Organic food industry faces a supply crunch

There has been talk of some leading brands switching products out of organics and into the conventional market because corn and soybean supplies are so tight and prices keep rising, said Peter Golbitz, president of Soyatech, an information and consulting company.

Some companies run a hybrid operation, producing some certified organic products and others conventionally. The maker of Silk, a popular brand of organic soymilk, has recently started selling new products that aren't certified organic.

A spokeswoman for Silk's parent company WhiteWave Foods, which is a unit of publicly held Dean Foods Co., said 60 percent of the Silk soymilk product line carries the USDA organic seal. New products Silk Live and Silk Yogurt are made with some organic soybeans, but not enough to qualify them for "made with" status. She declined to say why the company has chosen not to produce 100 percent organic and forgo the coveted organic label on some of its products.

"A very high percentage of our members say that if they could get more organic ingredients, they would be able to market more organic products," said Wilcox of the organic trade group.

Historically high prices for conventional corn and soybeans may have pressured some would-be organic farmers to stay in the conventional market, said Allan Routh, president of the grains and foods group of SunOpta Inc., a publicly traded processor of organic grains and producer of private-label organic soymilk.

The three-year transition to an organic farm "is rarely done strictly as a matter of economics," Routh saod. It's often as much a philosophical move, an acceptance of a particular belief system. Still, some farmers who considered going organic two or three years ago may have been tempted by promise of record prices to keep their farms conventional.

Demand for ethanol in the U.S. and biodiesel abroad has helped send prices of corn and soybeans to record highs. At the same time, the rapid expansion of China, India and other developing nations has multiplied demand for agricultural products for both food and fuel in those countries.

The key question for organic food makers remains, how much are shoppers willing to pay? Organic grocery prices are in many cases already well above those in the regular grocery aisles. Just how much is the "certified organic" label worth to a paying consumer?

The Natural Marketing Institute conducts an annual survey of 26,000 consumers nationwide. Five years ago, when asked whether organic food and drinks are worth paying an extra 20 percent for, 17 percent of respondents completely agreed or somewhat agreed. In 2006, that number rose to 26 percent — a significant increase in the general population shoppers who are willing to pay more, said Maryellen Molyneaux, NMI president.

But what's really important is what she dubs the "devoted" segment of the market, the "core organic user."

"They have almost double the spending of any other segment," and account for roughly 75 percent of all organic spending, Molyneaux said. "They have integrated organic into their lifestyles."

"I wouldn't say they don't have a price limit," she said. "But I would say they are significantly less price conscious. They're willing to sacrifice in other areas to buy organic."

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