SEAL OF APPROVAL

As the demand for quality organic foods continues to grow, the USDA has stepped in to provide a uniform set of standards governing the production and labeling of organically grown products. In the wake of recent controversy surrounding food-safety issues in Europe and the widespread use of GMOs, packaged organic foods stand to realize the residuals.The rule -- which became effective Feb. 21, 2001

As the demand for quality organic foods continues to grow, the USDA has stepped in to provide a uniform set of standards governing the production and labeling of organically grown products. In the wake of recent controversy surrounding food-safety issues in Europe and the widespread use of GMOs, packaged organic foods stand to realize the residuals.

The rule -- which became effective Feb. 21, 2001 -- is the product of 10 years of collaboration representative of all facets of the organic community, and will be fully implemented in October 2002. According to Holly Givens, communications director for the Organic Trade Association, Washington, retailers must be familiar with the USDA's standards and allow sufficient time to adjust.

"Retailers need to be prepared," she said. "Even though they don't have to have their operations certified organic, they have to abide by the regulations, and they have to be labeling things accurately."

The rule establishes hard-and-fast guidelines pertaining to such arcane matters as irradiation and biosolids, yet the true value at retail may be found in the federal stamp of approval as a visible seal that consumers can recognize and trust. Some within the industry hope this will prove a significant boon for the mainstream currency of organics. "I think it will help everybody," said J.B. Pratt, chief executive officer of Pratt Foods Supermarkets, Shawnee, Okla. "The USDA seal is going to build a lot of confidence with consumers.

"I look forward to more companies going organic, particularly larger companies, because the confidence they have in the certification will increase and they will be less worried about liability."

In addition to a uniform label, the rule and attendant media coverage will offer educational information to the majority of the American public that is still unsure as to the real difference between organic and conventional choices.

"Certainly we anticipate a lot of additional positive media exposure for organic foods and organic agriculture as we move closer to that date in October of 2002," said Greg Leonard, corporate vice president of merchandising at Tree of Life, a marketer and distributor of specialty and natural foods based in St. Augustine, Fla. "As a result, that group of consumers who aren't regular users will be able to develop a better understanding of what a product labeled organic really means."

Leonard believes the potential for growth in the natural and organic segments resides primarily in the conversion of mainstream consumers. He also sees an opportunity for more rapid growth in the consumer packaged goods arena, not typically the entry point for new organic purchases.

Increased exposure and media attention aside, the category's progress ultimately depends on two fundamental marketplace dynamics: how well the products being created meet consumer needs and how widespread the increasing demand for organic product is. Much of the segment's dramatic growth in Europe -- particularly in Great Britain -- can be attributed to concern over a contaminated food supply, fed by mad cow disease and the foot-and-mouth epidemic, as well as a swirl of negative sentiment surrounding GMOs. Indeed, Leonard looks to European demand as a primary catalyst for increased production of organics worldwide, noting that Great Britain currently imports 70% of its organic product.

According to statistics from Datamonitor, a market analysis firm with operations in New York, the United Kingdom is on par to experience a compound annual growth rate of 40% in the organic foods segments by 2005 with sales reaching roughly $4 billion. The United States follows with a projected compound annual growth rate of 18% and sales of $18 billion by 2005. Germany and France are also expected to witness compound annual growth in the double digits during this period, at 17% and 12%, respectively.

"One of the positives of the new federal regulation is international credibility for organic food exports from the United States," Leonard said. "There is momentum for some conversion of conventional farms to organic in order to support emerging markets, both domestic and export."

However, concerns over the safety of the food supply do not carry the same resounding urgency in the U. S., and American consumers appear unlikely to make stringent demands regarding traceability and purity. Barring a severe health crisis within the national food chain, demand will most likely be contained within the bounds of a general trend toward healthy living, industry sources told SN.

"The perception of most Americans is that the food supply is quite safe," said Leonard. "If that perception is sustained into the future, then growth in organics will be very gradual."

According to Rob Michalak, a spokesman for Wild Oats Market, Boulder, Colo., the steady growth in the organic segment is primarily due to a more educated public.

"The boomers are getting older and becoming more discriminating in what they put into their bodies," he said. "People are becoming more educated about issues surrounding food and food production, and the decision to cross over to organics is largely due to the appeal of how organics are produced."

One of the perceived advantages of organically produced foods is the lack of genetically engineered ingredients. Yet, retailers and manufacturers alike are quick to qualify the statement, as there is no way to be sure that any products remain absolutely free of GMOs.

"We have to be really careful about making claims that oversell organics," warned Pratt. "We know that pollen drifts, but the greatest opportunity to buy GMO free, in so far that this is possible, is to buy organic."

According to calculations set forth by Greenpeace, it is estimated that up to 70% of conventionally produced, processed foods in the U. S. contain genetically engineered material. Some within the industry question the FDA's recent decision against mandatory labeling of products using GMOs, citing a lack of sufficient safety testing. While shunning mandatory labeling, the FDA did impose a compulsory review period for manufacturers of food and feed using genetically modified ingredients.

"There is no good science to say that there is any difference between non-GMO and GMO products," said Pratt. "The problem is, we can't say that conclusively. We want them labeled to guard against the unknown."

Despite a personal aversion, Pratt reported a distinct lack of concern over GMOs on the part of the average consumer in his area. While committed natural and organic consumers may make purchasing decisions based on the genetic makeup of their food, most shoppers do not. Pratt is hoping a new label and an increased mainstream awareness may serve as an indirect educational program, turning first-time buyers on to the GE content of their processed foods.

Wild Oats' Michalak shares his view.

"As the natural and organic categories grow, part of the conversation will include GMOs. People will become more aware of it through the whole process of reading labels," he said.

Indeed, labels may play a pivotal role if consumers learn to read beyond saturated fats and carbohydrates. According to Glenn Koser, program manager for U.S. consumer markets at Datamonitor, labels are a considerable force.

"Consumer awareness of accurate or misleading label claims is a major driver of consumer perception of organics going forward," he said.

Koser referred to the current concern over the use of GMOs in the United States as "moderate." Still, he sees that concern growing and stressed the fact that American consumers are largely unaware of the practical ubiquity of GE ingredients in the food supply.

It remains to be seen whether the typical American consumer will ever regard the use of GMOs with the same kind of vitriolic fervor seen in Europe. Given the relative confidence in the safety of the food supply in the U. S., it does not seem likely that minor allergenic incidents -- such as the Starlink corn issue -- hold the potential for revolution.

One of the obstacles to the mainstream market is the higher price of organically produced foods. Sue Ferenc, vice president of scientific and regulatory policy for the Grocery Manufacturers of America, Washington, questioned the dollar value of GMO-free foods to a complacent American public.

"The American consumer doesn't have any reason to say, 'I'll pay a premium for this,"' she said.

Wild Oats' Michalak recognized higher price points as a nagging issue for the growth of organics; however, he is seeing some progress.

"There is more demand, and that is helping to bring those price points down," he said. Datamonitor's Koser said price does not have to be the barrier it is today if retailers position product wisely and take advantage of different levels of organic certification rather than focusing on 100%. Such classes are neatly delineated within the USDA's guidelines.

"Manufacturers might incorporate organic ingredients, not necessarily selling 100% organic, and this will bring the price down," he said.

Koser advises against the "organic ghetto" commonly found in supermarkets today, pushing full integration and comparable pricing. According to Koser, the store-within-a-store approach creates a class differential within supermarkets, alienating the mainstream consumer.

"To reach out to mainstream consumers, retailers and manufacturers need to incorporate organic values into the standard supply chain," he said.

"It all depends on how organic and non-organic are going to be positioned alongside each other -- not just in supermarkets, but in the overall context of the marketplace."