July 28, 2008

Ailing Economy Makes Some Organic Farmers Nervous

By Chris Hubbuch, La Crosse Tribune, Wis.

Jul. 27--ST. JOSEPH, Wis. -- Step inside Syl Clements' dairy barn and 9,000 baby chickens scurry.

A network of automated water tubes and troughs of organic feed hang from the ceiling. A carpet of wood chips scents the air, kept at a steady 70 degrees by giant fans. There are no cows to be found.

Five years ago, Clements was pushing 70, his equipment needed to be replaced and milk prices were lower than they'd been 20 years earlier. His family was barely breaking even.

Clements noticed a consumer clamor for organic foods, so he sold his 160-cow herd and converted the barn to a coop, where the 72-year-old former state Assembly-man and his sons now raise about 20,000 organic laying hens.

The next year, he built a new 250-foot barn where he recently installed a German-made three-level roost that provides cage-free lodging without the need for kiln-dried wood chips, which have been harder to come by since the slump in construction.

It's been a profitable switch so far, but with the economy faltering while food and fuel prices soar, Clements worries about his investment -- nearly $500,000 in buildings and equipment -- continuing to pay off.

"As long as people keep buying that high-price organic (food), we're OK," Clements said. "There's no guarantees."

For more than a decade, consumers have gobbled up organic food -- crops grown without synthetic fertilizers and herbicides, and meat and dairy from animals raised without hormones and antibiotics on organic feeds.

But with a tanking economy and inflation not seen for nearly a generation, some wonder whether the days of $4 a dozen eggs and $7 a gallon milk will last. In a state that ranks among the top in organic production, that has some producers nervous.

At Organic Valley, the nation's largest organic farmer cooperative, the outlook is cautious.

Sales in the past five years have nearly tripled at the 20-year-old company, based in La Farge, Wis. Yet Organic Valley is not taking on as many new suppliers as in previous years, said CEO George Siemon.

"You can't grow by 20 percent forever," he said. "I don't ever see it going backwards. It's just a matter of how much it slows down."

Still, retailers are bullish about what they see as a market that continues to grow.

Organic food accounts for only about 2.5 percent of the U.S. food market, but demand has increased sales by nearly 20 percent a year for more than a decade. Once relegated to natural food stores and co-ops, organic foods now are on the shelves of nearly three quarters of all grocers, according to the U.S. Department of Agriculture.

Still buying organic

Though organic products can cost twice as much as their conventional counterparts, committed buyers seem impervious to the price, motivated instead by a belief that organic foods are better for their health and the environment.

"People who choose organic are doing so because they think it benefits their health," said Michelle Schry, general manager of the People's Food Co-op, 315 Fifth Ave. S. "It's one of the last things they're giving up. They see it as a kind of health insurance."

That fits Erin Browning. The 29-year-old La Crosse woman said she became an avid organic consumer in the past year as she learned more about how food is produced.

"It's so much better for you," she said.

Others like Anne Babich say they prefer organic food but only buy it occasionally because of the price.

"I think it's good for me," the 60-year-old Cashton resident said. "It's expensive. Very expensive. And now, with all the prices going up, it's even harder."

Where the typical buyers of organic milk once were white, well-educated and wealthy, studies show today's consumers are from diverse ethnic backgrounds and include lower-income families -- although still with college educations -- according to USDA reports.

The question is whether the organic market can continue to attract new customers.

The market for non-committed organic buyers is uncertain, said Amber Bowe, a registered dietician with Quillin's Foods in La Crosse. Nevertheless, in the two years they have stocked organic products, Quillin's has seen sales grow.

The economy "may slow the growth, but it's such great growth in there," said Rob Pretasky, specialty foods director for 12 Skogen family-owned Festival Foods stores in Wisconsin.

Siemon thinks the existing market -- particularly for dairy staples -- is secure.

"They might cut out organic candy," he said. "The new dabblers are the ones who are going to be affected."

Generic niche

Even committed organic consumers may be looking for ways to save money. Producers are finding ways to help them with lower-priced generic or private brands.

Over the past three years, Organic Valley's sales to private label brands has grown 60 percent, while sales of the co-op's own brand have been flat, Siemon said.

Festival Foods stores are looking to sustain the growth in organic sales through a new private label brand from its supplier, Supervalu.

Marketed under the Wild Harvest name, the line of organic and natural foods retails for about 15 percent less than brand names like Organic Valley. Supervalu plans to eventually expand its generic offerings to 250 to 300 products.

"People want to eat healthy," Pretasky said. "People are still going to find a way to do what they can. Private labels -- that's where it's at."

As long as demand outstrips supply, organic food prices aren't likely to fall. Overall inflation might even help organic sales as conventional food prices rise, too.

"In some instances, the gap has closed" between conventional and organic foods, said Schry of the People's Food Co-op.

Dramatic increases in conventional milk prices have hurt unit sales in the past year, according to a report in the July issue of the trade publication Dairy Foods. But organic unit sales in the same period posted double-digit increases.

Supply-demand balance

Wisconsin is among the top-producing states in organic farming, with the largest dairy herd and second only to California in the number of certified organic operations. But only about 1 percent of the state's crop lands are certified organic.

As outreach coordinator for the Midwest Organic and Sustainable Education Service, Harriet Behar hasn't seen a noticeable drop in interest among farmers considering the switch to organic production.

Organic livestock farmers are getting pinched because a shortage of locally-grown organic feeds has sent costs soaring. Fuel and other supply costs also have jumped in the past year.

Farmers such as Clements, whose animals can eat only organic feeds, pay $11 to $12 a bushel for corn. That's about twice what Clements gets when he sells the conventional corn he grows.

Behar is trying to convince crop farmers to make the switch -- especially now, while conventional corn and soy prices are at an all-time high.

It takes three years of farming without synthetic fertilizers and pesticides before growers can be certified as organic and get organic prices for their crops.

This year, Clements started selling the conventional corn he raises on about 700 acres to an ethanol plant. He doesn't think he could afford three years of lower yields at conventional prices.

The problem from Behar's perspective is organic production isn't keeping pace with consumer demand. That means prices stay high, stifling market growth.

"It's a recipe for the retail price of organics to keep rising, which we don't want," she said. "Organic is market driven. We're not keeping up with the market."

Chris Hubbuch can be reached at [email protected] or (608) 791-8217.


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