Not too long ago the only place you could find organic products was at a farmers market or natural foods store. But after watching sales of organic foods steadily grow at 15-20 percent for the past decade, these days everyone wants a piece of the organic pie.
Top processors including Kraft and General Mills have started organic lines or are buying organic companies to add to their portfolios. Wal-Mart is planning to double its organic offerings this year. Retailers such as Safeway and Super Target have launched their own private labels, with Super Target having gone the extra step to get USDA certification as an organic retailer. McDonalds is serving organic coffee. The shelves at 7-Eleven are stocked with organic snacks.
Kellogg developed its own line of organic cereals, while Kraft bought an organic company.
According to the 2005 Manufacturer's Survey from Organic Trade Assn. (OTA, www.ota.com), U.S. sales of organic products have surpassed $14 billion a year, with processed foods (foods other than produce, dairy or meat) representing more than 42 percent of sales. Compared to the 2 percent annual growth of conventional groceries, organic offers an exciting opportunity. However, although the green organic seal has the potential to generate a lot of green, can the organic supply keep up with the ever growing demand?
The answer from those in the industry is an enthusiastic yes. But before you try to order 5 million pounds of organic flour, you must first understand the organic world and how it differs from the conventional food world.
The organic supply chain
Organic may be a big opportunity, but at roughly 3 percent of the market it's still a small industry compared to conventional foods. And while there are some who have been pioneering the grass roots organic movement for decades, the U.S. National Organic Program (NOP) is a mere five years old. As a result, there are fewer suppliers to choose from and a less formal infrastructure than that of the conventional processing world. This means you have to go about sourcing in a different way.
"To source organic ingredients effectively, processors must look at the supply chain with a different lens. Sometimes it means connecting with the source at the ground level, planning and making a commitment," said Grace Marroquin, ingredient broker and president of Marroquin Ingredients (www.marroquin-ingredients.com), Santa Cruz, Calif. "To truly be successful in organic processing, it takes commitment both to the suppliers as well as to the organic industry itself. You must see organic as long term, not just some fad, and be willing to weather a few growing pains along the way."
The supply situation changes from season to season depending on weather, demand and other factors; what is in short supply now could be in surplus next year. Some items that have been more challenging to source include hazelnuts, apricots, brown rice syrup, oats, blueberries and some exotic fruits such as goji berry. Because of skyrocketing demand for organic dairy product, byproducts such as organic lactose and whey protein concentrates have not been commercially available in the U.S. Other minor ingredients such as colors and flavors also have been challenging to source, but lately more and more suppliers are coming out with organic versions.
Overall, those in the organic world are responsive to demand and have made great strides in a short time. In 2005 alone, more than a million new acres were converted to organic for a total of 4 million acres of farmland, 2.3 million in cropland and 1.7 million in rangeland and pasture, according statistics released just this past December by USDA. Trade organizations like OTA are working to get more research dollars to aid farmers in transitioning to organic.
Horizon Organic and other milk suppliers have been so successful at cultivating an organic milk supply there may be a surplus this spring and summer.
Industry leaders such as Stonyfield Farm and farmer-owned cooperative Organic Valley spent an estimated $2 million on incentives and technical assistance to help dairy farmers convert or boost their production in 2006, and Horizon Organic Dairy's "HOPE" program has helped some 250 family farms convert to organic since 1991.
As a result, organic milk is expected to have a surplus in the spring and summer of 2007. Strong demand could catch up with supply by early 2008, according to Stonyfield Farm officials, but in the meantime this surplus could likely result in production of other organic dairy byproducts that have been scarce.
"It is all interconnected, and as the demand in one area grows and suppliers rise to meet it, other areas will grow and expand as well," says Marroquin.
Suppliers around the world are ramping up production to help meet the supply needs of organic. Reports from The Organic Monitor show organic ingredients such as beans, seeds and nuts are increasingly coming from China, Turkey, Brazil and other countries. Organic herbs and spices are being imported from India, Paraguay and Ethiopia. Increasing volumes of organic fresh fruits and vegetables are coming in from African and Asian countries. Latin America and Australia are established sources of organic meat products.
Devise your own plan
The key word here is "plan." Most organic farms are small, family-owned operations where each acre is carefully planned and planted based on strategic estimates. Thus, unlike conventional agribusiness operations, many organic farms usually do not end up with a huge surplus to sell at spot market come harvest time. This leads to the appearance of a lack of supply, when it really comes down to a lack of planning on the part of the buyer.
Organic suppliers are more than happy to meet the need, but in order to do so they have to plant the seed. Many organic ingredient suppliers are developing higher stocks of inventory that are readily available at short notice. But to get what you need, for larger orders especially, buyers should make arrangements with suppliers before growing season to ensure the needed ingredients are planted.
"To best way to ensure supply is through proper forecasting and communication with suppliers. In some cases, this may mean having to plan up to 18 months in advance of when the product is needed," says Holly Givens, OTA public affairs advisor. For example, last year there was an oversupply of white corn, and ingredient buyers were able to by it readily on the spot market, Givens said. Based on the previous surplus, this year the farmers planted less; meanwhile manufacturers, who took for granted there would be plenty on the spot market, didn't contract with suppliers. Planning could have prevented this issue.
Even more category growth was anticipated after Wal-Mart made a big commitment to organics last summer. Will organic ingredient supply be able to keep pace with demand?
"We can have as much as you want as long as you let us know before growing season," says Joe Lombardi, business manager at National Starch Food Innovation (www.foodinnovation.com), Bridgewater, NJ., which markets Novation organic functional starches. "There's sufficient acreage available, but if we don't put the seed in the ground then larger orders may have to wait till the next growing season."
Communication is a big part of successful sourcing. "It's about asking the right questions about supply and availability up front. A client needs to have an idea about how much they will need early in the process and when they will need it by," says Camille Nava Janssens, director of sales for Marroquin Ingredients. To make sourcing even more efficient, her advice is to track and share sourcing information interdepartmentally, and perhaps even to create a sourcing database on the company server.
Planning and communication can happen at many different levels. For some it may be as easy as calling the supplier. Other times you need to go to farmer directly. "Sometimes you have to get more active lower in the chain to get what you want," says Bob Anderson, president of the organic consultant group Sustainable Strategies and founder of Walnut Acres, one of the first nationally distributed organic product lines. When there was an oat shortage, Anderson helped companies work with oat cooperatives to ensure they had the raw material and then work with their preferred processor to get the quality desired.
Those new to the organic industry may want to get a little help, at least in the beginning, from a consultant or broker. Someone who knows the intricacies of the organic supply chain can help you find, plan and communicate with producers.
Anderson and others like him have helped many processors find what they need from producers around the globe, and brokers like Marroquin Ingredients have invested years working as a liaison between processors and producers to develop and import specialty ingredients such as organic yeast. The OTA lists consultants on its "Organic Pages" web directory. OTA also offers an "Ingredients Wanted" forum where processors can post ingredient requests (www.theorganicpages.com/topo/ingredientsourcing.html).
The final step in the plan of action is to make the commitment. "When you find what you need, lock it in," says Anderson. "If you wait till the spot market, you may be too late or you'll pay a premium that will eat away at your margins."
This commitment often involves some risk sharing or co-venturing, including contracting with farmers or suppliers at some level. Because these are smaller operations, if one processor backs out on an order that the farmer based his crop on, it could bankrupt him. Givens suggests that, depending on the volume, processors might want to go so far as to help farmers convert to organic. It takes three years to convert land to organic. During that time, farmers must farm organically while they're only getting conventional prices.
"The organic community is still a small community and we are still building infrastructure as we go," adds Givens. "By working with farmers, you're encouraging growth and by making this commitment you will be ensuring that they will have a market for their product when they are done with their transition."
New ingredients meet demand
Like any business, the organic supply industry operates on supply and demand. If enough processors tell ingredient suppliers they want an organic version of something, then the ingredient suppliers will respond. "It is not a question of if the supply could be available, it's about if there is enough demand to justify the time and money it cost to make that product," explains Marroquin. "As demand grows, more players will step up to meet it."
When a company says its ingredient is certified organic, make sure it is "USDA Certified Organic." The European Union and other countries have their own certification programs, but these certifications are not considered valid in a USDA-certified product. In order for the end product to be approved by a USDA certifier and sold as organic in the U.S., every organic ingredient must be approved by a USDA-accredited certifier. You can find a list of these certifiers at: www.ams.usda.gov/nop/CertifyingAgents/
PL Thomas (www.plthomas.com), Morristown, N.J., is one of those that has stepped up, launching organic guar gum, locust bean gum, carob powder and, most recently, an organic rosemary used as a non-synthetic preservative. "With all the regulations, many clients won't even bother with it unless it's certified organic. That's why we're always wanting to do more," says Rodger Jonas, national business manager. PL Thomas also plans on coming out with extracts such as maple, St. John's bread, chicory and horehound.
In fact, organic is getting more flavorful everyday. "Four years ago, people thought organic flavor compounds were impossible but today organic products have many of the same flavor options as conventional," says Tony Moore of Moore Ingredients (www.moorelab.com), Hamilton, Ohio. And the flavors are in plentiful supply, he adds, with the exception of some limitations with blueberry and organic exotics such as mangosteen and goji berri. Mastertaste (www.mastertaste.com), Teterboro, N.J., also has expanded its line of organic oleoresins, extracts, essential oils and concentrates.
Organic is getting more colorful, too. "Colors are used in such small quantities in processing in general, and even smaller in organic, so there just wasn't enough demand. But today more and more people are asking for them," says Helen Greaves, operations vice president at Food Ingredient Solutions, (www.foodcolor.com), Teterboro, N.J.
The first color to come out in organic was caramel, which is in greater use than other colors. Having been in the market for some time, organic caramel manufacturer Sethness Products Co. (www.sethness.com), Lincolnwood, Ill., has worked out supply kinks and has never turned away a food processor for lack of supply, says President Brian Sethness.
Food Ingredient Solutions makes organic reds from elderberry and beet, as well as ground paprika and turmeric for soup mixes or other products that don't require complete solubility. Moore Ingredients recently came out with an organic turmeric and hibiscus, which are water soluble and can be used to create a range of yellows, oranges, pinks and reds. However, many colors are not commercially available quite yet.
Other ingredient challenges have less to do with agricultural availability than with paperwork. For instance, the exotic berry seabuckthorn, a popular high-antioxidant functional food, grows everywhere in Armenia but is still going through the USDA certification process. Acai, another popular wild berry from Brazil, went through the same challenge but now there is a solid supply thanks to companies such as Sambazon (www.sambazon.com), San Clemente, Calif., which made the effort to get it certified.
While waiting for the exotics to become available, processors can incorporate more readily available fruits with some of the same benefits, such as high-antioxidant cranberries. By working to convert farmers, Decas Cranberry (www.decascranberry.com), Carver, Mass., expects to double its organic supply next year.
One of the final frontiers of organic supply seems to functional ingredients -- alternatives to emulsifiers, phosphates (used in meats) and stabilizers, says Lombardi. Prior to National Starch's Novation line of functional native corn, tapioca and rice starches, most organic processors had to use traditional native starches, which don't hold up to processing very well, according to Lombardi.
Ribus Ingredients (www.ribus.com), St. Louis, also answered the call for functionality with Nu-Flow anti-caking agent and flavor carrier, a replacement for synthetics such as silicone dioxide.
Overall, organic ingredient demand is being met with more and more products every day, strengthening the supply chain and forging a path for organic processors to meet the needs of organic consumers.