Shoppers paid a premium of more than 20 percent for organic foods from 2004-10 while the market for organic groceries was blossoming, says a USDA study, with consumers likely to spend more for products, such as milk and baby food, fed to children. Price premiums cut both ways: they encourage growers to expand production but if they are too high, they diminish the market for the goods.
Americans purchased a record $39.7 billion in organic food last year, up 11 percent from 2014 and nearly 5 percent of U.S. food sales, according to the Organic Trade Association. OTA said production lags behind “seemingly unquenchable consumer demand.” Fruits and vegetables account for 36 percent and dairy 15 percent of organic food sales.
Organic milk sold at a 72 percent premium compared to conventional milk in 2010, said the USDA study. “However, the number of dairy cows in the organic herds has not grown as rapidly as the demand for milk, due to shortages in organic feed as well as the three-year transition period required to convert non-organic pastureland to organic pastureland. This may lead to higher organic price premiums in the future, said USDA economist Andrea Carlson and Penn State associate professor Edward Jaenicke.
Eggs and dairy had the highest premiums in 2010, including 42 percent for yogurt and 82 percent for eggs. Yogurt was the only one of the 17 products tracked in the USDA report to show a steady increase in premium from 2004-10. Most premiums fluctuated while spinach, canned beans and coffee posted steady declines.
All the same, organic food sold for notably higher prices than conventional products. Spinach had the smallest premium in 2010, 7 percent, while the other foods were above 20 percent.
USDA said it studied organic premiums to see if there was a trend over time. Some researchers say consumers balk at paying more than a 30 percent premium. If premiums are on the wane, producers may not believe it is worthwhile to switch to organic farming.
In February, a BB&T Capital Markets report said the organic premium often was insufficient for growers so production has not kept up with consumer demand. “The report raises the possibility of higher retail prices down the road for organics” and said high retail prices could discourage sales, reported CNBC, similar to the conclusions of the USDA report.
“Another trend that has contributed to the growing organic market share is the increase in the number of retail chains that offer both national- and regional-brand organic and private-label organic products,” said USDA. In 2000, Whole Foods was the only major chain with a private label for organic food. Now, all major chains have a private label for organic food and organic food is offered in most major grocery stores.