Facing the Challenges to Organic Grain Pricing

By Brenda Frick

Demand for organic products has been strong and growing for many years, but even organic producers are facing challenges in today’s economic situation. Facing these challenges was the focus of ProCert’s Update Meeting in Regina this January, as the certification company celebrated its 20^th anniversary in the organic business.

Tom Cowell, of Growers International Organic Sales Inc., spoke about the way that organic prices are determined. Ten years ago, processors often set the price for organic grain as a premium based on conventional prices. In the more recent past, demand pushed organic prices upward, without being directly linked to conventional prices. Although this was a time of excellent prices for organic grain, it forced processors to seek alternatives. Today, prices are again being linked to conventional prices, usually in the range of 130 to 170% of conventional.

Organic hard red spring wheat from the Canadian Prairies has been the gold standard for organic wheat in Europe. Our product is greatly preferred by European buyers, but when prices are high, these buyers turn to the United States, Argentina, and Australia. More recently they have been turning to the Ukraine, and now to Kazakhstan.

The Ukraine is increasing in organic production, but quality is generally inferior to Canadian wheat. Kazakhstan has the potential to be a strong competitor with the Canadian Prairies. It is a large country with a climate similar to ours, resulting in a similarly high protein wheat. Kazakhstan is emerging from its time under Soviet domination, and beginning to dramatically ramp up organic production. Transportation has been a limitation to grain exports from Kazakhstan, but new rail lines are being built, allowing Kazakh grain to easily reach European markets. Currently Kazakh organic wheat is priced at a discount to Canadian conventional wheat. This makes it very competitive.

With European markets being lost, we are more dependent than ever on North American markets. The United States and Canada have signed an Equivalency Agreement that recognizes a fundamental similarity of organic regulations in the two countries. The agreement is intended to facilitate the movement of organic products between the two countries. Our organic grains have relatively easy access to American markets.

Trade to the United States has its own challenges. The economic downturn south of the border is one of those challenges. The high value of the Canadian dollar relative to the American has also caused problems. When the Canadian dollar is low, our products are automatically more competitive in the US marketplace; when our dollar is high, our products become more expensive to the American buyer.

Another serious concern is the rise in the use of the term "natural" to describe a variety of food products. Many of the larger companies that process and sell organic products are now selling a "natural" product as well. What does "natural" mean? According to Tom Cowell, "there are no regulations or definitions, except for meat. Basically these people are using conventional grain."

"Natural" grain may not be well defined, but according to polls in both the United States and Canada, it does have consumer confidence. Consumers don't realize that there is nothing like the organic certification process backing the term "natural". Processors are able to cash in on consumers' desire for a green product without the costs of using a truly green product like organic. Tom suggests that we need a promotional campaign to explain the benefits of organic products to consumers in North America, similar to one introduced by the Soil Association in the United Kingdom.

Dwayne Smith, representing the Organic Trade Association, recognized all of these challenges, and added that the "local" movement in the United States may also be a challenge. Our population on the Canadian Prairies is too small to absorb our entire grain production locally. We must export. But in the United States, we compete directly with "local", or at least national product.

So, with all these challenges, how are organic prices faring? Mostly, product is not trading, or is moving very slowly. Prices are generally pegged to conventional prices: wheat at 150% of conventional, feed barley at 130%, oats at 170%.

According to Tom Cowell, times may be tough now, but "the sky isn’t falling. In the long term, organic demand will continue to grow." The organic garden at the White House is an emblem of hope for increased organic consumption for our preferred trading partner. For producers whose cash flow dictates immediate sales, these are challenging times. For those able to hold on to their grain for a while longer, grain prices, like our other investments, are expected to go up.

Brenda Frick, Ph.D., P.Ag. is the Coordinator of Organic Research and Extension at the University of Saskatchewan and an OACC Affiliate. She welcomes your comments at 306-966-4975 or via email at organic@usask.ca.

Posted March 2010