Organic ag at a crossroads

Changing crop focus, strengthening certification processes and potential competition from indoor ag are all helping render organic market projections from as recently as a year ago outdated.

Asked to assess the impact of Pipeline Foods’ bankruptcy earlier this year, a source familiar with the company and the organic markets it focused on told Agri Investor the failure reflected systemic challenges facing the entire organic movement.

Covid-related disruptions, perceptions of fraud and import competition especially, they said, had helped doom the AMERRA-backed effort to develop organic grain and oilseed supply chains.

In its October overview of North American organic produce, Rabobank highlighted similar themes and other emerging issues it wrote mark a “challenge to the traditional organic paradigm.” Analysts described how pandemic-related supply and demand disruptions varied among crops and have clouded price premium projections in organic markets now facing competition from growing interest in controlled-environment ag.

The report concluded the overall outlook remains positive, but US organic ag markets are clearly in flux.

“Organic production has to go into a stage of redefining itself in terms of what it means for the consumer,” Rabobank produce analyst Almuhanad Melhim told Agri Investor.

Melhim was among the authors of the recent report, which described how 2020 saw shipments of US organic produce decline despite expanded acreage, while growing imports of most fruits have helped pressure price premiums.

“There are so many competing trends in the market space right now – whether it’s being locally grown, fresh or sustainable – these are all overlapping concepts,” Melhim said. “Traditionally, organic has capitalized on these features and consumers like organic because they answer [these concerns]. Now, organic production has to compete with all of these emerging trends and any investment in this space is going to have to look into what organic production is going to look like among other competing futures in the fresh produce space.”

Ryan Koory – vice-president of economics at S2G Ventures-backed organic market data provider Mercaris – told Agri Investor the improved outlook for conventional commodity prices is the most significant of many factors rendering projections from as recent as one year ago as outdated.

“Even within the narrow scope of field crop organic – corn and soybeans – the nature of those two markets have substantially changed over the past year,” he said.

He explained that for most of the past decade, organic profitability at the producer level has been determined largely by corn prices. As focus has shifted to supplying organic soybean meal for increasing organic poultry production, imports have come to account for about three-quarters of supply.

Koory added that over about the past four years, significant investment has been devoted to expanding organic soy production in India and to infrastructure to process such imports. He added that the past year, however, has seen efforts to strengthen organic certification enforcement in both the US and India that call into question future organic imports from that country and are likely to support higher organic soy prices.

“That is going to change how people manage their farms, what organic farm profitability looks like and where you see acreage going,” Koory said. “How is it going to change it? We don’t really know yet. It’s a different reality than what we’ve been dealing with for the past 10 years; its going to be different.”

Private investors have played a key role in expanding the menu of financing options available to assist producers during the three years it takes to transition from conventional to organic production. Given the uncertainties facing investors active in organics appear likely to last for at least as long as that transition, some may soon take the opportunity to re-define their roles as markets find new balance.