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U.S. organic industry struggles to meet increasing consumer demand

Consumer demand for organic food has risen quickly over the past decade, triggered in part by the development of the U.S. Department of Agriculture's iconic organic label and the requirements that must be met to display the label on specific food products.

Since the late 1990s, U.S. organic production has more than doubled, but the consumer market has grown even faster.

Over the last decade, organic food sales have more than quintupled, increasing from $3.6 billion in 1997, to $18.9 billion by 2007. According to the Organic Trade Association, more than two-thirds of U.S. consumers buy organic products at least occasionally, and 28 percent buy organic products weekly.

This fast-paced growth has led to input and product shortages in organic supply chains. But despite the increase in demand, fluctuating market conditions have bedeviled the U.S. organic sector over the last decade. A recent case in point is the weakening of our nation's economy, which has impacted organic sales.

With U.S. demand for organic products often exceeding domestic supplies, imports of organic food products have also increased. In 2007, USDA-accredited groups certified 27,000 producers and handlers worldwide to the U.S. organic standard. Approximately 16,000 were from the United States, with the remaining 11,000 located in more than 100 foreign countries.

At the retail level, organic produce and milk, the two top organic food sales categories, receive price premiums over conventionally grown products. However, the amount of premium can vary.

Officials from USDA analyzed organic prices for 18 fruits and 19 vegetables using 2005 data on produce purchases. They found that the organic premium, as a share of the corresponding conventional price, was less than 30 percent for more than two-thirds of the items.

In contrast, 2006 organic price premiums for a half-gallon container of milk ranged from 60 percent for private-label organic milk above branded conventional milk, to 109 percent for branded organic milk above private-label conventional milk.

The low organic adoption rate for grain crops continues to hinder the expansion of the U.S. organic livestock sector, as organic livestock producers strive to find reliable sources of affordable feed grains. According to USDA estimates, only 0.2 percent of U.S. corn and soybean crops were grown under certified organic farming systems in 2005.

Since organic food costs more to produce, significant price premiums are necessary at the farm level.

According to a recent USDA analysis, total economic costs were significantly higher for organic milk and soybean operations than for conventional operations.

With an average price premium of $6.69 per hundredweight for organic milk, organic milk producers were able to cover most of their additional costs in 2005.

In 2006, organic soybeans were more profitable than conventional soybeans, largely due to the price premiums being paid that year for organic soybeans.

Partly in response to organic supply shortages, Congress included in the 2008 farm bill provisions that would increase funding for organic research. The farm bill also increased funding for a cost-share program that financially assists farmers completing the organic certification process.

Under the Environmental Quality Incentives Program, farmers transitioning to organic production can receive up to $20,000 in payments annually, with an $80,000 cap over a six-year period.

Minnesota's dairy industry is expanding

A new study by the Minnesota Department of Agriculture confirms that despite years of decline in the early 2000s, Minnesota's dairy industry achieved steady growth from 2005 to 2008. The annual growth rate averaged 2 percent, closely following the national trend.

While many large dairy states have seen cow numbers decline over the last several decades, Minnesota has had a four-year growth trend in cow numbers during the years 2005 to 2008.

As the fifth largest dairy exporting state in the United States, Minnesota dairy exports reached a record-high of $113 million in 2007, a 22 percent increase from the previous year. Since 2000, Minnesota dairy exports have grown by 61 percent.

In 2008, milk prices received by Minnesota dairy producers averaged $19.08 per hundredweight, a second historical high. Since then, milk prices have declined significantly, averaging $12.60 per hundredweight during the first four months of 2009.

Minnesota's average production per cow has increased from 14,000 pounds in 1990, to 19,000 pounds in 2008, a 34 percent improvement.

Wes Nelson is executive director of the USDAFarm Service Agency in Kandiyohi County.