Thursday, March 05, 2009

The food that didn't bark in the night...

I have long felt the issues surrounding the claims of organic food superiority would erode as time failed to provide any real evidence of superior safety or nutrition, or at least differences so minor as to warrant very little premium.

Like too many other business models, organic production is being hit hard by customers with less to spend.

“Organics continue to grow and outpace many categories,” the Nielsen Company concluded in an October report. “However, recent weeks are showing slower growths, possibly a start of an organics growth plateau.”
If the slowdown continues, it could have broad implications beyond the organic industry, whose success spawned a growing number of products with values-based marketing claims, from fair trade coffee to hormone-free beef to humanely raised chickens. Nearly all of them command a premium price.
While a group of core customers considers organic or locally produced products a top priority, the growth of recent years was driven by a far larger group of less committed customers. The weak economy is prompting many of them to choose which marketing claim, if any, is really important to them.
Among organic products, those marketed to children will probably continue to thrive because they appeal to parents’ concerns about health, said Laurie Demeritt, the president and chief operating officer of the Hartman Group, a market research firm for the health and wellness industry. But products that do not have as much perceived benefit, like processed foods for adults, may struggle.
The economy has “crystallized the tradeoffs that consumers are willing to make,” she said. “Fair trade is nice, but fair trade may fall off the shopping list where organic milk may not.”
Thomas J. Blischok, president of consulting and innovation for Information Resources, a market-research firm, said shoppers were not moving entirely away from categories like organic products in the grocery store. But they are becoming more selective, buying four or five products instead of seven or eight, he said. [More]

Another factor impacting organic sales has been the recent (and seemingly unending) peanut contamination issue and the revelations concerning organic certification.

The national outbreak of salmonella in products with peanuts has been particularly unsettling for shoppers like her who think organic food is safer.
The plants in Texas and Georgia that were sending out contaminated peanut butter and ground peanut products had something else besides rodent infestation, mold and bird droppings. They also had federal organic certification.
“Why is organic peanut butter better than Jif?” said Ms. Devlin-Sample, a nurse practitioner from Pelham, N.Y. “I have no idea. If we’re getting salmonella from peanut butter, all bets are off.”
Although the rules governing organic food require health inspections and pest-management plans, organic certification technically has nothing to do with food safety.
“Because there are some increased health benefits with organics, people extrapolate that it’s safer in terms of pathogens,” said Urvashi Rangan, a senior scientist and policy analyst with Consumers Union, the nonprofit publisher of Consumer Reports. “I wouldn’t necessarily assume it is safer.”[More]
Most difficult for organic proponents to counter are claims organic inspectors looked past safety problems because that wasn't their job, or submitted reports way too late to prevent the contmination from spreading. There is an apparent conflict of interest between organic inspectors and the food companies who pay them.  Bad reports could close plants and end inspector's fees.

But the problem now is when organic shoppers for whatever reason switch back to conventional food supplies...and can't tell any difference.  Since the benefits have always been vague and subjective to begin with, the economic thrill of saving money may make the needed organic premium harder to sustain in the marketplace.

Investors are taking note as well, as organic merchants like Whole Foods suffer stock price declines.  While it has bounced off lows, it is still a mirror image of cheap food purveyors like Aldi.

Some hope for the organic sector strangely enough can be found in two developments.  By moving customers away from a now dubious "organic" label to virtually undefinable labels like "natural" and "local", they are reaching shoppers looking for some social aspect to their food buys without ever having to prove much.

The second is the appointment of Kathleen Merrigan as Deputy Secretary of Agriculture.  Her extensive background includes particpation in the organic foods certification process.  But this is double-edged sword.  More rigorous and consumer-pleasing certification of would likely increase costs for an industry already showing inelastic demand.

With the economy heading the wrong way, and many organic customers in the path of possible job losses (i.e. upper middle class) organic could be hit even harder as safety and economics clobber sales.

There will be temptations for gloating in the conventional food industry, I fear.  This would be a mistake.  If we have confidence what we grow and sell is safe and a good buy, we need only let the marketplace inexorably unravel the questionable claims of organic products.

Which is what we are watching right now.  This is a time to not bark in the night.

2 comments:

Tracy said...

Mr. Phipps,

A few questions/comments:

From your post: "But the problem now is when organic shoppers for whatever reason switch back to conventional food supplies...and can't tell any difference." On what facts or statistics are you basing this statement? It has certainly not been my anecdotal experience that consumers don't know the difference between organic and conventional foods. Please provide your sources that indicate otherwise.

Also from your post: "Most difficult for organic proponents to counter are claims organic inspectors looked past safety problems because that wasn't their job, or submitted reports way too late to prevent the contmination [sic] from spreading."
The contaminated peanut factories resulted from major gaps in the food safety inspection net. The issue here is that, with the exception of meat processing facilities, there is NO federal agency that either inspects food processing facilities or accredits 3rd party agencies to do so. True, it would behoove an organic inspector to report food safety threats in a plant s/he was inspecting. However, there are 98 NOP accredited certifying agencies employing hundreds of inspectors. I'm sure a few of those inspectors are less than scrupulous.

And finally: "Investors are taking note as well, as organic merchants like Whole Foods suffer stock price declines." We are in one of the worst economic recessions in the past 25 years. Most companies are suffering stock price declines.

Thank you for explaining these seemingly erroneous statements.

-Tracy

John Phipps said...

tracy:

Thanks for reading. As to your questions:

- consumer differentiability: one study here: http://www.emeraldinsight.com/Insight/viewContentItem.do?contentType=Article&hdAction=lnkhtml&contentId=866175
(Sorry, I haven't learned how to embed links in comments.)

- organic inspection: please click the [more] link to the source article which lays out this assertion. Whenever possible I use this to help readers answer just such questions.

- organic stock prices: http://nutritionbusinessjournal.com/retail/news/0701-whole-foods-stock-price-fall-52-week-low/

I certainly defend your right to choose foods on because of how they are produced. The larger issue for me is how whether the market and/or health results will ever confirm much of the purported organic value.

Nonetheless, as an industrial producer, I expect to be held to the same standards of responsibility, and am willing to abide by the both market and scientific judgments. We are not in conflict, we simply offer different products.