PANUPS: U.S. Organic Market Grows

                         P A N U P S
                   Pesticide Action Network 
                        North America
                       Updates Service
                   EMAIL: panna@panna.org

August 21, 1997

Organic Sales Up in 1996

For the seventh year in a row, U.S. organic industry sales 
grew more than 20%, to US$3.5 billion in 1996 from US$2.8 
billion in 1995, according to a recently published survey in 
Natural Foods Merchandiser. "It's been a typical growth year 
of a relatively youthful industry," said Bob Scowcroft, 
director of Organic Farming Research Foundation (OFRF), a 
non-profit organic advocacy group. The organic market 
experienced strong sales in many product categories, 
including dairy, baked goods, ready-to-eat products, and 
fruits and vegetables. The market also grew in regions of the 
country where organic foods have traditionally sold less 
well, including Montana, Iowa and Kansas.

Sales were particularly strong in the gourmet and convenience 
categories. Representatives of natural food retailers 
reported that there is huge demand for multi-ingredient 
organic convenience foods including frozen dinners, packaged 
soups, rice and beans, as well as ready-to-eat pre-mixed 
salads and cut fruits. Scowcroft says he has observed 
increasing crossover between natural and gourmet food 
companies at industry expositions.

According to Katherine DiMatteo, a representative of the 
Organic Trade Association (OTA), growth in the market for 
multi-ingredient organic products is just beginning -- and 
may presage greater growth overall. DiMatteo says that "with 
regulations requiring that 95% of all ingredients in organic 
packaged foods be organic, there will be all the more demand 
for everything from organic herbs to organic vanilla."

Growing demand for organic ingredients at upscale restaurants 
may also affect the market. Karen Salinger, Sales Manager at 
Veritable Vegetables, a San Francisco based distributor, 
believes that an increase in restaurant business will lead to 
increased interest in organics overall. "Once introduced to 
organic items at a restaurant like Chez Panisse (an upscale 
restaurant in Berkeley, California), people will look to 
integrate them into their home cooking."

Industry analysts also pointed to increasing interest in 
organics at conventional grocery stores. One Portland, Oregon 
organic products distributor said that sales to conventional 
stores doubled in 1996, from 15 to more than 30.

Dairy products are one of the fastest growing sectors of the 
organic market, with 1996 sales in natural food stores of at 
least US$120 million -- up from US$30 million in 1995. (Sales 
data is only from retailers specializing in natural products 
and does not take into account organic sales at conventional 
markets). Industry insiders attribute dairy's explosive 
growth to consumer concerns about genetically engineered milk 
spurred by widespread reports about Monsanto's bovine growth 
hormone. Eric Newman, president of Organic Valley, an organic 
food company, pointed out that consumers really appreciate 
the difference between organic and conventional milk. He 
stated that "conventional farmers feed their cattle 
everything from pesticide-filled tomato-pulp to cotton feed. 
That's spurring our growth." 

Organic Valley reports that organic milk is its top seller, 
accounting for more than 75% of the company's 1996 sales of 
US$14 million. Other industry experts report similar growth. 
A representative of Quality Assurance International, an 
organic certifier, says more dairy products are being 
certified now than anything else. Blooming Prairie, an Iowa-
based food distributor, reports that its organic dairy 
products are outselling conventional products. 

Rapid growth in the natural foods industry has not gone 
unnoticed by Wall Street investors. In the past 15 months, 
eight natural products companies have gone public, raising 
more than US$618 million by selling stocks. Investment 
analysts expect that this trend is only just beginning. "It's 
a very attractive industry for investors because it's growing 
fast and many companies that were private are ready to go 
public," according to one analyst at the investment firm 
Adams Harkness & Hill in Boston, Massachusetts. 

Although the "natural products industry" includes more than 
just organic goods -- dietary supplements, for example -- 
much of the investor excitement is focused on retailers that 
emphasize organic products such as Whole Foods Market Inc. 
and Wild Oats. According to OFRF's Bob Scowcroft, the boom in 
initial public stock offerings by organic companies has 
barely started. He pointed out that more than 50 investment 
bankers signed up to attend his foundation's 1997 conference 
-- up from five in 1995. 

Sources: Natural Foods Merchandiser, June 1997 and June 1996; 
San Francisco Chronicle, August 2, 1997.
Contact: PANNA.

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