BUSINESS/MARKETING

Organic Foods Back in the Spotlight
Buried in the bipartisan chest-beating that surrounded last month’s Congressional approval of an $80-billion spending bill ostensibly for the Iraq war and continued pursuit of terrorists was a bit of language that ended a brief but torrid flap over organic food labeling.

It all started when the Omnibus Appropriations Bill was drafted last February. A rider relaxing organic labeling standards was inserted by Rep. Dennis Hastert at the request of Rep. Nathan Deal, who represents a district heavily engaged in chicken farming. The provision introduced a significant loophole into the already-approved organic labeling legislation, allowing meat and poultry farmers to use non-organic feed without changing the label if the price of organic feed was more than twice the cost. The provision stemmed from a request by Fieldale Farms, a corporation of poultry farmers in Deal’s district, who allegedly claimed that organic feed was not only prohibitively expensive, but also hard to procure.

Knowledge of the provision only surfaced after the bill was “locked down,” meaning provisions could only be extracted via amendment. But when it hit, the feathers flew. The Organic Trade Association (OTA), the largest organization representing the $11-billion industry in North America, issued a strong denouncement, claiming the provision knocked the teeth out of an organic labeling bill that was “decades” in the making. The bill was passed late last year with broad bipartisan support and backing from major trade associations such as the Grocery Manufacturers of America and the Food Marketing Institute (FMI), as well as many large food companies who have a small, but growing stake in the organic foods segment.

The U.S. Dept. of Agriculture distanced itself from the Hastert rider, with Secretary Ann Veneman cautioning that the provision could weaken the National Organic Program.

Whole Foods Market, a retail chain with $2.7 billion in annual sales, even distributed “legislative action cards” to its customers, urging them to contact their member of Congress.

A spokesman for Tyson Foods, which has a small line of organic chicken, said, “We feel that not requiring organic feed compromises the integrity of the process.” And a spokesman for General Mills, which entered the organic market through its Small Planet Foods subsidiary, also supported repeal, saying, “We have a relationship with our consumer, and when we put ‘organic’ on our product, we want them to know that’s what they’re getting.”

Armed with this broad support, Sen. Patrick Leahy and Sen. Olympia Snow initiated a repeal effort, which was successfully enacted on April 12.

The organic foods industry was fortunate to have this controversy erupt when it did, because the resulting coalition of associations, processors, retailers, legislators, and regulators affirmed clear, concise standards for the industry at a point where it’s merging into the mainstream. The next big battle is looming in the marketplace. Sales of organic foods are growing at 20% per year, according to OTA. And more than half of Americans buy organic food at least once a month, according to FMI.

While early adopters—farmers, processors, retailers, and consumers—had a Grateful Dead, granola-crunching image, today’s organic consumers are far more diverse. Their interest is based on their perceptions that organic foods are good for the soil, good for the body (free of toxic agricultural chemicals), and taste better than other foods.

They’re also considerably more expensive. According to an informal survey conducted in April by the Buffalo News, products such as organic peanut butter can cost twice as much per ounce. Organic salad dressing was half-again more expensive than conventional national brands.

In addition, no major studies have scientifically determined that organic food is more nutritious or “healthier” than similar foods. Thus, the next debate may take shape around the issue of just how much of the organic food phenomenon is real and how much is marketing hype and image.

Currently, organic foods represent about 2% of the retail market. They have spawned specialty retail chains like Whole Foods and Wild Oats and have drawn considerable attention from major processors. By 2005, industry sales will top $18 billion, according to the Organic Farming Research Foundation. And it won’t be carrots and cabbage—much of the growth comes from processed foods like frozen entrees and pizza.

As more acres are planted and agricultural practices improve, the price differential will lessen. But just how big this market gets will depend heavily on whether new consumers perceive real value. That will be the next major battleground.

by PIERCE HOLLINGSWORTH
Contributing Editor
President, The Hollingsworth Group, Inc.
Wheaton, Ill.