Is organic production the next product differentiator?

Ripe grapes in fall. autumn harvest.Lee Ann Pearce, Sector Manager, Wineries, Vineyards, Tree Nuts

I recently visited one of our Oregon winery customers and they told me that, over the next two years, their vineyard would be completely converted to organic production. I wondered if their customers would appreciate the change since converting to organic farming takes a minimum of three years and is regulated by the government. Would the increase in farming costs and regulatory reporting be important to the consumer?

My question prompted me to research the topic, and that led me to the Organic Trade Association (OTA) website. The site validated that consumer purchase of organic product has been on the rise across the U.S. The OTA surveyed U.S. families’ organic attitudes and beliefs in 2016, and an average of 82% of consumers cited purchase of organic product. The survey also indicated that 75 million millennials are eating more organic products than ever. According to the OTA survey, parents in the 18- to 34-year-old range are now the biggest group of organic buyers in America.

Percentage of U.S. Households Purchasing Organic Products

The OTA and the USDA suggest that farmers have responded to the consumer demand for organic product with 2016 U.S. sales of certified organic crops totaling $7.6 billion. You might assume that the West Coast would dominate organic sales, and, indeed, California was ranked #1, but Pennsylvania posted the second largest organic sales in 2016.

Top 10 States in Organic Sales, 2016

We tend to think in the context of fruit and vegetables from the produce aisle when we speak of “organic.” However, import spikes in grains, such as organic corn and soy for livestock feed, lead the OTA to believe that further transition from conventional farming to organic production is needed. Organic food sales currently make up approximately 5% of total U.S. food sales, but organic farming accounts for less than 1% of total U.S. cropland.

Organic Acreage vs. Organic Food Sales

Current consumer demand for organic milk and meats is also driving the need for organic livestock feed that is mostly imported into the U.S. today. OTA data shows that the U.S. currently imports more organic product at 16% of value, than it exports at 8.3% of value. Organic exports have remained stable over the last three years, while the value of imports has increased 34.4%.

I recently read an article titled “More organic than thou? Rebel farmers create new food label” authored by Lisa Rathkea. The article discusses a March 2018 meeting of a group of U.S. farmers and scientists with the intent to create a more stringent organic certification and labeling program, differentiating organic produce grown in soil from organic produce grown hydroponically (in water) and aquaponically (in water typically using fish). The “rebel” farmers desire the new certification and labeling program despite the National Organic Standard Board recently advising the USDA to reject a proposal eliminating hydroponic and aquaponic production as certified organic if producers have met organic standards. In broad terms, all farmers growing crops in soil or in water would have to meet the same standards regarding use of synthetic substances and genetic engineering in order to label products as “organically grown.”

The “rebel” farmers referenced in the article grow organic product only in soil, and want the additional product labeling to ensure that the consumer understands exactly how crops are grown. These farmers believe that hydroponic and aquaponic greenhouse production does not provide the farm to fork experience. A pilot program on 20 to 60 farms is scheduled for rollout this summer.

So what about wine? Organic wine labeling seems to be evolving as well. According to the USDA website, there are many options that are available for government approval of wine labels through the Certificate of Label Approval process (known as COLA in the industry). Dependent upon the wine making process and the amount of non-organic product used in the process, wine can either be labeled “Grown from Organic Grapes” or “Organic.” So, the common use of sulfites in the winemaking process may preclude the labeling as “Organic,” but does not preclude the labeling of “Grown from Organic Grapes” as long as certification program standards are met. Additional labeling guidance options also included “Made with Organic Grapes,” “Made with Organic Grapes and Non-organic Grapes,” and a separate “Organic Ingredients” statement. The number and variations of wording with labeling options paints a different picture for the consumer specific to each wine, and allows the consumer to choose the level of “organic” based on their preference for such. So, maybe the “rebel” farmers have a point?

Prompted by my visit to the winery in Oregon and my curiosity about true consumer preference, I now feel more educated about organic production and labeling. So, the Oregon winery’s plan to convert entirely to organic farming seems to mirror evolving consumer demand and preferences, especially since the millennial population has stronger leaning toward “organic,” and this generation will dominate the purchasing power for wine in the coming years. While I did not ask the Oregon winery how they would re-design their wine making process and what their intentions were for labeling going forward, they certainly have plenty of options based on what amount of “organic” they believe will be required to meet their customers’ desires in order to continue to grow their sales volumes.

Lee Ann PearceLee Ann Pearce is a vice president and sector manager within Wells Fargo’s Food and Agribusiness Industry Advisors group, and is focused on the specialty and non-grain crops sector with emphasis on wineries, vineyards, and tree nuts.

Lee Ann joined Wells Fargo in 2016 after a 30-year career in Commercial Banking and the Farm Credit System. Prior to joining Wells Fargo, Lee Ann worked as regional vice president, manager of Capital Markets, and senior vice president, manager of the Winery Specialty Group for Farm Credit West on the Central Coast of California.

Lee Ann holds an undergraduate degree in agricultural business management from California Polytechnic State University, San Luis Obispo, with an emphasis in finance. She is also a graduate of the Mark Wright Leadership program, and the Farm Credit Council Leadership program.

Lee Ann lives with her husband and two children in Templeton, California, on a small farm growing grapes used for premium wine production. Lee Ann is a Farm Bureau member and has served on the San Luis Obispo Farm Bureau Board of Directors.