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Chicago Forum: It’s the lack of volatility, stupid

Demand for organic food continues to vastly outstrip production growth. For growers and investors, the widening gap translates into big premiums for certified crops – and more stable prices, delegates heard at the Agri Investor Forum on Wednesday.

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Demand for organic food continues to vastly outstrip production growth. For growers and investors, the widening gap translates into big premiums for certified crops – and more stable prices, delegates heard at the Agri Investor Forum on Wednesday.

If there was one organic product you could invest a lot in and still sleep well at night, it would probably have to be something most people have for breakfast.

Or at least that’s the view of Craig Wichner, managing partner of Farmland LP. “About 84 percent of US households buy organic food. And the first product they buy is organic milk, to feed their organic baby,” he said on a panel at Agri Investor’s Chicago Forum, being held this week.

His point was stark: demand for organic products is running miles ahead of supply – and it’s about to get worse. Consumption has been growing at a double-digit rate for the last 25 years; Amazon’s purchase of Whole Foods suggests the trend may well accelerate.

Yet organic operations occupy only 1 percent of US farmland, and certifications are growing at ‘only’ 8 percent a year.

As a counterpoint, Jay Pierrepoint, principal and president of asset management at Equilibrium Capital, noted that 92 percent of Walmart shoppers say they want to buy more organic food but can’t afford it.

He said the industry has to learn to produce organic food at the right price point, which he argued was largely a function of scale of operations and labor availability. On the latter, Pierrepoint noted that costs had jumped by 50 percent in recent years, owing to migrant workers returning to their home countries amid a tougher stance against immigration in Washington.

Yet for farmers and their funders, there was no doubt about the opportunity. Organic blueberries, Wichner said, tend to command premiums of 300-350 percent; for butternut squash, he reckoned premiums stood at around 200 percent.

But perhaps the greatest draw lies elsewhere. Conventional crops, Wichner said, have often suffered from very volatile market prices; organic prices have been much more stable.

“Extreme demand pressures mean it’s the middleman that gets squeezed,” he said. “Growers end up capturing more of the value.”