Natural Foods Merchandiser

Organic price gap narrows

As the organics industry has grown, the general trend has been toward lower prices and higher quality. Though natural products in general still cost more than their mainstream counterparts—a quick look at mainstream ingredients decks will show you why—the gap between natural and organic pricing has, in some cases, almost disappeared.

Take produce. Not so many years ago, an organic apple meant half the size for twice the price, with spots thrown in for free. But the combination of increased production and the development of secondary markets have led to more competitive pricing for consumers. ?Some commodities prices are definitely going down,? says Bob Scowcroft, executive director of the Organic Farming Research Foundation in Santa Cruz, Calif. ?Prices for carrots, apples, potatoes, onions and bagged salads have fallen because the body of knowledge on producing them organically has increased to the point where they can be grown on a large scale.?

The secondary market for organic raw materials has had a positive impact on both the price and quality of produce for sale. ?In the old days, you?d put it all out there on the shelf and let people pick the good ones out,? Scowcroft says. ?Now you have a carrot juice market for crooked carrots and an applesauce market for spotted apples.?

Specialty produce—think Belgian endive, celery root and the like—remains more expensive whether grown conventionally or organically, though the price differential for these items is often greater. But organic farming?s emphasis on crop rotation means that even a producer who primarily grows carrots may put in several acres of endive, parsley or another lesser-known crop.

Though the organic produce sector has shown double-digit growth for years now, Scowcroft says, it?s still only 2 percent of the total food economy. Thus, a significant change in demand—say, a global burger joint deciding to offer organic salads—could have the effect of driving prices higher, and it could take the industry several years to respond to that new demand with increased acreage.

Coffee is another commodity for which organic options entered the market early. ?Coffee is so established as a specialty market that organic has been just another subset within that high-end category,? says Rink Dickinson, president of Bridgewater, Mass.-based Equal Exchange. ?Within that sector, organic has gone up dramatically in the past few years. Stores that used to be a third organic are now 100 percent organic. Likewise with fair trade—there?s been a significant conversion within the specialty market.?

The tea and chocolate markets, Dickinson says, are less commodified and more brand-oriented. ?These products are following the coffee trend, but five to 10 years behind,? he says. ?We?ve definitely seen a higher price point [with organic tea and chocolate], but I think that will change.?

Soy- and rice-based beverages are another area where the price gap between organic and conventional products is quickly closing. The growth of this category and the wide availability of organic raw materials have created an opportunity for competitively priced organic offerings. ?When these products first came out, it was not uncommon to see organic products priced twice as high as their conventional counterparts,? says Danny Wells, a consultant based in Vacaville, Calif. ?Now, it might only be 15 or 20 percent.?

Price differentials are smallest in those areas where organic options entered the market early and captured the greatest share, especially in everyday categories such as milk and dairy, produce, soymilk and coffee. Where organic options are more recent and production smaller, the price point differential remains high. ?Organic meats and poultry is a good example of that,? says Wells. ?It still has a very high premium, and it?s going to be awhile before it gets down to its natural counterpart. It?s all about supply and demand.?

Sometimes, external forces can have an impact on sales of a particular category. Following recent stories about mad cow disease and continuing coverage on hormones given to dairy cows, organic meats have shown a steady increase. ?We sell tons of organic meats, especially since the whole bovine scare,? says Sunny Crowley, natural product broker and educator with A Natural Choice in Honolulu.

?Twenty percent or less seems to be the max [price differential]. Otherwise, consumers go back and buy regular natural products.?
The arrival of mainstream manufacturers in a particular category can also have a huge impact on organic price points. A good example of this trend is the organic cereal market. ?When Kellogg?s decided to come out with its Sunrise organic cereal, it significantly helped to reduce prices, because Kellogg?s wanted the price differential to be in the 15 to 20 percent range, not the 50 to 100 percent range found between organic and natural before Sunrise entered the market,? Wells says. ?The same is true of organic ketchup and other commodities produced by mainstream manufacturers. When a mainstream manufacturer is already producing millions of cases of ketchup, and only has to bring in different tomatoes, it can offer the product at a very good price point.?

Clearly, this trend can have an impact on small-scale producers. But the entry of a large company can also have positive effects, by increasing production and lowering prices on raw materials.

How much more will committed consumers spend for organic options? ?The natural foods market has always had a couple of consumer groups,? Wells says. ?The truly naturals are converted; price is not the issue, health is the issue. They?re willing to pay a premium in many categories, including meats, body care and cosmetics. But mainstream shopper groups have a lot more price resistance, because they?re not as committed to organics in general.?

?I think it?s not by category, but across the board,? says Crowley. ?Twenty percent or less seems to be the max, in my opinion. Otherwise, consumers go back and buy regular natural products.?

The mere fact that a range of organic products is now sold for a premium of less than 20 percent is a huge shift in the industry. As organic production continues to grow, more and more product categories are likely to hit this magic number. And that?s a trend that?s good for everyone.

Mitchell Clute is a poet, writer and musician in Crestone, Colo.

Natural Foods Merchandiser volume XXVI/number 3/p. 46, 50

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.