The Van Trump Report

Pandemic’s Effect on Organic Sector

Americans have been buying an increasing number of organic products in the last few years with sales climbing +6.3%, but the question now is how will the spread of COVID-19 impact the future of the organic space? 

Consumer purchasing patterns and more importantly, priorities are quickly changing. Our friends at Mercaris, the leading market data service and online trading platform for organic, non-GMO, and certified agricultural commodities did a terrific deep dive into the question in a recently released presentation. If you are thinking about pivoting some acres in this direction or already deep in the organic space this is very valuable information. The team at Mercaris does an amazing job of trying to cover the entire gamut, including imports, exports, organic grain as feed, and how things look to play out through this growing season and beyond. I encourage everyone to check out the full presentation HERE.

Speaking from a macro perspective, consumers had been turning to healthier alternatives, but with the pandemic, there’s a ton of uncertainty on the horizon. I’ve personally been on a ton of conference calls and investors are worried. Many smaller farming operations that had pivoted to organic for the premiums and made the jump going direct to chefs and restaurant owners have gotten hammered. Keep in mind, many smaller farms were selling almost 100% to restaurant owners or specialty type players in the food space. As you can imagine, demand simply dried up. Similar to what we are seeing with the fake meats. People aren’t necessarily buying these products at the grocery stores, in the same manner, they were buying at restaurants pre-corona.       

The good news, with the rise of more consumers eating at home, it’s anticipated that food-at-home consumption could increase as much as +50%, adding billions to grocery store sales. Keep in mind, prior to the pandemic, food-at-home consumption was on a steady decline. I keep hearing mixed data on what shoppers are buying i.e. According to a recent survey by The Packer, grocery shoppers have changed their shopping habits due to fears of catching coronavirus from food. Survey respondents indicated that they are buying less fresh produce in grocery stores and more canned foods due to fears around food safety. Studies have also shown that consumers want food that is pre-packaged. On the flip side, I’ve heard from others that organic produce sales are up double-digits. I have talked to many grocery store owners and they say “organic” is typically the last thing left available on the shelves right now, so is it that demand is actually surging higher or is it more the fact a rising tide lifts all boats? Remember, as consumer budgets are squeezed by job losses and business failures their food budgets and choices tend to shift almost immediately. Meaning they tend to pull back on higher-end food purchases. 

Organic growers of field crops should be mostly insulated for this growing season as most have already been planted, and inputs needed to get through harvest have been acquired. Producers who grow for feedstocks could face more stiff headwinds. As more livestock processing facilities close there will most likely be a corresponding reduction in demand for organic feed grains as well as creating shortages in the supermarket where most organic meat products are sold. 

Labor is also causing some interesting hiccups. Last year, some +250,000 seasonal migrant farmworkers came to the U.S. from Mexico under the federal government’s H-2A visa program. But this year, coronavirus precautions and limited staffing at the State Department led to an early bottleneck in the application process, inciting fears of labor shortages, though eased restrictions hope to speed things along there are still some big holes that will need to be filled. 

Since the global food supply chain has been turned on its head, there’s been an interesting shift in consumers expressing new interest in purchasing their food directly from local farmers, leaving many growers rushing to adapt this evolving market—adding e-commerce platforms to their websites, devising distribution systems for at-home delivery or drive-through pick-ups, and incorporating no-touch harvesting and handling protocols.

Bottom line, I’m thinking there could be massive disruptions in the organic space. Strong producers will more than likely find a way to survive and gain market share. Unfortunately, I suspect we lose some of the farms that aren’t open and averse to making a big change. I do NOT see the restaurant space getting back to its previous level anytime soon. I think it will take a few years. So finding a different path for distribution and demand will be challenging but not impossible. (Source: Organic Produce Network, AgFunder, Mercaris)

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