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Pesticide Free but Pricey: Are Organic Foods an "Environmental Market"?

Amanda Hawn

Agriculture stands poised to become one of the world's largest environmental issues in the decade to come. Organic agriculture may be part of a sustainable solution to the problem of increasing the world's food supply still further, if it can be scaled up effectively and quickly. But as interest in organic agriculture grows worldwide, the Ecosystem Marketplace asks: Is this truly an environmental market? And what does it mean for ecosystem services worldwide?

Agriculture stands poised to become one of the world's largest environmental issues in the decade to come. Organic agriculture may be part of a sustainable solution to the problem of increasing the world's food supply still further, if it can be scaled up effectively and quickly. But as interest in organic agriculture grows worldwide, the Ecosystem Marketplace asks: Is this truly an environmental market? And what does it mean for ecosystem services worldwide? The next fifty years probably will see the final period of rapid agricultural expansion on this planet. After 2050, say scientists, population growth should stabilize around 9 billion people and increases in per capita consumption should slow. Before that happens, however, we will need to double our food supply to meet the needs of a global population that is expanding in wealth as well as size; a population that grows by approximately 146 people every minute. Twice the food presents a problem if it means significantly upping the environmental impact of agriculture. Roughly half of the usable land surface is already under production. Should current practices continue, another billion hectares worth of natural ecosystems – an area larger than the United States – will need to be cultivated in order to meet global food demands. At the same time, fertilizer and pesticide use will more than double, altering the climate, threatening public health and contaminating terrestrial, marine and freshwater ecosystems. "If you care about the fate of the environment in this century," says David Tilman, Distinguished McKnight Professor at the University of Minnesota, "you have to care about agriculture." Scientists like Tilman now are stressing that the habitat destruction associated with revving the agricultural engine using a business as usual model will not only cause the loss of an unprecedented number of species, but also the loss of some of the very ecosystem services – water filtration, pollination and nutrient cycling – that make agriculture possible. The situation thus poses an interesting problem. "In one sense, the answer is simple," observes a team led by Tilman in the journal Nature, "crop and livestock production must increase without an increase in the negative environmental impacts associated with agriculture, which means large increases in the efficiency of nitrogen, phosphorus and water use, and integrated pest management that minimizes the need for toxic pesticides." The ecologists acknowledge, however, that, "In reality, achieving such a scenario represents one of the greatest scientific challenges facing humankind." Realizing the dream of increased food production without increased environmental degradation is difficult, in part, because of an incomplete understanding of some of the biological, biogeochemical and ecological processes at play. Equally constraining, however, is that what we do know is expensive to translate from science and policy into practice. Enter the marketplace. Scientists often speak of 'R & D' when discussing their work, which is to say that they consider research, R, to be separate from development, D. Research funding often can be obtained regardless of commercial application, but development of new knowledge, once obtained, generally occurs rapidly if there is consumer demand for it, but slowly when there is not. For this reason, the next generation IPod is likely to hit the market before the next generation geodesic house. This concept of market pull is what is so intriguing to ecologists scrutinizing the recent boom in consumer demand for organic foods and beverages. Perhaps, they think, the time for the development (or in this case, the deployment) of sustainable farming practices has arrived on a wave of consumer demand for hormone-free milk, organic produce and shade-grown coffee.

The Organic Food Boom

If you are buying bread in Munich today there is a one in three chance that it is certified organic. Sales of natural and organic foods have doubled in Europe since 1998. Germans are leading the charge with approximately €38 billion worth of spending on organic foods each year, but the Brits, French, Italians and Spanish all boast growing markets as well. Indeed, according to the German based International Federation of Organic Agricultural Movements (IFOAM), organic trade is entering a "booming phase" worldwide. Argentina, Japan, Australia, Poland, Egypt, you name it, organic has gone mainstream. The world's largest retailer of natural and organic foods is the US-based Whole Foods Market. Whole Foods began as a single store in Austin, Texas in 1980. Twenty-five years later it is a publicly traded company in the Nasdaq-100 and has annual sales of over $2.7 billion. From Austin, Whole Foods has spread to 166 locations throughout North America and the United Kingdom. In the wake of these proliferating stores has followed the spread of their nickname – "Whole Paycheck" – because of the significant price premiums associated with organic foods. When consumers buy organic, they are paying not just for the food itself, but also for the manner in which it was produced and brought to market. The USDA implemented the following organic certification standards in October of 2002, "A production system that is managed in accordance with the Organic Foods Production Act and regulation in this part to respond to site-specific conditions by integrating cultural, biological, and mechanical practices that foster cycling of resources, promote ecological balance and conserve biodiversity." Since such certification standards often require expensive means of production and transport, price premiums associated with organic foods can be considerable. The price of organic broccoli, for instance, is 30% higher, on average, than that of conventional broccoli. Consumers reaching for organic carrots generally are signing up to pay 25% more than those who grab carrots that are not organic. Price premiums for organic baby food range from 35-53%, and the average premium for organic frozen sweet corn is a whopping 258%. In light of these numbers, it is especially noteworthy that a 2004 report by the market analyst Packaged Facts concluded that the market for organic food and beverages is growing about eight times as fast as the conventional food market, which is to say that it has been expanding every year at an average rate of 20%.

But is it an Environmental Market?

Is the organic food boom a sign that European and American consumers are increasingly ready to bankroll some of the ecosystem services associated with sustainable agriculture? Can one glean a sense of the public's willingness-to-pay for the environment from the price premiums associated with organic foods? The answers to these questions, respectively, seem to be 'yes' and 'not directly'. While those at the core of the organic movement are almost unanimously motivated, in some part, by environmental concerns, those consumers newest to the bandwagon seem to be driven primarily by concerns for their health. Since organic practices "virtually exclude the use of synthetic chemicals, antibiotics, and hormones in crop production; and prohibit the use of antibiotics and hormones in livestock production," (USDA Organic Standards and Certification) they are widely perceived to be healthier for people. Sarah Kenney, a company spokeswoman at Whole Foods Market Inc. recently told the Washington Post that the company sees a significant up-tick in business after every food-safety issue that gets real media attention. The trend holds for Europe too. "An ever increasing number of Germans are looking to avoid additives and are taking an interest in 'natural' products with traceable ingredients," says Michelle Strutton, a consumer analyst at Mintel in Europe. Bernward Geier, Director for International Relations at IFOAM would add that, "In Germany, we can see how the whole baby food sector is on its way to becoming more or less exclusively organic." According to Shopping for Health 2004, a report prepared by the Food Marketing Institute in Washington, D.C., two-thirds of the U.S. shoppers they questioned, believe that organic foods are better for them. Natural and organic foods are available in seven out of ten retail food stores in the United States and, perhaps most notably of all, most consumers of organic food no longer differ radically in their demographics from consumers of conventional foods. "When I buy organic food, I usually do it out of concern for the health of my friends and family who will be eating whatever I cook," says Laura Lindsay, a twenty-something consumer at a grocery store in Minneapolis. "Environmental concerns are a side benefit, I guess, but they aren't driving my decision to pay more." In a time of significant cancer incidence and food-related diseases like Avian Influenza and Mad Cow disease, the organic food movement has expanded from the realm of tree-huggers, ecologists and concerned farmers into that of trendsetters, health-nuts, and concerned soccer moms…among others.

More than just Health

Health may be the primary driver of the 'mainstreaming of organic food,' but it would be wrong to say that environmental concerns haven't played their part too. Products like Endangered Species Chocolate Bars, now the top-selling chocolate brand in the natural foods category, aren't flying off the shelves because they are healthy, but rather because shoppers feel good about paying more when they know that 10% of the profits will go towards helping the environment. Similarly, fair-trade and shade-grown eco-labels on coffee target shoppers' ethical decisions rather than their desire for clean caffeine. A recent survey conducted by Whole Foods Market Inc. found that, of the 1000 Americans they questioned, 58% said they believed organic foods were better for the environment. In addition, 57% said they thought that buying organic would support small and/or local farmers, and 42% believed organic products were of better quality than conventional alternatives. Most market analysts seem to agree that health concerns are the lynch pin of a larger platform that includes broader environmental and social concerns as well. This major consumer trend has been recognized world wide under the umbrella idea of 'whole health solutions,' which promote physical and mental well-being, prevent disease, protect the environment and support local economies. This hodge-podge of concerns may be linked, in part, by the fact that when people are asked if they support an idea because of A, B, or C, all of the above is a seductive choice when A portrays you as healthy, and B and C portray you as socially responsible. Without a doubt, however, the links that consumers are making between personal health and environmental health are real and well articulated in the minds of some. In her essay, "Why Environmentalism Starts at the Breakfast Table," Alice Waters, the renowned chef behind Chez Panisse, writes, "Just as there is an ethic to growing food, there is also an ethic to eating…when people choose organic foods and avoid mass-produced and fast-foods, they are voting for a sustainable future." The fact that more and more 'average' consumers in Europe and America, not just food activists like Waters, seem to be embracing this idea suggests that they are implicitly recognizing the idea of ecosystem services on a personal level and, importantly, in a way that is connected to their pocketbooks. Thus, while it is difficult to argue that 20% of a shopper's motivation for paying a 30% price premium for organic broccoli is due to his or her concern for the environment, it is reasonable to say that people are paying premiums because they are concerned about their health which, increasingly, they associate with the environmentally beneficial practice of organic food production.

Reality Check

If the impetus behind consumers' decision to buy organic can seem somewhat amorphous at times, the most common reason people cite for not buying organic, by contrast, is starkly drawn. In both Europe and the United States, consumers indicate that the main reason they have for refraining from buying organic products is: A-price, B-price and C-price. Almost three-quarters of Americans (73%) believe that organic products are too expensive. In Germany, just one in three people thinks that it is worth paying more for organic food. In Britain, just one in four believes it makes sense to cough up extra money for organic products. "Across Europe, but particularly in Britain, the real value of organic food needs to be addressed," says Strutton of Mintel. In order to counteract the perception of organic food as "too expensive," producers and retailers have begun to consider new ways of marketing organics. Many stores often post signs when different types of organic produce are in season and can be purchased at reasonable prices. In 2002, Whole Foods Market Inc. launched a 365 Organic Everyday Value line that now consists of over 200 products, ranging from applesauce to tortillas. Despite these efforts, market analysts on both sides of the Atlantic agree that it is a minority of consumers who are willing to pay organic premiums and thus, they warn that future market growth in the organic food sector probably will be constrained by high prices. Their warnings serve to remind conservation biologists watching the organic food boom with hope and optimism, that it is still only a relatively small segment of society that consciously weighs the costs and benefits of organic agriculture on a daily basis. The health concerns of consumers in the wealthiest nations have given the organic movement a great deal of momentum, but if this particular brand of sustainable agriculture is to spread throughout the world, production costs still need to come down and yields still need to go up. For the hungriest and the poorest, health concerns are simply about nutrition, not the environment. As global society attempts to squeeze 100% more food out of this planet, the main challenge for those advocating a "greener revolution" may well be figuring out how to make sustainable agriculture cost effective in the short term as well as the long term. Amanda Hawn is Assistant Managing Editor of the Ecosystem Marketplace and can be reached at athawn@alumni.princeton.edu.

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