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organic marketing pricing
Organics’ Premium Pricing: Not What It Once Was
Sticker shock morphing into pleasant surprise for shoppers.
PBY CAROL BAREUTHER
rice is the No. 1 factor cited as a purchase influencer by food shoppers of all types, but it’s not the only reason. The next most important attributes are ‘healthy,
nutritious choice’ and ‘taste,’ according to the 2017 U.S. Families’ Organic Attitudes and Beliefs Study, published by the Washington, DC-headquartered Organic Trade Associa- tion (OTA).
Although organics is typically priced higher than its conventional counterparts, sales of organics and especially organic produce are booming. The organic fruit and vegetable sector, which accounts for nearly 40 percent of all organic food sales, grew 8.4 percent in 2016, almost triple the 3.3 percent rate of total produce sales, according to the OTA’s 2017 Organic Industry Survey. One reason for this may lie in a lessening of the organic premium.
“There’s a market for those people who are loyal to organics and choose to vote with their dollars — whether it’s due to health concerns or a personal mission,” says Jeff Fairchild, produce buyer for New Seasons Market, a 20-store chain headquartered in Portland, OR, where an average of 75 percent
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of produce sold is organically grown. “Others are more value driven, and if you can offer them a reasonable and sustainable price on organics, you’ll bring them in-store. Organic shoppers are good ones to have because they tend to purchase more produce overall.”
THE ORGANIC PREMIUM
The organic premium is the price differ- ence between the organic and the nonorganic price of an item when factors such as the type of store sold, time of year and geographic location are the same, as defined by the USDA’s Economic Research Service (ERS) in its May 2016-released report, Changes in Retail Organic Price Premiums from 2004 to 2010. This report looked at 17 organic foods, six of them fresh produce, using 2010 Nielsen Homescan data. Results showed premiums ranged from 7 percent for fresh spinach to 60 percent for salad mix.
This premium doesn’t necessarily deter sales. For example, 17 percent of people who purchase organic at least sometimes were willing to pay up to 35 percent more for organic vegetables, and 27 percent were willing to pay 20 to 34 percent more, according to the Organic & Natural 2016 report, by The Hartman Group, in Bellevue, WA. This is especially true of Millennials, who prioritize spending more on food they see as higher quality, healthier and better tasting. Millennials, those aged 18 to 34, overtook Baby Boomers as the largest
PHOTO COURTESY OF CAL ORGANICS
consumer group in 2016, according to U.S. Census Bureau data.
It does cost more to cultivate organically grown fruits and vegetables.
First, there’s the land itself, explains Mayra Velasquez de Leon, chief executive of Organics Unlimited, an organic banana and tropical fruit grower/shipper headquartered in San Diego. “Organic bananas must be grown on land that is suitable for organic use and can be certified as such. This means it must be either virgin land (nothing grown on it previ- ously or only organic grown on it), or if it was used for conventional farming, a process must be undertaken to convert it to organic farming soil, which can take some time. This means that land is not ready-accessible cheaply.”
Second, organic farming methods add additional costs.
“One of the biggest differences compared to conventional is organic farmers have fewer ways to deal with big pest problems,” says Nathalie Fontanilla, Earthbound Farm’s vice president of research, development and innovation. “We have to work hard to build a balanced ecosystem on our farms so no one pest takes over. When everything’s in equi- librium, we see yields very similar to conven- tional farms for the same crop. But there’s a lot we must do manually, such as weeding. That’s inherently going to create more cost. As organic farms gain scale, we do gain some effi- ciencies, though, and that helps us offer items priced more competitive with conventional.”