By Ryan Koory, Vice President of Economics, Mercaris
IN ONE LOOK
- To follow the 12th consecutive year of growth for the U.S. organic industry, certified organic acres in the U.S. reached 9.1 million acres in 2021
- U.S. imports of organic products, especially for livestock and poultry feed ingredients, continue to grow, creating a new level of price risk
A dramatic transformation of the food industry, driven by an astounding array of consumer choices, has occurred over the past 30 years. Imagine walking down the dairy aisle in 1990 versus 2022. The options have expanded beyond simply choosing “whole or skim milk” to include organic milk, grass-fed milk, a range of plant-based milks, lactose-free milk… and the list goes on. This exercise can be repeated in virtually any aisle, with products ranging from coffee to eggs to meat.
Once considered a fad within the wider agriculture industry, continued growth driven by increased consumer demand has established the place of American organic agriculture on the table.
According to data produced by the US Organic Trade Association (OTA), sales of organic products in the United States reached nearly $62 billion in 2020, as the industry achieved its 12th consecutive year of growth. Organic food sales alone topped $56 billion, accounting for more than 3% of all US food spending. In some categories, such as dairy and some fresh vegetables, organic market share has approached or exceeded double digits.
With growing consumer demand, the footprint of American organic agriculture has expanded. According organic price collection agency According to Mercaris estimates, the number of certified organic acres in the United States reached 9.1 million acres in 2021, representing a 123% increase from the Economic Research Service’s 2008 estimate. of the Ministry of Agriculture. This period also saw organic dairy cow stocks increase by 164%, with 2021 year-end stocks reaching 532,000 head, according to Mercaris estimates. Although there is no historical data for 2008 for poultry production, available data points to equally robust growth. According to data from the USDA’s Agricultural Marketing Service, organic turkey and broiler slaughters increased 303% and 150%, respectively, from 2011 to 2021, while organic egg layer stocks without a cage increased by 125% from 2014 to 2021.
Although the growth of organic production in the United States has been remarkable, it has not been without growing pains.
Supply chain risks
On the one hand, organic commodity markets are just that – markets subject to supply and demand pressures. On the other hand, the relative lack of transparency, the thinness of the markets themselves and the pace of growth combine to amplify the risks for everyone from producers to consumer packaged goods companies.
One such feature has been a substantial increase in US imports, particularly of organic grains and oilseeds primarily used as livestock and poultry feed ingredients. Mercaris estimates that US imports of grains, oilseeds and their organic derivatives reached nearly $1.5 billion in 2020, a 52% increase from just five years ago. Although imports have played a critical role in supporting the rapid growth of consumer demand for organic products in the United States, their growth has reinforced the interdependence of US and global organic markets, ushering in a new level of risk of prices in these markets.
In comparison, organic soybean production in the United States only reached 226,000 metric tons during the same period. After a cascade of trade disruptions over the past year – including organic certification reform, the imposition of tariffs and war in the Black Sea region – imports of soybeans and soybean meal Organics are on track to hit their lowest level in six years in the 2021/22 marketing year. This sharp tightening of the supply of organic soybeans in the United States has led to a sharp increase in prices since the start of 2021. For example, the American markets for organic soybeans have proven to be particularly exposed. Attributed to the rapid growth in organic poultry production, US imports of organic soybeans and soybean meal reached 241,000 MT and 427,000 MT respectively in the 2020/21 marketing year.
While the U.S. organic industry as a whole remains dependent on foreign sources, parts of the industry have begun to mature toward domestic self-sufficiency. For US organic corn markets, the role of imports has slowly declined over the past five years. In the 2020/21 marketing year, U.S. imports of organic corn reached 291,000 metric tons, just a fraction of the 1.2 million tons produced in the U.S. domestically. While this has reduced the US organic corn market’s exposure to foreign supply risk, it has not isolated it from other forms of price volatility.
After a better-than-expected harvest, organic corn supply in the United States exceeded demand expectations in the 2019/20 marketing year. This sent prices into a one-year bearish pullback, eventually pushing organic corn prices to 10-year lows. Although the conditions that precipitated the price decline in 2019/20 have since eased, the possibility of these conditions reoccurring remains. Considering the current 2021/22 marketing year – with record US production and expanding imports – the potential for another bearish downturn remains.
While consumer demand has been driving an increase in organic agricultural production for over 20 years, access to reliable, independent third-party data and analysis has only been available more recently. Through private sector sources such as Mercaris, as well as limited USDA reporting, this data and information is helping to create more transparency in the space.
Read more articles like this on OpenMarkets