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Organic beef: swimming in the mainstream

05/12/2005


In the ‘60s and ‘70s, the words, “organic food” conjured images of health-conscious hippies intent on saving the planet. Increasingly, organic is transforming its focus from “Love and Peace” for the few to “Eat a Piece” for the many; organic products are entering the mainstream, with 76% of Canadians purchasing organic food at some point.

This trend can be linked to multiple factors, including healthier lifestyles, concerns about pesticide use, and demands for stricter food traceability as a result of BSE. While organic niche beef markets are still developing, diving into the mainstream is big plunge that needs to be considered carefully.

Affordable Organics

Recently Wal-Mart joined the organic bandwagon, announcing plans to double its offering of organic foods and sell its organic products just 10 per cent higher than conventional food items.

Wal-Mart CEO Lee Scott has been clear about his company's goals: "We know that customers at all ends of the income spectrum want organic and natural foods," he said at the company's annual general meeting in fall 2005. "But, frankly, most of them just can't afford the high prices the specialty stores charge. Well, we don't think you should have to have a lot of money to feed your family organic foods" (Business Week Online, Nov. 29, 2005, "Selling Luxury to the Masses").

Organic Food in Canada

Canada’s organic industry was worth up to $1.3 billion in 2003 – and is growing 20% annually. Fruits and vegetables are the most common purchase, comprising 41% of market share. Organic meat represents just 1% of all sales.
The conventional food market tells a very different story: Here, meats are the most common purchase, comprising 21% of sales. Given that the conventional and organic markets are similar in most other respects, the potential for producing organic meat is worth considering. As consumers expand beyond organic fruits and vegetables to other areas, meats may eventually comprise a significant portion of the market.

Going Organic: Weighing the Risks

In figuring out the potential market for organic beef, it’s important to think about both the short- and long-term risks and rewards. Three areas in particular worth considering are increased production, regulatory challenges, and higher production costs.

Increased Production
Traditionally, organic food has been a niche market characterized by small, independent farmers who sell directly to consumers through farmers’ markets or farm stores. Based on the growing demand for organic products - and Wal-Mart’s demand for high volumes at relatively low prices - organic producers would likely need to drastically increase their overall production. This could force more and more independent producers to merge as they struggle to meet higher production levels.

The trend could also lead to a conflict of values, as producers grapple with the traditional organic values of producing a small number of high-quality products transformed into mass production, which may be perceived as impacting quality.

Regulatory Challenges
While Canada has had an organic standard since 1999, it has not yet become law. The Canadian Food Inspection Agency hopes to have a regulation in place by fall 2006. This will be instrumental in helping Agriculture and Agri-Food Canada secure equivalency agreements with other countries.

In the meantime, organic beef in Alberta is reviewed by one of four certifying bodies: Organic Crop Improvement Association; Sustainable Agriculture Association; Biological Food Producers Association; or the Peace River Organic Producers’ Association. Each body operates differently and has different regulations and standards. In general, it can take up to three years for a producer to become certified. Based on national standards, the following minimum requirements must also be met:

  • Animals cannot be treated with growth hormones or antibiotics used to promote growth.
  • Slaughter livestock must also be born and raised in a certified organic production unit.


While clear regulations appear imminent, until they have become law, there is no guarantee that a product certified organic in Alberta will be equally acceptable in other parts of the country – or internationally. This makes it challenging for beef producers to know what the ultimate market for their product could be.

Higher Production Costs
Securing organic feed and bedding greatly increases the cost-of-production for organic beef. Yet passing this price increase onto the consumer may not be easy. According to a study for Agriculture and Agri-Food Canada, the finishing phase of organic beef was 27 – 39% higher, while the returns were 31% lower than conventional beef.

Given Wal-Mart’s intent to offer organic food at just 10% higher than conventionally grown food, this could make it difficult for organic beef producers to secure the profit margin they need to succeed, at least initially. Beyond Wal-Mart, focus groups indicate that while consumers usually choose organic beef, many are not prepared to pay much of a premium over non-organic or “natural” beef, which has less stringent protocols. As a result, producers may be pressured to absorb most of the additional costs.

Retail Demand Creation

Wal-Mart and other large grocery chains’ ongoing search for differentiation and value could create a greater demand for organic beef - if it’s priced right and quality is consistent. Such a demand would attract more organic beef processors, including Cargill and Tyson, who would require a lot more organic cattle. When organic cattle demand increases and herd sizes expand, producers would likely be able to offset the higher costs of raising organic cattle by benefiting from economies of scale .

Swimming in the Mainstream

The organic food industry represents a growing market, with vegetables and fruits leading the way. As organic goes increasingly mainstream, are you going to stay on the shore, go with the flow or swim upstream? Whatever you do, don’t dive in headfirst! If you decide to enter the organic mainstream, make sure you don’t get into hot water by being prepared and swimming with your eyes wide open.

For more information, please contact Andrew Raphael, Director of Agri-Food, at 1.877.688.8408 or your local MNP office.