The U.S. Organic Handling Sector in 2004: Baseline Findings of the Nationwide Survey of Organic Manufacturers, Processors, and Distributors
by Carolyn Dimitri and Lydia Oberholtzer
Economic Information Bulletin No. (EIB-36) 31 pp, May 2008
The organic sector has grown rapidly since 1995, and, as a
result, organic foods are now sold in nearly all food retail
stores. The effect of this rapid growth on organic handlers
(packers and shippers, manufacturers and processors, and food
brokers, distributors, and wholesalers) and on the flow of products
from the farm to retail stores has been largely overlooked in the
research literature. To gain insight into the characteristics of
the handling sector and its marketing and procurement practices,
USDA's Economic Research Service (ERS) surveyed certified organic
handlers in the United States to study 2004 practices. The primary
focus of the survey was on the handler's procurement of organic
products, including the use of contracts and requirements that
organic handlers levy on their suppliers. This report presents a
summary of the survey findings.
What Is the Issue?
As the organic market has grown, anecdotal evidence points to
significant changes in how organic foods are marketed and
distributed and to widespread mergers between organic and
conventional companies. Reliable information, describing marketing
channels and procurement practices for organic products, however,
has previously been unavailable. The ERS 2004 nationwide survey of
organic handlers is the first substantive examination of the
organic handling sector. The findings will be useful to organic
businesses and policymakers. For businesses, the information could
influence marketing and production decisions, allowing firms along
the supply chain (including farmers) to remain profitable in a
competitive environment. Policymakers can potentially benefit from
understanding changes in the sector, particularly those involving
market infrastructure and regulation of the sector.
What Did the Study Find?
In 2004, the organic handling sector was geographically
concentrated in a few regions, with most States having few organic
handlers. Most organic handlers were small firms, handling both
conventional and organic products. Most of these firms began as
conventional facilities, either adding an organic line or fully
converting to organic. Over half of the facilities were performing
multiple functions, such as processing, packing, and shipping, and
almost two-thirds reported functioning as a manufacturer or
processor. Fruits and vegetables were the top products being
handled by the sector.
Organic handlers marketed most of their products domestically in
2004, and most of the products they sold were distributed
nationally and regionally. Most sales went to other handlers, with
over half going through wholesalers, brokers, distributors and
repackers, or manufacturers/processors. On the retail end, almost
twice as many sales went through natural-product retailers than
through conventional groceries. Small firms were more likely to
sell to independent natural-product stores and chains, while large
handlers were more likely to market to natural-product chains and
conventional supermarkets.
Most responding facilities used certified organic suppliers to
procure ingredients or products in 2004, with growers the most
often used type of supplier. Over three-quarters of organic
ingredients were procured domestically, and most were secured under
written or verbal contract, with the remainder purchased on spot
markets. Respondents reported placing a wide range of requirements
on their suppliers (for example, organic certification and minimum
quality standards). The most important supplier attributes sought
included reputation for quality, knowledge of organic products,
price, and flexibility in meeting the needs of the handler.
How Was the Study Conducted?
In 2005, ERS surveyed all certified organic handlers in the
United States about their 2004 practices. The survey was funded by
a competitive grant through USDA's Risk Management Agency and was
developed in conjunction with a group of stakeholders. The survey
consisted of questions that addressed operational and business
practices, basic characteristics of the facilities, relationships
with customers and marketing practices, and relationships with
suppliers, including purchase arrangements. This survey, the first
to include all organic handlers nationally, provides baseline
information on the basic characteristics of organic handlers, as
well as information about their procurement and marketing
practices.