Marketing U.S. Organic Foods: Recent Trends From Farms to Consumers

United States
Department of
Agriculture
Marketing U.S.
Economic
Research
Service
Organic Foods
Economic
Information
Bulletin
Recent Trends From Farms to Consumers
Number 58
September 2009
Carolyn Dimitri and Lydia Oberholtzer

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Cataloging Record:
Dimitri, Carolyn
Marketing U.S. organic foods : recent trends from farms to
consumer.
(Economic information bulletin ; no. 58)
1. Natural foods—Marketing—United States.
2. Natural foods industry—United States.
I. Oberholtzer, Lydia. II. United States. Dept. of Agriculture.
Economic Research Service.
III. Title.
HD9005
Photo credits: Field, BrandX; milk plant, ERS; shopper, PhotoDisc;
fruits and vegetables, ERS; dairy products, ERS; wheat, eggs, and
chicken, BrandX; soybeans, Shutterstock; corn, Eyewire; cow, Corbis.
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A Report from the Economic Research Service
United States
Department
www.ers.usda.gov
of Agriculture
Marketing U.S. Organic Foods:
Economic
Information
Bulletin
Recent Trends From Farms
Number 58
to Consumers
September 2009
Carolyn Dimitri, cdimitri@ers.usda.gov
Lydia Oberholtzer
Abstract
Organic foods now occupy prominent shelf space in the produce and dairy aisles of most
mainstream U.S. food retailers. The marketing boom has pushed retail sales of organic foods
up to $21.1 billion in 2008 from $3.6 billion in 1997. U.S. organic-industry growth is evident
in an expanding number of retailers selling a wider variety of foods, the development of pri-
vate-label product lines by many supermarkets, and the widespread introduction of new prod-
ucts. A broader range of consumers has been buying more varieties of organic food. Organic
handlers, who purchase products from farmers and often supply them to retailers, sell more
organic products to conventional retailers and club stores than ever before. Only one segment
has not kept pace—organic farms have struggled at times to produce sufficient supply to keep
up with the rapid growth in demand, leading to periodic shortages of organic products.
Keywords: Organic, organic food, marketing organic products, organic supply chain, produc-
ing organic products, handling organic products, organic price premiums, ERS, USDA
Acknowledgments
We thank Jacqueline Geoghegan, Clark University (MA); Rick Welsh, Clarkson University
(NY); and Travis Smith, Economic Research Service, USDA, for helpful comments and reviews.
We appreciate the design and editorial work of Susan DeGeorge and Priscilla Smith, ERS.
About the authors
Carolyn Dimitri is with Economic Research Service, USDA, and Lydia Oberholtzer is with
the Pennsylvania State University.

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Contents
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consumers Fuel Market Growth but Defy Easy Categorization . . . . . . . . . . 3
Retailers Expand Organic Product Introductions and Private Labels . . . . . . 6
‘Handler’ Middlemen Move More Organic Products
as Shortages Are Reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Organic Acres More Than Doubled From 1997 to 2005,
but Supply Still Fell Short of Demand. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Fresh Produce Continues To Be the Top-Selling Category. . . . . . . . . . . . . 14
Dairy Products Sector Has Boomed Despite
Periodic Supply Shortages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Organic Meat and Eggs Have Relatively Low Total Sales
but Fast Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Essential to Other Sectors, Feed Grains and Oilseeds
Face Slow Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Recommended citation format for this publication:
Dimitri, Carolyn, and Lydia Oberholtzer. Marketing U.S. Organic Foods:
Recent Trends From Farms to Consumers. Economic Information Bulletin No.
58. U.S. Dept. of Agriculture, Economic Research Service. September 2009.
ii
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Summary
Organic foods now occupy prominent shelf space in the produce and dairy aisles
of most mainstream U.S. food retailers, while offerings of organic meats, eggs,
breads, grains, and beverages have increased. The marketing boom has pushed
retail sales of organic foods up to $21.1 billion in 2008 from $3.6 billion in 1997.
Supermarkets, club stores, big-box stores, and other food retailers carry organic
products; many retailers have introduced lines of organic private-label products;
and manufacturers continue to introduce large numbers of new organic products.
What Is the Issue?
The rapid growth of the U.S. organic industry has caused a major shift in the types
and numbers of organic food retailers, manufacturers, and distributors and has
widened the retail customer base. In addition, organic farmland acreage more than
doubled from 1997 to 2005. With those changes has come an increased desire for
research and analysis of the U.S. organic marketing system. The 2008 Farm Act
allocated $5 million in initial spending for an expanded organic data collection
initiative, along with an additional $5 million per year of authorized funding for
researchers to:
collect and distribute comprehensive reporting of prices relating to
organically produced agricultural products
conduct surveys and analysis and publish reports relating to organic pro-
duction, handling, distribution, retail, and trend studies (including consumer
purchasing patterns)
develop surveys and report statistical analysis on organically produced
agricultural products
While new data are being collected and analyzed, policymakers and other inter-
ested groups have expressed particular interest in: what types of consumers pur-
chase organic food; how structural change has affected the retailing, distribution,
and manufacturing of organic food; and why increases in the supply of organic
products at the farm level lag behind growth in demand at the retail level. This
study analyzes the most recent data available to examine each level of the organic
supply chain.
What Did the Study Find?
The number and variety of consumers of organic products has increased, but those
consumers are not easily categorized. The one factor that consistently influences
the likelihood of a consumer’s buying organic products is education. Consumers
of all ages, races, and ethic groups who have higher levels of education are more
likely to buy organic products than less-educated consumers. Other factors, such
as race, presence of children in the household, and income, do not have a consis-
tent effect on the likelihood of buying organic products.
Retailing of organic products has evolved since 1997, when natural foods stores
were the main outlet. By 2008, nearly half of all organic foods were purchased
in conventional supermarkets, club stores, and big-box stores. Although produce
remained the top-selling organic category, sales of dairy products, beverages,
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packaged and prepared foods, and breads and grains grew to 63 percent of total
organic sales in 2008, from 54 percent in 1997.
On the wholesale level, by 2007, the share of organic handlers’ sales to conven-
tional retailers and club stores had increased, while the share of sales to wholesal-
ers and other distributors had declined. Organic handlers are firms that buy organic
products from farmers and other suppliers, process or repack the goods, and then
sell the value-added resulting products to retailers, institutions, and other handlers,
or directly to consumers or restaurants. Because of the competition for organic
ingredients, handlers in recent years have relied on contracts versus spot-market
sales to procure needed inputs.
While organic farmland increased from 1997 to 2005, growth was not swift
enough to prevent periodic shortages of some organic products. Certified organic
farmland designated for raising grains and soybeans grew slowly, placing pressure
on sectors such as dairy and meat that depend on these inputs. The 2002 USDA
National Organic Standards regulation in most cases requires farmland to be dedi-
cated to organic farming for 3 years before that farm’s products can be labeled as
organic. This creates a lag between increases in retail demand and supply from
farms.
How Was the Study Conducted?
New ERS research was combined with existing ERS and academic research,
industry studies, and available public data and select private data sources to quan-
tify trends in the organic sector from 1997 to 2007. ERS researchers examined
consumers, retailers, handlers, and farmers, and took a closer look into the produc-
tion, marketing, and consumption of four major organic-product groups: produce,
dairy, meats and eggs, and feed grains.
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Introduction
A growing appetite for organic food in the United States translated into an
increase in retail sales between 1997 and 2008. Over these years, the organic food
sector underwent a transformation; by the time retail sales reached $21.1 billion
in 2008, structural changes had revamped organic food marketing (Nutrition Busi-
ness Journal, 2009). Retailing organic food changed as traditional purveyors of
organic food faced increased competition from companies new to the sector, with
organic food sold not only in natural-products stores, such as Whole Foods and
food cooperatives, but also in traditional supermarkets such as Safeway, big-box
stores such as Wal-Mart, and club stores such as Costco. Organic manufacturers
by 2008 were either competing directly with conventional food manufacturers or
had been subsumed by conventional firms. The effect of structural change at the
retail and manufacturing levels has been twofold: there are more firms participat-
ing in the sector and the average size of these firms is larger.
One byproduct of rapid market growth has been periodic shortages of organic
products due to the inability of organic farms to supply enough products to keep
pace with demand. Increases in acres of certified organic farmland (the best avail-
able measure of organic production—data on actual production are unavailable)
have lagged behind growth in demand and have been relatively volatile during
the decade (fig. 1). For reasons not completely understood, farmers have not con-
verted farmland rapidly enough to meet existing market demand. Farmers who
convert to organic production must farm the land in accordance with a certifier-
approved plan for 3 years before its yield can be sold as organic, unless they can
prove that no prohibited substances were used in or near the production area dur-
ing the previous 3 years. Potential organic farmers may opt to continue using con-
ventional production methods because of social pressures from other farmers nearby
who have negative views of organic farming, or because of an inability to weather
the effects of reduced yields and profits during the transition period (Seimon, 2006).
Figure 1
Organic farmland growth rates are more volatile than growth rates
of retail sales
Growth rate (percent)
25
Retail sales
20
15
10
Cropland
5
0
1998
99
2000
01
02
03
04
05
06
07
Note: Farmland data are unavailable for 1998, 1999, 2006, and 2007. The 1998 and 1999 values
shown on the chart are extrapolated from 1997 and 2000 data.
Source: USDA, Economic Research Service calculations of farm data (USDA, Economic Research
Service, 2006) and retail sales data from Nutrition Business Journal, 2009.
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Ramifications of the slow response of farm-level supply have rippled through the
supply chain, resulting in situations where manufacturers, distributors, and retail-
ers have periodically been unable to locate organic producers or procure a suffi-
cient quantity of organic products (Dimitri and Oberholtzer, 2008; Organic Trade
Association, 2006, 2004, 2001; Dimitri and Richman, 2000).
Policymakers and organic industry stakeholders have repeatedly called for addi-
tional economic research on organic agriculture in the United States, but such
research has been constrained by the paucity of public data about the organic mar-
ket. Over the past few years, this trend has been reversing. While coverage of the
organic sector is still incomplete, there has been a large increase in the amount of
public data available, and new data sources are regularly being added. Higher lev-
els of funding in the 2008 Farm Act ($5 million, a fivefold increase over the 2002
Farm Act) promise to further expand existing public data collection. Some of the
public data sources available are:
Market News Reports, Agricultural Marketing Service, USDA. Fruit
and vegetable prices, organic poultry and eggs since 2004, and organic
feed and grains from 2006.
www.ams.usda.gov/marketnews.htm
Industry Market and Promotion. Agricultural Marketing Service,
USDA. Sales of organic fluid milk from 2006.
www.ams.usda.gov/
dyfmos/mib/inareaslsbyprod.htm
U.S. Census of Agriculture 2002, National Agricultural Statistics
Service, USDA. Organic sales and acreage.
www.nass.usda.gov/
Census_of_Agriculture/index.asp
U.S. Census of Agriculture 2007, National Agricultural Statistics
Service, USDA. Data on acres of certified organic cropland, certified
organic pastureland, value of organic crops sold, value of organic live-
stock and poultry sold, value of organic livestock and poultry products
sold, and number of acres in transition.
www.nass.usda.gov/Census_
of_Agriculture/index.asp
Organic acreage data set, Economic Research Service, USDA.
Certified organic acreage since 1992 and certified organic operations
since 2000.
www.ers.usda.gov/Data/Organic
Organic handler data set, Economic Research Service and Risk
Management Agency, USDA. Database of procurement and contract
practices by U.S. organic handlers for 2004 and 2007.
www.ers.usda.
gov/Data/OrganicHandlers
Organic prices data set, Economic Research Service. Database of retail
prices for select commodities (2004-2006), wholesale prices for select
commodities (1993-2008), and farmgate prices for select commodities
(1999-2007). http://ers.usda.gov/Data/OrganicPrices
Agricultural Resource Management Survey, conducted jointly by
Economic Research Service and National Agricultural Statistics
Service, USDA. Cost of production data on organic dairy (2005),
soybeans (2006), apples (2007).
www.ers.usda.gov/Briefing/ARMS
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Consumers Fuel Market Growth but Defy
Easy Categorization
Through their food choices, consumers are primarily responsible for the dramatic
marketplace growth of organic products that occurred since 1997. Some of the
growth may be attributed to the USDA national standards, implemented in 2002,
which were meant to bring improved visibility and confidence about the integrity
of organic products to consumers in the marketplace (see box, “How Can Con-
sumers Tell if a Product Is Organic?”).
Most evidence does point to a growth in the number of consumers of organic
products. The Hartman Group, which conducts the gold standard of industry
organic surveys, found that 69 percent of adults bought organic food at least occa-
sionally in 2008 (Hartman Group, 2008). Nineteen percent of consumers bought
organic food weekly in 2008, up from 3 percent in the late 1990s (Hartman Group,
2000, 2008). The Food Marketing Institute found that 51 percent of shoppers
purchased organic food in 2006; in comparison, in 2001, 44 percent of shoppers
bought organic food over a 6-month period (Food Marketing Institute, 2006).
Nearly all studies find that consumers with higher levels of education were the
most willing or most likely to purchase organic products (Dettmann and Dimitri,
2010; Zepeda and Li, 2007; Krystallis et al., 2006; O’Donovan and McCarthy,
2002; Cicia et al., 2002; Fotopoulos and Krystallis, 2002; Magnusson et al., 2001).
The impact of different levels of education varies among studies: households with
graduate degrees were less likely to buy organic products (Durham, 2007; Thomp-
son, 1998), while households with postgraduate education (these households
attended graduate school but might not have earned a degree) were more likely to
buy organic vegetables (Dettmann and Dimitri, 2010).
As shown by different studies reaching different conclusions about exactly which
education levels affect organic buying, there are no definitive answers about how
many consumers buy organic food, how much organic food the typical consumer
of organic products purchases, or the demographic profile of the “typical” con-
sumer of organic products.
A portfolio of analytical research accompanies the industry’s exploration of con-
sumers of organic products. Much of this research relies on “willingness-to-pay”
surveys or 1-day in-store consumer surveys that collect purchase and demographic
information from shoppers. These studies focus on specific demographic attri-
butes, such as income, education, and presence of children, and those factors’
influence on the probability of a consumer’s willingness to pay for organic. Many
of the findings of these studies are inconsistent, likely because they focus on con-
sumers in different parts of the world, consider different products, and include dif-
ferent explanatory variables.
Some studies of U.S. consumers say Asians and Hispanics are the most likely to
purchase organic products and that those most committed to an organic lifestyle
are Hispanic and Black (Baxter, 2006). Other sources say Black consumers in the
United States are the least likely to purchase organic vegetables (Dettmann and
Dimitri, 2010). Half of U.S. consumers who frequently buy organic food have
household incomes below $50,000, according to some sources (Howie, 2004).
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Studies also have reached contradictory conclusions about how the presence of
children in the household affects the likelihood of buying organic food. Some
sources say households with children under age 18 are more likely to purchase
organic produce (Thompson and Kidwell, 1998) and organic apples (Loureiro
et al., 2001). Others say the presence of children under age 18 reduces the prob-
ability of buying organic food by 10 percent (Zepeda and Li, 2007). In other
seemingly contradictory behavior, compared with childless households, families
with children were less willing to pay a premium for organic potatoes (Loureiro
and Hine, 2001) but were more likely than other households to purchase organic
apples (Loureiro et al., 2001). The likelihood of buying organic produce increases
with the number of children in the household (Thompson and Kidwell, 1998),
while others found that the presence of children in the household had no impact
on the probability of buying organic (Durham, 2007).
For studies that include income as an explanatory variable, the findings are con-
tradictory. Smaller, higher income households are the most likely purchasers of
organic produce (Govindasamy and Italia, 1990) and organic apples (Loureiro
How Can Consumers Tell if a Product Is Organic?
Since the implementation of the National Organic Standards in 2002, the USDA
organic logo has provided an easy way for consumers to recognize organic products
and to feel confident that they are buying a product that was raised, manufactured,
and distributed according to the consistent, uniform standard set forth by the National
Organic Program (USDA, Agricultural Marketing Service, 2000). The following organic
labels are permissible:
100 percent organic: Product contains 100 percent
organically produced ingredients, excluding added
water and salt. The label is allowed to include the USDA
organic seal and/or certifier’s seal(s).
Organic: Product contains at least 95 percent organic
ingredients, not counting added water or salt; does not
contain added sulfites; and may contain up to 5 percent
of nonorganic ingredients. The label may state “Organic”,
“X percent organic” or “X percent organic ingredients,”
and display the USDA organic seal and/or certifying
agent seal(s).
Made with organic ingredients: Product includes at
least 70 percent organic ingredients, not counting added water and salt; does not con-
tain sulfites (except for wine which may contain added sulfur dioxide); and may contain
up to 30 percent of nonorganic ingredients, including yeast. The label may state “Made
with organic ____ (specified ingredients or food groups),” “X percent organic” or “X
percent organic ingredients” and display the certifying agent seal(s), but cannot show
the USDA organic seal.
Claim that product has some organic ingredients: The product contains less than
70 percent organic ingredients, not counting added water and salt. The label may
list which ingredients are organic in the ingredient statement and display “X percent
organic ingredients” when organically produced ingredients are identified in the ingre-
dient statement. The label cannot display either the USDA organic seal or the certify-
ing agent seal.
Source: USDA, Agricultural Marketing Service, National Organic Program.
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