Organic Production Shortfall in U.S. Encourages Imports, Creates Risk
The organic food sector is a bright star in U.S. food retailing with sales increasing by over 10 percent in 2015 to reach $43.3 billion, according to the Organic Trade Association. The world’s largest consumer packaged goods companies, such as General Mills, Kellogg’s, Danone, Coca-Cola, and Pepsi, are all players in the market through scores of acquired brands. You can find organic foods in every major U.S. retail chain, including Walmart and Costco, which according to industry analysts, eclipsed Whole Foods in the sale of organic foods last year.
With all of this dynamic growth and increasing interest in organic foods by shoppers, particularly among the millennial generation, one would expect that U.S. organic farm production would be increasing as well. Instead, U.S. food processors and marketers have been steadily increasing organic imports. While this may benefit the marketplace today, it also may create risk for the industry in the very near future.
According to the USDA National Agricultural Statistics Service (NASS), there were 2.4 million acres of organic cropland in 2015, just 0.7 percent of total acres dedicated to crops in the U.S. While NASS also estimated that nearly 142,000 acres were in transition to organic cropland during that year, land used for organic production has only grown by about 1 percent annually since 2008.
Conversely, according to statistics tracked by the U.S. Commerce Department and reported through the USDA FAS GATS database, imports of organic products have grown at over 35 percent per year since 2012, from $496.3 million to $1.67 billion in 2016.
While it may make complete sense to import tropical or exotic products such as coffee, bananas, mangoes, and avocados, or even fresh seasonal fruits, two products are in the top 10 organic import list that weren’t there just a few years ago –soybeans and feed corn.
Growing Demand for Livestock Feed
Since 2012, imports of organic soybeans have grown at an average rate of 29.1 percent per year while imports of feed corn have grown 63.6 percent per year. The volume for these two grains is shocking given that the U.S. is the world’s largest producer of both soybeans and corn. In 2016, the U.S. imported 13.8 million bushels of soybeans, and 21.7 million bushels of feed corn with a combined value of $411 million. Based on the average yields for these organic crops in the U.S., this is equivalent to about 607,000 acres of production, or more than twice the estimated 262,000 acres of organic soy and corn grown in the U.S. in 2015. If current consumption trends continue, the U.S. may need to import 17 million bushels of soybeans and 25 million bushels of corn in 2017, equivalent to nearly 750,000 acres of domestic production at current organic yields.
The primary driver for this demand has been double-digit growth in organic poultry production as well as a need for other organic livestock feed for dairy and beef cows. Over the past few years as consumers have become increasingly concerned about hormones and antibiotics used in large-scale animal production along with animal welfare, the largest poultry processors in the U.S. have made significant investments to expand the market for organic poultry products. With companies such as Perdue Farms, Tyson Foods and Pilgrim’s Pride committed to growing this market and meeting consumer demand, the need for organic soybeans and corn for feed will continue to grow sharply.
Issues with Imports
On the face of it, it is difficult to fault the organic poultry and livestock industry and those importing and processing the grain into feed for taking advantage of the imports’ lower prices as they source supplies—the supply just doesn’t exist in the U.S. However, if one looks more closely at the countries where this production is taking place and the potential for fraud in the supply chain, increasing reliance on foreign sources of soybeans and corn may be putting importers and processors, as well as the greater U.S. organic industry, at risk.
News articles are regularly published in the mainstream press that question the value of organic production, both nutritionally and as a farming method that can meet the needs of our growing world. If fraud is uncovered in the imports and widely reported, it would likely bolster the positions of those questioning the value and integrity of the National Organic Program (NOP) as well as USDA’s oversight of the program.
During a meeting held at the MOSES Organic Farming Conference this past February, Miles McEvoy, head of the NOP, stated that ensuring the integrity of USDA organic products throughout the world is the NOP’s central mission. He also shared that there were concerns focused on imports of organic corn coming from Eastern Europe, and in particular Turkey, as the country’s exports appeared to exceed their reported production. Turkey was the leading exporter of organic soybeans and corn into the United States in 2016.
NOP conducted an audit in Ukraine in 2016 and currently has an audit in progress in Turkey. One of the findings was that many different countries supply organic corn through Turkey, including Ukraine, Russia, Kazakhstan, and Romania, and that multiple certifiers are involved in the process. In late 2015, NOP issued a Notice of Proposed Suspension to one of the certifiers involved, ETKO, and in mid-2016 reached a settlement agreement requiring ETKO to take specific corrective and preventive action to bring it into full compliance with NOP regulations. The EU and Canada have suspended ETKO’s accreditation.
Importers of soybeans and corn have been fortunate so far to find what appears to be an endless supply of raw materials, and at a price that puts pressure on U.S. producers.
According to Kellee James, founder and CEO of Mercaris, even with this rapidly increasing need for organic feed, “foreign prices for corn have essentially put a cap on upward price movement for domestic corn.”
Mercaris, which provides online auction and informational services for the non-GMO and organic market, has been tracking price trends for over five years.
“We show that the average delivered price for organic corn in 2016 was $8.60 per bushel for domestic versus $8.35 for imported, although the actual range is more dramatic,” James said. “In 2015, the average price was $12.39 for the whole year, but it started at $13.50 and then finished at $10.50 likely due to the increased imports.
“Soybeans follow the same trend as corn,” she added. “From $27 a bushel for domestic and $24.90 for imports in 2015, to $19.53 domestic compared to $18.12 for imports in 2016.”
The short-term benefit of lower imported grain prices may come at a greater cost to the industry later if widespread fraud is reported and imports are interrupted. This could result in a significant shortfall of supply to a growing market that has no domestic backup. In addition, and perhaps more importantly, buyers of imported grain are missing an opportunity to positively impact U.S. organic production and further build out a sustainable domestic supply chain on which they can depend for future growth.
“It’s the single biggest risk to credibility in the organic marketplace,” said Ken Dallmier, president and CEO of Clarkson Grain Co. “The system is designed on the basis of credibility, and in the U.S. you have traceability back to an individual producer. Outside of the U.S. we need better traceability.”
Clarkson Grain, based in Cerro Gordo, Ill., is a leading supplier of organic soybeans and corn and has been actively involved in supporting the movement to create a certified transitional label to support farmers’ transition to organic by offering premiums for transitional crops.
“Increasing incentives for U.S. production and transition into organic drastically reduces the risks to the marketplace,” Dallmier added.
Needs of Farmers
According to the recently published report Breaking New Ground: Farmer Perspectives on Organic Transition, conducted by Oregon State University and Oregon Tilth, incentives to help producers transition from conventional to organic farming could take on a number of different shapes and forms, from education on best organic production practices and help with required paperwork, to premiums paid for transitional products, long-term contracts, and guaranteed pricing. While these practical supports can certainly lighten the farmer’s load and reduce risk during transition, understanding the motivations of organic farmers speaks to the real issue at heart.
The report asked transitioning farmers what initially moved them to consider organic farming and provided survey recipients with a list of reasons including “market/profit” and “values-based” motivations, such as family values, concerns about the environment or human health, and farm sustainability. Interestingly enough, farmers ranked these values-based responses much higher (over 90 percent) than market/profit motivations (70.8 percent to just 34.9 percent depending on the reason), suggesting that, while increased profit and viability of the farm contributed to their motivation to transition, the key drivers for transition were values-based.
U.S. food processors who have become reliant on imported products that could be produced domestically may inadvertently be putting not only their own company’s future at risk, but potentially the entire U.S. organic product marketplace.
A concerted effort needs to be made by buyers of imported organic products, particularly those purchasing soybeans and corn for feed, to develop programs to identify and support farmers who are motivated to transition to organic production. The end result would not only be a more reliable supply of organic grain and other row crops, but also one that ushers in the beginning of a much larger transformation of chemical-based agricultural practices to those that are environmentally sustainable, profitable and match the values of American family farmers.
Peter Golbitz has been active in the soybean, oilseed and organic products industry for more than 30 years and is CEO and President of Agromeris, a consulting firm that advises companies and organizations looking to build strategic and sustainable supply chains in specialty ingredient, food and agricultural markets.
Learn more on how organic imports benefit and create challenges for the organic market during Goldbitz's presentation at the third annual Organic & Non-GMO Forum, November 6-7 in St. Louis at the Hyatt Regency at the Arch.