marketing organic produce in new jersey: obstacles and opportunities

Marketing Organic Produce in New Jersey: Obstacles

and Opportunities

Jennifer Morgan Bruce Barbour

The results of a survey of produce handlers indicate that: (a) the estimated value of wholesale sales of organic produce in New Jersey for 1988 was $1 to $3 million; (b) half of the respondents inexperienced in selling organic produce are interested in selling organic produce; (c) the primary motivations to participate in the organic produce market are perceived health and environmental concerns and consumer demand; (d) consumers will pay a 30% price premium for organic produce; (e) supply and price are obstacles to expansion of the market; (f) locally grown produce is preferred; and (g) three-quarters of those interested in selling organic produce say that a certification program would assist them.

A number of consumer surveys have indicated increasing levels of concern about the health and safety of the food supply. An American Farm Bureau Survey (July 1990) found that 20% of consumers want a pesticide ban while 80% want a reduction or no increase in pesticide use. Such consumer concern has created a market for produce grown without synthetic pesticides or fertilizers (organic produce) which represents a small specialty market with an apparent growth potential. A Harris Poll of consumers nationwide (March 1989) revealed that 49% of the American people would pay more for organically grown fruits and vegetables, further suggesting market growth potential for organic produce.2

However, a consumer study conducted by Desmond Jolly (1989) found that although a sizable minority of consumers (39.4%) perceive organic foods to be safer and have less environmental impact, fewer (23%) regularly shop for organic

The study was supported with a grant from The Fund for New Jersey and by telephone time donated by AT&T.

Jennger Morgan is Director, Sustainable Agriculture Project, Stony Brook-Millstone Watershed Association and Bruce Barbour is Associate Professor with the Department of Agriculture and Resource Management Agents, Cook College, Rutgers University.

Agribusiness, Vol. 7, No. 2, 143-163 (1991) 0 1991 by John Wiley & Sons, Inc. ccc 0742-4477191 1020143-2 1$04.00

144 MORGAN AND BARBOUR

products. The study found that major constraints to market expansion include relative costs and availability. Thus, if appears that market expansion depends on alleviating these constraints through increased production and improved distribution of these products, particularly through supermarket chain store^.^

But distribution through supermarkets poses several problems. A survey of California organic producers* found that although the organic market grew rapidly in the 1980s, numerous marketing and production constraints posed barriers to expansion. Cook concluded that chain store buyers require large volumes, consistent quality, and standard packs, and that organic growers could not meet those requirements at the present time.*

In a study conducted by Jacques franc^,^ price information supplied by wholesale distributors in California and interviews with such distributors revealed that organic produce can command substantial price premiums. For example, Franco found that premiums on organic broccoli frequently exceeded 100%. However, Franco also found oversupply and undersupply indicators suggesting that the organic produce market is highly fragmented. That is, organic produce may sell at a premium in some markets and not in 0the1-s.~

The present study, conducted by the authors and the Stony Brook-Millstone Watershed Association, gathered information about the organic produce market by surveying a broad range of produce industry members: retailers, distributors and brokers.

SURVEY PROCEDURE

The Association mailed a survey to 552 retailers and wholesalers of produce in New Jersey during February and March 1989. The survey was addressed to that person responsible for produce purchasing decisions. (In the case of chain stores, the survey was addressed to the produce department head at the chain’s headquarters.) The survey population included all persons and organizations identified in the following publications: the New Jersey section of the Red Book (Vance Publishing Corp., Fall, 1988); the Commission Merchants, Dealers, and Brokers Licensed and Bonded to Purchase New Jersey Perishable Agricultural Commodities (New Jersey Department of Agriculture, April, 1988); the Buyers Guide for New Jersey Wholesale Fruits and Vegetables (New Jersey Department of Agriculture, 1988); New Jersey Farmers’ Direct Marketing Association (Rut- gers University, 1988); the Jersey Quality Grading Program (New Jersey Depart- ment of Agriculture, June, 1988); Jersey Chain Contact List (New Jersey Depart- ment of Agriculture, October, 1988); the membership list of the Natural Organic Farmers Association of New Jersey [December, 1988 (growers only)]; and a list of New Jersey natural food stores identified in the Yellow Pages of the New Jersey Bell Telephone Book. Lists were cross-referenced to avoid more than one response from the same organization.

Two survey forms were sent to each respondent: one addressed to those retailers and wholesalers experienced in selling organic produce (experienced respondents) and one addressed to those retailers and wholesalers without experience in selling organic produce (inexperienced respondents). The total number of usable responses received were 201, a response rate of 36%. Of these, 64 were experienced respondents and 137 were inexperienced respondents.

Experienced respondents were: 5 retail supermarkets (1 with fewer than 5

MARKETING ORGANIC PRODUCE 145

stores and 4 with more than 5 stores), 37 natural food stores, 7 distributors and brokers, 12 farm markets, and 3 cooperatives.

Inexperienced respondents were: 9 supermarket chains (5 with fewer than 5 stores and 4 with more than 5 stores), 19 natural food stores, 55 distributors and brokers, 37 farms and farm markets, 9 processors, 5 cooperatives, and 3 other.

Inexperienced respondents were divided into two groups: those interested in selling organic produce and those not interested in selling organic produce. In the following analysis, the term inexperienced respondents refers to only those inexperienced respondents who are interested in selling organic produce, except in the Current Market Size section, where the term refers to those inexperienced respondents who are and those who are not interested in selling Organic Produce.

SURVEY RESULTS

Current Market Size

The survey results indicated that the total value of organic produce sold wholesale in New Jersey during 1988 was $1 to 3 million, representing .6% of the estimated $500.7 million produce wholesale produce market (i.e., sold to retailers) in the state (see Appendix). Based on follow-up interviews with all the distributors who responded to the survey and who sell organic produce, over 90% of the organic produce sold wholesale in New Jersey was imported, primarily from California and other western states. Thus, the total dollar value of locally grown organic produce sold wholesale in New Jersey is no more than 10% of the $1 to 3 million of produce sold wholesale in New Jersey, or $loO,OOO to 300,000.

However, survey results suggest a greater market potential for organic produce in New Jersey. Ninety-six and nine-tenths percent of experienced respondents plan to continue selling organic produce; 49.6% of inexperienced respondents indicated that they were somewhat or very interested in selling organic produce. Notable among the inexperienced respondents indicating interest in selling organic produce were supermarkets-all of whom expressed some level of interest. Indeed, it appears that if the inexperienced respondents were to enter the market, the number of organizations selling organic produce in New Jersey would double.

Reasons to Sell Organic Produce

Respondents were asked to select three of the most important reasons for selling organic produce from among the following:

(1) Organic produce expands produce selection. (2) Organic produce has a higher profit margin. (3) Customers want organic produce. (4) Organic produce provides a competitive tool. (5) It is store policy to sell organic produce. (6) Organic produce has a longer shelf life. (7) Organic produce tastes better. (8) Organic produce looks better. (9) Organic produce is more nutritious.


(10) Organic produce lowers health risks. (11) Organic produce is better for the environment.

Consumer Demand

The survey results indicated that retailers and wholesalers sell organic produce for several reasons. First, there is a strong consumer demand for such produce in New Jersey: 91% of experienced respondents and 39% of the inexperienced respondents agreed with the statement that “customers want organic produce.” Fifty-three percent of experienced respondents and 66% of inexperienced respondents cited “customers want organic produce” as on of the three most important reasons to sell organic produce (see Figure 1).

Price Premiums

Second, both experienced respondents and inexperienced respondents reported that their customers will pay a price premium for organic produce. Survey respondents were asked to compute the price premium as follows: if a conventionally grown item sells for $10 and the same item grown organically sells for $12, then the price premium is 20%, that is, $2 divided by $10 (see Figures 2A and 2B). For example, experienced respondents indicated that they believe their customers will pay an average price premium of 29.6%. (This figure increases to 32.9% when the responses from experienced respondents were weighted for volume of 1988 sales.) However, experienced respondents also reported that the price premiums they believe that their customers will pay vary among the three retail groups: natural food stores, 33%; supermarkets, 23%; and farm markets, 19%. For their part, wholesalers among experienced respondents said that their customers (i.e., retailers) will pay an average price premium of 36%.

Inexperienced respondents reported that they believe their customers will pay an average price premium of 28.0%. This figures dropped to 19.9% when the

FIGURE IA: REASONS TO SELL ORGANIC PRODUCE. The results show the percentage of 6 2 Experienced Respondents who selected a particular reason as one of the three.

Lowers health risks 75.8 Better for the environment

Customers want Organic Produce More nutritious

Provides a competitive tool Store policy to sell

Expands produce selection Tastes better

I

o 1 0 2 0 30 40 50 6 0 70 a0 so 1 0 0 Percentage

Figure 1A. Reasons to Sell Organic Produce. T h e Results Show the Percentage of 62 Experienced Respondents W h o Selected a Particular Reason as O n e of the Three.


FiGURE 18: REASONS TO SELL ORGANIC PROMJCE. The results show the percentage of 71 Inexperienced Respondents who selected a particular reason as one of the three.

Customers want Organic Produce 66.2 Better for the environment

Lowers health risks Expands produce selection

Provides a competitive tool More nutritious

Higher profit margin

Tastes better

I

0 10 20 30 40 50 60 70 80 90 1 0 0 Percentage

Figure 1B. Reasons to Sell Organic Produce. The Results Show the Percentage of 71 Inexperienced Respondents Who Selected a Particular Reason as One of the Three.

responses for inexperienced respondents were weighted for volume of sales. There are at least two possible explanations for the drop in the weighted average among inexperienced respondents: (a) the inexperienced respondent is less confident in the sales potential for organic produce; and/or (b) inexperienced respondents include more high-volume retailers than the experienced respondents, and customers of high-volume stores are less likely to pay the same premiums as are customers of low-volume stores.

Among inexperienced respondents, the average price premiums that they believe their customers will pay varies among the three retail groups: natural food stores, 31.9%; supermarkets, 19.4%; and farm markets, 30.6%. Wholesalers

Figure 2A. enced Respondents Interested in Selling Organic Produce.

Average and Weighted Price Premiums. Experienced and Inexperi-


Figure 2B. perienced Respondents Interested in Selling Organic Produce.

Price Premiums Based on Market Outlet. Experienced and Inex-

among inexperienced respondents said that their customers (i.e., retailers) will pay a price premium of 30.2%.

Supermarkets, as a group, said that their customers will pay a lower price premium than that reported by all other sellers of organic produce. This may be explained by the difference in attitudes between customers of supermarkets and, say, customers of natural food stores.

The apparent willingness of consumers to pay a price premium for organic produce is consistent with the results of a consumer study conducted in Califor- nia6 which showed that 41% of consumers are willing to pay a 44% premium for organic apples. Overall, the average premium that respondents were willing to pay for organic apples was 37%.6

Wholesalers among experienced respondents said that, assuming they have access to an ample supply of organic produce which they could sell at a price premium they believe their customers will pay, their dollar sales of organic produce would triple between 1988 and 1990. Based on the same assumption, wholesalers among inexperienced respondents projected organic produce sales of $3 million for 1990, which is equal to or greater than the total dollar value of organic produce sales in New Jersey in 1988. It is interesting to note that one large experienced respondent (a supermarket chain) volunteered that, if it could sell organic produce at a 10% premium above the price it sells conventionally grown produce and had a ample supply of organic produce, then it could sell $10 million of such produce.

Profuability

Although organic produce may command a price premium, generally it is not perceived by the survey respondents to be more profitable than conventionally grown produce. For example, 70.3% of experienced respondents disagreed with the statement that organic produce has a higher profit margin than conventionally grown produce.


There is no inconsistency between the fact that experienced respondents perceive organic produce to be no more profitable than conventionally grown produce and the fact that they also believe it can command a substantial price premium. This may be explained by the mark-up usually associated with organic produce. Compared to conventionally grown produce, 76.6% of experienced respondents report that they use either the same mark-up or a lower mark-up for organic produce than they do for conventionally grown produce (53.2% for the same mark-up, 23.4% for a lower mark-up). Only 23.4% said they use a higher mark-up. Based on the foregoing, one can conclude that retailers and wholesalers generally purchase organic produce at the same price premium at which they sell it.

This conclusion is confirmed by the fact that, when asked to select the three most important reasons for selling organic produce, only 1.6% of experienced respondents say that they believe that organic produce can earn a higher profit margin. On the other hand, 21.1% of inexperienced respondents selected the same reason. The disparity suggests that inexperienced respondents perceive that organic produce to be more profitable than it actually is (see Figure 1B).

It is interesting to note that if mark-ups are calculated on a percentage basis (rather than an absolute dollar basis) then sales of organic produce will generally lead to higher net sales (revenue minus cost of goods sold), assuming that the sale of organic produce can maintain the same volume sold per square foot as does conventionally grown produce. That is so because organic produce is sold at a higher price than conventionally grown produce. However, in the light of actual industry experience, organic produce generally does not maintain the same volume sold per square foot as does conventional grown produce.7

Even if organic produce were able to maintain the same volume sold per square foot as conventionally grown produce, increased management costs and waste associated with handling organic produce may erode the higher income. Regarding management costs, more time is required to identify and maintain a consistent supply of organic produce than is required to obtain a supply of conventionally grown produce. Furthermore, sources must be checked for their reliability in order to insure that produce sold as organic produce is in fact organic produce.

Second, produce managers must be specifically trained to carefully label and keep organic produce separate from conventional produce and to answer customers’ questions about organic produce. One explanation may be that distribution inefficiencies cut available shelf-life time and relatively higher prices decrease sales volume. These factors result in greater percentage discard of organic produce than conventionally grown produce.

Health and Environment

For experienced respondents, leading the list of reasons to sell organic produce is “lowers health risks,” which 75.8% cited as one of three most important reasons for selling Organic Produce (see Figure 1A). Thirty-nine and four-tenths percent of inexperienced respondents cited the same reason for selling organic produce (see Figure 1B). For experienced respondents the second leading reason for selling organic produce was “better for the environment,” which 61.3% selected. Fifty-two and one-tenths percent of inexperienced respondents selected the same


Table I. Reasons to Sell Organic Produce by Type of Business.

Inexperienced Respondents

Experienced Interested in Selling Respondents Organic Produce

Supermarkets (No.) Most Important Factor Second Important Factor

Third Important Factor

Natural Food Stores (No.) Most Important Factor Second Important Factor Third Important Factor

Distributors & Brokers (No.) Most Important Factor Second Important Factor Third Important Factor

Farm Markets (No.) Most Important Factor Second Important Factor

Processors (No.) Most Important Factor Second Important Factor

5 Expands Selection Competitive Tool

Customer Demand

37 Expands Selection Better for Environment Lowers Health Risks

7 Expands Selection Customer Demand Better for Environmenta Competitive Tool

12 Better for Environment Expands Selection. Lowers Health Risks

0

9 Expands Selection More Nutritiousa Lowers Health Risks Better for Environment

15 Customer Demand Lowers Health Risks Better for Environment

24 Better for Environment Customer Demand Lowers Health Risks

15 Competitive Tool Lowers Health Risksa Expands Selection

2 Customer Demand Expands Selection. Higher Profit Margin Competitive Tool Better for Environment

aIndicates tie in the reasons to sell organic produce for the Second Important Factor.

reason. Among all those respondents who indicated a desire to sell organic produce, health and environmental concerns were perceived to be significant reasons for doing so, superseding all other reasons for experienced respondents and superseding all other reasons for inexperienced respondents except “customers want organic produce.”

When responses were categorized by type of business (supermarkets, natural food stores, distributors and brokers, farm markets, and processors) and further categorized by experience with organic produce (experienced respondents and inexperienced respondents interested in selling organic produce) health and/or environmental concerns were generally expressed by respondents in all categories by one (See Table I). Experienced respondents representing supermarkets did not cite health or environmental concerns among the three most important reasons for selling organic produce. One possible explanation for this may be supermarket sensitivity to presenting organic produce as lowering health risks


and bettering the environment and the implication that such a presentation would have for conventional produce which forms the backbone of the supermarket business.

Thus, the survey results show that retailers are themselves concerned about the environment and/or perceive their customers to be concerned. In either case, retailers and wholesalers appear to be committed to selling organic produce not only because of the nature of the produce itself but also because of their, or their customers’, concerns about pollution associated with conventional agriculture (ground water contamination, etc.).

Other Reasons

In the case of inexperienced respondents, also high on the list of reasons for selling organic produce are: (a) organic produce “expands produce selection” and (b) organic produce “provides a competitive tool” (see Figure lB). Inex- perienced respondents apparently want to diversify their operations in order to maintain customers who may look elsewhere in a market environment in which organic produce is receives a great deal of media attention. This may be particularly true for supermarkets which cited “expands produce selection,” “provides a competitive tool,” and “customers want organic produce,” as the three most important reasons for selling organic produce (see Table I).

Both experienced respondents and inexperienced respondents generally agree that organic produce does not have a longer shelf life and does not look better than conventionally grown produce and that shelf life and appearance are not reasons for entering into the Organic Produce market.

Obstacles to Expansion of the Organic Produce Market All respondents were asked to choose which concerns among the following five posed the most significant obstacles to selling organic produce: “too expensive,” “poor quality,” “lacks legitimacy,” “lacks sufficient supply,” and “lacks appropriate packaging and labeling.”

Price and Supply

Experienced respondents and inexperienced respondents agree that the two most significant obstacles to further expansion of the organic produce market are the relatively high price and lack of supply of such produce (see Figures 3B and 3D). Eighty and six-tenths percent of experienced respondents ranked “too expensive” and “lacks sufficient supply” equally as one of three most important problems among the five listed. Inexperienced respondents agreed with the experienced respondents, 74.2% citing “lacks sufficient supply” and 72.7% citing ‘300 expensive.”

All business categories-supermarkets, natural food stores, distributors and brokers, farm markets, and processors-agreed that “lacks sufficient supply” and “too expensive” are the main obstacles to further expansion of the Organic Produce market (see Table 11). Respondents’ views that organic produce “lacks sufficient supply” may be attributed to the rapidly increasing consumer awareness of health and environmental issues relative to grower interest in or

152 MORGAN ANDBARBOUR

I FIGURE MA: PROBLEMS ASSOCIATED WITH SELLING ORGANIC PRODUCE. Experienced Respondents. Single Most Important Problem

Lacks legitimacy F : : . 7 ~ ~ . , Poor Quality

Lacks appropriate packaging and lableing 3.2

0 10 20 30 4 0 5 0 60 70 80 90 100 Experienced Respondents were asked to select the single most important problem out of the five listed here. The results show the percentage of 62 Experienced Respondents who selected a particular problem as the single most important problem.

Figure 3A. spondents. Single Most Important Problem.

Problems Associated wi th Sell ing Organic Produce. Experienced Re-

knowledge about organic production. Consumers can shift their purchasing patterns more readily than farmers can alter their growing practices. The lack of agriculture research devoted to organic practices over the last few decades also contributes to the disparity between consumer demand and grower supply of organic produce. There is little institutional support in the agriculture community for conversion from conventional to organic growing practices.

Due to the relative lack of information about organic production practices, growers may perceive that organic production is very risky. However, growers might be more willing to risk conversion from conventional to organic practices if they could be assured of sufficient prices to compensate for such risk. But a 30% premium may not be a high enough premium to motivate many conventional growers to take that risk at this time.

FIGURE IIIC: PROBLEMS ASSOCIATED WITH SELLING ORGANIC PRODUCE. Inexperienced Respondents interested in selling Organic Produce. Single Most Important Problem.

Too expensive 39.4

Lacks sufficient supply

Lacks legitimacy

Poor quality

Lacks appropriate packaging and labeling I

0 10 20 30 4 0 5 0 60 70 80 90 100 Inexperienced Respondents were asked to select the single most important problem out of the five presented here. The results show the percentage of 66 Inexperienced Respondents who selected a Darticular Droblem as the most imDortant problem.

Figure 3B. spondents. One of Three Most Important Problems. Percentage.

Problems Associated wi th Sell ing Organic Produce. Experienced Re-


FIGURE IIID: PROBLEMS ASSOCIATED W r H SELLING ORGANIC PRODUCE Inexperienced Respondents interested in selling Organic Produce One of Three Most Important Problems.

Lacks sufficient supply

Too expensive

Lacks legitimacy

Poor quality

Lacks appropriate packaging and labeling I

0 10 20 30 40 50 6 0 7 0 8 0 90 100 Inexperienced Respondents were asked to select the three most important problems out of the five presented here. The results show the percentage of 66 Inexperienced Respondents who selected a particular problem as one of the three.

Figure 3C. Problems Associated with Selling Organic Produce. Inexperienced Respondents Interested in Selling Organic Produce. Single Most Important Problem.

Specific Quality and Supply Problems

Respondents were asked to select the three most important quality and supply problems from the following list:

(1) Organic Produce has poor appearance.

(2) Organic Produce arrives too ripe. (3) Organic Produce arrives too immature. (4) Organic Produce has poor taste. (5) Organic Produce quality is inconsistent. (6) Not enough volume is grown.

FIGURE 1118: PROBLEMS ASSOCIATED WITH SELLING ORGANIC PRODUCE. Experienced Respondents. One of Three Most Important Problems. Percent.

Lacks sutlicienl supply 8 0 . 6

Too expensive 80.6

Lacks appropriate packaging and labeling

Lacks legitimacy

Poor quality 33.9 I

0 1 0 20 30 4 0 50 6 0 7 0 8 0 90 The results show the percentage of 62 Experienced Respondents who selected a particular problem as one of the three.

Figure 3D. Problems Associated with Selling Organic Produce. Inexperienced Respondents Interested in Selling Organic Produce. One of Three Most Important Problems.


Table 11. Problems Associated with Selling Organic Produce by Type of Business.

Inexperienced Respondents

Experienced Interested in Selling Respondents Organic Produce

Supermarkets (No.) Most Important Factor Second Important Factor

Third Important Factor

Natural Food Stores (No.) Most Important Factor Second Important Factor Third Important Factor

Distributors & Broken (No.) Most Important Factor Second Important Factor Third Important Factor

Farm Markets (No.) Most Important Factor

Second Important Factor Third Important Factor

Processors (No.) Most Important Factor

5 Lack of Supply Too Expensive8 Lacks Packaging &

Labeling

9 Too Expensive Lacks Sufficient Supply

37 Too Expensive Lacks Sufficient Supply Lacks Packaging &

Labeling

7 Lacks Sufficient Supply Too Expensive Lacks Packaging &

Labeling

12 Too Expensive

Poor Quality Lacks Legitimacy Lacks Sufficient Supply

0

Lacks Packaging & Labeling

15 Lacks Sufficient Supply Too Expensive Lacks Legitimacy

24 Lacks Sufficient Supply Too Expensive Lacks Legitimacy

15 Too Expensiveb Lacks Legitimacy

Lacks Sufficient Supply

2 Too Expensiveb Lacks Legitimacy Lacks Sufficient Supply

UIndicates tie in the problems cited as Second Important Factor. bhdicates tie in the problems cited as Most Important Factor.

(7) Not enough variety is grown. (8) Not enough is grown locally. (9) Organic produce lacks distribution.

Supply When asked to select the three most important quality and supply problems from the above list of frequently cited specific quality and supply problems, 69.6% of experienced respondents and 52.3% of the inexperienced respondents selected “not enough volume is grown” as one of the three (see Figures 4B and 4D). Thus, the problem of “lacks sufficient supply” is confirmed as the major obstacle limiting growth in this market.


FIGURE IVA: bUALlTY AND SUPPLY PROBLEMS. Experienced Respondents. Single most important Problem. The results show the percentage of 56 Experienced Respondents who selected a particular problem as the most important problem.

Not enough volume grown (26.8%)

Not enough grown locally (23.2%)

Lacks distribution (23.2%) 23.2

Quality is inconsistent (1 0.7%)

Poor appearance (8.9%)

Not enough variety grown (7.1%)) I

0 10 20 30 4 0 50 60 70 80 90 100

Percentage

Figure 4A. Quality and Supply Problems. Experienced Respondents. Single Most Important Problem. The Results Show the Percentage of 56 Experienced Respondents Who Selected a Particular Problem as the Most Important Problem.

Choosing from the same list of nine frequently cited obstacles to market expansion, 67.9% of experienced respondents and 46.2% of inexperienced respondents cited “not enough organic produce is grown locally.” Thus, it appears that retailers and wholesalers not only seek a greater supply of organic produce from all sources, but they particularly seek a greater supply of locally grown organic produce. Several reasons may account for this response. Locally grown organic produce will generally have a longer shelf life, appear fresher and have greater nutritional value simply because the distance from farm to market is shorter. Moreover, a viable organic produce market depends on trust between buyer and seller regarding the legitimacy of such produce. Retailers may trust known local suppliers more than they trust unknown suppliers located 3,000

FIGURE IVB: QUALITY AND SUPPLY PROBLEMS The results show the percentage of 56 Experienced Respondents who selected a particular problem as one of the three.

Not enough volume grown

Not enough grown locally

Lacks distribution

Not enough variety is grown

Quality is inconsistent

Poor appearance

Arrives too ripe

Arrives too immature 0

Poor taste 0 4

0 10 20 30 40 50 60 7 0 80 90 100 Percentage

Figure 4B. The Results Show the Percentage of 56 Experienced Respondents Who Selected a Particular Problem as One of the Three.

Quality and Supply Problems.

156 MORGANANDBARBOUR

FIGURE IVC: QUALITY AND SUPPLY PROBLEMS. Inexperienced Respondents interested in selling Organic Produce. Most Important Problem. The results show the percentage of 65 Inexperienced Respondents who selected a problem as the most important one.

Poor appearance (29.2) 29.2

Not enough volume grown (20%)

Lacks distribution (16.9%)

Not enough grown locally (13.8%)

Quality is inconsistent (12.3%) Not enough variety grown

(4.6%)

I

0 10 2 0 3 0 4 0 5 0 60 70 8 0 90 100 Percent age

Figure 4C. Quality and Supply Problems. Inexperienced Respondents Interested in Selling Organic Produce. Most Important Problem. The Results Show the Percent- age of 65 Inexperienced Respondents Who Selected a Problem as the Most Important One.

miles away. Further, local supply reduces the environmental impact of long distance transportation.

According to 86% of experienced respondents and 53% of inexperienced respondents, they will purchase Organic Produce even if it is only available on a seasonal basis. This finding belies the notion that New Jersey retailers will not purchase organic produce unless it is available year-round. The seasonal availability of organic produce in New Jersey should be no barrier to the entry of heretofore conventional New Jersey growers into the New Jersey organic produce market.

FIGURE IVD: QUALITY AND SUPPLY PROBLEMS The results show the percentage of 65 Inexperienced Respondents who selected a particular problem as one of the three.

Not enough volume is grown

Not enough grown locally

Not enough variety is grown

Lacks distribution

Poor appearance

Quality is inconsistent

Arrives too ripe

4

0 10 20 30 4 0 5 0 60 70 80 9 0 100 Percentage

Figure 4D. Quality and Supply Problems. The Results Show the Percentage of 65 Inexperienced Respondents Who Selected a Particular Problem as One of the Three.


Distribution

Another significant problem chosen by respondents from a list of nine frequently cited obstacles to expansion of the organic produce market was a lack of distribution: 64% of experienced respondents and 44% of inexperienced respondents cited this problem (see Figures 4B and 4D). Most organic produce sold in New Jersey is imported (primarily from California) by a single distributor located out- of-state, and therefore California growers generally have better access to New Jersey retailers than do New Jersey growers.

Except for the most local of markets, importation of organic produce into New Jersey may be more effective than intrastate distribution for two reasons. First, because very little organic produce is grown in New Jersey large distributors do not find it to be financially viable to seek sources of such produce in-state. Secondly, until recently, New Jersey had no organic certification program and retailers preferring certified produce had no choice but to seek such produce out- of-state.

In general, the survey respondents indicated that supply problems are more serious than quality problems as obstacles to expansion of the organic produce market in New Jersey. However, inexperienced respondents viewed “poor appearance” as the most important obstacle to such expansion (see Figure 4C). Interestingly, experienced respondents ranked “poor appearance” relatively low (see Figures 4A and 4B). This difference may reflect differences in familiarity with organic produce. Or it may reflect a difference in the customer base between these groups, with inexperienced respondents having a customer base less famil- iar with organic produce, more concerned about appearance, and less concerned with health or environment issues.

Organic Produce Items in Demand

The survey respondents picked staple fruits and vegetables as those items of organic produce in greatest demand (see Table 111.) Apples were the most frequently requested organic produce item. (It should be noted that the time the survey was conducted there was much national media concern about the health consequences of Alar on the nation’s apple crop.)

The fact that survey respondents chose a wide variety of staples may indicate that: (a) those who consume organic produce prefer that all their produce be grown organically, and/or (b) respondents want to provide their customers with a full line of organic produce items so that their customers need not shop elsewhere. In either case, the survey respondents interested in selling organic produce apparently indicated a desire to sell a full line of organic produce items.

Need for an Organic Certification Program

Experienced respondents were asked how they determine that produce identified as “organic” is in fact organic produce. Fifty-one and six-tenths percent said that proof in writing by label, affidavit, or other certification was one of the ways they make that determination. Conversely, 48.4% of experienced respondents respondents said they did not use certification as a way to determine legitimacy. Among other methods which are used to establish legitimacy are literature and packag-


Table 111. Organic Produce Items Requested by Experienced and Inexperienced Respondents.

Over 50 Requests Apples Lettuce Peaches Tomatoes

30 to 50 Requests Beans Berries Carrots Cucumbers Melons Pears Peppers Potatoes Squash

10 to 29 Requests Asparagus Bananas Beets Cabbage Celery Cauliflower Cherries Corn Eggplant Grapes Onions Oranges Peas Plums Radishes Spinach Strawberries Turnips

81 69 54 69

35 30 49 39 37 40 34 42 45

12 15 15 27 16 23 13 23 12 26 25 27 11 20 10 16 19 10

Fewer than 10 Requests Apricots Avocados Brussel Sprouts Burdock Chard Chicory Collards Daikon Escarole Garlic Ginger Grapefruit Herbs Kiwi Leeks Lemons Mushrooms Nectarines Oriental Vegetables Parsley Pumpkin Rhubarb Sprouts Tangelos Tangerine Watercress

1 7 1 1 7 2 9 4 2 9 1 9 6 3 4 7 6 9 1 8 4 3 2 1 1 3

ing provided by the wholesaler and oral as well as written agreements obtained from the supplier.

When experienced respondents were asked how often they or their customers were confident that the produce they purchased as “organic” was in fact organic produce, 61.7% of those responding answered that they were “always confident” and 35% answered “frequently confident.” Only 3.3% answered “sometimes confident” and none answered “never confident.”

However, 75.4% of experienced respondents and 82.4% of inexperienced respondents noted that an organic certification program maintained by the State of New Jersey would “Yes, very definitely” assist them in marketing organic produce. Twenty-eight experienced respondents say they would pay a fee ranging


from $10 to $200 ($54 average) and 38 inexperienced respondents say they would pay a fee ranging from $10 to $2500 ($145 average) in order to sell organic produce certified as such by the State of New Jersey.

Thirty-eight and nine-tenths percent of experienced respondents and 62.1% of inexperienced respondents cited “lacks legitimacy” as one of three most important problems associated with selling organic produce (see Figures 3B and 3D). Experienced respondents are clearly more confident about legitimacy than inexperienced respondents-and probably more confident simply because they are more experienced in the field.

Transitional-Organic Produce and Low-Chemical-Input Produce

Transitional-Organic Produce

Sixty-three and three-tenths percent of experienced respondents and 66.1% of inexperienced respondents said they would be “somewhat” or “very” interested in selling transitional organic produce. Transitional-organic produce is produce which has been grown on fields in organic production for fewer than three years (see Figure 5). They may be willing to market this category of produce because a sufficient supply of organic produce is unavailable. One could expect transitional-organic produce to command a higher price premium than conventionally grown produce but a lower one than organic produce.

Low-Chemical-Input Produce

Seventy-three and three-tenths percent of experienced respondents indicated that they would be “nut at all interested” or “mt very interested” in selling low- chemical-input produce. Low-chemical-input produce is produce which has been

Figure 5. perienced Respondents Interested in Selling Organic Produce.

Interest in Selling Transitional-Organic Produce. Experienced and Inex-


Figure 6. perienced Respondents.

Interest in Selling Low-Chemical-Input Produce. Experienced and Inex-

grown with substantially fewer chemical inputs than conventionally grown produce (see Figure 6). Inexperienced respondents did not share the same reluc- tance: 59.7% said they would be “somewhat” or “very interested” in selling such produce. Experienced respondents may be reluctant to market low-chemical- input produce because it is more difficult to define than is organic produce or transitional-organic produce. Further, experienced respondents may generally be more committed to organic agriculture than inexperienced respondents.

CONCLUSION

The organic produce market offers a growth area for New Jersey growers. Al- though the organic produce market currently represents only a small percentage of the overall produce market, produce retailers and wholesalers with and without experience selling organic produce say that consumer concern about health and environmental risks associated with conventional agriculture practices has spawned a market niche for organic produce. This recognition could lead to the establishment of separate organic produce sections i n major supermarkets.

Several obstacles inhibit expansion of the organic produce markets. The most significant obstacles concern supply, price, and distribution. Regarding supply, unlike the market for conventionally grown produce, the organic produce market is characterized by undersupply, particularly of locally grown organic produce. New Jersey retailers and wholesalers specifically demand locally grown organic produce, reinforcing the proposition that there exists a market opportunity for New Jersey growers in the organic produce market. Such an opportunity exists for two reasons: (a) New Jersey growers can displace organic produce currently imported into the state; and (b) New Jersey growers can help fill the currently unmet demand for organic produce. Indeed, according to the survey results, if all the respondents could sell locally grown and imported organic produce at a price premium their customers will pay, then organic produce sales would increase threefold between 1988 and 1990.


Local distribution of organic produce has been primarily focussed on import- ing organic produce from out-of-state, not distributing it from growers to retailers within New Jersey. This may be due to lack of local supply, which makes New Jersey organic produce relatively expensive because of the difficulty in locating it and generating enough volume to make an in-state distribution system eco- nomical. In short, the current lack of supply appears to provide a very favorable market condition for those New Jersey growers who can bring a product to market.

Regarding price, the survey respondents generally believe that their customers will purchase organic produce at a price premium of approximately 30%, thus supporting the conclusion that a substantial volume of organic produce can be sold at that price premium. The survey results also show that organic produce will command higher price premiums at natural food stores than at supermarkets.

However, retailers and wholesalers should be aware of the pitfalls of entry into the organic produce market. Care should be exercised when analyzing the profit potential of organic produce by examining its profit margins (gross and net) and net income. Generally speaking, organic produce offers the same gross profit margin as conventionally grown produce. Arguably, it offers a lower net profit margin due to additional management requirements. Although organic produce may yield the same or lower profit margins, it nevertheless may yield higher net income as long as sales volume per square foot of retail space remains on a par with conventionally grown produce. This is so because organic produce represents a more expensive product line.

Growers also need to examine the cost of production for organic produce on a per crop basis. For some crops, the cost of off-farm organic inputs combined with additional labor requirements may well exceed the 30% premium at which such organic produce may be sold. Analyzing the costs as well as the methods of organic production poses one of the most challenging and significant areas for future research.

Another note of caution regarding price premiums: there may be a discrepancy between the price premium retailers and wholesalers say their customers are willing to pay and the price premium their customers will pay. Retailers and wholesalers perceptions of their customers may not be accurate, especially in this small but rapidly changing market. Furthermore, there may be a discrepancy between what the consumer says he/she is willing to pay and the consumers’ actual buying patterns. This, too, presents an avenue for further research.

Supply and price constraints suggest several marketing opportunities to growers of organic produce. From the growers’ perspective, the current limited supply of organic produce should be directed toward those market outlets yield- ing the highest price premiums, that is, natural food stores and selected supermarkets willing to pay high premiums, not mass-market supermarkets. However, selling through small-volume, high-end markets again underscores the need for improved local distribution because growers will have difficulty selling small quantities to numerous locations.

The above discussion about the profitability of organic produce suggests that there are market reasons for selling organic produce besides net income directly attributable to organic produce sales. Use as a “competitive tool” and in order to expand produce selection” figure prominently among the reasons that inex-

perienced respondents say they want to enter the market. Marketers see organic bb


produce not only as a way to maintain customer loyalty, but also as a way to maintain customer confidence. As was recently demonstrated in the apple market, individual product markets can be devastated when singled out in media reports about health risks. Therefore, retailers (particularly supermarkets) may be using the organic produce market as a hedge against future negative health reports about conventionally grown produce.

Whatever the impetus for growth, the organic produce market appears to be increasing, thus presenting opportunities for those growers who decide to enter it. The organic produce market in New Jersey is still in its infancy and for that reason growers may encounter numerous unforeseen problems. However, it is also precisely because of its infancy that specific marketing opportunities are available to those growers and retailers willing to tackle the attendant challenges.

REFERENCES

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Market Facts and Porter/Novelli, “Pesticide Perceptions,” American Farm Bureau Federation, Washington, DC, 1990. “America Wants Organic, An Exclusive Harris Poll,” Organic Gardening Magazine, March 20, (1989). D.A. Jolly, “Consumer Willingness to Pay Price Premiums for Organic Apples and Peaches,” University of California Sustainable Agriculture Research and Education Program, Davis, CA, 1989. R.L. Cook, “Marketing Organic Commodities in California: Structure and Obstacles to Expan- sion,” Paper presented at the Western Economics Association, International Conference, Los Angeles, CA, July 2, 1988. .I. Franco, “An Analysis of the California Market for Organically Grown Produce,” Paper presented at the Western Economics Association, International Conference, July 2, 1988. D.A. Jolly, “Consumer Willingness to Pay Price Premiums for Organic Apples and Peaches,” University of California Sustainable Agriculture Research and Education Program, Davis, CA, 1989. “Organics Growth Stymied by High Prices,” Supermarket News, October 30, 9 (1989).

APPENDIX The New Jersey Department of Agriculture does not maintain statistics concerning the value of produce sold wholesale in New Jersey, according to Chen Ning Chang, an agricultural statistician at the Department. But the value of produce sold wholesale in New Jersey may be computed as follows:

Step 1: Calculate the dollar value of produce wholesale sales for the US market, as follows*

Vegetables Fruits

Produced in United States 9.223 6.657 Cash Receipts on Farms

Exports (minus) 1.1 1.483 Imports (plus) 1.535 .987

Totals 9.658 6.161

Produce Sold Wholesale in the United States $15.819

Data from Economic Research Service, Agricultural Statistics: Economic Indicators of the Farm Sector, State Financial Summaries, 1987, United States Department of Agriculture, Washington, DC, 1987.


Step 2: Calculate the per capita produce sold wholesale in the United States: $15.819 billion divided by 243,419,000 (population of the United States in 1988) equals 86r2.99 per capita produce sold wholesale in the United States. Step 3: Multiply the per capita produce sold wholesale by the population of New Jersey in order

to arrive at a figure for produce sold wholesale in New Jersey: $fA.99 (per capita produce sold wholesale) multiplied by 7,721,000 (population of New Jersey in 1988) equals $500,706,850.

marketing organic produce in new jersey: obstacles and opportunities

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