Organic groups watch for trends as food prices rise

Leaders of Ontario’s organic food production and processing sectors aren’t ready to declare a trend but there are indications that recent food price inflation has affected consumers’ willingness to pay premium prices for organic options.

“There have been a few emails coming through from people concerned about how this is going to affect organics,” Organic Council of Ontario (OCO) Executive Director Carolyn Young told Farmtario.

Why it matters: Production costs for organic farmers tend to be significantly higher than for their conventional counterparts so they need assurance of premium prices for their products if they want to remain certified.

Young said some OCO stakeholders offered anecdotes to support their concerns but others have seen demand remain strong. OCO’s membership is a spectrum of the organic value chain from producers to processors to distributors.

The Dairy Farmers of Ontario (DFO) milk allocation and marketing organization does see a trend. It announced in July a decrease in the previously planned production allocation for organic farmers from August through December 2022.

“As inflation takes hold and a potential recession is on the horizon, consumers are watching their spending carefully and reducing where necessary,” said DFO’s Chief Business Officer Kristin Benke. “Purchases of premium products, like organic foods, tend to be reduced first.”

Young says anecdotal reports aren’t enough to ring the alarm bell.

“We don’t have any hard data yet,” she said, adding that factors including labour shortages and consolidation on the processing side make it difficult to pinpoint food price inflation as the cause of changes in the marketplace.

Food consumers cutting back on premium purchases is happening, however. Canadian Celiac Association Health Promotions Manager Nicole Byrom told CTV News in July that a gluten-free household in Canada could have grocery bills 200 per cent higher than households consuming no premium-priced products.

With rising prices, Byrom said she has learned of households reverting to non-gluten-free products despite the health risks She encouraged them to contact the Celiac Association for information about a tax break program available to people with gluten intolerance.

The premium paid to eat organic varies depending on the product. Mario Goulet, vice-president of marketing for duBreton, said the Quebec-based pork processor typically pays approximately twice the price at the farm gate for organic hogs compared to conventional, while the premium earned at the store ranges between 25 per cent for organic ground pork to 100 per cent for organic tenderloin.

Goulet identifies two main types of organic consumers.

“The core organic customer is buying because of the value they have. They want non-GMO, they want good animal welfare, they want no pesticides. And those customers tend to buy all their products organic, a lot of the times in a specialized store,” he said.

He believes most of these consumers will make the budgetary adjustments necessary to continue buying organic.

The other main group only buys specific organic products. Like Young, Goulet suggested it’s too early to tell if food price inflation has changed the habits of this group.

Even before COVID-19 and the subsequent inflationary period, Goulet said a trend had developed in Canada of conventional grocery retailers – ranging from the upper-scale through to the discount-focussed – joining the organic market in some way. They were being urged by consumers, he said, and “now, I think all retailers want organics on their shelves to some degree.”

Since 2019, duBreton has seen annual increases of about 10 per cent in its organic pork and deli business, he added.

A decades-old, family-owned company, duBreton started its organic business in 2002 using hogs raised by members of Ontario’s Amish and Mennonite communities. The company’s goal is to become 100 per cent organic but it now markets three streams of premium-priced pork: certified organic, certified humane and antibiotic-free.

Depending on market demands, some farmers who supply the company’s certified humane label can switch to certified organic by providing outdoor access and feeding an organic ration.

“We currently work with 189 farms in Ontario,” Goulet said. Those are among about 400 farms in total, with the majority in Quebec and a few in New Brunswick. Organic hogs are typically taken to duBreton’s slaughtering plant in Riviere de Loup, Quebec. They also have three further processing plants.

The biggest hurdle in marketing more organic pork is convincing consumers to buy all cuts from the pig.

“It’s easy to sell tenderloin but shoulder and trimmings can be an issue,” Goulet said.

Young said she has heard of a slowdown in demand for Ontario-raised organic hogs. If that’s true, she believes the reasons lie south of the border and not in Quebec.

Even for a processor as large as duBreton, it’s difficult to operate on the scale necessary to serve markets in the U.S., European Union and China. As much as 80 per cent of Ontario-raised organic hogs, historically, have been processed in the U.S.

COVID-fuelled labour shortages that plagued the American meat-packing sector continue to reverberate, with Ontario’s organic hogs likely among the many commodities caught in the crossfire.

Challenges at medium-scale

It’s a scale-related challenge that manifests itself in different ways throughout much of Canada’s organic industry, said Young. To be successful in processing, players generally need to scale up. When they do that, it doesn’t make financial sense to serve small retailers. Yet small retailers are the ones with customers who typically remain loyal to organic foods through thick and thin financial times.

On the farm side, an individual farmer can supply an individual store and big supply chains can supply larger-scale retailers.

“But that middle scale is hard to fill, and that’s where a lot of the growth in demand exists,” Young said. Canada’s organic sector “easily gets caught in that gap in supply and demand … in the middle-sized value chain.”

Stacey Ash, manager of communications and marketing for Ontario Pork, said that “marketing hogs – whether conventional, organic or other niche production – is always a balance between the cost of production and what consumers are willing to pay. That dynamic has changed through the course of the COVID-19 pandemic.”

Young suggests Ontario’s producers might be getting hit from both sides: the cost of production continues to rise and food prices are rising, affecting demand. That makes it hard to tell, as a producer or distributor, whether the products are dropped from grocery store shelves because the price for the consumer is too high, the cost for the retailer is too high, or a combination of both.

Goulet said one possible effect of food price inflation could be difficulty in attracting new organic consumers.

“I think we can expect, over the next year, a slower increase in the organic market,” he said.

Young agrees that tighter budgets for young families, who are among the demographics successfully targeted by organic marketers in the past, could deter them from choosing organics. “When you think about all the pressures there are on young families, you could certainly understand if that happened.”

But she also sees a possible silver lining for certain organic marketers including duBreton. Young believes many consumers may start buying lesser-quality cuts of organic meat or less expensive varieties of organic fruits and vegetables rather than switch from organics.

That could mean duBreton would have less difficulty selling ground pork, and Ontario-grown organic vegetables, fruits and berries could become more popular than exotic, imported varieties.