The shifting economics of organic food

Anyone who’s set foot in a supermarket or farmers market in, oh, the past decade has noticed that organic food is considerably pricier than conventional food. But this “organic premium” — the difference between the two — can vary widely from product to product. And in some cases, the gap is actually shrinking quite dramatically.

The US Department of Agriculture’s Economic Research Service recently posted data on the price difference between organic and conventional options for 17 different types of food. On the low end, organic spinach costs just 7 percent more than conventional spinach (on average). But organic eggs cost 82 percent more:

So what’s going on here?

Start with the fact that any food certified as “organic” has to meet certain standards laid out by the USDA. Organic farms are prohibited from using synthetic pesticides, petroleum-based fertilizers, biosolids fertilizer (made from sewage sludge), irradiation, and genetic engineering. Processed food has to go through certified organic plants. And any animal products labeled organic have to come from animals that were fed organic feed and never given antibiotics or growth hormones.

In practice, these rules can encompass a wide variety of farmers and methods. But by and large, the restrictions tend to increase costs. Organic produce has to jump through the fewest hoops, so the premium tends to be lowest for things like spinach or apples. The premium is higher for processed food, and highest for animal products.

What’s really interesting, though, is how this premium is changing over time.

The USDA also notes that the organic premium for certain products — like coffee or spinach — has shrunk pretty significantly in the past decade. Back in 2004, organic spinach cost 60 percent more. Today that’s down to 7 percent:

For crops like spinach or coffee, the organic option typically costs more because farmers have to spend more on weed and pest control. But as this 2012 paper from the National Sustainable Agriculture Information Service explains, this situation has changed over time. Early on, organic produce farmers simply paid more for non-synthetic herbicides and insecticides. More recently, many organic farmers have been switching practices — harnessing techniques like integrated pest management and making better use of insect predators — to get this cost differential down.

Eggs and milk are a different story. The organic premium for milk and eggs has fluctuated quite a bit — and actually risen since 2008. (It’s not shown on the chart, but the premium for yogurt has actually increased steadily since 2004.)

For milk or eggs to be certified as organic, farmers have to use feed for their animals (like corn and soy) that’s grown organically. But as Danielle Kurtzleben explained in 2014, organic feed has often been in short supply (particularly in recent years, as it’s been far more lucrative for farmers to grow conventional feed). That, in turn, makes it even more expensive to raise organic livestock or chickens, which in turn increases the organic premium for milk or eggs. That’s not the only factor, but it’s part of the story.

Going forward, the USDA notes that the organic premium could very well shrink further for certain products — as, say, US organic farmers take advantage of imported feed or economies of scale take hold.

That said, it’s unlikely that the cost differential will ever disappear entirely. One reason is that, as Oklahoma State University’s Jayson Lusk once pointed out, conventional farms can use any method or tool available to organic farms. If organic farmers find a way to cut costs or boost yields, then conventional farmers can just copy them. But the reverse isn’t always true. (Plus, organic farmers have to go through the lengthy and costly certification process.)

For the most part, charging a premium hasn’t been a problem for the organic industry, because plenty of consumers are happy to pay more for organic fare. As the USDA points out, organic sales have grown more than 10 percent per year, rising from $11.5 billion in 2004 to $37 billion in 2015.

Organic food now makes up a sizable chunk of the market for many products. Organic spinach was 40 percent of all spinach sales in 2010:

Is that organic premium worth it? Well, that depends whom you ask. Many people argue that the higher profitability allows organic farmers to pay more attention to quality. On the flip side, a great many scientists remain skeptical that organic fare is any healthier or more nutritious than conventional food (though comparisons are tough because farming practices can vary pretty wildly — neither “organic” nor “conventional” is a nice, neat category).

What about environmental impacts? Tamar Haspel recently explored this topic for the Washington Post. You should read her full piece, but her broad takeaway was that conventional farms tended to have higher yields and were best at reducing erosion. Organic farms, by contrast, tended to have more fertile soil, used less fertilizer and herbicide, used less energy, locked away more carbon in the soil, and were more profitable for farmers. (Though, again, individual cases may vary.)

That said, Haspel’s smart conclusion was that a truly sustainable agriculture system would likely make use of the smartest practices of both organic and conventional farming, rather than get locked in an endless dispute about which one was “better.” For now, though, we tend to treat it as an either-or — and you can see the results in the supermarket.