http://www.nytimes.com/2008/04/18/business/18organic.html?em&ex=1208664000&en=f666e740e6b9ce5a&ei=5087%0A
Sticker Shock in the Organic Aisles
Shoppers have long been willing to pay a premium for organic food. But how much is too much?
Rising prices for organic groceries are prompting some consumers to question their devotion to food produced without pesticides, chemical fertilizers or antibiotics. In some parts of the country, a loaf of organic bread can cost $4.50, a pound of pasta has hit $3, and organic milk is closing in on $7 a gallon.
“The prices have gotten ridiculous,” said Brenda Czarnik, who was shopping recently at a food cooperative in St. Paul.
Food prices in general have been rising, but organic food lagged somewhat behind last year because of a temporary glut of organic milk and other factors. Some grocery chains adopted private-label organic products, which are cheaper than brand products, while others hesitated to raise already high organic prices.
In recent months, however, these factors have been giving way to cost pressures in the industry. On grocery shelves across the nation, sharp price increases are taking hold.
“It’s probably the most dynamic and volatile time I’ve seen in 25 years,” said Gary Hirshberg, chief executive of Stonyfield Farm, an organic dairy business. “It’s extremely difficult to predict where it’s going.”
Organic prices are rising for many of the same reasons affecting conventional food prices: higher fuel costs, rising demand and a tight supply of the grains needed for animal feed and bakery items. In fact, demand for organic wheat, soybeans and corn is so great that farmers are receiving unheard-of prices.
But people who have to buy organic grain, from bakers and pasta makers to chicken and dairy farmers, say they are struggling to maintain profit margins, even though shoppers are paying more. The price of organic animal feed is so high that some dairy farmers have abandoned organic farming methods and others are pushing retailers to raise prices more aggressively. Several organic manufacturers worry that sales may slow as consumers cut back.
Perry Abbenante, global grocery coordinator for Whole Foods Market, said sales were strong and customer counts were up. He said it might be too soon to know how consumers would react to higher organic prices, particularly in dairy.
“Man, $6.99 for a gallon of milk is pushing it,” he said. “We have to be very careful about not pricing organics out of the market.”
Over all, grocery prices have increased about 5 percent over the last year, though some staples like conventional eggs jumped 30 percent and milk, 13 percent, according to the Consumer Price Index. That government index does not break out prices for organic food.
Organic manufacturers and retailers said prices began increasing last fall but were only now starting to spike significantly in some parts of the country. Organic milk prices declined slightly last year.
Eric Newman, vice president for sales at Organic Valley, a farmers’ cooperative that sells mostly dairy products, said a half gallon of milk cost $3.49, on average, in 2007 while a gallon cost about $6. He said he expected the average price of a half gallon to exceed $4 in the months to come, while a gallon could cost more than $7.
The average retail price for Eggland’s Best Organic eggs in 2007 ranged from $3.79 to $4.29, company officials said. So far this year, the range has risen to $4.59 to $4.99.
Organic food is typically 20 percent to 100 percent more expensive than a conventional counterpart; the gap has narrowed in recent years as discount retailers like Wal-Mart have offered organics and more private-label organic products have become available, according to the industry.
Americans spent $16.7 billion on organic food and beverages in 2006, a 126 percent increase in just five years, according to the Organic Trade Association, an industry trade group. Organic sales account for about 2.8 percent of food and beverage sales in the United States, the group says.
The United States had 4.1 million acres of organic farmland in 2005, triple the amount in 1997, according to the Department of Agriculture, which regulates the organic industry. But farmers and grain buyers say the growth of new organic acreage has slowed, falling short of rising demand and causing organic grain prices to soar.
That is partly because prices for conventional corn, soybeans and wheat are at or near records, so there is less incentive for farmers to switch to organic crops; making the switch requires a three-year transition and piles of paperwork.
“There has been no new surge of land going into organic,” said Lynn Clarkson, who buys organic grain as president of Clarkson Grain in central Illinois. “We are having to compete with this ethanol juggernaut,” he added, referring to the growing use of field corn for fuel.
Ken Cook, president of the Environmental Working Group, an environmental research organization, said conventional dairy and grain prices were so high that they were nearly rivaling prices that organic farmers receive. Organic farmers normally earn a hefty premium for raising livestock and crops without chemical fertilizer, pesticides or antibiotics.
“We may be seeing over the next few years a turnaround, where organic agriculture contracts in this country,” he said. The price of organic grain has also jumped because hundreds of dairy farmers rushed to complete their transition to organic production last year, before more stringent government regulations took effect. The influx created a temporary glut of organic milk, which suppressed prices last year, but also added to the demand — and the price — for organic animal feed. In addition, a drought last year in the Upper Midwest caused relatively poor yields for some organic crops.
Doug Hartkopf, a dairy farmer in Albion, Me., said the high feed costs forced him to stop farming organically in December.
“Instead of paying $3,000 a month, I was paying $7,000,” he said. “It was a very tough decision. It was something we had to do.”
In all, at least 25 dairy farmers in the Northeast have retired early or stopped farming organically in the last six months, said Ed Maltby, executive director of the Northeast Organic Dairy Producers Alliance. He predicted that the shifts would continue unless farmers received a price increase of about 25 percent from milk processors.
The high grain prices are squeezing more than just organic dairy farmers.
“In the last three months or four months, everyone along the chain in organic food is not making their margins,” said Bob Eberly, president of Eberly Poultry in Stevens, Pa. The cost of raising poultry has increased 16 percent in the last six months, but he said his prices had increased only 7 percent.
“In the next month or so, our customers are going to see a significant price increase,” he said. “We just have to do it.”
Some organic bakeries, meanwhile, say they, too, are struggling to pay for organic flour and grains.
Michael Girkout, president of the Alvarado Street Bakery in Petaluma, Calif., said the farmers who supply his organic grain refused to honor a two-year contract in November and demanded a steep price increase.
“They said they could not afford to sell it to us at the price they agreed to two years ago,” said Mr. Girkout, who said he had little choice but to comply given the limited supply. He raised his prices for a loaf of bread 17 percent last year, he said.
Of course, the rising price of organic feed has another side. While organic livestock farmers are struggling, farmers who grow organic grain are being paid more than ever.
Organic corn is selling for $10 a bushel, organic soybeans for about $20 a bushel, and organic wheat is priced as high as $22 a bushel, all of them at least double the price of two years ago, said Oren Holle, a grain farmer in Kansas and president of an organic farmers’ cooperative.
“It is unprecedented,” Mr. Holle said. “Nobody saw these kind of market prices coming.”
Even with those prices, though, people in the industry say fewer farmers are starting the arduous transition to organic production because they can get record prices for conventional grain. Droughts, a growing global middle class and rising demand for biofuels produced from crops are putting heavy pressure on the world’s food system, sending prices up everywhere.
In the organic industry, the question is how shoppers will react to rising prices. “It will not be at all unusual for a mom to say, ‘No matter what, I am going to buy organic milk, but you know what, I don’t need to buy the organic cold cereal because I don’t see the value in it as much,’ ” said Laurie Demeritt, president of the Hartman Group, a market research firm specializing in health and wellness research.
At the Mississippi Market Natural Foods Co-op in St. Paul, Shaun Hainey, 26, said he had quit smoking and cut back on drinking and “superfluous recreational spending, like going skiing.” But he and his wife, Cassandra Hainey, have not cut back on organic food.
“We don’t foresee a price level at which we’d stop shopping organic,” he said.
But Scott Cordes, a 33-year-old budget analyst for the city of St. Paul, has found the high prices hard to bear. He now buys conventional 1 percent milk for $4.09 rather than spending $6.99 on a gallon of organic milk. Still, he does not expect to forgo organic foods altogether.
“You have to weigh the type of food you want,” he said. “I’ll only go so far to save money.”
