The Next Quarter Century’s Organic Marketplace
In 1977, during the heyday of the emerging “alternative energy” movement, I attended a solar greenhouse conference where I remember one of our little tribe’s pioneers opined about how much less exciting the solar “revolution” was going to be when it finally went mainstream. “I know what’s going to happen,” architect Steve Baer of Zomeworks pronounced – “solar collectors are going to be advertised in Sears newspaper inserts! I’m going to hate it but I’ll know we have arrived.”
I had the exact same thought about the organic sector when news of Amazon’s Whole Foods bid broke. A lot of pioneers and purists aren’t going to be thrilled about this, but the pathway for mainstream expansion of organic is now absolutely clear.
Before we look ahead, let’s set the context by first reflecting back over the last quarter century. Twenty-five years ago, in 1992, Stonyfield enjoyed 52 percent annual growth to $10MM in net revenues and our first-ever profitable year after a painful 9-year start-up. We’d created a beautiful little company and brand. Our only problem: we had no supply and no demand. At that point, very few consumers were familiar with the benefits of organic, and certainly no idea about why they should pay more for it. Today, Stonyfield’s annual net revenues are closing in on $400MM.
The overall organic sector has followed the same impressive trajectory. According to the Natural Foods Merchandiser, in 1992 organic sector sales were $1.54B. Organic food sales have enjoyed double-digit growth every year since the 1990’s, topping out at $47B in 2016 and on pace for another roughly 10 percent growth this year, when they will likely cross the $50B mark. The organic sector now makes up about 5 percent of US retail food sales.
We’ve come a long way in the last quarter century from the era when organic goods could only be found in dusty bulk cases in poorly-lit and somber natural foods stores. According to the Organic Trade Association:
• 81 percent of U.S. families now choose organic food at least sometimes.
• 51 percent of parents surveyed said the cost of organic products was one of the key factors in limiting their organic purchases, a sharp drop from the previous year in which 62 percent said organic items were sometimes too expensive for their household budget.
• Retailers now understand that the organic consumer is a more valuable consumer – Families who include organic products on their grocery list on a regular basis spend an average of $125 per week at the grocery store, compared to $110 per week for those not buying any organic items.
In short, the trends are good. But where is all this headed? As an entrepreneur, I lean optimistic, and so here are a few of my bullish predictions for where the organic marketplace will be in 2042.
First, several megatrends will combine to keep the annual US sales of organic foods growing at a robust rate. While the organic sector will not likely continue growing at the double-digit rates we’ve seen for the last 20 years, for the following reasons, we will certainly see no less than a 5 percent compound annual growth rate (CAGR) per year for the next quarter century.
The key drivers will be:
• Increased awareness about the negative health impacts and costs of widespread agrichemical exposures. Consumers (particularly adult former millennials) and a new generation of public health officials will grow increasingly alarmed at the explosive increase in consumer exposure to agrichemicals, particularly herbicides that have been found to be likely carcinogens. Thanks to the dramatic increases in usage of genetically engineered crops designed to increase resistance to glyphosate (the active ingredient in Round Up) and other herbicides, the USGS now reports that glyphosate is present in 70-100 percent of the rainfall during growing seasons. And the over-use of this formerly effective weed-control tool has led to widespread weed resistance, leading to skyrocketing use of other even more dangerous compounds. Correlations between chemical exposure and a wide range of auto-immune diseases, increased allergies and even IQ development will demonstrate that eating organic is a powerful way to protect us all, but especially children. And in an ironic twist, chemical and agribusiness industry efforts to prevent government from banning pesticides linked to cancer and brain damage (such as the current capitulation on chlorpyrifos) will result in more consumer support for organic certification to protect us from dangerous chemicals. Organic will be seen by more and more public health professionals as a potent way that average consumers can reduce the health risks from exposure to pesticide residues.
• In a sea of misleading and bogus “green” claims, Organic Certification will remain the only reliable standard for consumers seeking real, clean foods. As the next generation of adults becomes even more suspicious of industrial agriculture and food production, new green claims will proliferate. As the only government-enforced standard, organic will be the only claim that means something real. Certainly there will be periodic sensationalized reports of breeches and shortcuts by agribusinesses trying to “cheat” the standard, but because larger and more powerful corporate and financial investors will continue paying very high multiples to purchase organic brands and supply chains, there will be pressure on the FDA, USDA and Congress to close loopholes, increase enforcement and generally tighten organic certification standards to protect their ROIs. Congress will realize that it is far easier to improve on a 2001 standard than to try to agree on new ones. And while some forces will try to argue that new genetic crop manipulation like CRISPR should be allowed under organic standards, consumers will reject this idea and instead force companies to strengthen traceability right back to seed development.
• Dramatically increased appreciation of the role that organics can play in mitigating the effects of climate change. From significantly better soil carbon sequestration to reduced enteric bovine methane emissions, and many other benefits, organic will become widely understood as the most sensible agricultural approach to mitigating and adapting to increased global warming. As climate change leads to more economic hardships that hit average consumers, policy makers will promote organic as a key societal priority. New carbon markets will lead to the proliferation of measurement and financial technologies that pay organic farmers more for storing soil carbon and this added source of revenue will lead to a surge in the number of farmers converting to organic certification, further increasing supply.
• Better data on the benefits of organic production. Despite the last quarter-century’s growth, the organic sector is only beginning to benefit from rigorous long-term studies on the benefits of organic farming practices. We now know, for instance, that organically raised cows live and remain productive twice as long as their conventional counterparts; that chemical pesticide residues are dramatically lower in organic products; that organic soils provide more nutrition to crops, conserve more water and promote more biodiversity. Especially because the next generation of adults will be more aware of the connections between human activities and our environment, as well as the imperative for more sustainable food and farming practices, organic will receive more private and public research dollars which will enhance overall appreciation of these health and environmental advantages.
• Lower cost organic offerings. Amazon did not pay over $13B to continue running Whole Foods in a business-as-usual manner. While the number of their outlets will increase, I believe that the bulk of Whole Foods’ offerings will now become available to consumers through a wide range of on-line, direct-to-your-home-and-workplace channels, whether as products and ingredients, or as completely prepared meals. This will force all other retailers and restaurants to climb on the freight train, and we will start to see organic and non-gmo foods everywhere that foods are sold. There will be fewer brands, and more private label generic offerings, but overall the market will grow, and as a result a large suite of on-farm services – veterinary and animal welfare; biological pesticides, enhanced soil management tools, etc. will become available. Farmers will likely be receiving lower farm-gate pay prices, but their net margins will actually improve due to the efficiencies leveraged by the increased size of the organic marketplace and supply chain.
In summary, if organic maintains a 5 percent CAGR, the US organic sector will grow to $151B by 2042. Assuming that the overall food market grows by 1 percent per year (to $1.1 Trillion), that will mean organic will comprise 14 percent of total US retail food sales. And of course the above- mentioned factors could lead to faster growth – if for instance organic food and fiber sales grow 7.5 percent per year (well below the sector’s traditional double-digit CAGR), we will be looking at a $267B sector closing in on 25 percent of US food sales. Of course, the organic marketplace will be far larger as the proliferation of lower cost organic goods will also lead to increased share of the food service, restaurant, meal kit and other quick serve, direct to consumer channels.
And of course, with population growth, we won’t be cooking and preparing foods the way we do now, so most of our nutrition will be coming in the form of prepared pouches, purees, drinks, bars and pellets that you can pick up literally everywhere – at every electric charging station, low friction public transit stop, solar-powered undersea village and urban rooftop-produced farmstand.
I’m going to hate it, but I’ll know we have arrived.
Article by Gary Hirshberg, Chairman and Co-Founder of Stonyfield Farm, the world’s leading organic yogurt producer, and the author of Stirring It Up: How to Make Money and Save the World (Hyperion, 2008). Gary frequently speaks on topics including sustainability, organic agriculture and the profitability of green business.
Gary led Stonyfield from its 1983 infancy as a seven-cow organic farming school to $360 million in annual sales when he stepped down as CE-Yo at the end of 2011. During his tenure Stonyfield enjoyed a compounded annual growth rate of over 23 percent by consistently producing superior products and using innovative marketing that blended the company’s social, environmental, and financial missions. Gary arranged the sale of Stonyfield to Danone in 2001, and then after staying on as chief executive for an additional decade, moved into the Chairman role and also became the Managing Director of Stonyfield Europe, launching organic brands in France, Ireland, Italy and Spain. He resigned from his Danone responsibilities in March 2017 when Danone was required by the US Dept of Justice to divest its Stonyfield holdings. Gary remains Stonyfield’s Chair under the new ownership Lactalis.
Gary serves on several corporate and non-profit boards, including Blue Apron, Forager, Late July, Orgain, Peak Organic Brewing, Sweetgreen Cafés, Sweet Earth Natural Foods and UNreal chocolates as well as Advisory Board member for Applegate.
In terms of non-corporate activities, he is Chairman and a founding Partner of Just Label It, We Have the Right to Know, the national campaign to label genetically engineered foods, and is co-author of Label It Now – What You Need to Know About Genetically Engineered Foods (New Word City, 2012). He is also the Chairman of Organic Voices, a consortium that seeks to eliminate consumer confusion about the benefits of organic. In 2011, President Obama appointed him to serve on the Advisory Committee for Trade Policy and Negotiations, where he served until February 2017.
Gary has received 12 honorary doctorates and numerous awards for corporate and environmental leadership including a 2012 Lifetime Achievement Award by the US EPA. He was named a Yale Gordon Grand Fellow, one of “America’s Most Promising Social Entrepreneurs” by Business Week and one of the top ten, “most inspiring people in sustainable food” by Fast Company. Gary was featured in the successful 2009 documentary “Food, Inc.”
Gary is the husband of writer Meg Cadoux Hirshberg, and the father of three adult yogurt eaters, all of whom now work in organic and sustainability ventures.