What Explains the Discrepancy in Organic Sales Versus Organic Acreage?

Here’s a question that came up in the Food and Farm Discussion Lab forum:

Last stat I saw actual organic farms of all types made up 4/1000th of total farmland in the US. Yet organic sales make up 4.4% of grocery sales So where is that extra 4% coming from?

It’s something people often wonder and that puzzlement stems from having a bit of skewed map of the food system in our head. Thinking through what areas of production organic and conventional production are centered in and how they are used can explain why organic seems to punch so far above it’s weight in grocery sales and help us improve our mental map of the the food system.

Organic production actually makes up around 0.6% of total US farm, pasture and range land acreage. In the U.S., organic production makes up for 0.8% of cropland and 0.5% of pasture. In 2011, there were 5.4 million acres in organic out of 914 million total acres, or 0.6%.

Meanwhile, organic production represents nearly 5 percent of grocery sales. How does half a percent of acreage translate into five percent of grocery sales?

Here are a number of significant reasons.

• Biofuels and fiber. Lots of farm products don’t end up in the grocery store – just the acres for biofuels and cotton are going to skew the grocery sales towards organic. Something on the order of 40 million acres of corn production goes to ethanol (unsurprisingly, none of that is certified organic). Cotton accounts for around 10 million acres. Cotton and ethanol corn represent ten times the acreage of organic crops. Those are acres of production that never end up in grocery sales.

[USDA]

• Price premium. Sales per acre is higher for organic. Organic yields per acre on average are around 20% lower than conventional. However, the sales price of organic products are generally far more than 20% higher than conventional. At my neighborhood grocery store the price premium for organic staples in the produce section was as follows:
Baby carrots 2lbs – 50%
Baby carrots 1lb – 66%
Yellow onions – 81%
Red onions – 60%
Roma tomatoes – 78%

So, while an acre of organic carrots might produce less carrots than conventional, the price customers at the grocery store will pay for an acre’s worth of organic carrots will be higher than an acre’s worth of conventional carrots.

Add to that the fact that for lots of “fancy” fruits and vegetables, rainbow carrots for example , there were no conventional options, only organic rainbow carrots. You can see how organic acres punch above their weight in the produce section.

• Value added products. The price premium compounds for things like soup, frozen waffles, and frozen pizza. The cheapest organic frozen pizza at my market is six and a half time more expensive than the cheapest cheap frozen pizza. Canned soups were fifty to 100 percent more expensive. The cheapest organic soup and waffles were more double their conventional counterparts.

Totino’s Party Pizza (10.5 oz) $1.25
12¢ per ounce
Amy’s Margherita Pizza (6.2 oz) $4.89
79¢ per ounce

Kroger Soup $1.00
9.5¢ per ounce
Campbell’s Soup $1.50
14¢ per ounce
Amy’s Organic Soup $2.99
20¢ per ounce
Wolfgang Puck’s Organic Soup $2.69
18¢ per ounce

Kroger Multigrain Frozen Waffles $1.79 (12.3 oz)
14.6¢ per ounce
Van’s 8 Grain Frozen Organic Waffles $2.50 (8 oz)
31.3¢ per ounce
Kaschi 7 Grain Frozen Organic Waffles $3.59 (10 oz)
36¢ per ounce

Part of this is the organic price premium and part is that organic ingredients are used to make premium products. If you think of the price/quality tiers of Good, Better, Best products in the supermarket, there are generally organic options competing in the Better and Best categories, but the Good category is the largest and almost exclusively conventional. This is not to say that an Amy’s frozen pizza isn’t better than a Totino’s Party Pizza (that depends on how sophisticated your palette is, and how drunk you are),  just to point out that the cheapest frozen organic pizzas are not competing in the same space as the Totino’s Party Pizza, but rather with the more upscale choices down the aisle from the Party Pizza.

• Veggies over grains. Organic production is centered in specialty crops. Conventional production is centered in grains and pulses. Low price per acre crops like corn, soy, and wheat are massively under-represented in organic production in comparison to conventional. Mesculin mix produces a lot more value per square acre than wheat.

To give some perspective here – while organic acreage represents 0.60% of agricultural land in the US, organic corn with 234,470 acres in 2011 was equal to 0.26% of total corn area, while soybeans with 132,411 acres was equal to 0.17% of total soybean area.

[USDA]

• Soda and beer. There is barely an organic soft drink market.

There’s massive acreage devoted to corn and sugar beets that wind up in soft drinks. Again, low value per acre products versus high value. Combine the fact that the organic soft drink market is a tiny, tiny sliver of the market with the much higher prices of the artisanal sodas that are organic and you can see how soda contributes to the way the much smaller acreage of organic production is represented in a higher percentage of grocery sales.

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At my neighborhood market the a store brand root beer was 79¢ per pint while the Izze organic Blackberry Pear soda was $1.33 per pint. There was an entire, mind numbing, depressing aisle of regular soft drinks and a few shelves of artisan soft drinks and out of a few dozen craft soft drinks – two were organic. On the other hand, nearly one third of the produce department was organic (in a nice neighborhood in Portland, OR – and good luck finding organic soda outside of upscale neighborhoods in cities like Portland or Brooklyn).

Ditto beer. Massive acreage of conventional barley and rice dedicated to beer production. Not a lot of organic beer on the market. Even here in Portlandia. And despite the massive growth of craft beer, the vast majority is still rice water beers like Bud and Coors.

• Imports. While the US is a net exporter of agricultural products, we are a net importer of organic food. The value of U.S. organic exports —mostly fruits and vegetables—was $537 million in 2013, while value of U.S. organic imports was $1.4 billion in 2013.

This makes sense. Organic is more expensive because of higher land and labor input costs and those costs are much lower in other places, reducing the comparative advantage for US producers.

• Restaurant and institutional food sales. Organic is under-represented in service food sales. Just the acreage devoted to supplying McDonalds, Subway, KFC, and Burger King is massive compared to organic production. The vast majority of organic production ends up in the grocery store, that’s not true for conventional. Americans get 43% of their calories from restaurants and eat something like 20% of their meals in cars. Organic is going to be under-represented in those categories.

This is also the case in major institutional settings: school and business cafeterias, retirement communities, hospitals.

So there you have it – the seeming discrepancy in proportion between organic production and organic sales can be understood through the concentration of organic sales in the grocery sector and within that sector in higher value added products coupled with the fact that there is a lot of conventional ag production that ends up in restaurants or is geared towards the fuel and fiber sectors.

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