With U.S. consumers demanding more fresh, natural foods, few sectors seem as ideally positioned to benefit from these trends as the organic industry.
Sales in the sector reached $43 billion in 2016, an increase of $3.3 billion from the prior year, according to the latest data from the Organic Trade Association. Overall, revenue from organic fruits, vegetables, meats, eggs, milk and other products accounted for 5.3% of total food sales.
While organic food sales increased again during 2017, early indications are that growth was not as robust due in large part to challenges in dairy and eggs, Laura Batcha, the CEO and executive director of the OTA, told Food Dive.
Organic faces a promising future lead by increasing demand for its products, particularly among millennials, and increased innovation in areas such as children's food and snacking.
But Batcha said the sector is not without its challenges. During an interview, she explained that more needs to be done to combat fraud, increase initiatives that make it easier for farmers who want to transition to organic agriculture, and educate consumers and the White House about organic.
"We've got a learning curve with the new administration on what it means for the government to have a role in what is a voluntary industry-driven standard," Batcha said, noting the Trump Administration's recent decision to withdraw a rule that would have set animal welfare standards for organic agriculture. "For organic, the role of government is not to be the decider about what constitutes organic."
The following interview has been edited for brevity.
Food Dive: How was growth in organic last year?
Batcha: We're not at the release point on the data yet, but I think what I can tell you is what we're seeing so far in the preliminary numbers is continued good growth in the market, a little bit perhaps lower than last year, at least at a preliminary level. What we're seeing as the driver of that is pretty measurable reduced growth in dairy and eggs, slow growth. One of the things that we're looking at that data that is a concern for us is whether or not the failure of USDA to move forward with the organic animal welfare standards is having an impact on the marketplace.
We're seeing a downturn in the growth rate from prior years. We're looking into it and trying to understand the relationship between the failure of the standard to go forward. That can have a number of impacts. A part of it can be the consumer confidence in the seal, but part of it can also be the competition from other programs, and part of it can also be just what happens to the cost of production and the price in the marketplace where you have an unlevel playing field. ... The growth is very strong. I'm just saying just slightly lower. Really, the only thing that's driving that number down is the dairy and eggs.
Food Dive: What is the current status of your lawsuit with the USDA on the organic animal welfare standards?
Batcha: We're in active litigation with the Department of Agriculture of it (on it?), and we think we have a good case. We're hoping to be in front of a judge in a hearing this spring. I think there's a number of areas to look at. No. 1 is just the failure of USDA to provide opportunity for public comment on their procedural delays of the effective date of the rule and that sort of standard. Did they do what they needed to do in terms of public consultation?
In addition to that, our view is their failure to move forward is a violation of the Organic Foods Production Act because the standard itself was built on a 10-year process, for which there was a unanimous consensus coming out of the National Organic Standards Board to do this, and that the Organic Foods Production Act requires that the secretary of agriculture consult with the National Organic Standards Board on standards issues.
They failed to do so in their reversal on this, and there's no evidence that the Standards Board has ever been supportive of the direction. In fact, they were unanimously in support of this standard being developed and the standard going forward into the marketplace. We also believe that they really have not demonstrated a record or a rationale for changing course on a regulation that was already final, just not yet effective. We think on a number of grounds there is real good reason to challenge. Of course, our request is that that standard become effective.
Food Dive: How would you assess the Trump administration so far on organic issues?
Batcha: I think, No. 1, we've got a learning curve with the new administration on what it means for the government to have a role in what is a voluntary industry-driven standard. For organic, the role of government is not to be the decider about what constitutes organic. The system for that is through the National Organic Standards Board, and industry and environment stakeholders, and consumer stakeholders developing a consensus about what those standards should look like.
The government's role is to house the standard and enforce the standard. I think there's a gap and a learning curve that needs to be closed with the administration that this is not a regulation like mandatory regulations that fall into the worldview of lessening the regulatory burden on business.
These are voluntary standards that people are opting and choosing to participate in. I think that disconnect and not being able to understand what the role of government is vis-a-vis these kind of standards is creating issues like the failure to allow the animal welfare standard to go forward.
That's not good for the market, and it's not actually good for business. This is an administration by all accounts that has communicated that's what they care about, not holding back business. There's just a disconnect there about how organic functions.
That said, I think on the enforcement side, I think they do get the role of USDA in terms of enforcing the standards. The president's budget requested additional dollars for enforcement. They've included that in their farm bill priorities to have greater resources and authority for enforcing the standards, particularly oversight of imports coming into the country. That piece in terms of the role of government vis-a-vis organic, they seem to understand and are communicating a willingness to do more, which is great. It's a mixed bag.
Food Dive: What's next for organic?
Batcha: I think fresh produce just really continues to lead in growth and the percentage of the market, which is great to see. We're seeing innovations in baby and children's foods, and there's a lot of evidence that better for you snacking is continuing to be on trend. Organic is an important piece of that.
Food Dive: Where do you see the growth coming from? Increased demand for fresh, snacking or clean labels?
Batcha: I think it's all those things. It's really people looking for a better-for-you choice. The USDA label has a high level of awareness. It's trusted. People know that it comes with some oversight to the claim, which matters to people shopping, especially when they're spending more for a better-for-you choice. I think it's got that credibility behind it. It's going to, I think, continue to lead the market as a reliable, better-for-you choice.
The market is very strong. There's still a lot of opportunities in the United States for expansion as well as export of organic, particularly fresh product globally. You look in the retail space and retailers are continuing to accelerate their investment in organic options in their stores.
Food Dive: At Expo East last year, one of the audiences that you were specifically looking at for growth was millennials and millennial parents. Can you talk more about that, and growth overall?
Batcha: I think we're continuing to see strong growth there, which is understandable in terms of the demographic wave. I think also new frontiers for organic are because of accessibility, and availability of products, and awareness of what organic is, and the percolation of better-for-your choices across the consciousness of consumers across the board. Really organic is no longer confined to this niche of older affluent shoppers and shoppers that are at the core where it's a full lifestyle, top to bottom.
We're seeing growth in demographics across income areas, across education areas, across ethnicities and different demographics. I think along with the product availability and the accessibility is coming a lot of participation from folks outside of what I think people would have traditionally thought of as the prototype organic consumer. I think that that's really exciting to see.
Food Dive: Is there anything you're doing to target a specific audience or folks in general that are beyond the audience that many associate with organic?
Batcha: I think one of the things that as a trade association that we do is try to do research on insights around consumer behavior. This year, we're looking at doing insights focused on a more diverse group of consumers to understand motivations of consumer shoppers across a whole diversity of demographics. We're focused on that in 2018. Then, of course, one of the big initiatives that we've been working on for a number of years now is the Organic Check-off, which would be a vehicle for industry to really invest in that large-scale consumer education.
Food Dive: What is your single biggest priority for 2018?
Batcha: I think there are a few, but certainly at the top of the pile is oversight and integrity of the organic seal in the marketplace. There were reports in the news of livestock feed that came into the country that turned out to be fraudulent. Making sure that we see continuous improvement in the compliance aspect of the standard is our top priority. We've got a bill before Congress to close the loopholes and fund some technology to provide better oversight globally. We have some private sector initiatives. We have some things we're doing with government and with certification agencies to push the envelope on all fronts on that. I think that is always our top priority because the value of the seal that everybody shares on their product is tied to the quality of the oversight program and the integrity of the oversight program. That's really important to us as a top priority.
Another top priority is really around preaching U.S. improvement of the standards. It's multifaceted. That has to do with research into the production system and best practices. It has to do with clarifying robust standards and finding ways for standards to move forward despite the challenges with government. That's tied to the animal welfare regulation question. Continuous improvement of the standard and oversight of the claims in the marketplace are two of our top priorities.
Food Dive: Is fraud still a problem for organic? Are you worried that this could sour people on organic and hurt the industry in the long-term?
Batcha: I think the industry is built on a seal that people can trust. Any amount of fraud is a concern that has to get tackled by industry. We're seeing things begin to change in terms of the oversight program. The Department of Agriculture has worked directly with the certifying agencies and sent out new directives for verification of product, particularly grain products coming into the country. We're already seeing that during audits and inspections. Organic traders are being asked to provide a further level of detail and granularity, which is nice to see that trickle out into the compliance aspects.
We're getting a lot of traction on our law in front of Congress, and we're optimistic that we're going to see that rolled into the upcoming farm bill. I think in addition to that, the taskforce is pretty soon, in the next month or so, going to be releasing their best practices and launching a pilot project of organic companies across the supply chain that are developing these fraud prevention plans and putting them in place. I think we're already seeing some traction and some movement, and we're going to continue to see these improvements rolling out through 2018.
I think there's already a whole lot more vigilance about it than there was a year ago. The government's mobilizing, and the certification agencies are mobilizing, and the industry is mobilizing. (When people cheat) everybody gets hurt, farmers everywhere, food makers everywhere, consumers everywhere.
Food Dive: Are there any other challenges or concerns? I know a couple of years ago one issue was getting enough organic supply of various products domestically and having to export them in from overseas. Are there any issues or concerns that you have that potentially could hinder growth here?
Batcha: In terms of acreage, I think the place where we're continuing to be challenged is in the row crops, and particularly the feed grains for domestic production. That's been one of the hardest places to see the growth in acreage. There's been an uptick in acreage in fresh fruits and vegetables and apples, like I said. There's plenty of organic milk to meet the market demand at this point in the marketplace. It still is those grains, and whole foods and oil seeds, but particularly the feed grains that are not growing in terms of the domestic production base as well as where we'd like to see them. I think that creates some of the risk around the imports. There's some provisions in the overall farm bill that we're advocating for to get at that.
We have a proposal in front of USDA to provide certification during transition to farmers to help create markets. That still hasn't gone completely live from USDA, but we're trying to work with them to find a way to get that out so that during that transition time, farmers have time to develop new markets. Having certification can help do that because you're more of a guaranteed supplier coming on. It creates better visibility about what's coming on for acres, provides compliance and oversight during the transition period, and it could potentially help create a pathway for folks to make it through the transition. We'd really like to see that come forward.
It takes three years to transition ground into organic production. That's why both sides of the coin are so important. You have to have robust oversight because it is a global marketplace, and it's not going to not be a global marketplace. At the same time, you've got to have programs in place to try to help encourage an uptick in the domestic production.
Food Dive: Is there enough incentives out there to encourage people to undergo this three-year transition, or is there anything else that could be done to make it more appealing?
Batcha: I think in terms of the United States and policies, the incentives for transition are pretty much entirely on the market side, marketplace incentives. I think for the most part that has worked really well for organics because the marketplace doesn't distort choices for farmers, and it keeps prices robust, and it's worked well. Policies aren't driving planting choices. The market's driving planting choices. At the end of the day, that's a positive thing. That being said, there are policies in place that could work better for organic farmers around conservation programs, and risk management programs, and these kinds of things that we're focused on because you have to have those tools that are in play for the rest of agriculture working for organic.
Food Dive: What's the issue or the concern that keeps you up at night?
Batcha: I think we're really focused on moving forward on the oversight questions. We really want to create some meaningful, long-lasting changes in that regard because it's just appropriate in terms of evolving the approach to go from that clipboard era into a technology-enabled era, recognizing that organic has grown into a global marketplace. I think the ability to harness the resources to make that happen, I think, is the important thing. In terms of additional things, it's really about how to have that consolidated voice so that the public understands all the benefits that come from organic production, reduction in exposure to pesticides, as well as for folks who care about sustainability of their food choices and want to avoid food additives, etc., really trying to help the public understand that organic is out there as a real viable choice for a whole set of things.
Food Dive: As far as organic specifically, do enough people really understand what the term means, and is that a problem?
Batcha: It's always going to be a challenge because at any point in time, you've got upwards of 25% of the shoppers in the marketplace are relatively new to organic the last few years. We've got new folks coming in. There will never be a time when you can say, "Check the box. We are done educating on organic." It needs to be an ongoing endeavor. I think there won't be a time when we can say we've accomplished what we need to in terms of educating the public. That being said, I think that the data suggests there's a much higher awareness of the USDA seal than there is a thorough understanding of what attributes are behind the seal. What does that mean on the farm? What does that mean on the ranch? What does that mean when you're making a food product? What does that mean for oversight? How is that distinguished from other claims in the marketplace?