Organics: Great for the Planet & the Portfolio

By Gary Hirshberg & Claudia Rice

Beginning in the 1980s, a variety of societal factors have led to an exploding organic marketplace. Putting it simply, our values have been generating value$, and it seems this trend will continue, benefiting the health of people and the planet, and investors.

With estimated 2003 revenues of $13 billion and a 5-year compounded annual growth rate of 22%, the organic products industry is projected to reach $25 billion by 2007 (Datamonitor and NMI/ Spins, The Organic Consumer Trends Report 2002). No longer solely the domain of natural foods stores (although they have the edge on variety of offerings and knowledgeable staff), organic products are sold in Safeway, Kroger, Costco, Wal-Mart, not to mention all classes of restaurants. Even chic new airlines like Delta’s Song are promoting organic offerings.

Motivated by health and nutrition concerns, today’s organic shoppers are more educated (62% have attended college) and spend more money on groceries. Often the only thing people feel they can control in terms of their health is what they put in their bodies. As a result, the most common goal of organic shoppers is “peace of mind.”

People are being exposed in their families and communities to increasingly frequent diagnoses of cancer and other diseases associated with environmental contamination. More and more research is linking pesticide use with human health problems.

An Ohio State University survey, presented in June 2003 at an agricultural communications forum in Kansas City, MO., reports that people rank pesticide residues as the highest perceived food risk.

The Harvard Center for Risk Analysis finds that people are willing to pay a “significant premium” for foods that are perceived as less risky (News Sentinel/ Fort Wayne.com, July 28, 2003).

It is thus reasonable to conclude that organic food consumption can only increase as more people become aware of studies linking human health conditions to conventional foods.

Two other factors could expedite these trends. The first would be if data emerges that demonstrate superior nutritional benefits of organic foods.

A report from USDA’s Beltsville research labs shows that organic crops contain more antioxidants, iron, magnesium, phosphorous, vitamin C and polyphenols and lower levels of nitrates (Journal of Alternative & Complementary Medicine, Vol. 7, #2).

In Europe, data shows higher levels of beneficial fats such as Omega 3 and CLA (Conjugated Linoleic Acid) present in organic cow’s milk verses conventional milk. These and other preliminary results merit the organic industry and investor attention over the next few years.

The second potential expediting factor would be reduction in the price premium for organic foods. Market research firm, Hartman Group, has data that demonstrates that while price is not a primary barrier, it is nevertheless a strong consideration for 40% of those surveyed.

At Stonyfield Farm, our organic sales have grown at a compounded growth rate of over 30% for the last five years. With increased sales volumes, we attain substantial purchase efficiencies as our orders and shipments of milk, fruits, sweeteners, cocoa and other ingredients expand.

In addition to our improved shipping and logistics efficiencies, our farmers are reporting and passing along savings as well, as their soils and farmland are improving over time due to their investments of compost and other organic matter back into the land. Our sugar producers report over 50 species of wildlife and natural pest predators have returned to their farms since converting to organic practices, and the organic content of their soil is now nearly equal to nearby indigenous forests.

In recent years, these producers have experienced drought conditions in their region, but the organic farmers have suffered much fewer losses than their conventional neighbors due to the higher levels of organic matter in their soil and thus lower losses of moisture to evaporation. As a result, our organic sugar prices, which were nearly twice those of conventional sugar five years ago, are now at parity with conventional prices.

Our farmer partners at the CROPP dairy cooperative tell us their animals are healthier now than when they farmed conventionally, substantially reducing their veterinary costs while increasing productivity because of animals’ healthier, longer lives.

The moral imperative of organic is beyond debate. As Stanford pediatrician Dr. Alan Greene says, “It’s not organics that are unproven, it’s chemicals.” Prior to World War II, most of humanity ate organic foods; we’ve been engaged in a half-century binge experiment with our planet and bodies and the results are not looking very favorable.

But embedded in this moral imperative is an enormous economic opportunity. Just as fund managers cannot expect to maintain productive portfolios comprised exclusively short-term profit-taking opportunities, neither can we as a species expect that mining the earth’s crust to exploit finite resources and spreading known toxins is a sound long-term investment strategy.

Money managers should take a lesson from the farmers who are building true equity by investing labor and materials into building their topsoils. Their resulting improved yields, decreased costs and improved quality of life will generate dividends we can all enjoy for generations to come.

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Excerpted from an article in GreenMoney Journal, a SustainableBusiness.com Content Partner.