Organic foods can be more expensive than conventional, and not all consumers are willing or able to buy them. But popularity might help bring prices down.
Minneapolis Star Tribune, Joy Powell
Published February 26, 2006
Laura Estrada glanced at the organic produce at a Cub Foods store in St. Paul and pushed her cart right on by. She and her husband gathered up conventionally grown fruits and vegetables. "If you're on a budget, organic food is out of your reach, especially if you have a big family," said Estrada, 29 and pregnant with her third child.
Organic food is the fastest-growing sector in the retail food industry. Conventional grocers are scrambling to add organic offerings in their stores in order to compete against the likes of specialty stores such as Whole Foods.
But industry and government studies suggest that even more people would buy organic if it didn't cost so much more than conventional food. Studies have found organic price premiums that range from 35 to 53 percent for baby food, 72 percent for frozen broccoli, 94 percent for spring wheat and 177 percent for soybeans, according to government research cited by the Food Marketing Institute, a 1,500-member industry organization based in Washington.
Similarly, Consumer Reports said in its February issue that organic foods cost consumers an average of 50 percent more than conventional foods, but it noted that some organic foods, especially milk and meat, may cost twice as much.
Organic food prices are volatile. Organic carrots, for example, sometimes cost less than conventionally grown. On the other hand, some organic foods can cost three times as much as conventional products, said LuAnne Lohr, an agricultural economist at the University of Georgia and visiting economist at the University of Minnesota.
Despite the higher prices, at least 35 percent of U.S. consumers regularly buy organic foods, Lohr said. Many save money by buying perishable organic foods from discount stores, which have limited lines of less-expensive organic products.
With organic food hitting shelves of big retailers such as Target and Wal-Mart, prices should edge downward to compete with conventional products, the Food Marketing Institute said.
That would suit Estrada, who wants to keep pesticides out of her kids' diet. She said her husband's $45,000 annual pay as a forklift driver allows her to buy organic items only occasionally.
According to a November survey conducted for Whole Foods Market, the nation's largest natural-food chain, high prices were the primary reason more consumers don't buy organic foods more often. Nearly three out of four respondents cited price as an obstacle.
Local grocers dispute that perception.
Retail and co-op grocers in the Twin Cities area say middle- and even low-income consumers can afford organic foods.
"We see all kinds of customers buying organics," said Mike Witt, vice president of merchandising for Cub Foods, a division of Eden Prairie-based Supervalu Inc.
"We're not just catering to wealthy people here," added Barth Anderson, research and development director for the Wedge, a bustling Minneapolis co-op in the modest Whittier neighborhood but near more-upscale Lowry Hill and East Isles. "It's a watering hole. We have people who drive in from all over the place."
Meg Moynihan, organic specialist at the Minnesota Department of Agriculture, said consumer research firms have found that it's not just the rich who are buying organic. It's all economic groups, she said.
Organic appetite soaring
One thing is certain: The sale of organic foods continues to mushroom as more consumers try them. Last year's Whole Foods study found that nearly two-thirds of Americans had tried organic foods and beverages. That's up from 54 percent in 2003 and 2004.
Bea James, director of organic and natural foods for the Edina-based Byerly's and Lunds stores, said the U.S. appetite for organically raised goods has soared 18 to 22 percent in each of the past six years - far more than any other grocery segment.
Last year, organic retail sales topped $15 billion, up from $1 billion in 1990, according to the Organic Trade Association in Greenfield, Mass. And there's room to grow: Organic foods account for a small fraction of the $550 billion in U.S. food sales.
In the past seven years, the Lunds and Byerly's group has built an inventory of more than 10,000 organic and natural items, James said. The chain recently promoted all organic produce, chicken and other key organic foods at a 25 percent discount as part of its strategy to make organic food more affordable. James said if consumer demand increases, prices should drop even more.
Witt, of Cub Foods, agrees. "The price of organics in the last five years has come down significantly, and it will continue ... because prices are driven by supply and demand," he said. "As that gap between supply and demand narrows, prices will continue to fall."
Cub has more than quadrupled the number of organic items offered in its 76 Midwest stores over the past five years, Witt said. Cub promotes at least six organic or natural items each week in its advertising fliers, he said.
One out of five produce items in the 53 Twin Cities Cub stores have been organically grown, Witt said, adding that the organic products in the dairy and frozen sections will quadruple this year.
Supervalu is targeting the natural-foods niche with a new retail chain. It opened Sunflower Market last month in Indianapolis, the first of 50 stores the company expects to open within five years, said John Hooley, president of Supervalu retail food companies. That store aims to price organic and natural food products 10 to 15 percent below the competition, he said.
High-end store markups
Consumers may question why many organic foods still cost so much.
"To some extent, it's because of a limited supply, and to some extent it's because people are willing to pay more," said Moynihan, the organics specialist at the state Agriculture Department.
Retailers have some leeway in deciding how much of a price premium to place on organic products, said Lohr, the agricultural economist.
High-end stores often charge as much as 30 to 50 percent more on perishable organic products such as produce and milk, and 100 percent more for processed organic food, such as soups, salad dressing and ready-to-eat meals, she said.
Those stores can mark up products more, Lohr said, because their customers can afford it, because they provide more service, and because they offer big lines of organic products under premium brands.
James said that profit margins at Byerly's and Lunds for organic and natural foods generally are lower than the margins on conventional foods because consumers won't pay a huge differential when they see two similar products side by side.
It's the same at Cub, Witt said: "There's no greater profit margin for organics as compared to conventionally grown food."
As the distribution system becomes more efficient, prices should drop, Lohr said. But they'll always remain somewhat higher for organics over conventional products because of higher costs to farmers, wholesalers and retailers, she said.
Farmers' profits vary
Out of nearly 1.8 million U.S. farmers in 2004, only about 10,000 produced organic crops, dairy or meat, according to the Organic Farmers Research Foundation. It's hard to make general statements about how they made out.
The U.S. Department of Agriculture's Economic Research Service report looked at wholesale and farm prices last May. It found that organic premiums paid to broccoli farmers were from zero to 30 percent higher than conventionally grown. Premiums at the wholesale level were 25 to 80 percent.
But in 2002, 2003 and 2004, organic carrots brought farmers only 89 percent of the prices they received for conventional carrots, the USDA found.
On the other hand, Midwest dairy farmers got $20.91 per hundred pounds of milk from an organically certified cow in 2005, more than 40 percent more than the $15.38 paid for a hundred pounds of conventional milk, according to Organic Valley Family of Farms, a cooperative based in La Farge, Wis.
This week, the price of a gallon of Organic Valley whole milk at Kowalski's Market in St. Paul was $6.95, while Kemps Select whole milk sold for $3.89. At Cub Foods, the prices were $5.99 vs. $3.73 a gallon.
The difference isn't pure profit, though. Experts say organic dairy farmers face higher production and transportation costs.
Some consumers see organic foods as a lifestyle choice worth the extra cost.
"I have four young children, and I'm concerned how chemicals and other foreign ingredients might affect their health," said Melissa Kestner, 30, who is pregnant. "If I can control some of the toxins in their bodies, and it helps them, it's worth its weight in gold."
About 18 months ago, she and her husband decided to spend 25 percent more a week to buy organic, which boosted their monthly grocery expenses to about $1,000. They're both lawyers; she works part time.
"First, we went back and forth and bought just some things organic, but then decided it was worth making sacrifices in our budget to move to all organic," Kestner said outside a bustling Whole Foods Market on Grand Avenue in St. Paul.
Heather LaBelle of North Branch said she feels guilty that she can't afford to buy much organic food.
"As a parent," she said, "you really do want to feed your kids the best available, without all the additives and pesticides and red dye."
Organic is not a health claim
The perception that organic food is healthier is mistaken, said Jean Kinsey, co-director of the Food Industry Center at the University of Minnesota and an economics professor in the College of Agricultural, Food and Environmental Sciences.
The term "organic" refers to agricultural production and food-processing methods; it's not a health claim.
"There's plenty of data to say if you eat more fruits and vegetables, you will be healthier. That is true," said Charles Muscoplat, dean of the university's agricultural college.
But no one has shown that eating organic fruits and vegetables is any better than conventional produce at preventing heart disease, diabetes, high blood pressure or cancer, he said.
Don Ardell is an author on wellness and health care topics and former director of the Metropolitan Council's health planning board. Ardell said that rather than straining family budgets to buy more organic food, people would be better served by getting physically fit and finding work and hobbies that they love.
"Not everybody can afford organic foods," he said, "so what's the point of feeling guilty about it?"
Joy Powell - 612-673-7750
WHEN ORGANIC COUNTS
These items tend to have more pesticide residue, so it makes sense to buy
organic versions if you can:
Apples
Bell peppers
Celery
Cherries
Imported grapes
Nectarines
Peaches
Pears
Potatoes
Red raspberries
Spinach
Strawberries
Source: Environmental Working Group
