Wednesday, August 5, 2015

Farmers See Record Profits As Organic Boom Continues

Charles Johnson remembers that a decade ago, his family farm in eastern South Dakota couldn’t find enough buyers looking specifically to buy organic grain. But that’s all changed. Today, organic is one of the hottest sectors in the multi-billion-dollar food industry.
Because of “unmet demand,” the 58year old farmer has benefited from higher prices, with his organic corn routinely fetching as much as $12 a bushel and soybeans $26. That compares to bushel prices of $3.70 and $9.80 for conventional corn and soybeans. The focus on organic has allowed Johnson, his brother and his cousin, who farm 3,000 acres in Madison, to shrug off the sharp drop in corn and soybean prices that has left some producers struggling, following years of robust income.
“The last five to 10 years, we’ve had no problem at all,” said Johnson who grows organic corn, soybean, oats and alfalfa. “I could have sold my grains multiple times over, just based on the demand. My last three years of farming has probably been better than the last 30-years combined. That’s how much of an uptick there is now.”
Organic food sales have risen by double digits annually as the public consumes more fruits, vegetables, pastas, dairy and meats raised and grown without pesticides, genetically modified crops or antibiotics, among other stringent requirements.
Despite the organic farming’s booming growth — organic food revenue has tripled over the past decade to a record $36 billion last year — it remains a small fraction of the $630 billion in total supermarket sales in 2014 reported by Progressive Grocer Magazine.
The industry’s growth isn’t expected to subside anytime soon, according to the Organic Trade Association. It predicts sales will increase 12-to-15 percent annually for the next three years.
But the rapid growth has brought challenges the organic industry is struggling to address.
One of those challenges is demand, which organic producers are struggling to meet. Shortages of some organic products has led to sky-high prices. And more livestock producers, hungry for organic feeds, are importing from overseas because they can’t find enough in the U.S.
The Organic Trade Association (OTA) concedes that because of incomplete data, competition for land in some areas, and the three-years it takes to earn certification as an organic farm, it’s difficult to know how many new acres of organic crops will come into production.
“The biggest thing holding back growth isn’t demand, it’s shortages,” said Laura Batcha, executive director of the OTA. “There is not a major retailer in the country that doesn’t have appealing to the organic shopper in their strategy right now. But what happens if the industry can’t fulfill that opportunity and people walk away?”
Batcha said some private-sector food makers and retailers are buying land to produce their own organic produce, or are enticing producers with long-term contracts that offer to pay them extra while they transition to organic. The transition period can be costly for producers, who must deal with lower yields and input costs but aren’t able to take advantage of the premium that organic producers receive.
The trade group is evaluating options to help growers transition to organic. One possibility would offer farmers a chance to participate in a program that would make sure they follow necessary requirements while completing the 36-month transition period. It also would help food companies plan for the future by giving them a sense of how much new land is in the organic pipeline.
“The momentum is not going to dissipate for organic,” Batcha said.
Grocery stores, restaurants and other users often struggle to find the products they need to meet demand for organic products, yielding unique, creative strategies for wooing prospective farmers and ranchers.
Elevation Burger, which sells organic, grass-fed, free-range beef at 55 stores mostly in the U.S., shares its sales growth figures and projections of store openings with suppliers to give them a glimpse into the company’s long-term needs.
Elevation also sometimes pays for producers to obtain their certificates signifying they’re organic — which can cost up to $4,000 — in exchange for a slice of future supply. In addition, the burger chain has hired consultants to help farmers convert their operations to organic.
“It’s all about supply. Every farm we bring on supports our growth,” said Michael Berger, a founding partner of Elevation Burger. “If you want to be in the business like we are of having a consistent organic protein supply, your only option is to control and grow the supply chain to your customized needs, and that is to go directly to the growers.”
Berger said one of his meat processors abroad was decimated by a cyclone seven months ago and couldn’t deliver a promised 50,000 pounds of beef. The burger chain had to scramble to procure enough meat from other suppliers at a higher cost.
“We were stuck biting our nails, down to the wire,” said Berger, who estimated Elevation will buy 4 million pounds of beef and 500,000 pounds of chicken during the next 12 months. “You can’t just call a regular distributor and say, ‘Hey, sell me that.'”
Wal-Mart Stores, the world’s largest retailer, carries more than 1,600 organic items ranging from dairy and produce to peanut butter and macaroni and cheese at many of its more than 4,500 U.S. stores. John Forrest Ales, a spokesman for Wal-Mart, said the company works with farmers and other suppliers to outline its organic needs three to five years out so farmers can plan and invest.
“We’re always realistic when we plan,” Ales said. “If you’re going to supply organic to a grocer as large as Wal-Mart, that is not always a fast turnaround time.”
To win certification as organic, a farm must stop using pesticides and make other changes, then maintain those practices for three years. During that time, they may not benefit from the higher prices linked to organic products. Livestock producers also need to transition their animals and land before they can be certified.
Colin Johnson, a corn and soybean farmer in southern Iowa, said the lower yields associated with organic farming coupled with higher larger labor and input costs have discouraged him from switching his 700 acres.
“I haven’t thought very deeply about it,” Johnson. “For us, we’re at a pretty sustainable system now with our crop rotation.”
But the fourth-generation farmer said if he was approached by a grain processor or supermarket with a lucrative deal to make the change, he “would definitely consider it.”
Bob Quinn of Big Sandy, Mont., who started raising organic crops in 1986, worries that high prices might deter some organic buyers.
“It’s really too much to be sustainable,” said Quinn, whose grain customers include an organic dairy and bread makers. “You can’t price your customers out of business where they can’t sell their products. We can see ever-faster growth if the supply was greater and the price was a little lower so that the final (cost) wasn’t such a shock.”
What is organic?
Organic, which is governed by strict government standards, requires that products bearing the organic label are made without the use of toxic and persistent pesticides, synthetic nitrogen fertilizers, antibiotics, synthetic hormones, genetic engineering or other excluded practices, sewage sludge, or irradiation.
So what can organic farmers use instead?
Organic farmers rely on hand weeding, mechanical control, mulches, cover crops, crop rotation and dense planting.
Who sets the organic standards?
Certified organic foods are produced according to standards set by the U.S. Agriculture Department’s National Organic Program. These regulations outline what the grower must do to use the word “organic” or the USDA organic seal.
How long does it take to transition from conventional to organic?
A farmer must go through a three-year transition period of compliance with organic requirements. During this time, growers generally face lower yields and increased input costs but do not benefit from higher prices given to organic producers. Livestock producers also need to transition their animals and land before they can be certified.

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