Organic Farming: The New Frontier

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The organic foods business is worth over $50 billion globally, and with a new trade agreement between the United States and the European Union opening up new markets, that number could double within the next few years.

The organic foods movement is no longer a relic of the bygone age of free love and tie-dye, but a booming industry supported by all walks of life. Entire supermarket chains, most notably Whole Foods (NASDAQ:WFM), rely heavily on that ever-growing faction of Americans who actually care enough about their health to put down that Quarter Pounder in favor of a soy burger, or maybe a free-range turkey burger.

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Blame it on Morgan Spurlock’s “Super Size Me” or Michelle Obama’s “Let’s Move!” campaign, but that won’t change the fact that global sales of organic products rose 9.2 percent in 2010, climbing to $59.1 billion from $54.1 billion in 2009, according to the International Federation of Organic Agriculture Movements.

The U.S. had the biggest organic market in the world in 2010, with sales climbing about $2 billion to $26.7 billion, roughly 45 percent of global sales that year. Germany followed at a distant second, with sales rising by about 200 million euros to 6.02 billion euros, or roughly $8.11 billion at today’s exchange rate, while France ranked third as sales increased about 340 million euros to 3.39 billion euros, or $4.44 billion.

Per-capita consumption of organic products was the highest in Switzerland, Denmark, and Luxembourg, according to the report, and the first figures available for 2011 indicate further growth as the global market for organic products continues to expand.

Beginning in June, food products classified as organic in either the European Union or the United States can be sold as such in either region after top officials on both sides signed an agreement on Wednesday that would help boost trade in the fast-growing, multi-billion-dollar industry.

Companies producing organic food on both sides of the pond have until now had to conform to two different sets of standards, hindering trade and forcing those producers hoping to do business overseas to clear twice as many hurdles to be able to claim their products are organic. But when the new deal comes into effect, those trade barriers will be eliminated.

The accord will “open new markets for American farmers and ranchers” said Deputy U.S. Agriculture Secretary Kathleen Merrigan, resulting in “good jobs for Americans who package, ship, and market organic products.”

European Commission statistics show that the U.S. is the European Union’s single-largest trading partner, accounting for 14.4 percent of European trade in 2010. And according to figures from the German Agriculture Ministry, more than 90 percent of all sales of organic food are in the United States or Europe — and that’s some big business.

If the industry’s rate of growth keeps up, global sales of organic products will exceed $100 billion in 2015, and will be double that by 2023. Both of those figures could be even larger now that the EU and U.S. have opened up trading, a move the European Commission says will especially benefit small and medium-sized organic producers.

Not all organic farmers wear clothing made of hemp or tuck daisies behind their ears, but they do avoid using products such as synthetic pesticides and chemical fertilizers on crops, and in exchange for these both ecologically and gastronomically friendly practices, they are able to demand a hefty premium.

Though organic methods typically lower yields in industrial countries, they can actually boost yields for traditional farmers who employ few crop treatments, according to the United Nations’ Food and Agriculture Organization, helping to level the playing field in the food industry, which has for many years been dominated by huge factory farms. The growing demand for organic and ethically sourced food is breathing life back into small, family-owned farms.

The land area under organic agriculture was little changed in 2010, according to the federation’s report, and improving sales figures rather “indicate a consolidation of the production areas and a continuous and stable growth in the markets.” However, the report does say that “a further expansion of the organically managed area, certified and non-certified,” would be desirable.

That expansion seems bound to take place as films like “Food Inc.” and “Fast Food Nation” humanely butcher the so-called corporate behemoths of the American food economy — which have focused on growing “faster, fatter, bigger, cheaper” produce and livestock — while empowering Americans to take a stand and make a choice about what they eat.

In the United States, where people have had enough of corporate corruption crushing small businesses in the wake of a recession brought on by big banks, organic food has become a political movement — it is no longer just about eating healthy, but about seeking out an alternative to companies that lay off thousands of workers as they reap the profits from selling cheaply-made, nutrient-poor food.

Of course, the big guys won’t go down without a fight. The corporate Goliath has taken palliative measures in recent years to retain customers. Grocery chains like Winn-Dixie (NASDAQ:WINN) and Meijer are producing and selling their own organic store brands, while companies like Pepsi (NYSE:PEP), General Mills (NYSE:GIS), Hershey (NYSE:HSY), Conagra (NYSE:CAG), and Dean Foods (NYSE:DF) have built or acquired their own organic brands and subsidiaries, including Naked Juice, Cascadian Farms, Muir Glen, Lightlife, Dagoba, Horizon, and Silk.

Even McDonald’s (NYSE:MCD) and Wendy’s (NYSE:WEN) are jumping on the bandwagon in an effort to appease customers. At its pork suppliers, McDonald’s will now phase out metal gestation cages that are considered cruel¬†by¬†animal rights groups, while Wendy’s now offers natural-cut french fries and apple slices. Burger King (NYSE:BK) has been selling the BK VEGGIE burger for years using a veggie patty made by Morningstar Farms, which happens to be a subsidiary of Kraft Foods (NYSE:KFT).

It’s no wonder everyone is clamoring to get their own slice of the organic pie, and that could be a good thing for consumers. Organic foods are notoriously more expensive, but increased competition could soon remedy that. In fact, it already has. Store-brand organics consistently undercut most other organic products on pricing.

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Consumers will have to be wary of foods that claim to be organic, though, as even the U.S. Department of Agriculture has multiple definitions for what qualifies food as organic, and how such foods are labeled. Something that claims to be “100% Organic” must be made entirely with organic ingredients, but those products simply claiming to be “Organic” must contain more than 95 percent organic ingredients, while those “Made with organic ingredients” must only contain 70 percent organic ingredients.

As the organic foods business continues to grow, so too will the number of companies producing organic foods, and the USDA’s definition may broaden in order to accommodate industry, as it has so often done in the past. But maybe something else will happen along the way — maybe America’s heartland will come back to life.

To contact the reporter on this story: Emily Knapp at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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