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In an Organic World, Price Still a Deciding Factor

In an Organic World, Price Still a Deciding Factor

The U.S. Department of Agriculture announced this summer that organic has gone mainstream. The statement, part of a larger report, slipped by without much comment, but for the food industry, the implications of a government agency saying this are enormous.

Supermarkets can see just how far organic has come since the implementation of the National Organic Program in 2002. Just about every category in the supermarket today has an organic option, and organic now accounts for more than 3% of all food sold in the United States.

With mainstream success, however, comes mainstream problems. Now that organics are common, or commoditized, consumers are going to make their purchase decisions based on conventional criteria. And that means price is going to reemerge as an overriding factor — if it ever disappeared in the first place.

Case in point: Not too long ago I ordered lunch at one of Manhattan's myriad delis, waiting on line (typical) to pay for my ham and swiss on rye with extra mustard (very typical). The guy in front of me, a salesman or broker of some sort, was talking with the manager, trying to get the store to start stocking a new brand of organic iced tea he represented. The manager balked and suggested the salesman return another time when the owner was present.

As I stepped up to the counter, he looked after the guy and told me, “I like organic as much as the next person, but $2.99 for a bottle? It's iced tea, fer cryin' out loud.”

Let's be safe and call the deli manager an occasional user of organic products — perhaps very occasional. Even so, what's wrong with organic iced tea? It's a simple-enough concept: water and organic tea leaves and organic sweetener. Perhaps there's even a fair trade element involved. It's a nice, thoughtful way to quench one's thirst.

Yet, it's apparently not enough to justify the $2.99 price. Even though the organic category is growing, premiums remain stubbornly high. The USDA study found that domestic sales of organic products topped $21.1 billion in 2008 and are expected to reach $23 billion by the end of this year.

The agency also looked at the cost of organic. It noted premiums approaching 30% for 18 fruits and 19 vegetables, and even higher numbers at the dairy case. There, organic price premiums for a half-gallon container of milk ranged from between 60% for private-label organic milk above branded conventional milk, to 109% for branded organic milk above private-label conventional milk.

What about RTD iced tea? The USDA stated that beverages accounted for 13% of U.S. organic food sales in 2008 (the top two categories were produce at 37% and dairy at 16%). That might seem a strong enough share of the market, but if occasional users continue balking at the price, then growth is unsustainable.

The mainstreaming of organic is good news for agriculture, the food industry and consumers. Unfortunately, in becoming commoditized, simply being organic is no longer enough — not at that price, anyway.

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