The (Still) High Cost of Organic Food

[Guest guest]

( It is government policy in the USA with all it's regulatory agencies to

" favor " Big Agribusiness and to oppose small farmers, especially organics.)

 

 

 

 

http://www.alternet.org/envirohealth/24821/

 

 

 

The (Still) High Cost of Organic Food

By Christy Harrison, Grist Magazine. Posted August 31, 2005.

 

Simple economics tells us that the ongoing demand for organic foods

should eventually drive prices down. So why aren't they getting more

affordable?

 

 

A recent study by researchers at the University of California-Davis

reported that U.S. shoppers who consistently choose healthy foods

spend nearly 20 percent more on groceries. The study also said the

higher price of these healthier choices can consume 35 to 40 percent

of a low-income family's grocery budget. That's bad news for public

health. It's also bad news for the organic-food market, since organics

usually carry the highest price tag of all the healthy stuff out there.

 

Eventually, analysts keep telling us, demand for organics will set the

wheels in motion that will drive prices down. But eventually never

seems to come. Even though organics sales are growing by about 20

percent a year -- almost 10 times the rate of increase in total U.S.

food sales, according to the Nutrition Business Journal -- these

cleaner, greener products still carry a hefty premium.

 

How many shoppers have to jump on the organic bandwagon before we

actually see prices fall? How long will that take? And what's the

government's role in all this? It depends who you ask.

 

Be Fruitful and Multiply

 

The organic market we know today began evolving in the 1960s and '70s,

when rising environmental awareness led to a backlash against

pesticides and increased demand for " green " products. Over the last 20

years, the market has flourished, gaining enough stature to merit the

introduction of nationwide U.S. Department of Agriculture

certification standards in 2002. (Those guidelines have been attacked

by some for being too weak; some producers also cause confusion by

claiming to be " natural " or " sustainable " without being certified.)

 

Today, roughly three-quarters of conventional grocery stores carry

natural and/or organic food, according to a 2002 Food Marketing

Institute study. Restaurants across the country, from the high end to

the greasy spoon, are plunking organic ingredients onto their menus.

Still, organics represent only about 2 percent of the food industry,

both in the U.S. and worldwide. And less than 10 percent of U.S.

consumers buy organic items regularly, according to survey data from

Nutrition Business Journal and the Hartman Group, a research firm

specializing in the natural-products market. The $10.8 billion

industry may be booming, but it's not even close to overtaking

conventional sales.

 

This is in part because of plain old economics. According to basic

economic principles, in the short term, as demand grows, prices climb

along with it; this small supply and growing demand is what's now

getting us, say, $4 quarts of milk. But in the long term, if the

market continues to expand, consumption of organics should reach a

higher plane where the cost per unit of processing, marketing, and

distributing products is much lower. In other words, organic producers

will build economies of scale. That price break, in turn, " could bring

many more consumers into the market, " says Thomas Dobbs, a

sustainable-agriculture economist at South Dakota State University.

Trouble is, no one seems to know for sure when that will happen.

 

That's because there are still so many exceptions to the rules, says

Steven Blank, an agricultural economist at UC-Davis. Most organic

farms in the U.S., for instance, are still small, often family-run

operations that don't necessarily fit the economy-of-scale model,

because they don't usually have high distribution costs that could be

cut as demand rises. Many rely on farmers' markets,

community-supported agriculture, and other small-scale distribution

channels. " We're too local and hands-on for high distribution to

change our costs significantly, " confirms Sarah Coddington, co-owner

of Frog Hollow Farms in northern California.

 

And when the little guys grow delicate crops like peaches and plums

that have to be handpicked, Blank says, they can't reach the same

economies of scale as farmers who harvest mechanically -- their labor

costs are too high. " If we have a bumper crop, everything costs more

to do, " says Coddington.

 

Frog Hollow's tree-ripened fruits have developed a nationwide

reputation, and a single, succulent peach can run more than $3. But

generally, " it " fruits from small farms are not the ones causing a

strain on the bank account. Most organic fruits and vegetables -- the

largest sector of the organics market -- are only 10 to 30 percent

more expensive than their conventionally grown counterparts, and Dobbs

says many people are willing to pay that kind of markup for better

produce. Where economies of scale could really make a difference is in

the world of frozen produce, processed foods, and animal products.

 

Those items typically cost 50 to more than 100 percent more than their

conventional counterparts, according to a 2002 USDA study. In a survey

conducted by Colorado-based Walnut Acres -- which bills itself as

America's first organic-food company -- price was a major barrier for

nearly 70 percent of shoppers who didn't usually buy organic items.

 

So to win these folks over, do organic producers have to start

offering cheap cheese and budget bonbons? Dobbs makes a surprising

estimate: if just one-third of American shoppers bought organic foods

on a regular basis, most prices would come down to that 10 to 30

percent markup we're seeing on produce today.

 

Still seems expensive, but Dobbs says a third of U.S. consumers could

afford to buy at today's prices if we chose to. The reason we can

afford more than we think? We're already paying that much -- and more

-- for supposedly cheap food.

 

More than Meats the Eye

 

Conventional crops are heavily subsidized by the federal government in

the United States, making them artificially inexpensive. Couple those

subsidies -- which have been in place since the New Deal -- with the

cost of cleaning up pollution and treating health problems created by

conventional farming, and we're paying a lot in taxes in order to pay

a pittance at the grocery store.

 

" When we make the argument that low-income people can't afford

organics, we're assuming that the prices of conventionals are the

prices we should be paying, " says a USDA economic researcher who asked

to remain anonymous. " But those prices externalize a lot of costs,

like pollution and higher energy inputs. "

 

A study last year by Iowa State University economists showed that the

annual external costs of U.S. agriculture -- accounting for impacts

such as erosion, water pollution, and damage to wildlife -- fall

between $5 billion and $16 billion. (For context, that's as much as

twice the EPA's 2005 budget.) And Michael Duffy, a coauthor of the

Iowa paper, says his team's estimate is conservative.

 

So will this drive frustrated consumers to the o-side? Hardly. If

anything, the taxes consumers already pay to support conventional

farming are a disincentive to paying " double " for organics. To

encourage a shopping shift, as European agricultural researchers

Stephan Dabbert, Anna Maria Haring, and Raffaele Zanoli write in

Organic Farming, government has to throw farmers a bone.

 

" In Western Europe, most countries have decided that organic

agriculture needs special support to bring production [and

consumption] up to a significantly higher level, " Dobbs notes. In

countries including Denmark, Sweden, Germany, Austria, and

Switzerland, and also at the European Union level, governments

contribute to organic markets. In fact, many European policy makers

treat organic farming as an instrument to help mitigate environmental

problems, manage marginal lands, and address falling farmer incomes,

according to Dabbert, et al.

 

Meanwhile, in the U.S., scant federal money is set aside strictly for

organic farmers. The industry doesn't even have access to the type of

pricing data and guarantees available to conventional farmers, says

University of Georgia agricultural economist Luanne Lohr. " In order to

induce producers to get into the [organics] market, they need to know

what kind of prices and revenue they're looking at, " she says. Without

that information, " the producers are flying blind, " at the mercy of

large distributors who can set unfair prices. " A lot of people would

be willing to go into organic, but they don't want to just throw away

their investment [in their conventional farms] to get into a system in

which they don't have price guarantees, " says Lohr.

 

The success of the USDA's Natural Resources Conservation Service,

which dispenses grants that help conventional farmers implement more

sustainable practices, suggests subsidies are a key part of

encouraging such changes. Deputy Chief Tom Christensen reports that so

many farmers are interested in the $3.9 billion program that only one

in four applicants is given funding.

 

Loaves and Wishes

 

Subsidies are a useful way to increase supplies, experts say, but

they're only effective in conjunction with a well-run market.

" Regulations that promote organic agriculture by encouraging supply

are not ... sufficient to ensure the continuous growth of the organic

sector, " wrote Nadia Scialabba, a senior officer of environment and

sustainable development for the U.N., in 2001.

 

Scialabba cited the case of Austria, which was the leading organic

producer in the E.U. in the mid-1990s. About 10 percent of farmers in

the country decided to go organic because of subsidies offered by the

government, but this increase in supply was met with inadequate

information, distribution, and marketing channels; as a result, many

threw in the trowel. They had the money -- they just needed a market.

 

Some other policies that would effectively increase supply have been

contentious. For instance, the USDA has been criticized for allowing

dairy farmers to be certified while still in the process of converting

conventional cows to organic status. (Such status depends on the grain

fed to the cows.) Somewhat ironically, a ruling this January that

reversed that provision could hurt the market, at least temporarily.

Some of the companies making " organic " products under the weaker

standards might jump ship due to the higher production costs under the

stricter guidelines, says Lohr. This could slow progress " as the

industry reorients itself " around the new rules, she says.

 

Such dilutions and confusion can cause consumers to lose trust in the

organic label and stop buying, according to a 2002 report presented by

German researchers to the U.N. Environment Program. Lohr predicts that

the rules will continue to be challenged in years to come, " because if

there's demand for organic, people want to make it easy for farmers to

become certified. "

 

One thing is clear: though organics have been around for a

half-century, unknowns still rule. Long-range studies are few and far

between, says UC-Davis' Blank. And most economists don't wager a guess

on when pricing will change. For now, in the absence of federal

support, they put their money on consumer education driving the market.

 

" It's a matter of the public really knowing what they get when they

buy organic, " Blank says. The necessary increase in demand, he adds,

is likely to happen only if shoppers develop a pro-organic philosophy

before they ever set foot in the store.

 

Christy Harrison is a senior editor at Plenty magazine. She lives in

New York City.