More Problems with Organics

Organic food sales will slip 1.1% to $5.07bn according to a forecast from Chicago-based research firm Mintel.

No, that's not an "Arpril Fool's Day" joke.

Fuel prices especially have cut into profits on organic soybeans, whose price has jumped to $28/bushel; conventional soybeans sell for $12 per bushel according to the U.S.D.A. Dean Foods calls the “natural” designation “a large, growing industry.” Critics say the totally-unregulated (and meaningless) “natural” category (including empty buzz words like “eco-friendly,” “fair trade” and “sustainable”) have gutted the organic category.

Unlike the strict rules for organic certification (and their attendant cost), the “all natural” rubric has no requirement for testing, evaluation or regulation. A recent survey of consumers found that an overwhelming majority believed “natural” is better than “organic.” WhiteWave (a Dean brand), for example, claims it works with Conservation International to ensure its soybeans are grown without genetic engineering, and are sourced in a “sustainable, socially responsible and ethical manner.” The Food & Drug Administration has expressed its reservations to the industry about using the ambiguous term “natural,” but no regulations have discouraged companies from using the term despite its ambiguity.

Meanwhile, Private Label organic products have grown from 13.6% of the total organic products sold in 2007 to 22.7% in 2008. Part of the growth can be seen in Safeway’s effort to peddle its organic products to other retailers, and SUPERVALU has extended its Wild Harvest organic brand to from 150 to over 300 items. Overall, private-label organic food sales increased 34% to $1.1bn; in comparison, only three years earlier (2005), organic private-label sales were only $166MM. The meteoric growth of organic foods has slowed during the recession, with shoppers trading down to conventional products in the face of 100%+ price differences. In years passed, the organic category saw 20% annual increases, while the previous 52 weeks have seen this taper off to 4.6% ($18.3bn).

Stores are retaining organic customers with private label products that have slashed prices from boutique and big brands alike. Deflation, however, is a real worry with organics, however, with a ½ gallon of reduced fat 2% organic milk retailing for $3.78(vs. $2.96 for a gallon of conventional milk). As a result, organic farmers are scaling back expansion plans. And Whole Foods Market Inc., has reported consecutive quarters of declining same-store sales. Its $8bn in annual sales makes up over 1/3 of the organic industry.

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Dean Foods Under Attack (Again)

Regular readers of our subscription newsletter know that organics producer Dean Foods has been under attack for profiteering in the milk sector.

It has now earned the wrath of The Organic Consumers Association which is calling for a boycott on Dean and its Horizon, Silk and WhiteWave-Morningstar brands following the company’s decision to convert most of its organic soy bean operations to conventional. Dean insists it’s a straightforward business decision instigated by consumers choosing “natural” over “organic,” but The Cornucopia Institute, an organic advocate who claims to seek “economic justice for the family-scale farming community,” calls the move “declaring war on the organic industry.”

Dean has already announced “natural” Horizon milk. While the organic lobby insists consumers are still demanding their products, the plain fact is shoppers are trading down to conventional, putting pressure on companies like Dean with large investments in organic production facilities.



This blog includes excerpts from a weekly round-up of food industry & food licensing news provided free to Broad Street Licensing Group's clients, and as a paid subscription service (6 months $695; 1 year $1,125).

Too busy to keep up with the news wires & publications about the food business? If you or your company would like to subscribe to our news service, call Danielle Foley at Broad Street Licensing Group (tel. 973-655-0598) and ask for your free sample or click on our website.

Dean Foods Under Scrutiny

Many in the food industry have welcomed the greater activism by the Obama administration into areas like food safety.

But now there is growing pressure to look at some of the anti-competitive practices: Senator Bernie Sanders (Democrat from Vermont) has asked the U.S. Department of Justice to investigate mega dairy company Dean Foods for what he contends are monopolistic practices that harm dairy farmers.

According to the senator, Dean Foods buys approx. 70% of the fluid milk in New England, recording historic profits of $184MM while farmers are scraping by. Dean hasn’t limited its activities to the US, either. Dean recently purchased Alpro, the European soy-based beverage and food arm of Vandemoortele, for €325m. Europe’s farmers want the milk quota increased by 5% to go along with several measures already enacted by the EU government, including reintroducing export subsidies. The US, Australian, and New Zealand governments are angry at this move, saying it runs counter to the G20 agreement to avoid protectionism during the current financial crisis. Protectionism is widely believed to have significantly worsened the Great Depression of the 1930s.

As Dean’s profits have soared, milk prices are tumbling from $19.50 per 100 pounds one year ago to below $11 by June of 2009. Dean’s profits for the quarter shot up from $30MM in 2008 to $76.2MM during the same period. The company denies anything illegal, pointing out the USDA (Department of Agriculture) usually sets milk wholesale prices, and that "supply and demand" are keeping the price low.

The senator is also pressuring U.S. Agriculture Secretary Tom Vilsack to prop up the price paid to dairy farmers. More than the cost of milk is at stake, both in the US and Europe, where dairy farmers have demonstrated in Strasbourg at the EU Parliament demanding action against low prices and deregulation that has hurt farmers while aiding large middlemen.

This blog includes excerpts from a weekly round-up of food industry & food licensing news provided free to Broad Street Licensing Group's clients, and as a paid subscription service (6 months $695; 1 year $1,125).

Too busy to keep up with the news wires & publications about the food business? If you or your company would like to subscribe to our news service, call Danielle Foley at Broad Street Licensing Group (tel. 973-655-0598) and ask for your free sample or click on our website.

“Natural” Beats “Organic” in Consumer Perception

In a study conducted by The Shelton Group, it seems American consumers have confused “natural” as a better indicator of an eco-friendly product than “organic.”

While the Great Recession has slowed the adoption of “green” and organics, shoppers remain interested in reducing the environmental impact of their choices, though scepticism is increasing about marketing hooey in the form of “greenwashing.” Shelton Group asked 1,006 US consumers how they know if a product is green, and the top response was “don’t know/not sure” (22%) followed by “says so on the package/label” (20%). Despite well-defined certification standards, organic products have failed to win consumers’ trust: 31% said “100 percent natural” is the most desirable eco-friendly product label claim, compared to 14% picking “100 percent organic.”

Despite strict regulations, shoppers think of the organic category as both more unregulated and, of course, more expensive. “Natural” is virtually meaningless since there are no standards or government regulations for its use on products. “Natural” has soared in popularity among marketers, and is the leading label claim on new launches according to research by Mintel. Globally 23% of all new products last year carried the “natural” claim. Dean Foods’ Horizon brand, America’s largest organic milk brand, is launching a “natural” (but not organic) yogurt aimed at toddlers, and single-serve milk targeted toward children. The dairy products are produced conventionally, though the company is insisting they “naturally produced without added growth hormones, artificial colors, flavors or preservatives and no high fructose corn syrup.”

Unlike with organics, the cows can be fed with foodstuffs treated with pesticides, herbicides and other artificial additives. The problems of organic integrity may be partially at fault for the label’s lack of trust from consumers, along with a healthy mistrust of Washington bureaucrats. Organics regulations have been relaxed for some products, partly as demand has pushed the category to over $24bn in annual sales with major players like Kraft and Coke investing in or buying up organic brands. For example, grated organic cheese can contain wood starch to prevent clumping, and organic beer can be made from non-organic hops.

Under the original organics law in 2002, 5% a USDA-certified organic product could be non-organic provided it was approved by the National Organic Standards Board. The original list had 77 substances and has since grown to 245. Manufacturers have to appeal the inclusion every five years by explaining why an organic alternative is not possible or practical. In addition, the law’s mandate for annual pesticide testing was left optional. One problem with enforcing organics standards is that major food companies have taken control-of or purchased outright most small, independent organic companies. Kraft owns Boca Foods, Kellogg owns Morningstar Farms, and Coke has 40% of Honest Tea, President Obama’s favorite organic beverage.

Lobbying is a natural result of this situation. For example, organic infant formula labels trumpet the additives DHA and ARA, synthetic fatty acids that some studies claim help the growth of nerves, but are synthetics that don’t meet the organics standards because they are produced with a potential neurotoxin known as hexane. According to The Washington Post, Deputy USDA administrator Barbara Robinson, who administers the organics program, overruled her staff’s ban on the additives after being lobbied by William J. Friedman, a lawyer representing baby formula makers.

Maryland-based Martek Biosciences, which produces the fatty acids used by formula companies, claims no hexane residue is present. Other actions by Robinson include giving farmers permission to feed organic livestock non-organic fish meal, which may contain mercury and PCBs. The law requires animals slaughtered for organic meat be raised entirely on organic feed. Other problems with the program include the variability of testing companies, with farmers prompted to shop around to find certification for things like liquid fertilizer that is non intended for organics, but is desirable for growing big crops due to its juiced-up nitrogen levels.

This blog includes excerpts from a weekly round-up of food industry & food licensing news provided free to Broad Street Licensing Group's clients, and as a paid subscription service (6 months $695; 1 year $1,125).

Too busy to keep up with the news wires & publications about the food business? If you or your company would like to subscribe to our news service, call Danielle Foley at Broad Street Licensing Group (tel. 973-655-0598) and ask for your free sample or click on our website.

Just How Green IS My Valley?

Debate about “local sourcing” and “sustainability” generally favors reducing the carbon footprint of food distribution by relying on locally-grown and raised foods, rather than the current supply chain that brings foods from around the world to your local grocery store.

For example, the Leopold Center for Sustainable Agriculture at Iowa State University estimates food travels on average 1,500 miles from producer to consumer within the U.S. However, this argument has been denounced by Third World countries as another form of Western arrogance, since the globalization of the food supply chain has brought prosperity to poorer regions who account for an increasing portion of the West’s food consumption as Chilean peppers find their way to produce aisles in the depth of Winter, and apples stored in gigantic warehouses are available year-round.

A new argument claims that shifting consumption away from red meats and dairy— even for as little as one day/week— might have a greater salutary impact on greenhouse gas emissions (GHG) than cutting down the time foods are en-route. Christopher Weber and Scott Matthews, analysts for the Carnegie Mellon Institute, argue it is virtually impossible to reduce transportation costs equivalent to the change on the environment by reducing the consumption of meat and dairy. “Replacing red meat and dairy with chicken, fish, or eggs for one day per week would save the equivalent of driving 760 miles per year. Replacing red meat and dairy with vegetables one day a week would be like driving 1,160 miles less.” Analysts admit their estimates are mostly theoretical in nature. Further meat producers argue that organic farming would be impossible without the manure produced by feed and dairy animals.

Below is a visit to a farmers market in Marin County, CA.



Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

The REAL Cost of Food

Working in the food business sometimes feels I'm part of the MOD Squad.

As in "Merchants of Death"?

As in smoking, drinking and firearms?

The MOD Squad was satirized in the movie "Thank You For Smoking." It took some laughs from the way that cigarette companies, distillers and the NRA work the Washington lobbyists and Congress to avoid regulation, water-down bills that might hurt business, and the cynicism that has all sides putting money ahead of the public good.

Some critics of the food and restaurant industry are starting to make the connection in the public's mind between cigarettes, obesity and cheap food. Of course, mechanized farming has resulted in a paradox: an unprecedented abundance at cheap prices, as well as an epidemic of obesity and the pollution of the land. This article in Time magazine is a very succinct summary of the conundrum of the modern food channel, as well as an occasionally simplistic look at solutions to the problems it identifies.

The article is quite hard-hitting, even for the post-Bush wimpy mainstream media that always looks to balance every article with contrary views. It starts by showing the reader just how cheap food is, adjusted for inflation:

According to the USDA, Americans spend less than 10% of their incomes on food, down from 18% in 1966. Those savings begin with the remarkable success of one crop: corn. Corn is king on the American farm, with production passing 12 billion bu. annually, up from 4 billion bu. as recently as 1970. When we eat a cheeseburger, a Chicken McNugget, or drink soda, we're eating the corn that grows on vast, monocrop fields in Midwestern states like Iowa.

We eat corn, use corn oil margarine as a substitute for butter, corn oil for cooking, corn syrup to sweeten our prepared beverages (to the point that Snapple and Pepsi recently made a splash by offering limited time versions sweetened with cane sugar). Yes in order to produce that corn (which is also diverted to making cheap gas with ethanol), we use enormous quantities of chemical fertilizer (ironically made from the same imported oil the ethanol is supposed to replace). That means a very large and troubling carbon footprint.

Because it's a monocrop, corn is particularly susceptible to pests. In conventional agriculture, farmers plant crops in rotation and often as barriers to insects so they don't have to use as much pesticide. Marigolds, for example, deter many plant-eating bugs, and a ring of them can drive off some invaders. But not with vast fields on an industrial scale. The traditional farmer accepts that some corn worms will be in his freshly-picked ears; the modern grocery shopper will likely refuse to buy any ear of corn with a bug on it.

Single crop plantings are also more subject to pathogens (anyone of Irish descent understands how catastrophic a blight or other disease can be). And don't think the Potato Famine is as relevant to today as the Black Death in the Middle Ages: the same fungus that wiped out Ireland's monocrop (potatoes) in the late 19th Century is ruining the tomato crop this year. So corn must be treated with a variety of pesticides and fungicides. There is quite a bit of disagreement whether these measures leave dangerous residues.

I stopped buying anything but organic potatoes when I read how most farmers grow a separate crop for their families that isn't treated with chemicals.

The corn crop is changing, too. Large conglomerates like Monsanto are pushing for the adoption of genetically-modified corn (GMO) and wheat that will be pest- and pathogen-resistant. Unfortunately, we don't know how changing the corn genome will affect non-GMO plants. Several European countries are banning or limiting GMO agricultural products. Snack chips made with GMO corn, for example, can't be imported.

The bad news about cheap food is that it not only isn't really cheap, it's not cheap across the board. Corn farmers enjoy subsidies, and ethanol has made corn more expensive (good for farmers, bad for food companies and consumers). Yet subsidies are applied unequally, largely depending on political clout:

A study in the American Journal of Clinical Nutrition found that a dollar could buy 1,200 calories of potato chips or 875 calories of soda but just 250 calories of vegetables or 170 calories of fresh fruit. With the backing of the government, farmers are producing more calories — some 500 more per person per day since the 1970s — but too many are unhealthy calories. Given that, it's no surprise we're so fat; it simply costs too much to be thin.

Food companies don't like to take any responsibility for the obesity epidemic. They point out that no one is holding a gun to your head when you scarf that Big Mac or down those cookies. But poor people and those less-educated don't have the same choices, which is reflected in the fact that obesity is more of a problem with the poor- and not just because they can't afford Pilates.

The solutions advocated by the article (buy local, buy organic) are good in their own way, but don't address the problems of food costs to the consumer in a time of economic struggle. The drop in same-store sales at Whole Foods shows that consumers are less-likely to pay the prices required for organic food when times are tough. And given the struggles of organics, the near future doesn't look like a time when Americans will face up to the real cost of their cheap food.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

"Organic" Shows Surprising Resiliance in Recession

The Organic Trade Association would have us believe the Great Recession hasn't stopped the growth of organic foods.

What else would you expect them to say?

At least they're trying to back up their assertions with data. On Monday they release the details from their 2009 Organic Industry Survey which purports to show U.S. sales of organic products (including non-food items) reached $24.6bn, a 17.1% rise over 2007 sales levels. Not surprisingly, the segment's overall growth rate was the slowest it's been since 2004 (14.6%). In contrast, organic food sales expanded at a 20.9% clip in 2006 and 18.5% in 2007.

One resource for the elasticity of organic demand is the spread of organic products across the grocery channel. Now consumers can often rely on store brands and couponing to keep eating green without shelling out too much green. The OTA, prejudiced though they may be, are not alone in supporting the notion that organic eating has taken hold in the U.S. A soon-to-be released J.D. Power and Associates survey (Private Label Industry Report) shows consumer perceptions about private label in general and store-brand organics in particular as trending in a positive direction. Safeway is even attempting to sell its O Organics line to other retailers (though not direct competitors). Aggressive marketing has also helped push the notion that store brand organic products are no longer "no name" cheap substitutes, but instead are high-value items that stand on their own.

OTA's study was conducted by Lieberman Research Group, and it studied things like organic fibers, personal care products and pet foods, too. Organic food sales grew 15.8% ($22.9bn), while organic non-foods increased 39.4% ($1.648bn). While organics are clearly here to stay, they account for less than 4% of total U.S. foods sold.

A similar result was found by Cone Inc., a Boston-based company reporting 34% of U.S. consumers say they are now more likely to buy environmentally responsible products. Of those interviewed, 44% say their "green" shopping habits have not changed as a result of the economy (only 8% say they are less likely to buy environmentally-responsible products).

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