7 percent of all organic products were sold in conventional supermarkets and 68 percent were sold in health and natural products stores (NFM). Fresh produce remains the top-selling organic category (see fig. 2), followed by nondairy beverages, breads and grains, packaged foods (frozen and dried prepared foods, baby food, soups, and desserts), and dairy products. During the 1990s, organic dairy was the most rapidly growing segment, with sales up over 500 percent between 1994 and 1999. Sales of organic yogurt and kefir increased 56. 4 percent between 1999 and 2000. Following closely, sales of nondairy beverages (for example, juice and soymilk) increased 53. 1 percent and sales of fresh produce grew by 51. 4 percent between 1999 and 2000, according to industry sources. Overall, according to Packaged Facts, organic sales in natural product supermarkets and conventional stores increased by 20 percent between 1999 and 2000. Organic farmers market their food directly to consumers much more frequently than conventional farmers do, and the last decade has seen a renaissance in the use of farmers markets across the country. Producers capture a much higher share of the consumer food dollar when they market their produce directly to consumers. Several surveys of certified organic producers show similar findings on theirheavy use of direct -to-consumer marketing. A 1997 survey of certified organic producers in the United States conducted by the Organic Farming Research Foundation (OFRF)—a California nonprofit group that sponsors research on organic farming—found that direct market use is extensive and varies by commodity sector, with fruits and vegetables the highest. Organic producers reported selling produce from about 23 percent of their vegetable acreage directly to consumers through on-farm sales (9 percent), farmers markets (8 percent), â€Å"community supported agriculture† subscriptions (4 percent), and other types of direct-toconsumer markets (2 percent). Also, produce from about 20 percent of the organic fruit and vegetable acreage was marketed directly to grocery retailers and restaurants. A 1994 USDA survey of certified organic vegetable producers in the United States found that the use of direct-toconsumer markets varied with farm size, with 60 percent of the growers with under 10 acres (three-quarters of the respondents) using this channel compared with 12 percent with 10 acres or more (Fernandez-Cornejo et al. ). Smaller growers tended to market directly to grocery retailers (11 percent versus 6 percent for larger growers) and through grower cooperatives (10 percent versus 3 percent for larger growers), while the larger growers marketed more heavily to vegetable packer/shippers, brokers, and food processors. Organically grown food is widely available in farmers markets across the United States, and organic-only farmers markets have been organized in Oregon, Illinois, Missouri, and other States. The renaissance in farmers markets in the United States during the 1990s—fostered by State and local municipalities wanting to revitalize neighborhoods and preserve regional farmland and open space— has been a boon to organic farmers who use this marketing outlet much more heavily than conventional farmers do. States are also producing directories of farm stands and pick-your-own farms, including organic directories, and developing logos like â€Å"Jersey Fresh† to promote locally grown food. Community-supported agriculture (CSA) is an innovative direct marketing arrangement that organic farmers have been pioneering in the United States for about a decade. Consumers subscribe to the harvest of a CSA farmer for the entire upcoming season, and pay for their produce in advance. Under a CSA arrangement, consumers share the production risks and variable harvests of the farmer— including especially abundant harvests—and sometimes participate in festivals and other social activities at the farm. Over 800 CSAs are currently listed in the U. S. database maintained by USDA and the Robyn Van En Center at Wilson College. Most of the CSA farms use organic production systems. Production Characteristics of U. S. Organic Sector A growing body of research in the United States has been devoted to the economics of organic production systems— its yields, input costs, income, profitability, and other economic characteristics. A 1990 review of the U. S. literature concluded that the â€Å"variation within organic and conventional farming systems is likely as large as the differences between the two systems† and found mixed results in the comparisons for most characteristics (Knoblauch, Brown, and Braster, 1990). Several more recent U. S. studies have indicated that organic price premiums are key in giving organic farming systems comparable or higher whole-farm profits than conventional chemical- intensive systems, particularly for crops like processed tomatoes and cotton (Klonsky and Livingston, 1994; Batte, Forster, and Hitzhusen, 1993; Assadian, Esparza, and Ponce, 1999). Other studies have found that organic systems may be more profitable than conventional systems, even without price premiums. For example, some Midwestern organic grain and soybean production was found to be more profitable than conventional systems, even without price premiums, due to higher yields in drier areas or periods, lower input costs, or crop mix (Welsh, 1999). Also, a recent study comparing organic and conventional apple production in California’s Central Coast showed higher yields as well as higher returns under the organic systems (Swezey et al. , 1994). And another recent study compared organic, conventional, and integrated apple production systems in Washington State over a 6-year period, and found that the organic system was more profitable, had similar yields, better tasting fruit, and was more environmentally sustainable and energy efficient than the other systems (Reganold et al. ). We are not aware of recently published research that finds farming with organic methods is less profitable than farming with conventional methods. Of course, net returns to various production systems may vary with biophysical and economic factors (such as soil type, climate, and proximity to markets), and a system that is optimal in one location may not be optimal in another. Also, factors not captured in standard profit calculations, such as convenience, longer-term planning horizons, and environmental ethics, can motivate rational adoption of a particular practice or farming system. Further research is needed to improve our understanding of the factors influencing net returns to organic farming systems. The promising results from the limited number of economic studies to date have led to an increase in research on organic farming systems. USDA, universities, and other U. S. institutions are increasingly examining the long-term economics of organic farming systems through replicated field trial research and a multidisciplinary systems approach. Most of these projects are less than a decade old, and promise to answer basic research questions about yields and profitability as well as to address farmer-defined management and production obstacles to the more widespread adoption of organic production systems. Farmers in 49 States used organic production methods and third-party organic certification services on 1. 35 million acres of farmland in 1997, according to an Economic Research Service (ERS) study. Crops were grown on about two-thirds of the certified U. S. organic farmland, and the rest was pasture. The ERS study analyzed data from 40 State and private certifiers (see box, p. 8, on organic standards and certification). Uncertified acreage was excluded, even though it may represent a large segment of organic production, because of the difficulty in determining the production criteria used by uncertified growers. ERS reports statistics on certified organic U. S. acreage in the Organic Farming and Marketing Briefing Room (www. ers. usda. gov/ briefing/organic). Organic farming has made deeper inroads in the fruit, vegetable, and other high-value specialty crop industries than in the major grain and oilseed industries. While less than two-tenths of 1 percent of the U. S.corn, soybean, and wheat crops were grown organically in 1997, over 1 percent of the dry peas and tomato crops and about 2 percent of the apple, grape, lettuce and carrot crops were organic. And nearly a third of the U. S. herb and â€Å"mixed vegetable† crops were grown organically in 1997. (A â€Å"mixed vegetable† crop is a mixture of numerous horticultural crops (mostly vegetables) grown on a small farm or parcel. ) The markets for organic vegetables, fruits, and herbs have been developing for decades in the United States, and these crops are grown organically in more States than any other type of commodity. State and private certifying groups certified over 180,000 acres of these crops in 44 States in 1997, more than double the amount certified in 1994, with the biggest gains for cultivated and wild-harvested herbs such as St. John’s Wort. About 2 percent of the major fruit and vegetable crops—apples, carrots, lettuce, and grapes—were grown organically, and a third of the organic vegetable acreage was devoted to producing â€Å"mixed vegetables† in 1997. Mixed vegetable farms, as defined in the census of agriculture, are small farms—less than 50 acres—that produce a large number of vegetables. Large farms produce processing tomatoes, organic wine grapes, and other high-value crops on a commercial scale, while numerous small farms still specialize in mixed vegetable production for direct marketing to consumers and restaurants. The top producer of organic fruits and vegetables was California, followed by Arizona, Florida, Texas, and Washington. About a third of the total certified organic vegetable acreage in 1997 was for mixed vegetables. In 1997, U. S. farmers certified nearly 3,000 acres of organic mixed vegetables on farms or parcels that were 5 acres or less, and over 14,000 acres on farms and parcels over 5 acres. New York organic producers had over 1,400 acres in the 5-acres-or-less category. Mixed vegetable producers often target farmers markets, community-supported agriculture subscriptions, restaurants, and other direct marketing outlets. Organic farmers are also growing major grains and oilseeds on a small portion of the planted area in the United States. Wheat was produced under certified organic farming systems on over 125,000 acres in 1997, corn was grown on over 42,000 acres, and soybeans were produced on about 82,000 acres. Other field crops produced organically in 1997 include barley, oats, sorghum, rice, spelt, millet, buckwheat, rye, dry peas, lentils, dry beans, flax, and sunflowers. Organic acreage of these crops, especially soybeans, has undoubtedly increased since 1997. Thirty-nine States had certified organic hay and silage production, with most acreage in Idaho, Wisconsin, and New York. Acreage of these crops expanded 51 percent between 1995 and 1997 as the number of certified organic milk cows more than doubled during that period. Organic meat and poultry markets have lagged behind those for crops partly because meat and poultry could not be labeled as organic until February 1999, when a provisional label was approved by USDA. Food crops and non-meat animal foods (eggs and dairy products) are regulated by the U. S. Food and Drug Administration, which allowed food packages to carry an organic label throughout the 1990s. 2 While the number of certified organic beef cows, hogs, sheep, and lambs declined during the study period (1992-97), the number of dairy cows and layer hens increased sharply. The market for organic meat products is beginning to grow now that organic labeling is permitted, and the growing market for organic milk and eggs has been pushing up the use of certified organic pasture and the demand for certified organic grains and oilseeds. Farmers and ranchers raised a small number of certified organic cows, hogs, and sheep in 23 States in 1997. Dairy cows were raised organically in 13 States in 1997, and New York, Wisconsin, and Minnesota were the top three producers. The number of certified organic milk cows in the United States nearly tripled between 1992 and 1994 and more than doubled between 1994 and 1997. California was the leader in organic poultry production, followed by New York and Virginia. Other organic animal specialties, including goats, fish, and colonies of bees, were certified in several States. Consumption Characteristics of the U. S. Organic Sector A number of academic and industry studies have been conducted to examine consumer behavior and identify their motivation for purchasing organic foods. Many of the industry studies use consumer surveys, which seek to identify how often consumers purchase organic food, their motivations for purchasing organic food, and demographic data on organic food purchasers. University studies have adopted different approaches to assess consumer buying behavior and to identify which characteristics (for example, income, food quality, educational level, concern for the environment, or family size) affect whether consumers will purchase organic food. Several industry groups have surveyed consumers about their preferences and buying habits for organic food. The results of the different surveys are not always consistent. The Nutrition Business Journal reported that 11 percent of consumers purchased some organic food in 2000, and less than 2 percent are regular purchasers. Results of the Hartman Group’s 2000 survey suggest that 3 percent of consumers regularly buy organic products. The Walnut Acres Survey (2001) found that 63 percent of respondents purchased organic food at least sometimes, and 57 percent of the purchasers had been doing so for at least 3 years. The Food Marketing Institute’s survey (2001) found that 66 percent of surveyed shoppers bought organically grown foods. In 2001, the Food Marketing Institute’s survey indicated that 37 percent of shoppers said they purchased organically grown food to maintain their health; and 44 percent of these shoppers had purchased organic food in the past 6 months. Consumers surveyed by the Hartman Group (2000) gave the following reasons for purchasing organic food: health and nutrition (66 percent), taste (38 percent), environment (26 percent), and availability (16 percent). 3 The Fresh Trends (2001) survey revealed that 12 percent of the shoppers surveyed reported that whether a product is organic is a primary factor in their purchasing decision. Sixty-three percent of the respondents of the Walnut Acres Survey believed that organic food and beverages were better for them and were more healthful than their conventional counterparts. Fresh Trends (1996, 1998, 2000, 2002) found little difference between the purchasing habits of men and women. Over the years, Fresh Trends found that, of the shoppers that had purchased organic produce in the previous 6 months, more purchased vegetables than fruit (according to the 1996 survey, 24 percent purchased fruit and 84 percent purchased vegetables; according to the 2000 survey, 35 percent purchased vegetables). Apples and tomatoes led the list of fruit and vegetables purchased by the shoppers surveyed by Fresh Trends. According to the Hartman Survey (2000), the top 10 organic products purchased were strawberries, lettuce, carrots, other fresh fruit, broccoli, apples, other fresh vegetables, grapes, bananas, and potatoes. The Hartman survey also suggested that fruits and vegetables were â€Å"gateway categories† (typically the first organic products purchased by consumers). The Walnut Acres Survey (2002) indicated that 68 percent of consumers revealed that price is the main reason they did not purchase organic food. Academic researchers have taken a slightly different tack in studying organic consumers by complementing surveys with statistical analysis to depict the typical consumer. Some studies reveal conflicting results, most likely because of the different methodological approaches. Consumers considered the following factors important when purchasing fresh produce: price, size and packaging, whether the item is on sale, and whether the item is organic (Estes and Smith). Age, gender, and having a college degree had little impact on a shopper’s decision to buy organic produce (Thompson and Kidwell). Consumers with higher incomes and higher levels of education are willing to pay more for organic potatoes (Loureiro and Hine), while consumers with advanced degrees are less likely to buy organic produce (Thompson and Kidwell). Appearance of fresh produce mattered, and the larger the number of cosmetic defects, the less likely would an organic product be purchased (Estes and Smith, Thompson and Kidwell). One picture of the typical organic shopper is a younger household in which females do the shopping; smaller and higher income households are the most likely purchasers of organic produce (Govindasamy and Italia) and organic apples (Loureiro et al. ). Households knowledgeable about alternative agriculture are more likely to purchase organic produce (Govindasamy and Italia) and those concerned about the environment are more likely to purchase organic apples (Loureiro et al. ). Those concerned about food safety are more likely to buy organic produce (Govindasamy and Italia) and organic apples (Loureiro et al. ). Those who enjoy trying new products are more likely to purchase organic produce (Govindasamy and Italia). Households with children under 18 are more likely to purchase organic produce (Thompson and Kidwell) and organic apples (Loureiro et al. ). Consumers with children are willing to pay less for organic potatoes (Loureiro and Hine) and more likely than other households to purchase organic apples (Loureiro et al. ). Strategies to increase purchases of organic food include shelf-labeling, which had a mixed effect on sales in an upscale grocery store but a significantly positive effect on sales of dairy products, pasta, bread, cereal, and carrots in a discount retailer in the Minneapolis and St. Paul markets (Reicks, Splett, and Fishman). The recent addition of organic food sales to scanner data, by AC Neilson and Information Resources, Inc. , has made possible econometric studies of consumer demand for organic food. Frozen organic vegetables, organic milk, and organic baby food all exhibited high price elasticity of demand, meaning that the quantity purchased responds greatly to price changes (that is, quantity purchased increases by more than 1 percent when prices fall by 1 percent) (Glaser and Thompson, 1999, 2000; Thompson and Glaser, 2001). For some frozen vegetables, there was little crossover between purchases of organic and conventional products, so that changes in prices of either commodity had no significant impact on quantities purchased (Glaser and Thompson 1999). For other products (milk and baby food), the conventional and organic products are substitutes, so that increases in the price of the conventional product result in consumers’ purchasing a greater quantity of the organic products (Glaser and Thompson, 2000; Thompson and Glaser, 2001). The Marketing Chain: From Farm to Market Food passes through many hands as it moves from farm to consumer. Some foods are fresh when delivered (apples and eggs) while others are processed before delivery (pasta and bread). Regardless of whether they are fresh or processed, higher quality products and products with unique attributes (such as organic foods) generally have a higher selling price. As a result, farmers have a strong incentive to produce and sell commodities with quality and other price-enhancing attributes intact. Yet, since most foods pass through a number of intermediaries as they move from the farm to the consumer, maintaining premium product integrity along the marketing chain can sometimes be a challenge. To do so, each agent along the marketing chain must begin by moving the product to the next agent quickly. Farmers need to sell their perishable commodities immediately after harvesting, while distributors, brokers, and wholesalers need to get fresh products to retailers as quickly as possible. Retailers want to be able to purchase a consistent and large enough supply of a wide variety of uniform quality fresh food. Consumers want to be able to buy a wide variety of fresh food that is both high quality and low priced. Organic food consumers, in particular, want to feel confident that they are buying food that not only was grown organically, but also has kept its organic integrity at each stage in its journey to the market. Each commodity, depending in large part on whether it is fresh or processed, follows an individualized path from farm to market. Because fresh foods rapidly deteriorate, they must be delivered to the market quickly. The storage and transportation systems along the way must provide the proper temperature and other conditions that help maintain freshness. Processed foods, on the other hand, have a longer shelf life—but the products that go into them must be harvested at the right time, delivered at the right time and satisfy the processor’s quality requirements. In the next sections, we trace the production and marketing chains for the major organic commodities in the United States, noting applicable regulations as well as observed marketing trends.