Organic Beef Sales: Frustration Finally Gives Way to Forward Progress
By Ann Hansen
Finally, finally, there’s a real and growing market for certified organic beef.
Since consumer demand took off after the December, 2003 mad cow scare, an unprepared industry has been scrambling to catch up. Marketers would have been scrambling even harder, but years of delay and frustration over labeling issues have created a high level of buyer confusion over the differences between “natural,” “grassfed,” and “certified organic.” Sellers believe this is significantly slowing sales of higher-priced certified organic beef. And, while tight supplies mean slower growth isn’t all bad at the moment, if the industry doesn’t start to mature quickly then new competitors on the horizon could further muddy the market’s waters.
Labeling delay moved frustrated producers into other market niches
“The biggest challenge we faced with the organic meat industry was being able to label it as organic,” said Tedd Heilmann, pool director for the meat program at Organic Prairie, the two-year-old wholly-owned meat-marketing subsidiary of CROPP-Organic Valley in La Farge. By the time the USDA finally allowed organic labeling on meat in 1999, competition in the premium-meats category had become well-established, he said. “As the organic meat industry started to emerge, we found that ‘natural’ meats were our greatest competition and greatest barrier to achieving consumer acceptance. There’s no analog in the dairy or other organic sectors for that – there’s no ‘natural’ milk.”
“We thought we’d be where we’re at now probably five years ago,” Mr. Heilmann said. A shortage of producers is also hampering growth, say many in the industry, even though beef is one of the easiest of all foods to produce organically. Beef-quality pasture and hay are fairly simple to manage in compliance with organic regulations, organic grain for finishing is available if not always cheap or handy, and there are far fewer health issues with beef cattle than with dairy cattle. Most of the rest is simply a matter of skipping the hormone implants and antibiotics in the feed, and keeping the records.
But many beef producers who had been certified in the 1990s quit when the USDA continued to refuse organic labeling for meat. These producers watched in frustration as sales for other categories of organic foods soared through the 1990s. Many turned to the natural or grassfed categories, or established their own direct sales, where they could deal with customers who trusted them and didn’t require a certified organic label.
“The meat part of the organic industry is still years behind the rest of the industry,” said Organic Trade Association Executive Director Katherine DiMatteo. “We went in many times to argue that this (labeling restriction) was ridiculous and unnecessary. By 2002 when the USDA standard was implemented, people had either stopped producing the meat or found other markets.”
Multi-layered beef market difficult to track
National companies like Organic Prairie and Dakota Beef that market certified organic beef through grocery stores and other retail outlets are working to increase demand through consumer education, and at the same time trying to rapidly increase supply in an industry where going from birth to butcher’s case can take from 16 months to two years and more, depending on the animal’s genetics and production regimen. And that doesn’t take into account having to first raise the cow that produces the calf, or the time it takes for newcomers to transition to certified organic production.
“The more successful we are, the more people are willing to become certified organic. The demand is greater than what we can supply,” said Dakota Beef’s vice-president of marketing, Seldon Moreland. The 3-year old company, which finishes, processes, and markets cattle from certified producers, rolled out its first product in October of 2003 and is planning on processing 1,200 head in 2006 at its plant in Howard, South Dakota. “But getting shelf space is not a slam-dunk. It’s the meat managers you have to convince to give you space, and there’s a lot of supply issues and costs-of-samplings,” he said. “And consumers are still checking price tags. You add an extra quarter, you’ll get edged out. What we’ve found the most rewarding is to get people tasting it.”
Another market wrinkle is the unknown number of organic or nearly-organic beef producers who sell directly at farmers markets or straight from the farm. This may represent significant competition for retailers of organic beef. Or it might be benefiting the whole sector by promoting consumer awareness, and by catering to that segment of consumers who otherwise wouldn’t pay the retail mark-up for organic in a grocery store. No one knows for sure. “These direct sales never get tracked anywhere,” Mr. Heilmann said. “I know in our area a lot of organic beef is going direct from the farm to the consumer. They can purchase organic beef at a good price.” He points out that a producer will make more money at direct sales, but for the many who are not interested in the intense labor of doing their own marketing, and for the majority of consumers not interested in driving out to a farm, a marketing organization like Organic Prairie fills a big gap.
“There’s layers in the marketplace,” Ms. DiMatteo said. “There’s different markets and different customers, and there should be different business approaches. There’s producers who stay small or medium sized, because they don’t want to have salespeople and deal with shippers and distributors or get contracts with mainstream retailers. There there’s other people who are saying this is a very large market, and set a goal of national distribution. That becomes a different business plan. I don’t think there’s uniformity in the customer base, so there needs to be different places where they can buy.”
Producers find success with variety of market approaches
Donna Foster, who direct-markets the grain-finished certified organic beef from her and her husband, Bill’s, 60-cow certified Angus-cross herd in Little Suamico, WI, (about 15 miles north of Green Bay), both competes with and sells to Organic Prairie. “Unless a person is very educated about organics, they do not understand the difference between natural and organic. That’s one of the biggest hurdles,” she said. “I direct-market the majority of our animals, and I sell to a couple of health food stores. I’ve managed each year to sell more, but if they’re ready to go and I don’t have a market, they’re going to have to be sold elsewhere. This past year I sold some animals to Organic Prairie.”
Bill Larson and his son, Paul, of Larsons Greenfarms in Brodhead, WI, direct-marketed their own certified organic beef up until last year. Like the Fosters, they found it was a good way to add value to the organic grain crops they were already raising. Now they’ve found a market niche between the Fosters and large operations like Organic Prairie. “We still produce beans, corn and hay, but we sold the herd last November. There wasn’t enough time. Now I buy from producers and market the cattle both wholesale and retail. We have done as many as 40, 45 animals a year. I am looking for more producers, people who are passionate about their herd, who are looking to get paid a fair amount, who are going to be steady with their production. The biggest problem in organic beef right now is finding people who are producing, and being able to fill the orders,” Paul Larson said. Because he sells across state lines, he, like the big operators, must take his animals to a federally-inspected processing plant that is also organically certified.
“Our butcher is 150 miles away – Terry Currens at the Edgewood Locker in Edgewood, IA. In Wisconsin you couldn’t find a (federally-inspected) plant. That’s another side of the industry – the packing plants,” he said. But he believes there’s a growing appreciation among consumers for small plants that are producing artisan products, which may be a promising market niche for small producers. “Wisconsin has a long tradition with cheeses, and now I think some of these small packing plants are starting to come back.”
Barry and Libbie Quinn send their beef steers to Cook’s Valley Processing, which is not organically certified but is well known and trusted by their customers and just a few miles from the Quinn’s farm near Bloomer. With help from their four children – Nick, Mitch, Jacob, and Jaki – they raise six beef calves each year on their small farm, along with some pigs and sheep, which they direct-market to relatives, friends, and neighbors. Though they aren’t certified organic, they could be.
“We just wanted to get good food for our own family,” Libbie Quinn said. “The whole project pays for our meat. We’d need to expand the operation to pay for certification.” “Most of our customers are really interested in organics,” Barry Quinn said. “We charge them for (higher feed costs), but we don’t charge them organic prices. When you add all these other expenses (for becoming certified) and charge organic prices, I don’t know if you’re making any more money.”
The family raises its own hay, and buys certified organic grains from S&S Grains in Arcadia, WI. The extra cost and inconvenience is worth the trouble, they said.
Grain isn’t the culprit in high retail prices
But not everyone agrees. The cost of certified organic grain is often pointed at as an important deterrent to organic beef production, and a major reason for retail organic beef prices that are double and triple those of conventional beef.
Cashton Farm Supply owner and manager Ernie Peterson said he’s heard all the complaining about organic grain prices, but disagrees that they’re really much of a problem for certified organic beef producers. And the issue is dividing producers who should be working together, he said.
“Do the math,” he said. “When we had $4 organic corn, you had people leaving the organic grain business. You can’t make money on $4 organic corn. Now organic corn is at $5.25 to $5.50 a bushel. Those prices entice people to keep growing it. You’re probably going to feed 1,000 to 1,500 pounds of corn to a beef animal to finish it out. Divide 1,500 by 56; that’s 26 bushels. If corn fell to $4.50, a beef producer would save $26 per head. It adds up to 4 cents a pound. For 4 cents a pound, do we want to put a grain farmer out of business so there’s less supply? Why do we, as a beef producer, want to force the guy who gives us our raw ingredient out of business, and then we have no supply? The guy producing the grain has to make some money, the guy who produces the beef has to make some money, and when it’s all said and done, we’re fighting over 3 or 4 cents a pound on a live animal. Let’s help everybody make some money. Farmers have to unite on selling this.”
Though supplies have been tight at some times in the past, Mr. Peterson said this year there’s enough. “We are seeing some import grain coming in. Everybody now has learned how to import. And the imports are going to put a cap on these prices.”
The real reason that high retail organic beef prices aren’t realizing good returns for many producers may be the lack of economy of scale in organic beef processing and distribution. “The logistics of organic meat, I think, are really tough,” said Prescott Bergh of Ciranda, a Hudson firm which offers trading and marketing services for certified organic foods. “Small volumes when moving cattle around adds a lot to the costs, and (conventional) meat processors make more money on the byproducts than they do on the meat.” If organic processors don’t have good access to byproduct markets, they have to recoup costs elsewhere.
But even though organic grain may not be a significant reason for high production costs, Mr. Peterson said he doesn’t get a lot of beef producers looking for organic grain. “They want to do it grass fed,” he said.
More competition on the horizon
In both conventional and organic beef production, steers are put on high-protein diets for several months before slaughter, until they reach the right amount of “finish,” or fatness. The number of days on feed varies widely, but the goal is the same: enough marbling and external fat to ensure tenderness and tastiness, but not so much that consumers are turned off.
A lean mindset of consumers, added to research that indicates health benefits from grassfed beef, has been driving the grassfed market. But, like the ‘natural’ label, the ‘grassfed’ label is unregulated and so offers no reliable indication of how the beef it decorates has been finished. And beef that is entirely grassfed, as might be assumed from the label, has acquired a reputation in the past decade for being wildly inconsistent in taste and tenderness. But despite the confusion, the grassfed market, like the organic market, is still growing as health-consciousness becomes a bigger factor in consumer food buying decisions.
To editor Allan Nation of the Stockman/Grassfarmer, the leading publication of the grassfed beef industry, the term grassfed means 100 percent grassfed – no grain, no finishing ration. He sees a marriage between organic and grassfed as a logical step for producers in those markets. In the December 2005 issue, he proposes that grassfed producers looking for a further edge in the market become certified organic. “Due to the very high price of organic grain, a 100 percent grassfed product gives you a huge profit margin edge over grainfed certified organic competitors,” he wrote in his “Al’s Obs” column. “Two, the aggravation factor of the paperwork required by certified organic and the certification cost eliminates most of your current non-certified ‘natural’ grassfed competitors. Three, being able to say you are certified organic gives you a huge edge in Internet marketing as you are much more easily found by the search engines due to the lack of certified organic grassfed producers. Four, the combination of these three guarantees you the highest price.”
Another potentially big competitor looming on the certified organic beef industry horizon is imported organic beef being brought in to the U.S. to make up for short supplies from domestic producers.“We have explosive growth in one-pound packages of (certified organic) hamburger,” Mr. Heilmann of Organic Prairie said. “To meet that demand we have brought in some trim from Australia. It came at a time when we were unable to source enough from the (beef) pool. We know this is a sensitive issue, but in the end the decision was made to go ahead. Our longterm vision is to replace that meat as soon as domestic supply becomes available.”
The Grateful Harvest brand, on the other hand, plans to import certified organic and 100 percent grassfed beef from South America for the forseeable future, according to the winter, 2005 issue of ‘Natural Grocery Buyer.’ In the article, Jim Hagen, vice-president of fresh foods for Albert’s Organics, the owner of the Grateful Harvest brand, “notes that, by importing its products, the Grateful Harvest beef program will produce six to eight times the quantity of organic beef that anyone else in the country currently sells.”
Future hopeful, but not clear
Consumer confusion, market layering, a long production cycle and not enough producers, plenty of competitors, and the ongoing struggle with the economics of small-scale processing and distribution make the future for organic beef anyone’s guess.
Ms. DiMatteo was reluctant to predict how the market for certified organic beef might mature over the next decade. “I’d venture a guess that you’re going to have a retail price that’s lower, still high but within the reach of the majority of consumers, and a better infrastructure to support the product from farm to customer, without sacrificing producer income.”
But the organic industry has to keep the consumer’s confidence, said Barry Quinn, referring to ongoing battles in Washington, D.C., over regulatory issues. “That’s the thing that’s going to ruin organics – people saying, ‘oh, it’s okay this time.’ The organic industry should stay organic.”
Organic Beef Statistics
(data provided by the USDA’s Economic Research Service)
Total U.S. beef herd, 2002: 33,398,271
Total U.S. certified organic beef cattle 2002: 23,384
(organic herd = 0.7 percent of total)
Total U.S. certified organic beef cows by year
1992 6,796
1994 3,300
1997 4,429
2000 13,829
2001 15,197
2002 23,384
2003 27,285
Certified organic beef cows in region 2003
Iowa 1,626
Illinois 216
Minnesota 730
Wisconsin 1,807
States with highest numbers of certified organic beef cows 2003
Texas 6,154
Missouri 5,508
Wisconsin 1,807
Idaho 1,689
Iowa 1,626
Alabama 1,470
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