WHEN DEMAND OUTSTRIPS SUPPLY - the booming market for organic foodstuffs

by SUSAN MANN

Consumer demand for organic foods continues to increase in the retail sector and demand is also growing from the food service and industrial sectors, says Andrea Wills, member relations manager at OntarBio Organic Farmers' Co-operative of Guelph. Along with a full line of dairy products that are sold in mass-market retail and specialty stores, the farmers' co-op markets eggs, frozen vegetables and grains. Started in 1989 as a marketing arm for small organic grain farmers, it now has 100 producer members, plus 80 others who aren't farmers and can't vote but who hold preferred shares.

OntarBio is profitable, Wills says. All members get their dividends at the year end. But to be a full member you have to hold common and preferred shares. Only farmers can own common shares. Those holding only preferred shares are people or organizations that support the organic farmer's co-operative.

OntarBio is not in a position to cater to the food service or industrial sectors because of the high volumes those customers require. For example, about a year ago Starbucks wanted to do a pilot project and sell 135-millilitre containers of organic yogurt in its Toronto-area stores. That would have required two million litres of raw organic milk, just for the pilot project, which at the time was "pretty much our entire production for a year," says Wills, adding that OntarBio's annual production is now between three and four million litres.

Nor does OntarBio see the demand for organic foods hitting a plateau any time soon. "We're basing that on trends both in the Europe and the United States," says Wills. In the United Kingdom, McDonald's has just started offering organic milk as an alternative in all of its stores.

OntarBio gets calls all the time from school systems and hospitals that want to add an organic milk option to their menus, but it has to say no for now. "We're just not set up for that," she says. "No one in Ontario is right now."

Precise numbers aren't available, but the retail market for organic food in Canada is worth an estimated $300 to $750 million, with 80 per cent of products imported. Though this market only represents one per cent of total retail sales, it is growing far more rapidly than other food sectors, according to an Agriculture and Agri-Food Canada (AAFC) report published in August 2001 entitled the Canadian and U.S. Markets for Organic Foods and Soy and Rice Beverages http://atn-riae.agr.ca/info/us/e3219.htm .

Only 18 per cent of Canadians regularly purchase organic foods, while 29 per cent have never bought any. Baby boomers (people aged 35 to 55) and health-conscious younger consumers are primarily driving this market.

Forty-nine per cent of organic purchases are made in mass-market outlets, such as supermarkets, while 48 per cent are made in specialty stores. The remaining three per cent are made at farmers' markets, says the August 2001 report on the Agriculture Canada Web site.

"Over the last decade, the demand for organic foods in Canada, the United States, Germany, France, the United Kingdom and other countries has risen steadily," notes the report. "Annual growth rates have been in the 10 to 20 per cent range, depending on the sources and category of products -- an achievement unequalled in the food industry."

The report concludes that there is substantial room for growth in Canadian organic food sales and many opportunities for introducing new products and import substitutes. Distributors' brands represent good opportunities and domestic and international competitors are also on the rise.

Organic food sales are also taking off in the United States, reaching $11 billion in 2002 and projected to hit $13 billion in 2003, says the Organic Trade Association of Greenfield, Mass. Like organic sales in Canada, this represents one per cent of total retail food sales in the U.S.. That organization quotes the U.S. Department of Agriculture as citing organic dairy products as the fastest growing segment of organic foods in the 1990s, with sales up 500 per cent between 1994 and 1999. But still only two out of every 100 gallons of milk sold in the United States is organic.

When buyers come looking

While Loblaws still carries so-called national brands of organic foods, such as OntarBio's Organic Meadow milk, it decided to introduce its own line of organic products. "What our products offer is very high quality and great value because the product prices are comparable to traditional, non-organic products," he says. "Normally, a lot of organic products are sold at a significant premium price compared to traditional products."

The Organics line has more than 200 items, including cake mixes, pasta, milk, butter, a variety of oils, cereals, soups and some meats. There are plans to expand the line this year to include ice creams, deli cheeses and fresh pasta.

One producer who is refocusing his operation to take advantage of this expanding market is Ridgetown-area dairy farmer Rudy Zubler. He is still in transition on the dairy side of his 750-acre farm, but there is a processing company that wants his milk when he's fully certified.

"It feels good when you have buyers looking for you," says, noting that the same situation applies to the grains he grows. Zubler is a director on the board of Great Lakes Organic Inc., a grain marketing company. "We're in a market that's growing. Our marketers are telling us they can sell twice as much product, but they don't have it."

About one-third of the farm is certified organic and the rest is going into transition this year. The transition period is the first few years of organic production when both the soil and the manager have to adjust to the new system. Zubler, who farms in partnership with his father, grows corn, soybeans, wheat, alfalfa, spelt and hemp. On the dairy side, the Zublers milk 50 cows and are about one year away from becoming certified organic.

A producer has to farm without pesticides etc. for at least three years before he or she can be certified. But it may take five to 10 years before a farm has made a total conversion to organic. Four years ago, the Zublers began growing crops organically. It was a personal decision to leave conventional farming behind, he recalls. "What I like about it (organic farming) is that it requires more management and thinking. You don't follow a recipe."

Zubler also wanted to differentiate himself in the marketplace instead of just producing a commodity. At first, organic farming and its prohibition of herbicides seemed more than he was prepared to handle, but he has learned a lot along the way and is now more comfortable with this way of farming.

"I accept that I'm going to have to contend with some weeds in the crop," he says. "You learn to differentiate between what's an acceptable weed and what's a really unacceptable one."

High management system

Indeed, organic farming is more than just farming without chemicals or genetically modified organisms. It involves changes to many parts of the crop and livestock production system. For crops, integrated pest, weed and nutrient management techniques are needed, together with the use of crop rotations and cover crops. For livestock, organic producers have to look to improved genetics, stress management and sanitation.

Farmers considering a change to organic agriculture should think hard about the transition and plan their options carefully, he advises. Making the transition too quickly can create financial hardship. During the first years of transition, there are few premiums for transitional organic products and, initially, yields will fall. But, with good management, they will improve to profitable levels. Martin says field crop yields will return to 80 to 90 per cent of conventional within three to five years. It is more difficult to predict when a profit can be made with organic fruits and vegetables.

Also, profits in organic may depend on the availability of market premiums. Certified organic crops can usually qualify for higher prices than non-organic products, says Martin. These premiums vary with the crop and depend on whether you are dealing with a processor, wholesaler, retailer or directly with the consumer. There is no set premium level and it can be whatever is negotiated between the buyer and the seller. Premiums can vary widely depending on local demand and supply.

In any case, the transition to organic will take several years, depending on the commodity and the farmer's approach to various challenges. Martin advises farmers to go slowly and prepare a plan.

Bob Kerr, past president of the Ontario Cattlemen's Association, is making the transition to organic for some of his crops. He grows both conventional and certified organic crops on his farm on the outskirts of Chatham. In addition, he has a 1,000-head beef feedlot that's not certified organic. But a selected group of animals are being fed on certified organic pasture.

He has about 550 acres of heavy clay loam land that was the first part of the farm to be certified. It's in a rotation of four years in pasture as a soil-building activity and three years in corn and soybeans. On some of the farm's sandy loam soil, he is growing certified organic processing tomatoes, asparagus and processing peas.

Will he eventually switch the whole farm to organic production? Kerr says that depends. "If we find that growing organic crops is improving our farm's economic health, then we're quite likely to do more of it."

Some long-time organic farmers see pitfalls if the organic movement turns into an organic industry with farmers and companies jumping in just to make what they perceive as big bucks. Lawrence Andres, who has a 400-acre certified organic dairy farm near Kincardine on the shore of Lake Huron and is part owner of the organic dairy processing company Harmony Organic Dairy Products Inc., believes too many large corporations are becoming interested in organics because of booming consumer demand. "Is it an organic movement or is it an organic industry?" he asks pointedly.

An organic movement is based on a concern for the environment and such other issues as water contamination, soil degradation and agriculture dependent on farm chemicals manufactured with large amounts of energy derived from fossil fuels.

"In industry, economics is the driving force," he explains. "When you have to pump out more and more product, it's going to be a huge challenge to maintain the quality, integrity and philosophy of organic farming."

In addition, it would be a shame if the organic food system were to imitate the conventional food system with products on grocery store shelves being flown in from every corner of the world. "If we're going to copy that system, we're not going to help the environment," notes Ann Slater, who is able to make a living on her small certified organic farm near St. Mary's, located between London and Stratford. "The average bite of food that we eat travels more than 2,000 kilometres from the farmer to our mouths. There's a huge environmental cost in food travelling that far."

Slater grows 25 different kinds of market garden vegetables on three acres, including lettuce, tomatoes, potatoes, cucumbers and squash. And she has 12 ewes, mainly to provide manure for compost. Almost all of her crop is sold directly to consumers at a farmers' market in St. Mary's, while some is sold to local restaurants. Increasingly, she has been selling the meat to a health food store.

Despite such question marks, Lawrence Andres believes that Ontario's organic farming sector is doing quite well. "We have a lot of vegetable growers and they seem have a good market for their product. We have very active grain marketing organizations. We have a lot of producers." And Andres just hopes that the majority of farmers going organic do it because they believe in this way of farming rather than to just capitalize on a market niche. BF

The road to organic regulation

by SUSAN MANN

For anyone to claim their food product to be organic, it will have to be certified to a Canadian standard, says Hugh Martin, organic crop production program lead for the Ontario Ministry of Agriculture and Food. This is similar to what has happened in the United States.

Of the organic food consumed in Canada, 85 to 90 per cent is imported. In addition, the majority of organic food produced in Canada is exported, mainly to the United States but some to other countries. Martin says he doesn't have a figure for Canadian organic food exports, but he knows there is a wide range of products being shipped out.

For products imported from Canada to be called organic in the U.S. market, the Canadian certifying agency must be accredited by the U.S. Department of Agriculture (USDA). Europe has the same requirement. So one way a farmer can ensure access to those markets is to be certified by an agency accredited to that jurisdiction's standards.

Canada is trying to negotiate country-to-country organic regulation equivalency agreements with Europe, the United States and Japan but, says Martin, there is some question whether this can be done until there is mandatory regulation in Canada.

There is some misuse of the word organic now, says Ann Slater, president of the Ecological Farmers Association of Ontario. Having a regulation is a good thing, but there are some dangers especially for small farmers. Becoming certified may become too expensive and take too much paperwork.

Attempts to develop regulations for the industry have been made before, but there has been disagreement between industry representatives who thought mandatory legislation was the way to go and others who wanted to keep the existing voluntary system. "I'm hoping we can find a way to balance the interests of small farmers and the need for the national program," she says.

For his part, Hugh Martin believes regulation of the organic industry probably won't mean a big change for farmers here. Currently the industry is self-regulated under a voluntary accreditation system.

The standards were first introduced in 1999 and are currently being revised.

"Essentially what (a regulation) would do is make sure all organic food in Canada is certified to the Canadian standards," he explains. "As it stands now, there's not a requirement that all food be certified."

In practice, almost all organic food is certified because most farmers are producing at least part of their crop for the wholesale, large-scale retail trade, processing or export markets, all of which require certification to one standard or another.

The other reality, especially for this year and to a large extent last year, is that all the main certification bodies in Canada are accredited to USDA standards. That gives their certified goods unrestricted access to the U.S. organic market.

As well, some of them, such as the OCPP/Pro-Cert Canada Inc., which is the largest certification body in Ontario, are also accredited to the Standards Council of Canada, the organization that accredits Canada's certification bodies.

The decision to proceed with regulations was made by producer groups at a series of roundtable meetings in Ontario, Western Canada and Eastern Canada, says Larry Lenhardt, chief executive officer of Organic Crop Producer and Processors, a certifying group based in Lindsay, Ont. An ad hoc Organic Advisory Committee with representatives from across Canada has been formed to develop the regulations.

It's not clear yet how regulation will be accomplished, Lenhardt says. Nor is it clear how the governance of this committee proceeds. Does this sound vague? "It is," Lenhardt admits. "There's nothing like it in conventional agriculture," he says.BF

With files from Don Stoneman

Organic certification - "a validation of a farmer's practices"

by SUSAN MANN

"I decided to certify partly because I saw the misuse of the term 'organic' in my local market," Slater says. "I figured that if I wanted to speak out on what was really organic, then I had better have something to back me up."

The purpose of certification is to give the customer an assurance that the farmer is living up to the general principles and standards of organic production. Hugh Martin, organic crop production program lead for the Ontario Ministry of Agriculture and Food, believes it's important for organic farmers to go through the necessary steps to get certification.

In cases where the farmer knows the consumers and they buy all of that farmer's products, he or she has that level of trust and doesn't need certification. "But if you don't know your end customers, they need an assurance of trust that you're doing what you say you're doing," Martin notes. He believes that most of the more than 600 organic farms in Ontario are certified organic.

Slater is certified by Organic Crop Producers and Processors/Pro-Cert Canada Inc. (OCPRO). Each certifying body has its own standards that farmers and processors must meet to be certified. These standards are not identical among certifying bodies, but they have many similarities and are based on a similar set of principles.

There is a voluntary Canadian standard that is intended as the minimum requirement for all organic certification agencies in Canada. Only those certification bodies accredited by the Standards Council of Canada have been audited for compliance with the Canadian standard.

Becoming certified is the only way "of ensuring that farmers are following true organic practices," says Bob Passmore, who farms in Perth County, just south of St. Marys. He has a 50-head, certified organic beef herd, and also grows all his own certified organic feed, including hay, corn, barley and oats. In addition, a substantial portion of his 100-acre farm is certified organic pasture. Like Slater, Passmore has seen beef passed off as organic when it had been produced without following organic principles. Passmore is still in business; his less scrupulous competitor is not.

Alec Mills of Maple Lawn Organic Farm near Tottenham agrees. "We have to have some standard to measure by -- otherwise anybody can claim to be an organic farmer."

Mills farms 900 acres, including 250 acres of owned land, where he grows certified organic wheat, spelt, corn, soybeans, barley, oats, flax, peas and hay. He also has a beef feedlot that's not certified organic where he feeds 100 head in two groups a year. Alec's dad used to farm organically, but in the 1980s they used chemicals on their crops. Then, in 1992, they went back to farming organically. "I believe in the organic way," Alec says of his decision to switch back. Also "when I first started farming I used $30,000 in chemicals a year. I just wanted out of using all of the chemicals."

Certification is basically a validation of a farmer's practices, says Andrea Wills, member relations manager with OntarBio Organic Farmers' Co-operative. It's also a security to the consumer.

"The purpose is to differentiate (organic) from conventional," says Larry Lenhardt, one of the directors of Organic Crop Producers and Processors/Pro-Cert Canada Inc. (OCPRO), one of the agencies in Canada that has been accredited by the Standards Council of Canada. The certification has to be done by an independent third-party agency. In OCPRO's case, "I don't have anybody making decisions on the status of a producer or processor who is a peer," Lenhardt says.

Farmers pay a fee to have their farms certified, with the amount based on the size of the farm. An average farm of 100 to 150 acres costs $500 a year to certify. That's a base fee and the fee goes up if there is livestock or a processing plant involving more time and work to certify. The transitional inspection fee the year before a farm is certified as organic is a flat $374.50, including GST. Certification is done on a field-by-field basis.

Lenhardt believes farmers should get their farms certified. "I take the position that if you're not certified organic, you're not organic because you can't prove it."BF

With files from Don Stoneman.