By Marsha Laux, content specialist, AgMRC, Iowa State University, mlaux@iastate.edu.

Updated February 2010 by Diane Huntrods, AgMRC, Iowa State University.
 

Organic agriculture, a worldwide growth industry, can be a profitable, sustainable business for agricultural producers interested in going through the certification process necessary to enter this market. Organics have grown at a rate of nearly 20 percent per year for the last few years, and industry experts are continuing to forecast slowing but steady growth.

Rapid growth in the organic sector has highlighted issues that need to be addressed: shortages of organic raw materials such as organic grain and organic sugar, product sales in a weak U.S. economy and competition from food marketed as “locally grown" or "natural." A shortage of affordable organic ingredients or products, such as corn and soybeans for livestock feed, left organic producers unable to meet market demand.  (ERS 2009)

The U.S. organic market is relatively new, with the USDA only adopting national standards for organics in October 2002. The USDA National Organic Program (NOP) regulates all organic agriculture in the United States.

Production
According to the 2008 Organic Production Survey (NASS 2010), the United States has 4.1 million acres used for organic production. Of that amount, 1.6 million acres were planted to organic crops and 1.8 million acres were organic pasture or rangeland. Figures for the previous year, reported in the 2007 Census of Agriculture (NASS 2009), stated that the nation had 2.6 million acres used for organic production.

The number of certified and exempt (that is, exempt from certification because their sales totaled less than $5,000) organic farms and ranches in 2008 totaled 14,540. While there were organic farms or ranches in all 50 states, nearly 20 percent, or more than 2,700 of the operations, were in California. Other states with large numbers of certified and exempt organic operations were Wisconsin (1,222), Washington (887), New York (827) and Oregon (657).  (NASS 2010)

Transitioning to Organics
Organic agriculture has attracted conventional producers, who make the transition due mainly to the price premiums in the market. While transitioning to organics can be confusing, many resources are now available to help producers make the change. For a list of transitioning resources, see http://www.agmrc.org/agmrc/markets/Food/food+organic.htm.

The USDA maintains a list of accredited certifying agents (ACAs), with 56 U.S.-based ACAs as of February 2010. Individuals wishing to transition to organic should verify that the agency they select is an approved certifier. Certifiers should be contacted early and often for assistance in complying with their individual requirements and procedures. Markets should be identified, and only certified organic processors and handlers used for organic certification compliance. As of 2007, approximately 16,000 U.S. producers and handlers were certified to the U.S. organic standard.

According to the 2008 Organic Production Survey (NASS 2010), nearly 128,500 acres of cropland and nearly 66,000 acres of pasture are currently being transitioned to organic production. Those states transitioning the most cropland to organic production are (in order): Idaho, Montana and Nebraska. Those states transitioning the most pasture to organic production are (in order): Texas, Oklahoma and Montana.

Sales
In the United States, systematic collection of price data for organic products is limited. There have been a few studies of farm-level, wholesale and retail organic price data, and these have shown significant organic premiums for most fruits, vegetables, grains and milk (ERS 2005).

The total value of farm-level organic sales reached $3.2 billion in 2008, up from $1.7 billion in 2007. Organic crops accounted for $1.9 billion in sales and organic livestock, poultry and their products accounted for $1.2 billion. California led the nation in organic sales, with 36 percent, or $1.2 billion, of all U.S. sales. According to the 2008 Organic Production Survey (NASS 2010), other top states in terms of organic sales were Washington ($282.0 million), Pennsylvania ($212.7 million), Oregon ($155.6 million), Texas ($149.3 million) and Wisconsin ($132.8 million). 

The 2008 Organic Production Survey (NASS 2010) also found that most U.S. organic producers sold their products locally, with 44 percent of sales taking place less than 100 miles from the farm. Nearly 75 percent of sales were either local or regional (that is, more than 100 miles but less than 500 miles). According to an ERS survey of organic handlers (2008), more than 50 percent of organic sales in 2004 were made either locally or regionally. 

In terms of sales outlets, the majority, or 82.6 percent, of organic sales were to wholesalers, including processors and distributors. Just 10.6 percent of sales were to retail operations, including supermarkets and natural food stores, and only 6.8 percent of sales were direct to consumers via farm stands, farmers’ markets and community supported agriculture.

A study conducted by the Organic Trade Association (OTA 2009) surveyed over 200 manufacturers, distributors and retailers about the organic industry in 2008. The survey indicated that U.S. sales of organic products, both food and and non-food, have grown from $1 billion in 1990 to an estimated $24.6 billion in 2008, increasing 17.1 percent in the last year despite the current economic situation. Organic food sales alone rose 15.8 percent, totaling $22.9 billion, and accounting for 93 percent of all organic product sales. In the last five years, the percentage of U.S. food sales that are organic has nearly doubled, reaching 3.5 percent. Organic non-food sales rose 39.4 percent, totaling $1.6 billion.

Other findings of the 2009 Organic Industry Survey (2009) include:

• Fruits and vegetables account for the largest percentage of organic food sales, 37 percent.
• The second largest percentage, beverage and dairy, accounts for just over 14 percent of organic food sales.
• Non-dairy beverages make up 13 percent of organic food sales as does packaged organic foods.
• Organic meat accounts for only 3 percent of organic food sales, but organic meat sales increased 12 percent in 2008. However, they still comprise less than l percent of U.S. meat, fish and poultry sales.
• National natural food and supermarket chains each account for one-third of sales. 
• Regional natural food chains and independent health food stores make up about 10 percent of sales.
• Lack of a dependable supply of organic materials continues to be an important issue for both large and small producers. About 41 percent reported that unreliable supplies of organic raw materials affect their ability to generate sales.

Despite the current economy, U.S. sales of organic products have remained strong. The Mintel market research company found that frequent buyers of organics were remaining loyal but likely to purchase cheaper organic products. Infrequent buyers of organics, on the other hand, were likely to select fewer organic products.

The results of OTA's 2009 U.S. Families' Organic Attitudes and Beliefs Study (2009) concur. Overall, nearly 75 percent of the 1,200 U.S. families participating in the study reported they had purchased at least some organic products, while more than 25 percent reported they never buy organic products. According to the study, 31 percent of the families are actually buying more organic foods compared to the previous year, with parents choosing to decrease spending in other areas before reducing organic purchases. The study also found that parents choosing to buy organic products are much more likely than parents in general to shop at a mix of retail outlets, including weekly visits to natural food chain stores (19%), local health food/natural food stores (16%), farmers' markets (16%) and neighborhood co-ops (12%).   

International Sales
According to the 2009 Organic Market Report published by the Soil Association in the United Kingdom (UK), sales of organic food increased by only 1.7 percent in 2008, a sharp drop from the 26 percent average annual growth rate of the last few years. The slight rise is attributed to increases in food prices rather than increases in sales volume. The report says organic shoppers have been buying fewer premium products and prepared foods, and preparing more home-cooked meals. As a result, spending on organic ingredients increased by more than 13 percent. Core consumers remained loyal to organic products, with 36 percent planning to spend more on organic food in 2009. The strongest growth was seen at farmers' markets, with sales of organic foods rising an estimated 19 percent. Niche categories like textiles and health and beauty also experienced significant growth.

Global demand for organic products continues to grow, with sales reaching over $46 billion in 2007, according to The World of Organic Agriculture: Statistics & Emerging Trends 2009. The most important import markets for organic products continue to be North America and Europe. Valued at more than $20 billion U.S. in 2007, the North American market accounted for 45 percent of global revenues. The largest individual market for organic products that year was the country of Germany, followed by the United Kingdom, France and Italy.

The Australian Organic Market Report, prepared by the University of New England's Organic Research Group, estimated that the total retail value of organic sales reached $623 million Australian in 2007, with between 10 percent to 30 percent growth per year in some sectors since the last report in 2004. Farm-gate values that year were estimated to be more than $231 million, an 80 percent rise from the 2004 report. The number of certified organic producers in Australia was increasing by more than 5 percent per year, and with nearly 12 million hectares (30 million acres) of certified organic land, primarily pasture and rangeland, the country reported the largest surface area of certified organic land in the world. The report found that 40 percent of Australians purchased organic food at least occasionally.

Policy
The 2008 Farm Act includes many new provisions to help U.S. producers meet the challenges of organic agriculture and facilitate consumer access to organic food. For example, the Organic Transition Support provision in the Environmental Quality Incentives Program (EQIP) provides financial support to farmers to convert to organic production. Other provisions in the Farm Act boost the funding for organic research, particularly for the development of new, improved seed varieties as well as for the conservation and environmental outcomes of organic practices, and support the expansion of data collection on organic production and marketing.  (ERS 2009)
 

Sources
2009 Organic Market Report, Soil Association, United Kingdom.

2008 Organic Production Survey, National Ag Statistics Service (NASS), USDA, 2010.

Australian Organic Market Report 2008, Organic Research Centre, University of New England, Australia, 2008 - This report attempts to define the size and extent of the organic industry in Australia.

Emerging Issues in the U.S. Organic Industry, Economic Research Service (ERS), USDA, 2009.

Executive Summary, 2009 Organic Industry Survey, Organic Trade Association (OTA), 2009 - The results of this survey show organic food sales grew by 15.8 percent in 2008 to reach $22.9 billion, with organic food sales now accounting for approximately 3.5 percent of all food product sales in the United States.

Executive Summary, 2009 US Families' Organic Attitudes and Beliefs Study, OTA and KIWI Magazine, 2009 - This survey of 1,200 U.S. families suggests they are not giving up their purchases of organic products, with nearly 75 percent buying organic products at least occasionally.

Marketing U.S. Organic Foods: Recent Trends From Farms to Consumers, ERS, USDA, 2009 - U.S. organic-industry growth is evident in an expanding number of retailers selling a wider variety of foods, the development of private-label product lines by many supermarkets and the widespread introduction of new products. Retail sales of organic foods have jumped from $3.6 billion in 1997 to $21.1 billion in 2008.

Market-Led Growth vs. Government-Facilitated Growth: Development of the U.S. and EU Organic Agricultural Sectors, ERS, USDA, 2005.

National Organic Program, Ag Marketing Service (AMS), USDA.

Organic Agriculture: 2007 (United States), 2007 Census of Agriculture, NASS, USDA, 2009.

Organic Production, ERS, USDA.

Organic Trade Association.

The U.S. Organic Handling Sector in 2004: Baseline Findings of the Nationwide Survey of Organic Manufacturers, Processors, and Distributors, ERS, USDA, 2008.

The World of Organic Agriculture: Statistics & Emerging Trends 2009, International Federation of Organic Agriculture Movements (IFOAM), Foundation Ecology & Agriculture (SÖL) and Research Institute of Organic Agriculture (FiBL), Bonn, Germany - Valued at more than $20 billion U.S. in 2007, the North American market accounted for 45 percent of global revenues. The largest market for organic products that year was Germany, followed by the United Kingdom, France and Italy.