Trends in Retail: Examining the Organic Food Market in the US in Relation to Current Trade Issues

In 1990, the US Department of Agriculture (USDA) made a decision that would change the US food industry forever. After the enactment of the Organic Foods Production Act (OFPA), the USDA was authorized to set “national standards for the production, handling, and processing of organically grown agricultural products”. According to the USDA; the “act also established the National Organic Standards Board (NOSB)”, which oversaw such standards. Those who met the criteria were permitted to label their products “USDA Certified Organic”.

Since this act, organic food production and consumption has skyrocketed. With a trend towards more healthful living being pushed by physicians and public health advocates, organic food has become more popular, especially among higher income and urban households. Quick to capitalize on this growing market, a variety of producers and retailers have prioritized this segment. Well known examples include New Hampshire based dairy producer; Stonyfield Farms, as well as the ever-ubiquitous Whole Foods Market, which merged last year with online retail giant, Amazon.

Thus, understanding the relation the US organic food market has with global trade is important in determining the health and resilience of this retail sector in the event of continued trade disputes. For starters, the US food supply chain sources from a wide range of countries. According to the USDA’s 2017 report, in terms of total food imports; Mexico (19%), Canada (17%), and China (4%) ranked in the top three sources. The major players in the organic food sector are different however. With the most recent data available for organic imports, while Mexico took top place again at 11%, it was actually Italy and Peru who held 2nd and 3rd places at 10% and 7%.

This is an important fact when we consider the integrity of various trade deals and the degrees of hostility the current administration has towards them. Recent disputes with Canada and Mexico over NAFTA highlight the more immediate and pressing challenge of adapting to anti-trade pressures on food imports in general. In the case of countries like Italy and Peru, things will likely remain more stable considering these countries fall under different trade arrangements. Indeed, the US has had a special relation with both of these countries/regions. We must consider the fact that US-EU trade makes up an enormous amount of cross-border investment. According to the European Commission; “Total US investment in the EU is three times higher than in all of Asia”, and “EU investment in the US is around eight times the amount of investment in India and China combined”. This is not a trade relationship that is easy for the current administration to tamper with. In the case of Peru, there exists US-Peru Free trade Agreement (PTPA) which entered into force in 2009. Both of these trade relations are not only less politicized, but also far stronger considering the bilateral nature of the PTPA and the extensiveness of US-EU trade as mentioned before.

The US is overwhelmingly the largest market for organic goods by revenue at 38.9 million Euros according to data from agriculture interest groups RiBL and IFOAM.

Moreover, projections according to the Simmons National Consumer Survey (NHCS) indicate strong trends towards increased consumption of organic foods. Americans who reported consuming organic foods had increased from 88.35 million in 2011 to an expected 106.57 million for 2020.

As long as the trend of positive economic growth and urbanization continues in the US, we should expect a very successful industry sector for organic food retailers even if US-NAFTA relations were to further breakdown. Because of this, we can still continue to remain positive for this high growth industry sector for years to come.

References:

EU Commission. (2018, April 16). European Commission Directorate-General for Trade. Retrieved July 1, 2018, from http://ec.europa.eu/trade/policy/countries-and-regions/countries/united-states/

FiBL, & IFOAM. (n.d.). Organic food revenue worldwide in 2016, by country (in million euros) . In Statista — The Statistics Portal. Retrieved June 30, 2018, from https://www-statista-com.proxy.library.nyu.edu/statistics/244375/revenue-of-organic-food-in-europe-and-the-united-states/.

Gold, M. V. (2007, June). Organic Production/Organic Food: Information Access Tools. Retrieved July 1, 2018, from https://www.nal.usda.gov/afsic/organic-productionorganic-food-information-access-tools

Magni, O. (n.d.). Variety Of Fruits. Retrieved July 1, 2018, from https://www.pexels.com/photo/variety-of-fruits-890507/

Experian (2017 Simmons Profile Report. Copyright 2017 Simmons Research LLC. All rights reserved.); Statista; US Census Bureau

Naftulin, A. M. (2017, July 27). 4 Science-Backed Health Benefits of Eating Organic. Retrieved July 1, 2018, from http://time.com/4871915/health-benefits-organic-food/

Statista. (n.d.). Estimated market revenue of organic food products in the U.S. from 2014 to 2025, by product category (in million U.S. dollars). In Statista — The Statistics Portal. Retrieved June 30, 2018, from https://www-statista-com.proxy.library.nyu.edu/statistics/809261/us-organic-food-market-revenue-by-product/.

Statista. (n.d.). U.S. population: Usage of organic foods from 2011 to 2020. In Statista — The Statistics Portal. Retrieved June 30, 2018, from https://www-statista-com.proxy.library.nyu.edu/statistics/282956/us-households-usage-of-organic-foods-trend/.

Thomas, L. (2017, August 28). Amazon officially owns Whole Foods; here are the products that are getting marked down. Retrieved July 1, 2018, from https://www.cnbc.com/2017/08/28/amazon-officially-owns-whole-foods-here-are-the-products-that-are-getting-marked-down.html

USDA. (2018, February 5). U.S. Food Imports. Retrieved July 1, 2018, from https://www.ers.usda.gov/data-products/us-food-imports/

US Trade Representative. (2016, November 15). Peru Trade Promotion Agreement | United States Trade Representative. Retrieved July 1, 2018, from https://ustr.gov/trade-agreements/free-trade-agreements/peru-tpa