Are consumers still willing to pay a premium for organic products in the current economy?

The answer is "yes" in the opinions of Laurie Demeritt, president and chief operating officer of The Hartman Group, Bellevue, Wash., and Kara Nielsen, a trendologist for the Center for Culinary Development, San Francisco.

"Consumers are not leaving the organic marketplace, but they certainly are making decisions about what matters to them within organic and what doesn’t," Ms. Demeritt said. "So we are starting to see some consumers who are having to make some trade-offs because of the economic situation, but we certainly don’t believe that means people are leaving the category entirely."

The organic products that appear to be most recession-proof are the "gateway" organic products, which include perishables such as dairy, produce, meat and other perimeter-of-the-store items.

The Hartman Group found meat and poultry, fresh fruit, soymilk, milk, fish and seafood, and bread are the top fresh categories organic consumers are willing to pay 30% or more for than the conventional version. In fact, meat and poultry increased from 54% of organic consumers being willing to pay such a premium in 2006 to 65% being willing in 2008, and milk increased to 62% in 2008 from 49% in 2006.

"(Consumers) are going to spend the extra money on organic," Ms. Demeritt said. "Now what they then tell us is they may no longer be buying organic cereal for their husband, they may try to save with coupons in other categories, or they may try to go to the channel that has the least expensive organic milk. So they are certainly coming up with strategies, but there are certain products that consumers say, ‘Look, this is so important to me because it’s about the health of my children or the health of myself that I’m just unwilling to make a trade-off there, and I’ll find trade-offs in other areas of my life.’"

The Organic Trade Association, Greenfield, Mass., said consumers continue to buy organic to support organic agriculture and provide their family with items that protect them from pesticides, synthetic hormones, herbicides and antibiotics.

"While natural/organic products are no longer recession-proof, the growing interest of consumers and their increase in demand will continue to spur strong growth for these products," said research company Packaged Facts. "In addition, while expected trade-offs will occur, overall consumption will remain strong as dedicated core consumers remain steadfast in their shopping as other luxuries are curtailed, possible increases among these and more transient shoppers may occur."


Motivation to buy and sell organic

Overall, food safety issues and food recalls have contributed to the rise of the organic market, Ms. Nielsen said. Consumers have seen more staple foods recalled and are keenly aware food may not be safe, and organic is perceived as a safer alternative.

There seems to be tension developing between the continuation of food safety issues and consumer desire to make trade-offs in the current economy. If additional food safety issues continue to make consumers concerned about the safety of food and want to buy organic, the trade-offs they might have to make in order to afford to buy additional organic products may become more complex.

"Consumers are already picking and choosing what they will spend extra for," Ms. Nielsen said.

The concept of the farmers market and buying local is another way consumers are trying to ensure food might be safer, and in some instances local might prove to be a bigger trend than organic.

Ms. Nielsen said consumers are often buying local even to the exclusion of buying organic. With this mentality, if consumers have to choose between buying local or buying organic they might buy local, and this might have a negative impact on the organic market.

In fact, The Hartman Group found local buying is overtaking organic in terms of importance with 52% of respondents to a 2008 study saying it’s important for them to buy locally grown food whenever possible, whereas only 23% said it’s important for them to buy organically grown food whenever possible.

In terms of food service, Ms. Nielsen said small, individually-owned restaurants might be using some organic products on their menu. But for large chain restaurants she said it’s difficult to commit to putting organic products and ingredients on the menu simply because of the volume of supply they need. One exception is the Organic to Go chain. Ms. Nielsen said it might be more likely for restaurants to focus more on local ingredients and products before they go to organic items on the menu. Burgerville, with its restaurants in Washington and Oregon, is an example of a restaurant doing this.

The Hartman Group found 36% of consumers were concerned about and prioritized organic foods being available at local schools and 30% prioritized organic foods at fine dining restaurants. When it came to full-service restaurants, that number dropped to 18%.

Overall, Ms. Nielsen said a lower price point, a better understanding of what organic means and stories about how organic products are produced and why they are important may help the organic market to grow.

In terms of what might drive the price of organics down, Ms. Nielsen said it will be up to the laws of supply and demand.

"If you have more and more retailers, manufacturers and restaurant operators pledging to try to incrementally raise the amount of products they have that are either natural, humanely raised, or organic, it’s going to be a sign to producers that there is a market for the product, and they will continue to switch over," Ms. Nielsen said. "Or we are going to have the mega-producers start to grow more of their things organically."

As basic economics would predict, Ms. Nielsen said the more organic product there is, the lower the price point will be. The economic considerations become more complex as some small organic farmers are struggling. For example, oversupply and not enough demand has led HP Hood, Lynnfield, Mass., to recently tell eight organic dairy farmers in Maine their contracts won’t be renewed. The Northeast Organic Dairy Producers Alliance said many organic dairy farmers are being faced with difficult decisions to either take on more debt or cut back on household expenses such as health insurance or sell their cows to pay down existing debt. The alliance said the higher prices consumers pay for organic milk and dairy products doesn’t mean a high milk price for family farmers. Since 2001, the average price paid to farmers for organic milk has increased 29% while operational costs have increased by at least 50%, the N.O.D.P.A. said.


A look at the numbers

According to a study by The Hartman Group conducted last year, 69% of U.S. consumers purchased organic and 31% did not. The study said overall organic usage has leveled off somewhat in recent years. But because so many consumers are already buying organic products, the chances for new growth in the market are more limited.

"We don’t think there is going to be a ton of new entrants," Ms. Demeritt said. "We do see people who are already engaged sometimes buying new products or more products. So we think a lot of the growth is going to come from folks who are already buying, but they maybe only are buying a few organic items."

Ms. Demeritt said all demographics purchase organics, but there are some regions in the country where it is easier to access organic products than others. Overall, lifestyle and values drive the market, she said.

The Hartman Group said the largest organic consumer segment is the mid-level consumer, which represents 65% of organic consumers. These consumers think fresh organic foods and beverages taste better than conventional, demonstrate frustration as price makes it difficult to incorporate more organic offerings into their purchases, are often confused over the meaning of organics, and are interested in short, pronounceable ingredient lists.

In the 2008 study, The Hartman Group found the most commonly purchased organic products were fresh fruit, fresh vegetables, eggs, meat and poultry, and bread. In 2006 the top rankings were fresh vegetables, fresh fruit, bread, eggs, and milk, respectively.

The Hartman Group found core consumers are becoming even more engaged in buying organic and moving into non-food categories, but mid-level consumers are leveling off their organic purchases.

According to the O.T.A., 2008 sales of organic food and beverages were projected to reach nearly $23.6 billion. The O.T.A. said organic food is still the largest segment of organic products and makes up over 95% of organic product sales and represents $16.7 billion in sales, according to its most recent numbers from its 2007 Manufacturer Survey.