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Organic supply and demand

By Kathryn Trim

FoodProcessing.com

Organic ingredients are ramping up to meet processors’ needs. Advance planning is the best sourcing ingredient.

Not too long ago the only place you could find organic products was at a farmers market or natural foods store. But after watching sales of organic foods steadily grow at 15-20 percent for the past decade, these days everyone wants a piece of the organic pie.

Top processors including Kraft and General Mills have started organic lines or are buying organic companies to add to their portfolios. Wal-Mart is planning to double its organic offerings this year. Retailers such as Safeway and Super Target have launched their own private labels, with Super Target having gone the extra step to get USDA certification as an organic retailer. McDonalds is serving organic coffee. The shelves at 7-Eleven are stocked with organic snacks.

ADVERTISEMENT Kellogg developed its own line of organic cereals, while Kraft bought an organic company.

According to the 2005 Manufacturer’s Survey from Organic Trade Assn. (OTA, www.ota.com), U.S. sales of organic products have surpassed $14 billion a year, with processed foods (foods other than produce, dairy or meat) representing more than 42 percent of sales. Compared to the 2 percent annual growth of conventional groceries, organic offers an exciting opportunity. However, although the green organic seal has the potential to generate a lot of green, can the organic supply keep up with the ever growing demand?

The answer from those in the industry is an enthusiastic yes. But before you try to order 5 million pounds of organic flour, you must first understand the organic world and how it differs from the conventional food world.

The organic supply chain

Organic may be a big opportunity, but at roughly 3 percent of the market it’s still a small industry compared to conventional foods. And while there are some who have been pioneering the grass roots organic movement for decades, the U.S. National Organic Program (NOP) is a mere five years old. As a result, there are fewer suppliers to choose from and a less formal infrastructure than that of the conventional processing world. This means you have to go about sourcing in a different way.

“To source organic ingredients effectively, processors must look at the supply chain with a different lens. Sometimes it means connecting with the source at the ground level, planning and making a commitment,” said Grace Marroquin, ingredient broker and president of Marroquin Ingredients (www.marroquin-ingredients.com), Santa Cruz, Calif. “To truly be successful in organic processing, it takes commitment both to the suppliers as well as to the organic industry itself. You must see organic as long term, not just some fad, and be willing to weather a few growing pains along the way.”

The supply situation changes from season to season depending on weather, demand and other factors; what is in short supply now could be in surplus next year. Some items that have been more challenging to source include hazelnuts, apricots, brown rice syrup, oats, blueberries and some exotic fruits such as goji berry. Because of skyrocketing demand for organic dairy product, byproducts such as organic lactose and whey protein concentrates have not been commercially available in the U.S. Other minor ingredients such as colors and flavors also have been challenging to source, but lately more and more suppliers are coming out with organic versions.

Overall, those in the organic world are responsive to demand and have made great strides in a short time. In 2005 alone, more than a million new acres were converted to organic for a total of 4 million acres of farmland, 2.3 million in cropland and 1.7 million in rangeland and pasture, according statistics released just this past December by USDA. Trade organizations like OTA are working to get more research dollars to aid farmers in transitioning to organic.

Horizon Organic and other milk suppliers have been so successful at cultivating an organic milk supply there may be a surplus this spring and summer.

Industry leaders such as Stonyfield Farm and farmer-owned cooperative Organic Valley spent an estimated $2 million on incentives and technical assistance to help dairy farmers convert or boost their production in 2006, and Horizon Organic Dairy’s “HOPE” program has helped some 250 family farms convert to organic since 1991.

As a result, organic milk is expected to have a surplus in the spring and summer of 2007. Strong demand could catch up with supply by early 2008, according to Stonyfield Farm officials, but in the meantime this surplus could likely result in production of other organic dairy byproducts that have been scarce.

“It is all interconnected, and as the demand in one area grows and suppliers rise to meet it, other areas will grow and expand as well,” says Marroquin.

Suppliers around the world are ramping up production to help meet the supply needs of organic. Reports from The Organic Monitor show organic ingredients such as beans, seeds and nuts are increasingly coming from China, Turkey, Brazil and other countries. Organic herbs and spices are being imported from India, Paraguay and Ethiopia. Increasing volumes of organic fresh fruits and vegetables are coming in from African and Asian countries. Latin America and Australia are established sources of organic meat products.