The United States is a country with one of the largest organic food markets in the world. Containing almost no pesticides and other harmful substances, organic food is believed to possess numerous advantages over conventional products. The report focuses on factors determining demand and supply for organic foods in the United States and the way of how they impact prices.
Demand for Organic Food
Acting as a driver of economic growth in any country, the level of demand for organic foods and alimentary products, in general, is highly impacted by the following factors: tastes and preferences, the average income level of prospective buyers, prices of substitutes, and price expectations. Apart from that, the cost of organic food presents a separate factor that determines supply and sometimes moderates its rapid growth.
The first determinant that is presented by the income level impacts the demand for organic food in the United States since the presence of economic opportunities increases the number of people who are ready to buy organic products that are usually more expensive than conventional food. The tendency of the growing economic power of common consumers in the United States is acknowledged by many researchers. For instance, the report on income and poverty prepared by Semega, Fontenot, and Kollar (2017) demonstrates that the median household income experienced a 3.2 percent increase in 2016 (p. 7). According to the source, positive tendencies exist for all types of households, and, therefore, the paying capacity of individuals belonging to various ethnic groups also increases.
In terms of the prices of related products (non-organic foods) and price expectations, these factors do not seem to decrease customer demand even though purchasing only conventional food is an option that is more economically advantageous for common consumers. According to the United States Department of Agriculture (2017), the demand for organically produced food continues to grow despite the fact that price premiums for such alimentary products (especially milk food and eggs) are still high.
Consumer tastes and preferences remain one of the key factors that contribute to the growth in demand for organic food. In fact, there are many popular beliefs related to the advantages of organically produced food over non-organic food products. Even though such opinions are extremely diffused, there are studies that leave the perceived health benefits of organic food in serious doubt. However, many common consumers in the United States still find organic products more acceptable. The factors that boost consumer demand are interconnected with common American values; among other things, they include growing environmental consciousness, interest in healthy nutrition, and the role of food safety in modern life (Lee & Yun, 2015). Customer preferences are extremely strong in this case since they outweigh the disadvantages related to the price situation. As it follows from the research conducted by Simmons Market Research Bureau, more than 33% of consumers in the United States are ready to pay extra to have access to organically produced food (Lee & Yun, 2015, p. 259).
Supply of Organic Food
When it comes to the organic food market of the United States, supply and the degree to which it meets demand can be defined with reference to many external factors. The latter include the costs of production inputs, current regulations, the number of suppliers, and productivity. As for the situation in the United States, information related to all these determinants points to the need for additional measures to strict the right balance between demand and supply.
Production costs in the organic food industry include numerous expenses and significantly exceed those of conventional farming. The presence of high production costs is inextricably connected with current regulations and quality standards that should inform the work of organic farmers in the country and foreign food producers who sell their products in the United States. Following the standards developed within the frame of the National Organic Program, the use of pesticides and synthetic fertilizers is prohibited (The United States Department of Agriculture, 2017). The use of these substances can significantly increase yielding capacity and productivity, but NOP standards require organic food producers to rely on traditional farming practices such as pulling and succession cropping (Marasteanu & Jaenicke, 2016). Obviously, it involves a lot of manual labor and, therefore, increased production costs that heavily impact the resulting price.
Productivity remains one of the determinants that need to be analyzed to understand the misbalance between demand and supply. The necessity to minimize the use of plant growth regulators and synthetic fertilizers has an adverse effect on productivity. More than that, the amount of available organic products is impacted by land use. Current market reports indicate that organic sales continue to grow despite the significant supply shortage. In particular, the share of organics in total food sales exceeds 4%, whereas only 1% of agricultural land in the United States is used to produce organic food (Oliveira, 2015, p. 2). With that in mind, the number of organic food suppliers in the United States is limited. Domestic supply is inadequate if compared to the level of demand, and the country has to rely on imported foods to minimize the imbalance. For example, the country’s organic exports reached $548 million two years ago, whereas imports exceeded $1.5 billion (The United States Department of Agriculture, 2018).
Costs of Organic Food
As it follows from the analysis, demand exceeds supply in the organic food industry of the United States, and this situation is highly impacted by changing consumer preferences, growing income levels, and many requirements making organic food production more costly. Obviously, this imbalance between demand and supply has an important influence on organic food prices. The degree to which they exceed the prices of conventional food varies for different types of alimentary products that are popular in the United States.
There are many categories of organic foods available to consumers in the United States, but fruit, vegetables, beverages, and dairy products remain the most popular, as is clear from food sales statistics (The United States Department of Agriculture, 2017). Price premiums for organic alimentary products can be extremely different and vary from 0% for carrots and greenery to more than 80% for meat, poultry, and eggs (The United States Department of Agriculture, 2017). To continue, there is one more factor that defines pricing politics in the organic food industry – the existence of generic and brand-name products. Conventional generic food is usually cheaper than identical food products sold by widely recognized brands since extra costs are attributed to advertising expenses. The above-mentioned tendency also exists in the world of organic foods. Thus, generic organic products are not very expensive, but many customers are still ready to spend more money to get brand-name food.
In the end, demand for organic products in the United States exceeds supply, and it results in high price premiums for such food. The increase in demand is strictly interconnected with the growth of customers’ paying capacity and perceived health benefits of organic food. At the same time, supply is limited due to issues related to productivity, quality requirements, and high production costs.
Lee, H. J., & Yun, Z. S. (2015). Consumers’ perceptions of organic food attributes and cognitive and affective attitudes as determinants of their purchase intentions toward organic food. Food Quality and Preference, 39, 259-267.
Marasteanu, I. J., & Jaenicke, E. C. (2016). The role of US organic certifiers in organic hotspot formation. Renewable Agriculture and Food Systems, 31(3), 230-245.
Oliveira, S. (2015). The growth of the U. S. organic market. Consumer Corner, 32, 1-3.
Semega, J. L., Fontenot, K. R., & Kollar, M. A. (2017). Income and poverty in the United States: 2016. Web.
The United States Department of Agriculture. (2017). Organic market overview. Web.
The United States Department of Agriculture. (2018). Organic trade. Web.