The production of organic grains and legumes may not be as lucrative as it once was, says a market analyst.
“That price premium does seem to be coming down in the United States as it has already in Europe,” said Rob McCaleb, founder and president of the Herb Research Foundation.
Speaking Nov. 15 at the inaugural Organic Connections conference held in Saskatoon, McCaleb displayed a graph showing that the upward trend in organic price premiums appears to be levelling off over the last few years.
“I think one of the things affecting the price premium is the move into the mass market,” he said during an interview after his presentation to the convention’s 365 registered delegates.
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Organic food sales are now part of the mainstream grocery business, moving beyond health food stores onto the shelves of supermarket chains.
Conventional retailers see organics as a “loss leader” category, which means they reduce margins on the products to attract a new base of clients, said McCaleb.
There is also downward pressure being exerted at the other end of the spectrum. A growing number of consumers are buying organic goods from producers through farmers’ markets, which contributes to lower prices because no middleman is involved in the sale.
And there are economies of scale at work, said McCaleb. As more product is produced, the cost per unit falls and so does the price.
Mark Gimby, grain buyer for Growers International Organic Sales Inc., one of the largest organic grain companies in Western Canada, said the scenario McCaleb outlined doesn’t fit with his first-hand marketing experience.
“Price premiums to the farmers have been steady for the last four or five years. Our premiums have been exactly the same in our company for things like wheat and durum.”
With demand for organic commodities growing at a rate of 20 percent a year, he isn’t seeing any signs of grain prices falling in the near future.
“We haven’t hit the wall in terms of supply in most commodities,” said Gimby.
He admits that as supply increases organic premiums will narrow but said farmers can make up for that by achieving better yields and employing better agronomic techniques to lower production costs.
McCaleb’s presentation was mostly upbeat. He talked about the growing demand and the ever-expanding outlets for organic goods.
He said there is a “tremendous opportunity” for western Canadian farmers to capitalize on their proximity to the U.S. market.
North America accounts for 51 percent of the global consumption of organic commodities and the vast majority of those purchases occur in the United States. Europe isn’t far behind, with 46 percent of organic sales.
“I think there are huge opportunities for Canadian producers to produce for the U.S. market. It’s easier for us to import from Canada than any other country,” said McCaleb, who lives in Boulder, Colorado.
North America accounts for less than six percent of the 59 million acres under organic management around the world. Growers in the U.S. have been slow to “jump on the bandwagon,” giving Canadian growers a head start.
He also sees a chance for Canada to pick up a portion of Russia’s share of the organic market because of soaring production costs and problems associated with the certification and export of organic goods in that region.With a similar climate, Canadian producers could take advantage of that hardship by planting some of Russia’s specialized organic crops, said McCaleb.
