California tops the leader board of American states that show the greatest investment potential for organic foods, according to one expert who has authored a new report on the global organics market.
The US organic food and beverages market is the second largest in the world behind Europe. It is expected to grow from $21.1 billion in 2010 to $36.8 billion in 2015, with an expected CAGR (Compound Annual Growth Rate) of 11.9 percent.
While supply is still playing catch-up with demand, investment opportunities present themselves and lucrative profit margins can be made. This is according to the report author, Vasanth Kumar, Market Research Manager, Food & Beverage, at MarketsandMarkets, who said food ingredients companies have a key role to play.
Kumar told FoodNavigatorUSA.com: “The US is one of the leaders in the organic market owing to the government’s monetary and regulatory support and increasing acceptance of organic food in the country.
“Also, higher levels of health awareness and per capita incomes have been fuelling the growth of organic food products.
“States such as California, Wyoming, Texas, New Mexico, Wisconsin, and South Dakota have shown significant market potential and are viewed as the most attractive investment destinations for organic food business. California in particular has been the leader.”
He added that California leads in organic sales with 36 percent of sales within the US. It also accounts for 20 percent of national organic farms or ranches, with 2,700 operations in 2010.
Also California has the most certified organic cropland, with over 430,000 acres, largely used for fruit and vegetable production.
Kumar said: “The demand for organic products in the country (US) has been growing at over 10 percent per year.
“However, supply has not been able to meet the demand which is one of the reasons for the higher pricing of organic food products. Large retailers are also showing significant interests in selling these products.”
Organic meat, for example, costs almost twice as much as conventional meat while organic vegetables are 20 percent higher.
But Kumar added that the supply shortage actually presents an opportunity as “lucrative profit margins” can be made on these products.
At the same time Kumar said ingredient manufacturers play “a key role” as organic food products cannot be termed completely organic unless all the raw materials and ingredients used to prepare it are also organic.
He added that organic food suppliers tend to tie-up with ingredient companies to obtain customized organic ingredients for foods and beverages - such Organic Valley with Simply Organic - while some companies such as the SunOpta Grains and Foods Group prepare organic ingredients themselves.
However, the high cost of conversion to organic farming from traditional farming is a factor holding the market back as it takes a minimum of five years to get certified for organic products.