Agriculture and Human Values 17: 233243, 2000.

2000 Kluwer Academic Publishers. Printed in the Netherlands.

Forces impacting the production of organic foods

Karen Klonsky
Department of Agricultural and Resource Economics, University of California Davis, California, USA

Accepted in revised form February 6, 2000

Abstract. Roughly 20 percent of organic cropland was devoted to produce compared to only 3 percent for
conventional agriculture in 1995. At the other extreme, only 6 percent of organic cropland was in corn production
while 25 percent of all cropland produced corn. Only 30 percent of all organic farmland was in pasture and
rangeland compared to 66 percent of all farmland. Clearly, these differences reflect the greater importance of meat
and dairy production in agriculture overall than in the organic subsector. In recent years, the organic industry has
grown not only in volume but in products offered, moving well beyond fresh produce into dairy, snacks, and
frozen foods. The estimated growth in retail sales of organic foods averaged over 20 percent a year for the last
eight years compared to only two percent in the food industry overall, reaching an estimated $4.5 billion in 1998.
The mix of commodities produced at the farm level have and will continue to change in response to several
dynamic forces, including consumer demand, regulation, and consolidations, mergers, and mainstream entrants at
the farm, manufacturing, and retail levels. Consumer demand for organic foods has been spurred by a number of
factors including concerns over pesticide residues on foods, food produced using genetically modified organisms
(GMOs), and hormones in dairy and meat products. These concerns coupled with the overall increase in demand
for convenience foods explain the phenomenal recent growth of over 70 percent in sales of organic snacks, candy,
and frozen foods. The result has been increased demand for GMO-free grains for snacks, cereals, soy products,
and feed for dairy cows. The recent allowance by USDA for the labeling of meat and poultry as organic will
accelerate already heightened demand for organic grain and feed from the organic dairy industry. Although the
fastest growth in organic foods has been in categories other than produce, clearly produce plays an important role
in the consumers decision on where to shop, and demand should increase with the overall increase in the number of
organic consumers. Market outlets now include sophisticated natural food store chains, gourmet specialty stores,
and e-commerce, allowing for a broadened array of products. Mainstream agricultural producers, manufacturers,
and supermarket chains have entered the organic marketplace at a time of low prices for commodities at the farm
gate, fierce competition for retail shelf space, and increasingly sophisticated targeting of consumers. Inevitably,
these changes in food products offered and in retail outlets will lead to an organic agriculture that increasingly
resembles the conventional food industry.

Key words: Organic agriculture, Organic certification, Natural food

Karen Klonsky is an extension specialist at the University of California at Davis in the Department of
Agricultural and Resource Economics. Her research focuses on the economic viability of organic and sustainable
farming systems as well as the evolution of the organic market.

Domestic sales of organic products in 1998 are estim-
ated to be $4.5 billion, which includes $500600
million in exports and $200300 million in herbs and
non-food organic products. The estimated growth in
organic food sales was 14 percent in 1998, and aver-
aged about 20 percent a year over the last eight years
compared to about two percent in the food industry
overall (Nutrition Business Journal, 1999). It is not
surprising that organic foods have attracted main-
stream food manufacturers and supermarket chains to
enter the organic marketplace in a substantial way in
addition to the increasing number of natural foods
grocery stores and mail order and Internet sales.
The growth in organic sales reflects concern of
an increasing segment of consumers with food safety,
including pesticide residues, genetically modified
organisms (GMOs), hormones and antibiotics present
in food, as well as the negative environmental impact
of conventional agriculture production methods. A
recent consumer study concluded that ten percent of
consumers regularly buy organic food and 50 percent
of consumers are potential purchasers of organic and
natural food. (Hartman, 1997). Paralleling the growing
demand, the acreage of certified organic production
increased by 91 percent from 1991 to 1995. In a
1998 survey of organic farmers nationwide, 56 percent
234 K AREN K LONSKY
planned to increase production and only two percent
were getting smaller (OFRF, 1998).
Industry growth has meant the evolution of regula-
tion of organic food production to maintain consumer
confidence. Currently 30 states have organic laws and
there are over 40 certification entities providing third
party certification active in the United States, each with
its own set of standards (Fetter, 1999). There is general
industry consensus that a national set of standards is
necessary to enhance interstate and international trade.
In 1990, the US Congress passed the Organic Foods
Production Act to accomplish just that. But the imple-
mentation of the law proved to be more difficult than
first imagined, and the final rule has not been approved
as of the time of this writing.
Growth has also given rise to new marketing out-
lets, including sophisticated natural food store chains,
gourmet specialty stores, and e-commerce, allowing
for a broadened array of products. Mainstream pro-
ducers, manufacturers, and supermarket chains have
entered the organic marketplace at a time of low prices
for commodities at the farm gate, fierce competition
for retail shelf space, and increasingly sophisticated
targeting of consumers.
These dynamic forces, namely, consumer prefer-
ences, regulation, and the mainstreaming of organic
food both at the manufacturing and retail levels will not
only influence the rate of growth of organic production
but also the mix of commodities produced and who
produces them. The organic market began primarily in
the area of fresh produce. The introduction of frozen
foods, grain snacks, cereals, and, most recently, dairy
products have met with phenomenal growth rates, bey-
ond those of organic foods in general. Demand for
these foods and the allowance by USDA of labeling
meat as organic beginning in 1998, have, and will
continue to increase the demand for organic feed and
pasture.
Before examining the forces impacting organic pro-
duction in greater detail, organic production in the
United States will be described in terms of commod-
ities produced and the number and size of organic
farms in order to identify trends that are already tak-
ing place and to establish a point of reference for the
discussion of changing demand for organic commod-
ities. Next, the regulation of organic production will
be explained. In particular, the legalities of certifica-
tion and the labeling of organic meat will be examined
for their potential impact on the demand for organic
feed. The focus will then turn to consumer adoption
of organic foods. Particular attention will be given
to processed food, produce, meat and dairy products,
GMO-free grains, and soy products. The discussion
then turns to the retail sector and the mainstreaming
of organic foods, including product development, mer-
gers and expansion within the natural foods industry,
and the entry of mainstream food companies. Finally,
the paper will return to the producer, and briefly
present some of the philosophical issues and phys-
ical constraints that enter into the enterprise selection
decision at the individual grower level.
Certified organic agriculture in the United States
The organic subsector is still quite small, with less than
one percent of US farmland certified as organic. Certi-
fied organic farmland can be grossly divided between
pasture/rangeland and cropland. Certified organic pas-
ture and rangeland steadily declined from 532,050
acres in 1991 to 276,300 acres in 1995, while organic
cropland increased from 403,400 acres to 638,500
acres over the same time period (Table 1). In 1995,
cropland represented 70 percent of all organic certified
land compared to only 43 percent in 1991. Clearly, the
growth in organic agriculture has been in crops and not
livestock production. It follows that organic cropland
should have a smaller proportion of feed crops than
US agriculture as a whole.
In fact, this is borne out by comparing the acre-
age devoted to major crops for US agriculture and the
organic subsector. Four crops, corn, wheat, hay, and
soybeans, comprised over 80 percent of US cropland
in 1995 (Table 2). These same crops represented only
49 percent of organic cropland. In contrast, orchards
were 8 percent of organic cropland as compared to 2
percent of all cropland, and vegetables were 12 per-
cent of certified organic cropland as opposed to only 1
percent of all cropland.
The geographic distribution of cropland by region
is also markedly different for certified organic pro-
duction than for US agriculture. Almost two thirds of
organic cropland is in the western half of the United
States (Pacific: 12 percent; Mountain: 25 percent;
and Northern Plains: 25 percent). These same regions
represent only about one third of all US cropland
(Pacific: 4 percent; Mountain: 8 percent; and North-
ern Plains: 24 percent). The Corn Belt, which is 25
percent of all cropland, is only 11 percent of certified
organic cropland. This is not surprising considering
the relative difference in corn as a percentage of total
acreage. Also, the very small size of the organic sub-
sector means that a few relatively large farms strongly
influence the picture of regional distribution.
Unfortunately, the national statistics presented
above for the organic subsector exist only for grow-
ers certified by a third party because the certification
groups are currently the major source of information.
Many organic growers are not certified and would not
show up in these statistics (OFRF, 1998). However,
 F ORCES IMPACTING THE PRODUCTION OF ORGANIC FOODS 235
Table 1. Certified organic agriculture as a subsector of US agriculture, 19911995.

Year US agriculture1 Certified organic agriculture2

Number of Land in Range & Number of Land in Range &
Farms Farms Pasture Cropland Farms Farms Pasture Cropland

1,000 1,000 acres 1,000 acres 1,000 acres Number Acres Acres Acres

1991 2,117 981,736 644,736 337,000 2,753 479,350 N/A N/A

(66) (34)
1992 2,108 978,503 641,503 337,000 3,587 935,450 532,050 403,400
(66) (34) (57) (43)
1993 2,083 976,463 646,463 330,000 3,536 955,650 591,850 363,800
(66) (34) (62) (49)
1994 2,065 973,403 634,403 339,000 4,060 1,001,450 44,700 556,750
(65) (35) (44) (56)
1995 2,063 972,253 640,253 332,000 4,856 914,800 276,300 638,500
(66) (34) (30) (70)
Note: Numbers in parentheses are range and pasture, and cropland as a percentage of land in farms.
Sources:
1. US Department of Commerce.
2. Anton Dunn, 1997.

evidence from California suggests that the national
statistics for certified organic production closely rep-
resents total organic acreage although it seriously
underestimates the number of growers due to the fact
that large farms tend to be certified while small farms
do not (Klonsky and Tourte, 1998). Since the focus
of this paper is the growth and changing commodity
mix of organic commodities, the data presented serve
to establish the baseline for discussion.
Regulation of organic food in the United States
The Organic Foods Protection Act of 1990 (OFPA)
was passed by the United States Congress to estab-
lish national standards for using the term organic on
the labeling of agricultural products. The objective of
the standards is to assure consumers that food labeled
organic meets a consistent set of production criteria
and in so doing facilitate commerce in food marketed
as organic. As such, OFPA can be viewed as con-
sumer protection and market enhancement legislation.
It does not directly address food safety issues, envir-
onmental protection, or the economic viability of rural
communities.
OFPA established the National Organic Program
(NOP) within USDA and also provided for the
appointment of the National Organic Standards Board
(NOSB) by the US Secretary of Agriculture to advise
the Agricultural Marketing Service (AMS) on the
development of OFPA regulations. The NOSB is man-
dated to be comprised of four farmers, two handlers or
processors, one retailer, one scientist, three consumer
or public interest advocates, and three environmental-
ists, all serving five year terms.
As part of its deliberations, the NOSB made a set of
recommendations that included a definition of organic
in 1995. The recommendations described organic agri-
culture as an ecological production management sys-
tem that is based on minimal use of off-farm inputs.
The recommendations further talk about achieving
the goals of organic agriculture through methods that
employ inputs that minimize environmental degrada-
tion.
The principal guidelines for organic production are
to use materials and practices that enhance the eco-
logical balance of natural systems and that integrate
the parts of the farming system into an ecological
whole. Organic agriculture practices cannot ensure that
products are completely free of residues; however,
methods are used to minimize pollution to air, soil,
and water. The primary goal of organic agriculture is to
optimize the health and productivity of interdependent
communities of soil life, plants, animals, and people.
Reaching agreement on allowable inputs does not
necessarily mean a reduction in total inputs. At one
extreme, it could mean organic farming by neg-
lect, where farmers minimize or eliminate the use
of pesticides and fertilizers. At the other extreme,
organic could mean prophylactic use of acceptable
inputs including nonrenewable minerals. Neither of
these approaches is consistent with the view of organic
236 K AREN K LONSKY

Table 2. Crop acreage for selected crops US agriculture and the organic
subsector, 1995.

United States1 Certified organic2

1000 Acres % Total 1000 Acres % Total

Corn 71,826 25 33 6
Wheat 62,712 20 96 18
Hay 59,679 19 84 16
Soybeans 57,347 19 47 9
Cotton 12,783 4 33 6
Barley 6,753 2 17 3
Rice 2,833 1 8 2
Rye 381 <1 3 1
Sunflower 2,486 1 14 3
Vegetables 3,405 1 62 12
Orchards 3,685 2 44 8
Other 24,733 8 36 7
Total cropland 308,623 100 536 100
Sources:
1. USDA, NASS.
2. Anton Dunn, 1997.

agriculture as an approach to farming that works in
harmony with and enhances natural systems and eco-
logical processes. In practice, neither extreme would
be economically viable unless the increase in gross
income from organic price premiums would outweigh
the declining production performance in the case of
passive management or the high cost of the intensive
organic system.
The USDA did not publish a proposed rule for
the labeling of agricultural products as organic until
December 1997, seven years after the passage of OFPA
and five years after the first meeting of the NOSB.
Soon after, USDA received an unprecedented 280,000
public comments voicing concerns over the regulations
after which Secretary Glickman prudently promised to
revise the rules with additional input from industry and
the NOSB. The revised proposed rule is expected to be
released in February 2000.
Certification
Organic certification by a third party means that the
farming practices of a farm have been assessed by a
certification entity to meet the standards of that entity.
OFPA requires certification for all growers marketing
their product as organic to ensure consumers and
buyers that the organic food they buy is as claimed.
OFPA exempts growers with gross sales of $5,000
or less from mandatory certification. The logic being
that growers with very small sales are most likely
direct marketing through such outlets as subscription
agriculture, farmers markets, and roadside stands. In
these cases consumers are in direct contact with the
farmer and in a sense conduct their own informal
certification.
As early as the 1970s, as organic agriculture moved
beyond sole reliance on direct sales to customers, the
need for third party certification to facilitate growth
became apparent. Third party certification means that
an entity other than the buyer or seller certifies that the
product being sold as organic meets a specific set of
production standards set by the certifying entity. Estab-
lished in 1973, California Certified Organic Farmers
(CCOF) became the first certification entity in the
United States. By 1985, there were at least 12 and by
1990 at least 35 certification entities each with their
own set of standards and operating procedures (Fetter,
1999).
By 1997, thirteen state and thirty private entities
actively provided certification services in the United
States (OFRF, 1997). All of the state and most of the
private organizations certify in one state only, although
several organizations certify in more than one state.
It is also possible, and not uncommon, for a farm to
be certified by more than one certifying organization.
Relatively large producers with respect to volume sold
often contract with smaller growers to meet demand.
Usually the certification is held by the larger entity.
Certifiers generally develop their own standards,
which may be stricter than state law. These stand-
ards include a listing of allowable and prohibited
materials, buffer zone requirements, consequences of
 F ORCES IMPACTING THE PRODUCTION OF ORGANIC FOODS
unintentional contamination by prohibited materials,
requirements for residue testing of crops, and livestock
practices. The standards of certification entities vary
with regard to each of these categories.
Currently only 17 states have laws requiring cer-
tification in order for food products to be labeled
organic (Fetter, 1999). Another 13 states have
organic laws that require registration with the state
and compliance with state standards for organic but do
not require third-party certification, and twenty states
have no organic law. As stated earlier, OFPA will
require certification by an accredited third party cer-
tifier in order for food products to be labeled organic
for farmers grossing more than $5,000. Therefore,
many organic farmers marketing their products as
organic are not certified organic (OFRF, 1998). At
first blush the potential for fraud seems significant.
However, many processors require certification. Also,
organic products sold across state lines must adhere
to the law of the state in which the sale is made.
Therefore, growers selling to processors or out of
state normally secure voluntary third-party certifica-
tion. Most growers of any size would fall into one
or both of these categories. More problematic are the
differences among certifier standards that have lead to
confusion for consumers and barriers to international
trade.
The proposed standards of the Organic Foods Pro-
duction Act (OFPA) include a provision that agri-
cultural products labeled as organic must be grown
following an organic farm plan agreed to by the grower
and an accredited certifying agent. The certification
and farm plan requirements provide a mechanism to
reduce organic agriculture farming by neglect and
input overuse dilemmas.
In fact, certification agencies have already been
working toward this end. All of the major certifiers
require a written farm management plan as part of
their application that must be updated annually (Fetter,
1999). For example, the California Certified Organic
Farmers (CCOF), the largest certifying agency act-
ive in California, requires a long-term program of
ecological soil management (CCOF, 1996) in addi-
tion to adherence to state law, which prohibits the
use of synthetically compounded materials. The CCOF
Handbook further state that, it is not acceptable to
simply eliminate the use of synthetic materials and
manage by benign neglect. This approach can lead
to exhaustion of soil resources, poor quality crops, and
ultimate operation failure.
Certified organic meat and poultry
The Food Safety and Inspection Service (FSIS),
an agency within USDA, has jurisdiction over the
237
labeling of meat and poultry. Until recently, FSIS
would not approve the use of the term organic for the
labeling of meat or poultry, stating that it could not do
so before the implementation of the OFPA regulations.
In April 1999, in response to requests by a number
of meat and poultry producers and recognizing that
many organic certifying groups already had rules in
place for poultry and meat production, FSIS reversed
its position and allowed the term certified organic by
(a certifying entity) for labeling of meat and poultry.
In other words, the term certified organic by must be
immediately followed by the name of the certifier on
the label.
Under FSIS policy, processors have to submit their
proposed labels to the Labeling and Additives Policy
Division of FSIS for approval along with required doc-
umentation. This includes (1) the name of the meat or
poultry product, (2) the certifying entities name and
address, (3) the name and signature of the certifying
entitys official, (4) the date of certification, and (5)
a statement by the certifier that it has standards for
certification of meat and poultry as organically pro-
duced and a system for evaluating compliance with
those standards.
In making this policy, FSIS avoided defining the
term organic. Rather it enabled the use of the claim
certified organic by (a certifying entity) during the
interim period until such time that OFPA regulations
are in place. Ultimately, USDA is responsible for
defining the term organic under OFPA as it is applied
to agricultural products, including meat and poultry. It
is important to note that FSIS guidance for using the
claim certified organic by became the first national
standard requiring certification of organic food. As
such it preempts the requirements for accreditation of
certification entities that will be set out in the OFPA
final rule. It also does not address the differences in
certification standards set by different certifiers.
In fact, current standards for certification of live-
stock vary by certifier. For example, most certifiers
require that slaughter animals must be fed organic feed
from birth while others require one year and still others
90 days (Fetter, 1999). Certifiers require 100 percent
of feed to be certified organic but certifiers differ in
emergency provisions in case of drought, fire, flood, or
other natural disaster leading to a feed shortage. The
NOP proposed rule allows for up to 20 percent of feed
to be non-organic if necessary, although the term if
necessary is not well defined. Many certifiers prohibit
extended or lifetime indoor confinement while others
do not.
It is not surprising that as the OFPA rules process
dragged on, many producers dropped their certification
of organic pasture and rangeland. There is little doubt
that the recent FSIS policy will result in an increase in
238 K AREN K LONSKY
certified pasture and rangeland as well as an increase in
the production of organic feed crops. How much of the
increased production of feed crops comes from conver-
sion of conventional acreage to organic and how much
comes from changes in rotations on existing organic
cropland remains to be seen.
Consumer demand for organic foods
Organic sales have grown by over 20 percent a year for
the last eight years compared to less than two percent
for total supermarket sales in 1998 (Nutrition Busi-
ness Journal, 1999), which is one reason why it has
attracted so much attention. Having said that, it is also
important to realize that the organic market is still a
very small part of the entire food system. The natural
foods industry (which includes organic foods and nat-
ural foods) is about $10 billion, only 1.6 percent of
the total US food system of about $631 billion in sales
from retail food service channels. This is one reason
organic sales can grow at such a fast rate (i.e., a higher
percentage growth is easier to attain on a smaller total
dollar figure).
In the United States, almost half of expenditures
on food are made away from home and organic and
natural food sales through these channels are still infin-
itesimal. Organic is beginning to make an impact at
the retail level. One percent of sales in a category is
considered significant to retailers. So organic products
are being viewed like specialty items that can act as
points of differentiation in influencing where people
shop.
According to a study by Hartman, 10 percent of
consumers regularly purchase organic foods, while
about 50 percent are potential consumers of organic
and natural foods. Consumption of organic food is
skewed geographically in the United States, with
the heaviest demand in the Western States and in
urban areas (Hartman, 1997). Retailers are giving
organic products shelf space in stores with the right
demographics as opposed to the Alar era strategy of
chain-wide introductions that proved to be a disaster.
The general trend in supermarkets is toward micro-
marketing facilitated by the electronic data collected
with customer cards. This helps retailers to better
target the markets for specialty items like organic
products.
Processed organic foods
The Organic Trade Association Manufacturers Mar-
ket Survey response reported that the highest growth
from 1997 to 1998 in consumption of organic foods
in the United States was in grain snacks and candies,
frozen foods, and dairy products (Nutrition Business
Journal, 1999). Manufacturers reported that 31 per-
cent of organic processed products are now sold in
mass market grocery stores and 62 percent through
natural foods stores. This varied by type of food.
Fifty five percent of canned and jarred organic foods
such as baby foods, pasta sauces, soups, and fruit
juices were sold through conventional grocery stores.
For dairy products, 46 percent of sales were through
conventional outlets.
Three major food manufacturers have entered the
organic market. Interestingly, all three targeted famil-
ies with young children. Gerber and H. J. Heinz were
the first major food manufacturers to enter the organic
market, both with organic baby food (Gerber, owned
by the biotech firm Novartis, established Tender Har-
vest baby foods and H. J. Heinz owns Earths Best
Baby Foods). In 1999, General Mills introduced Hori-
zon organic cereal as a family cereal, a combination
of organic wheat, corn, oats, and brown rice, with the
largest marketing campaign in the companys history
estimated at over $15 million. As a point of reference,
the total promotional spending of the largest natural
foods company, Small Planet Foods, was $15 million
this year.
Produce
Produce consists of vegetables, fruits, and nuts.
Organic produce sales in 1998 accounted for 1.7 per-
cent of total retail produce sales of $46.4 billion equal-
ing $789 million (McLaughlin et al., 1998). Organic
produce sales accounted for 23 percent of the total $3.5
billion in organic food sales, excluding exports (Nutri-
tion Business Journal, 1999). By way of comparison,
the produce departments of conventional supermarkets
account for about 14 percent of food sales (Roberta
Cook, personal communication).
Organic produce is purchased by a broad base of
organic consumers. Over a third of consumers who
buy organic products buy produce compared to only
3.6 percent of organic consumers who buy organic
dairy products and 0.7 percent who buy frozen foods.
(Hartman, 1997). Further, most consumers who buy
fresh produce tend to buy other categories of organic
foods. The Fresh Trends 1998 (The Packer, 1998)
consumer survey found that of consumers who had
purchased organic fresh produce in the last six months,
83 percent had purchased one or more types of fresh
vegetables, compared to only 28 percent who had
bought one or more type of fresh fruit. Therefore,
fresh vegetables appear to be important to marketing
strategies and positioning even though they have not
exhibited the same rapid growth as sales in other food
categories.
 F ORCES IMPACTING THE PRODUCTION OF ORGANIC FOODS
Produce presents the greatest opportunities for dir-
ect sales to consumers and restaurants through farmers
markets, roadside stands, and subscription sales, out-
lets commonly used by small farmers. Almost three-
fourths of all organic farms grew produce in 1994
(Anton Dunn, 1995), which accounted for only 20 per-
cent of all organic acreage (Table 2), demonstrating
the high proportion of small vegetable, fruit, and nut
growers in the organic industry. Although the fastest
growth in organic foods has been in categories other
than produce, clearly produce plays an important role
in a consumers decision on where to shop and in
sustaining small organic producers.
Meat and dairy products
Consumers who say they are very concerned about
food safety related to food were most concerned about
meat, seafood, and dairy products, according to a
consumer survey in 1998 (The Packer, 1998). Fifty-
five percent were very concerned about the safety
of meat products, 52 percent about the safety of
seafood products, and 44 percent concerned about
the safety of dairy products compared to 29 per-
cent concerned about the safety of produce. Specific
concerns include the prophylactic use of hormones
and antibiotics in livestock production. With respect
to dairy products, rBGH, a genetically engineered
growth hormone that increases milk production, is
of concern to some consumers, as current law does
not require labeling of dairy products produced with
rBGH.
Organic dairy products is one of the fastest grow-
ing segments of the organic market. Several organic
dairies are marketing on a national level including
Horizon Dairy of Colorado and Organic Valley in
Wisconsin. Horizons sales were $49.4 million in
1998 up 67 percent from $29.6 million in 1997.
Horizon Organic Dairy accounts for about one half
of the organic dairy market. It has steadily been
acquiring dairies including Organic Cow of Vermont
(also a national distributor) and Rachels Organic
Dairy in Wales, England (Stephens and Pennybacker,
1999).
In early 1999, Horizon signed an international
trademark licensing agreement with Takanashi Milk
products of Japan. Horizon has already been supplying
organic feed and organic dairy products for Takanashi
as well as providing technical expertise to Takanashi
farmers transitioning to organic agriculture. Horizon
also contracts with a number of small dairies that
benefit from the marketing expenditures and the suc-
cess Horizon has had in introducing new products and
expanding the organic dairy market.
239
Organic dairy cows must be fed 100 percent
organic grain although certifiers differ in the length of
time the cow must be fed organic feed before it attains
organic status. Obviously, the demand for organic feed
will increase along with the increase in the supply of
organic milk.
GMO-free grains and legumes
One of the most well publicized objections to the NOP
Proposed Rule was the allowance of genetically mod-
ified organisms (GMOs) in the production of food
labeled as organic. The proposed rule also allowed for
the use of GMOs in processed organic food and made
possible the feeding of GMO plants to livestock by
requiring only 80 percent of feed fed to livestock to
be organically produced. The NOSB recommendations
explicitly precluded the use of genetically modified
organisms, which includes genetically modified seed.
While it is now virtually certain that GMOs will not
be included on the National List in the next proposal,
the allowance of GMOs and other substances specific-
ally prohibited by the NOSB recommendations raised
a broader question of the future role of the NOSB
vis--vis the Secretary of Agriculture. In so doing,
the proposed rule denied the NOSB the power to pro-
hibit substances for inclusion on the National List
and instead placed the NOSB in an advisory role to
the Secretary of Agriculture. Unless the NOSB has
the responsibility and power to curtail USDA con-
sideration of allowed and prohibited substances, the
possibility exists that GMOs will be given organic
status in the future, even if excluded in the initial
regulations.
GMOs threaten organic agriculture in other ways.
With the mergers of seed companies and the rapid
adoption of transgenic seeds by US farmers, it may
be difficult or impossible to obtain non-GMO seed for
organic production. The merger of DuPont and Pion-
eer seed early in 1999 split most of the US field seed
industry between Monsanto and DuPont (Kirschem-
ann, 1999). For crops that are pollinated by insects, the
risk of cross pollination from neighboring transgenic
crops will increase with increased acreage planted to
GMO seed.
No discussion of the GMO issue can ignore the
pressure that European concerns over GMO food place
on biotechnology firms and grain brokers. Some bio-
technology firms have responded by selling off their
agriculture divisions. In September of 1999, Archer
Daniels Midland recommended that its grain suppli-
ers begin to segregate genetically modified crops from
conventional crops, suggesting that they may begin
labeling of GMO grain (Alternative Agriculture News,
240 K AREN K LONSKY

Table 3. Growth rate of organic sales by category for major food categories excluding produce.

Historic Projected
Category 1997 19921997 1998 19982000

Categories with similar distributions to overall distribution by marketing outlet:

Beverages 22 52 26 22
Cereals 39 40 24 54
Condiments/sauces/conserves 21 78 15 25
Nuts/dried fruit/beans/grain 16 41 11 11

Categories more likely to be found in mass market groceries than overall distribution:
Dairy 92 17 53 44
Frozen 40 39 69 40
Grain products 10 17 16 13
Canned/jarred 10 67 1 8

Categories more likely to be found in health and natural food stores than overall distribution:
Baking mixes/sweeteners 10 5 7 2
Grain snacks/candy 90 4 89 60
Oils 20 22 20 15
Vegetarian 14 15 15 15

All categories 36 42 30 30

Source: Organic Trade Association, 1998 Organic Manufacturer Market Survey.

1999). An obvious consequence would be the creation Mainstreaming organic food

of a two-tier pricing system.
Soy products
The Food and Drug Administration has very recently
allowed health claims for soy products, which should
boost sales. However, soybeans have the largest per-
centage of genetically modified seeds of any crop
grown in the United States. In 1997, about 20 per-
cent of the soy was from genetically modified seed,
40 percent in 1998, and 65 percent in 1999 (Nutrition
Business Journal, 1999). Manufacturers are acutely
aware that increasing concern about soybeans grown
from genetically modified seed could cause a decrease
in human consumption. In response, soy manufactur-
ers are using organic soy to maintain consumer confid-
ence. A reported 90 percent of the soy foods compan-
ies in the US reported buying some or all organically
grown soybeans (Nutrition Business Journal, 1999).
Sales of soy milk grew 20 percent from 1997 to
1998 and sales of tofu increased 15 percent. Although
less than 2 percent of the soybeans grown in the United
States go to human consumption, increased demand
from the soy food industry could put upward pressure
on organic soybean prices for livestock operations. In
1997, organic soybean prices were 141 percent above
conventional prices in the US (Dobbs, 1998).
Health and NF stores represent 62 percent, mass mar-
ket 31 percent, and club stores 3 percent (OTA, 1998).
Not surprisingly, certain categories of foods are more
or less likely to be found in natural food stores than
mass market grocery stores. In particular, dairy and
frozen foods are more likely to be sold in mass mar-
ket grocery stores while snacks, candy, and vegetarian
entrays are more common in health and natural food
stores than conventional grocery stores (Table 3). As
these venues vie for market share, they will also
be looking for different products for their shelves.
Therefore, market share by retail outlet will indirectly
impact the demand for raw organic commodities.
Growth in organic sales has meant consolidation,
mergers and public offerings of organic food com-
panies, and purchases of organic companies by con-
ventional competitors. Wild Oats Markets, Inc. owns
71 stores in 19 states, including Alfalfas Markets
and four other chains. Whole Foods Market owns
95 stores in 21 states, including Bread and Circus,
Fresh Fields, Mrs. Goochs, and three other chains
(Stephens et al., 1999). Several organic manufactur-
ers have been bought by conventional companies and
three large conventional companies have developed
successful organic products. Many conventional mass
market grocery stores carry organic products, carefully
 F ORCES IMPACTING THE PRODUCTION OF ORGANIC FOODS
selecting stores based on the demographics of their
customers.
While many advocates view these changes as
important for increasing consumption of organic foods
and demand at the farm level, others fear that con-
solidation will mean falling prices for farmers. Price
premiums for organic commodities are viewed as a
critical factor in maintaining family farms. Increased
demand for grains for processed organic foods could
lead to contracts with corporate organic farms, or cor-
porate farms that diversify into organic production.
Either scenario could squeeze out the current organic
family farms by lowering price premiums for organic
products.
Criticism has been levied against the large nat-
ural food store chains because of their potential to put
smaller natural food stores and coops out of business
and because they do not purchase produce from local
small growers. Recognizing these concerns, the large
chains have chosen their locations carefully, trying not
to destroy established smaller stores. Whole Foods,
admitting that they cannot buy directly from small
growers who cannot supply enough product, has star-
ted holding weekly farmers markets in their parking
lots to show support to small growers.
One scenario of the future of organic agriculture
follows the conventional model with increased vertical
coordination and consolidation. This view is consistent
with growth in the organic market primarily through
conventional channels, including mass market grocery
stores and Internet sales. It also means a global market
with increased international trade.
If expanding the organic market means increas-
ing the diversity of foods available and making foods
available over a longer period of time, then clearly
some needs will be met with imports and the oppor-
tunity for exports is increased. Already the presence of
imported produce has increased in organic retail out-
lets. Consumers concerned primarily with the personal
health aspects of organic rather than the environmental
or social consequences will probably be receptive to
imported organic food.
For foods that can only be produced in a small geo-
graphic area, such as almonds in California, expanding
production inevitably has meant marketing worldwide.
Organic production generally occurs in areas that have
a comparative advantage in that commodity for con-
ventional agriculture and the infrastructure for that
commodity, such as processing facilities for cleaning
seed, canneries, and storage facilities. For example, in
1995 about half of the organic soybeans were grown in
five Midwestern states (Alton Dunn, 1997).
241
Philosophical issues and physical constraints for
organic growers
Many supporters of organic agriculture maintain that
regional production and a close link between producers
and consumers is a necessary condition for achieving
the environmental and social goals of organic agricul-
ture. One of this views most articulate proponents,
Fred Kirschemann, advocates foodsheds, as opposed
to global markets. He defines a foodshed as a regional
subdivision (similar to a watershed) defined by biolo-
gical, social, and economic boundaries that make up
a desirable food production and consumption region.
The first priority of the foodshed would be to pro-
duce all of the nutrient requirements for the people
living in the foodshed, by people in the foodshed. The
second priority would be to produce food for export
(Kirschemann, 1997 quoted in Dobbs et al., 1999).
The foodshed concept would mean consumers eating
seasonal fresh produce or produce in forms other than
fresh out of season.
It can be argued that a global marketplace can work
counter to the goals of organic agriculture. Long dis-
tance shipments use fossil fuels and contribute to air
pollution, thereby contributing to the negative envir-
onmental impacts of agriculture. Imports may also
compete with local producers, depending on the time
of year. Further, exporting organic food out of a region
to realize price premiums in a distant market means
that the highest quality food is leaving the region. Oth-
ers place less emphasis on regionalization and feel that
growth in the organic market inevitably means that
farmers will be selling to national and international
markets. Consistent with this view are mergers and
marketing agreements that increase access to markets.
It follows that the philosophy of the individual
producer regarding the goals of organic agriculture
will strongly influence the choice of commodities pro-
duced. A strong commitment to working in harmony
with nature and avoiding off-farm inputs whenever
possible will mean an emphasis on crop diversity, soil
building crops, and avoiding crops for which organic
methods are not well developed or that require intens-
ive use of biorational pesticides. A commitment to
increasing local production and consumption of food
may mean growing crops for which the area does
not have a comparative advantage. In this case the
farmer will inevitably rely on organic price premiums
to remain economically viable.
Even with price premiums, farmers may be reluct-
ant to convert to organic production because of high
production costs and thin markets. For example, soy-
beans represent only 9 percent of organic cropland
compared to 19 percent of conventional cropland
(Table 2). This is in part because organic farming
242 K AREN K LONSKY
systems rely on crop rotation and greater diversity
than conventional systems. Yet, the land must stay in
organic production even in years when crops are grown
that command little or no organic premium. Therefore,
while a farmer may show a large profit on an individual
organic field crop in a rotation such as wheat, corn, and
soybeans, finding suitable organic crops to fill out the
rotation has often proved problematic.
Discussion
The organic industry now has a strong foothold in the
food sector, with almost two percent of total food sales
growing at an annual rate of 20 percent a year. The fast-
est growth appears to be in commodities where food
safety related to GMOs is an issue for an identifiable
segment of consumers and also in convenience foods
including snacks, candy, frozen foods, and refrigerated
juices.
The rapid growth coupled with the anticipated
national standards, has encouraged mainstream pro-
cessors and retailers to enter the organic industry. The
entry of mainstream companies is a double edged
sword. On the one hand, it directs millions of dollars
of advertising money into the organic market, making
organic a household word. On the other hand, it creates
competition with natural and organic companies that
are large within the organic industry but mid sized or
small relative to the entire food sector.
The implications of large conventional producers
converting acreage to organic production are many.
First, as demand for GMO-free grain for cereals and
snacks increases, the supply may not be able to keep
pace, at least in the short run. This would lead to
an immediate increase in price to organic producers.
However, many within the industry fear that ultimately
the price premiums for organic grains will draw in
large conventional grain producers and drive out smal-
ler, organic producers. Several circumstances within
the conventional grain market will further contribute
to the entry of conventional farmers. Farmers increas-
ingly have been looking into crop alternatives, includ-
ing organic crops as a result of the planting flexibility
provisions in the 1996 Farm Bill. Also, land coming
out of the Conservation Reserve Program could be
planted into organic production. (Dobbs et al., 1999).
The approval for organic labeling of poultry and
meat, along with the astronomical growth in the sales
of dairy products, will put further pressure on the
supply of organic grains and feed crops due to require-
ments for animals to be fed 100 percent organic feed.
Again, one question is where will the supply come
from and what will it mean for the composition of
organic farmers? In recent years, certified organic
range and pastureland has actually decreased. There
seems little question that this trend will reverse itself,
if it has not already, with the new labeling provisions
for meat and the steady increase in dairy production.
While few could argue against the positive envir-
onmental implications of expansion of organic agri-
culture, many worry that the entry of mainstream
processors and retailers may obfuscate the distinction
between organic and conventional food products and
weaken the organic market. The real battle will be for
shelf space at mass market grocery stores, where com-
petition has mounted among all producers. Already
about one third of organic products are sold through
mass market grocery stores, with a disproportionately
higher percent of processed foods and dairy products
sold through these outlets. Although rarely expressed
verbally, there are many farmers, processors, and
retailers who may have a vested interest in the organic
industry limiting its growth.
References
Alternative Agriculture News (1999). ADM recommends sep-
arating traditional, modified crops. Alternative Agriculture
News 17: 10.
Anton Dunn, J. (1997). Certified Organic Production in
the United States: Half a Decade of Growth. Wind Gap,
Pennsylvania: AgriSystems International.
Anton Dunn, J. (1995). Organic Food and Fiber: An Analysis of
1994 Certified Production in the United States. Washington,
DC: USDA.
California Certified Organic Farmers (1996). CCOF Certifica-
tion Handbook. Santa Cruz, California: California Certified
Organic Farmers.
Cook, R. (1999). Department of Agricultural and Resource
Economics, University of California Davis.
Dobbs, T., D. Fuez, and R. Shane (1999). Expanding the
Organic Food and Agriculture System in the U.S.s Upper
Midwest: Strategies and Lessons of a Pilot Project. Unpub-
lished final evaluation of the Upper Midwest Organic Market-
ing Project, Dept. of Agricultural Economics, South Dakota
State University, Brookings.
Dobbs, T. (1998). Price Premiums for Organic Crops.
Choices, Second Quarter: 3941.
Fetter, R. (1999). Economic Impacts of Alternative Scen-
arios of Organic Products Regulation. Unpublished Senior
Honors Thesis, Dept. of Resource Economics, University of
Massachusetts, Amherst, Massachusetts.
Hartman, H. (1997). The Evolving Organic Marketplace.
Bellevue: Hartman and New Hope.
Kirschemann, F. (1999). Seeds of Crisis for Organic Farms,
Green Guide (70: August 1999), New York: Mothers and
Others.
Klonsky, K. and L. Tourte (1998). American Journal of Agri-
cultural and Resource Economics 80(5): 11191124.
McLaughlin, E., K. Park, D. Perosio, and G. Green (1998).
Fresh Track 1998: Marketing and Performance Benchmarks
 F ORCES IMPACTING THE PRODUCTION OF ORGANIC FOODS
for the Fresh Produce Industry with a Focus on People, Food
Industry Management, Cornell University and the Produce
Marketing Association.
Nutrition Business Journal (1999). Organic and Functional
Foods Pump up Natural Foods Sales, General Mills is New-
est Entrant in Organics, and Oh Soy! Milestones Lie Ahead
for Industry in 1999. Nutrition Business Journal IV: 3.
Organic Farming Research Foundation (1998). Third Biennial
National Organic Farmers Survey. Santa Cruz, California:
Organic Farming Research Foundation, 1998.
Organic Farming Research Foundation (1997). National
Organic Certifiers Directory. Santa Cruz, California: Organic
Farming Research Foundation.
Organic Farming Research Foundation (1995). National
Organic Certifiers Directory. Santa Cruz, California: Organic
Farming Research Foundation.
Organic Trade Association (1998). 1998 Organic Manufac-
turer Market Survey. Organic Trade Association, Greenfield,
Massachusetts.
The Packer (1998). Fresh Trends 1998.
Scott, M. (1997). Organic Sales Still Boom as New Challenges
Surface, Natural Foods Merchandiser, Boulder, Colorado,
June.
243
Stephens, F. and M. Pennybacker. (1999). The Corporatization
of Organic and Natural Foods, The Green Guide (68: June
1999). New York: Mothers and Others for a Livable Planet.
Tourte, L. and K. Klonsky (1998). Statistical Review of Cali-
fornias Organic Agriculture 199295. Davis: Agricultural
Issues Center, University of California.
US Department of Agriculture, National Agricultural Statistical
Service (1996). Agricultural Statistics 19951996. Washing-
ton, DC.
US Department of Agriculture, Office of Communications
(1997). Agricultural Fact Book 1997. Washington, DC.
US Department of Commerce (1997). Statistical Abstract of the
United States 1997. Washington, DC.
US Department of Commerce, Bureau of the Census (1992).
1992 Census of Agriculture, U.S. Data and State Data:
California. Washington, DC.
Address for correspondence: Karen Klonsky, Department of
Agricultural and Resource Economics, University of California,
One Shields Blvd., Davis, California 95616, USA
Phone: +1-530-752 3563; Fax: +1-530-752 5614;
E-mail: klonsky@primal.ucdavis.edu