The implied value proposition that eating organic products is healthier has been put in question by a recent study from Stanford University. Researchers from the Center of Health Policy analyzed data from 237 previously performed studies, and concluded that there is little evidence of health benefits from organic products. The study is coming under fire by organic associations and medical experts who are fighting to inform customers about healthier choices.
The Cornucopia Institute in Wisconsin denounced that Stanford's spin on organics is allegedly tainted by biotechnology funding. Particularly alarming is the fact they could have purposefully cherry-picked data two months before an important vote in California on a new law (Prop 37) that would require labels on Genetically Engineered (GE) products. The food & beverage industry is a $1 trillion market and a battle ground between brands that want to be labeled (organic) and those that don't (GE).
The study gained national attention as the New York Times wrote an article on would-be-healthy eaters facing a confusion of choices. Despite the confusion that can reign among consumers due a wide range of claims, the organic food and beverage market has grown from $1 billion in 1990 to $27 billion in 2010. The organic fruits and vegetables are particularly popular as they represent more than 10% of the total sales of fruits and vegetables in the US according to the Organic Trade Association.
As a result, food processors have been compelled to acquire organic brands. The graph above (courtesy of Dr. Howard at Michigan University) summarizes significant brand acquisitions and introductions by the top 30 food processors in 2008. Dr. Howard developed and maintains information graphics on the organic eco-system from producers to consumers. His work shows acceleration in the consolidation of the organic industry after the introduction of a national organic standard in 2002.
The USDA standard replaced a patchwork of state-wide and regional standars. Interestingly, it did not accelerate the rate of growth of the organic food industry. The compound annual growth rate (CAGR) of 20% did not change significantly from 1990-1997 to 1998-2006 (picture right - data from OTA).
What changed is the market landscape. The work by Dr. Howard shows consolidation is "dominated by concentration of capital, with 14 of the top 20 food processors in North America either acquiring an organic brand (horizontal integration) or introducing one of their own (concentric diversification)".
The move by large food processors into the organic market is facilitated by the general confusion about organic labels among consumers despite efforts by non-for-profit organization to require more stringent standards. Market research indicates that organic consumers are less brand-conscious, aside from viewing organic label itself as essentially a premium brand. Therefore, it is not uncommon to see a mix of organic and conventional brands in a consumer cart.
Organic is not the only ethical factor that consumers take into account. Fair-trade and locally grown products have been on the rise. Actually, sales of organic produce in the UK have fallen since the credit crisis in 2008 while sales of fair-trade products have increased. In its rebuttal of the conclusions of Stanford's study, Dr. Mercola explains that locally grown food can be as green as organic labeled products, and that the main health value of organic food is to reduce exposure to toxins rather than the higher nutritional value.
That is where the study from Stanford's Center of Health Policy totally missed the bigger picture and made a surprisingly hasted conclusion. The vetting process of scientific publication is not perfect and lawsuits against the FDA have shown discrepancies in the scientific community data and complaisance in the FDA certification process. The bottom line is that the food eco-system is not going to be solved by the research eco-system that needs funding as well and is by definition vulnerable to special interests.
The gap between organic producers and consumers remains. Organic producers tend to view the value of organic food in the full eco-system (picture left): sustainable agricultural pratices, fewer health hazards for the farmer and the consumer, higher nutriional value and and better taste. Consumers tend to look only at their purse and the health value for them.
The problem encountered by the organic food and beverage sector is not a seldom case. Other industries with environmental conscious mandates have faced similar issues. For instance, the automobile industry and energy sector have experienced more than a decade of federal aids and state-wide mandates. In the case of electric vehicles, the first generation that spurred from California mandates in the late nineties did not succeed (Who killed the electric car?). The second generation is now starting to make market in-roads by capturing the imagination of the consumers (Revenge of the electric car).
Most consumers are not buying a car at a premiuim because it pollutes less. Above all they buy a car that they like. That includes a variety of rational factors (cost, reliability, etc) and irrational factors (design, life-style, etc.). It is the same for the organic food industry. Frey Vineyards pioneered organic wines thirty years ago. The founder, Jonathan Frey, acknowledged that sales of organic wine did not ramp up significantly until the French paradox hit the US in the nineties and the wine & health movement brought new customers from across the country.
The French paradox came originally from a series of studies on French drinking patterns that indicated that having a moderate amount of wine every day is actually good for health. The terms "green" and "organic" became trendy only in the late 2000's. Jonathan Frey shared that selling wine, organic or not, remains a lot about winning medals to get your brand known and working the distribution channels.
Health still does matter to consumers. However, they tend not to understand fully the choices in front of them. This is where labeling is critical. Organic products are labeled but not new GE products. USDA defines four levels and allows only the top two to use the USDA certification stamp.
The USDA has been slower to move on genetically engineered products. The USDA Advisory Committee on Biotechnology & 21st Century Agriculture (AC21) has been established since 2003. However, the committee has infrequently met and led to very few results. Mandatory labeling of genetically engineered (GE) food in the United States has been proposed, but not enacted, at the national, state, and local levels.
It currently falls onto the FDA to define whether a GE product is a health hazard. The FDA currently requires labeling of genetically engineered (GE) food if it has a significantly different nutritional property or if a new food includes an allergen or a toxicant that consumers would not expect to be present.
Europe has taken a harder stance against GE farmed produce and tends to protect more conventional farming methods. The US has been less clear on the subject. California is considering a new law (Prop 37). The local opposition between GE and organic brands fighting with funding and PR (see picture above). Biotech companies have an edge on financial resources so organic associations are not going to give up the PR fight.
The evolution of the food & beverage industry in the last twenty years is particularly interesting to follow. It was the first one to deal with environmental conscious products and convince consumers their habits. Other industries hit by environmental mandates like the energy sector may follow similar consolidation patterns in the next decade.