Demand for Organic Produce: Market Shares, Price Premiums and Consumer Demograhics

Summary

The market for organic foods has grown rapidly in the past decade as they have become more available and affordable for consumers in mainstream grocery stores. This study analyzed and compared household purchases of organic fresh fruits and vegetables before and after the implementation of the National Organic Program using the 2001 and 2004 Homescan panel data obtained from ACNielsen.

Situation

America's appetite, like her population, is always changing. The U.S. population is wealthier, older, more educated, and more ethnically diverse than in the past. These features are likely to become more pronounced in the future and consequently affect the demand for agricultural and food products. The market for organic foods has grown rapidly in the past decade as they have become more available and affordable for consumers in mainstream grocery stores. In 2000, for the first time, conventional supermarkets sold more organic food than any other venue. According to an annual survey conducted by the Organic Trade Association (OTA), growth in the U.S. organic industry has been fairly consistent, averaging between 15% and 21% per year since 1997. Demand for organic foods are expected to continue as more conventional retailers take up a larger portion of the organics market. Among the organic food categories, fruit and vegetables by far comprised the largest retail sales ($5.4 billion in 2005), having grown at an average annual rate of 21% during the period 1997-2003.

Response

The increasing popularity and availability of organic food may in part be due to the implementation of national organic standards by the USDA in October of 2002 which provided uniform labeling for consumer recognition. What consumers are actually buying and paying in the marketplace when they have a choice between organic and conventional produce needs to be examined. An understanding of the demand for organic food is important for farmers, marketers, and retailers in terms of adopting production and marketing schemes that optimize the use of farmland and shelf space. Thus, a study was conducted to analyze and compare household purchases of organic fresh fruits and vegetables before and after the implementation of the National Organic Program using the 2001 and 2004 Homescan panel data obtained from ACNielsen.

Impact

Tomatoes, potatoes, carrots, onions, lettuce, apples, oranges, bananas, grapes, and strawberries are the top five most frequently purchased fresh vegetables and fruits. Organic tomatoes (11%) and apples (8-9%) held the largest market shares in both 2001 and 2004. Bananas and strawberries had increased market share significantly from 6% and 2.3% in 2002 to 7% and 3.3% in 2004, respectively. However, lettuce and carrots both declined in market share over this period. Average expenditures for these top five fruits and vegetables increased by 22% between 2001 and 2004, though expenditures on lettuce and carrots showed a slight decline. Organic farmers rely on the premiums that organic foods carry to justify their extra costs incurred in organic agricultural production. High premiums usually indicate high demand, signaling to producers which markets may be expanded. However, high prices also may deter consumers from buying organic foods. Based on the Homescan data, we estimated overall premiums that consumers paid for organic produce increased by 15% between 2001 and 2004, most notably in apples and potatoes. Premiums on organic tomatoes, however, fell by about 7.5 cents per pound, almost 30%, during this period. With respect to demographic characteristics, race seems the most significant factor associated with organic food expenditures. Asian Americans were the most likely group to purchase organic produce. On average, Asian Americans spent 133% more on organic produce than Caucasians in 2001. However, Hispanic consumers emerged to become the largest ethnic group of organic produce consumers. Blacks showed the largest difference, spending 61% more in 2004 than in 2001. Although households with earning over $100,000 a year buy more organic produce than their counterparts in other income brackets, there was no significant difference between any group in the amount spent on organic fruits and vegetables relative to total produce expenditures. The findings suggest that income seems to have little effect on the purchasing of organic produce, i.e., high income households are no more likely to be users of organic produce than low income households.

State Issue

Agribusiness Development/Value Added

Details

• Year: 2006
• Geographic Scope: National
• County: Clarke
• Program Areas:
  • Agriculture & Natural Resources