Current News |
Sticker Shock in the
Organic Aisles
By ANDREW MARTIN and KIM SEVERSON
Published: April 18, 2008
http://www.nytimes.com/2008/04/18/business
Shoppers have long been willing to pay a
premium for organic food. But how much
is too much?
Rising prices for organic groceries are
prompting some consumers to question
their devotion to food produced without
pesticides, chemical fertilizers or
antibiotics. In some parts of the
country, a loaf of organic bread can
cost $4.50, a pound of pasta has hit $3,
and organic milk is closing in on $7 a
gallon.
“The prices have gotten ridiculous,”
said Brenda Czarnik, who was shopping
recently at a food cooperative in St.
Paul.
Food prices in general have been rising,
but organic food lagged somewhat behind
last year because of a temporary glut of
organic milk and other factors. Some
grocery chains adopted private-label
organic products, which are cheaper than
brand products, while others hesitated
to raise already high organic prices.
In recent months, however, these factors
have been giving way to cost pressures
in the industry. On grocery shelves
across the nation, sharp price increases
are taking hold.
“It’s probably the most dynamic and
volatile time I’ve seen in 25 years,”
said Gary Hirshberg, chief executive of
Stonyfield Farm, an organic dairy
business. “It’s extremely difficult to
predict where it’s going.”
Organic prices are rising for many of
the same reasons affecting conventional
food prices: higher fuel costs, rising
demand and a tight supply of the grains
needed for animal feed and bakery items.
In fact, demand for organic wheat,
soybeans and corn is so great that
farmers are receiving unheard-of prices.
But people who have to buy organic
grain, from bakers and pasta makers to
chicken and dairy farmers, say they are
struggling to maintain profit margins,
even though shoppers are paying more.
The price of organic animal feed is so
high that some dairy farmers have
abandoned organic farming methods and
others are pushing retailers to raise
prices more aggressively. Several
organic manufacturers worry that sales
may slow as consumers cut back.
Perry Abbenante, global grocery
coordinator for Whole Foods Market, said
sales were strong and customer counts
were up. He said it might be too soon to
know how consumers would react to higher
organic prices, particularly in dairy.
“Man, $6.99 for a gallon of milk is
pushing it,” he said. “We have to be
very careful about not pricing organics
out of the market.”
Over all, grocery prices have increased
about 5 percent over the last year,
though some staples like conventional
eggs jumped 30 percent and milk, 13
percent, according to the Consumer Price
Index. That government index does not
break out prices for organic food.
Organic manufacturers and retailers said
prices began increasing last fall but
were only now starting to spike
significantly in some parts of the
country. Organic milk prices declined
slightly last year.
Eric Newman, vice president for sales at
Organic Valley, a farmers’ cooperative
that sells mostly dairy products, said a
half gallon of milk cost $3.49, on
average, in 2007 while a gallon cost
about $6. He said he expected the
average price of a half gallon to exceed
$4 in the months to come, while a gallon
could cost more than $7.
The average retail price for Eggland’s
Best Organic eggs in 2007 ranged from
$3.79 to $4.29, company officials said.
So far this year, the range has risen to
$4.59 to $4.99.
Organic food is typically 20 percent to
100 percent more expensive than a
conventional counterpart; the gap has
narrowed in recent years as discount
retailers like Wal-Mart have offered
organics and more private-label organic
products have become available,
according to the industry.
Americans spent $16.7 billion on organic
food and beverages in 2006, a 126
percent increase in just five years,
according to the Organic Trade
Association, an industry trade group.
Organic sales account for about 2.8
percent of food and beverage sales in
the United States, the group says.
The United States had 4.1 million acres
of organic farmland in 2005, triple the
amount in 1997, according to the
Department of Agriculture, which
regulates the organic industry. But
farmers and grain buyers say the growth
of new organic acreage has slowed,
falling short of rising demand and
causing organic grain prices to soar.
That is partly because prices for
conventional corn, soybeans and wheat
are at or near records, so there is less
incentive for farmers to switch to
organic crops; making the switch
requires a three-year transition and
piles of paperwork.
“There has been no new surge of land
going into organic,” said Lynn Clarkson,
who buys organic grain as president of
Clarkson Grain in central Illinois. “We
are having to compete with this ethanol
juggernaut,” he added, referring to the
growing use of field corn for fuel.
Ken Cook, president of the Environmental
Working Group, an environmental research
organization, said conventional dairy
and grain prices were so high that they
were nearly rivaling prices that organic
farmers receive. Organic farmers
normally earn a hefty premium for
raising livestock and crops without
chemical fertilizer, pesticides or
antibiotics.
“We may be seeing over the next few
years a turnaround, where organic
agriculture contracts in this country,”
he said. The price of organic grain has
also jumped because hundreds of dairy
farmers rushed to complete their
transition to organic production last
year, before more stringent government
regulations took effect. The influx
created a temporary glut of organic
milk, which suppressed prices last year,
but also added to the demand — and the
price — for
organic animal feed. In addition, a
drought last year in the Upper Midwest
caused relatively poor yields for some
organic crops.
Doug Hartkopf, a dairy farmer in Albion,
Me., said the high feed costs forced him
to stop farming organically in December.
“Instead of paying $3,000 a month, I was
paying $7,000,” he said. “It was a very
tough decision. It was something we had
to do.”
In all, at least 25 dairy farmers in the
Northeast have retired early or stopped
farming organically in the last six
months, said Ed Maltby, executive
director of the Northeast Organic Dairy
Producers Alliance. He predicted that
the shifts would continue unless farmers
received a price increase of about 25
percent from milk processors.
The high grain prices are squeezing more
than just organic dairy farmers.
“In the last three months or four
months, everyone along the chain in
organic food is not making their
margins,” said Bob Eberly, president of
Eberly Poultry in Stevens, Pa. The cost
of raising poultry has increased 16
percent in the last six months, but he
said his prices had increased only 7
percent.
“In the next month or so, our customers
are going to see a significant price
increase,” he said. “We just have to do
it.”
Some organic bakeries, meanwhile, say
they, too, are struggling to pay for
organic flour and grains.
Michael Girkout, president of the
Alvarado Street Bakery in Petaluma,
Calif., said the farmers who supply his
organic grain refused to honor a
two-year contract in November and
demanded a steep price increase.
“They said they could not afford to sell
it to us at the price they agreed to two
years ago,” said Mr. Girkout, who said
he had little choice but to comply given
the limited supply. He raised his prices
for a loaf of bread 17 percent last
year, he said.
Of course, the rising price of organic
feed has another side. While organic
livestock farmers are struggling,
farmers who grow organic grain are being
paid more than ever.
Organic corn is selling for $10 a
bushel, organic soybeans for about $20 a
bushel, and organic wheat is priced as
high as $22 a bushel, all of them at
least double the price of two years ago,
said Oren Holle, a grain farmer in
Kansas and president of an organic
farmers’ cooperative.
“It is unprecedented,” Mr. Holle said.
“Nobody saw these kind of market prices
coming.”
Even with those prices, though, people
in the industry say fewer farmers are
starting the arduous transition to
organic production because they can get
record prices for conventional grain.
Droughts, a growing global middle class
and rising demand for biofuels produced
from crops are putting heavy pressure on
the world’s food system, sending prices
up everywhere.
In the organic industry, the question is
how shoppers will react to rising
prices. “It will not be at all unusual
for a mom to say, ‘No matter what, I am
going to buy organic milk, but you know
what, I don’t need to buy the organic
cold cereal because I don’t see the
value in it as much,’ ” said Laurie
Demeritt, president of the Hartman
Group, a market research firm
specializing in health and wellness
research.
At the Mississippi Market Natural Foods
Co-op in St. Paul, Shaun Hainey, 26,
said he had quit smoking and cut back on
drinking and “superfluous recreational
spending, like going skiing.” But he and
his wife, Cassandra Hainey, have not cut
back on organic food.
“We don’t foresee a price level at which
we’d stop shopping organic,” he said.
But Scott Cordes, a 33-year-old budget
analyst for the city of St. Paul, has
found the high prices hard to bear. He
now buys conventional 1 percent milk for
$4.09 rather than spending $6.99 on a
gallon of organic milk. Still, he does
not expect to forgo organic foods
altogether.
“You have to weigh the type of food you
want,” he said. “I’ll only go so far to
save money.” |
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