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Transitional organic produce market is key: CoBank

The agricultural lender said that a certification supporting a price premium for produce from farms transitioning to organic production could help ease growing supply challenges.

Supporting a consumer market for produce from farms transitioning from traditional to organic production will be key to addressing the supply and demand imbalance for organic produce in the US, CoBank said in a report.

Entitled Mind the (Supply) Gap: Meeting the Growing Demand for Organic Produce, the report describes how surging organic produce demand, which grew by 8.4 percent year-on-year in 2016, has led to supply challenges in both traditional grocery stores and direct to consumer (DTC) channels such as farmers’ markets. While grocery stores struggle to find consistent organic produce suppliers of sufficient scale, according to the report, growers shut out of grocery channels are currently providing a surplus to DTC markets.

The supply problem has grown, according to CoBank, in part because demand has outpaced supply as many US growers waited to see if consumers’ growing taste for organic offerings was sustainable. Also, the report said, there are very few subsidies, grants or offers of technical assistance available to farmers making the organic transition, which Pipeline Foods chief executive officer Eric Jackson estimated can cost between $1,500 and $2,000 per acre over five years.

Part of a solution, CoBank argued, would be a secondary market for transitional products that would compensate farmers while they undergo the three-year transition and encourage additional conversions.

In January, the Organic Trade Association (OTA) formed a partnership with the US Department of Agriculture (USDA) focused on helping farmers undergoing the transition process. Under the agreement, the USDA’s Accredited Organic Certifying Agents will use standards developed by the OTA to offer transitional certification that will allow farmers to sell their products at a premium.

While a market for transitional products has already developed in Europe, the CoBank report says European consumers were already familiar with organic products, and developing such a transitional market in the US will be more challenging. The organic certification itself took many years to take hold and US consumers, the report argues, may be confused amid a growing number of products marketed as natural or organic.

“Given current demand trends and the length of the transition period, the supply of organic produce will likely continue to lag behind wholesale and retail demand in the short to medium term,” senior economist Christine Lensing wrote in the CoBank report. “While it is possible to establish a robust transitional organic market in the US, it will likely be a slow, difficult undertaking.”