Could slower growth of organic dairy & eggs portend a larger threat to organic overall?

By Elizabeth Crawford

- Last updated on GMT

Could slower growth of organic dairy & eggs portend a larger threat to the overall organic industry?
Record organic sales of $49.5 billion last year are overshadowed by a slowdown of organic dairy and egg sales, which the Organic Trade Association attributes partly to USDA’s abrupt withdrawal of a widely popular rule that would have strengthened animal welfare standards under the seal.

“Top line growth for the industry was 6.4% in 2017 – that is six times the rate of the food market as a whole,”​ but “that number was dampened by the first time we have seen real close to flat growth in dairy and eggs,”​ which grew only 0.9% to $6.5 billion last year, Laura Batcha, CEO of OTA, told press at the association’s annual policy conference in Washington, DC, last week.

“This is an issue that we have been concerned about over time and are watching very closely because the … dampening of that one part of the marketplace is tied to the failure of USDA to move forward with animal welfare standards in organic,”​ she said.

She explained that the industry worked hard to build consensus around the Organic Livestock and Poultry Practices rule to clarify animal welfare standards under the organic seal, which was finalized during the 11th​ hour of the Obama Administration and then withdrawn by USDA after the Trump Administration took office despite protestations by industry.

According to OTA, the “squelching of this regulation widely supported by the organic sector caused millions of consumers to question the meaning and relevance of the USDA Organic seal as it relates to dairy and egg products. This confusion and uncertainty dampened consumer demand for both organic eggs and organic dairy.”

Batcha said the coinciding withdrawal of the updated animal welfare standards and the slowdown in eggs and milk is a “watershed moment”​ that could portend trouble for the larger organic segment if it signals USDA is unwilling to hold up its end of the public-private partnership on which organic is based.

“When industry developed the [organic] standards with environmental scientists and with consumer groups and brought them to USDA there was a well-defined, understood view that these standards were not chiseled in stone and static – that when the law was passed, they contemplated that these standards would need to be refined and developed over time,”​ Batcha said.

However, she added, “it is a new environment now where government is saying in the public-private partnership with industry [that the government] has gone as far as [it is] willing to go with this. [Its] view is you have got what you got.”

She said she fears that failure of the organic seal to evolve going forward could cause sales stagnation.

“When the business community says the integrity of the seal matters to our business that is not just a sort of throwaway statement. That is a real concern about the business investments over the long-term,”​ she said.

For support, she noted how quickly sales of organic skyrocketed once the standards were harmonized under a verifiable program.

“In 1990, when the law was passed, there was about a billion dollars in sales in organic. When the seal kicked in in 2002 and compliance on the National Organic Program was instated sales were at about $8.6 billion, and we are at $50 billion now. … The strict, rigorous standard in the market allowed the public to buy in a big way into organic as a gold standard,”​ she said.

Other contributing factors to the slowdown

Placing all the blame for the slowdown on the withdrawal of the animal welfare standards is not entirely fair, as several other factors also likely contributed.

For example, Batcha suggested that the slowdown in organic egg sales also could be attributed to a “splintering”​ in the segment with the emergence of other claims, such as pasture-raised.

In addition, she said, “the dairy market is more complicated and less direct to get hands around than the egg market because parts of the dairy market are very healthy and some of it is shifting taste around fat and some of it is shifting taste in plant-based beverages.”

She explained that the shift to more plant-based offerings came at a time when a new wave of organic dairy hit the market, leading to an oversupply that drove down prices. On the bright side, this also helped sales of organic ice cream climb 9% and organic sales of cheese increase almost 8%.

An overall good year for organic

The slowdown in organic eggs and dairy comes “in the context of a lot of good news about the organic market in terms of growth,”​ including strong sales of fresh organic produce, increased distribution of organic products and better pricing on organic at the store level, Batcha said.

According to OTA, fruits and vegetables are the largest organic food category, accounting for $16.5 billion in sales in 2017 on 5.3% growth. A closer look reveals that within this category, organic dried beans and dried fruit and vegetables stood out with a 9% increase, the association added.

The growth in produce also is notable because unit growth exceeded dollar growth last year – underscoring the widespread availability of organic produce and the ability for retailers to offer better prices, Batcha noted.

Organic beverages also saw a 10.5% increase in sales last year to $5.9 billion, led by a near 25% increase in fresh juice sales to $1.2 billion. Organic non-dairy beverages also gained traction last year, according to OTA.

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