Tuesday, December 11, 2012
Organic vs price
It’s interesting to observe how things evolve.
About two and a half decades ago, I was a buyer for an organic health food store. It was in the very early days of the organic movement in Australia – organic certification did not yet exist. At that time, it was actually illegal to bring fresh organic produce into the Flemington markets, as the produce might contain bugs. These bugs could potentially contaminate the entire Sydney produce distribution system! The same problem existed in other fresh produce markets in the capital cities all around Australia.
As part of my job, I had to liaise with organic producers to see how we could build business together. I attended grower’s forums in country towns, letting farmers know about our business, listening to their requirements and basically trying to join the dots so that we could bring this produce to the Sydney marketplace.
I went to a forum in Gunnedah where there were a number of wheat farmers attending. They told me it was all very well selling one kilo bags of organic flour to shoppers, but they had to sell the bulk of their grain as non-organic grain, because there just wasn't enough demand for organic flour. As a result, their organic product did not fetch a premium price, which didn't seem fair to me at all, seeing as they were doing their farming the hard way.
They told me that they needed bakeries to use organic flour, so as to keep the produce away from the market system altogether. If they could sell flour this way, they said, the price would eventually come down, as there would be a larger economy of scale to work with. I went out to bakeries and offered their product – and the bakeries immediately rejected it because it was twice the price of conventional flour. So much for that idea.
To cut a long story short, this led to the start of my first, second and third bakeries. I did it, in part, to create a market for organic flour!
Our bakery in the Blue Mountains, at its peak, made between five and ten tonnes of organic flour into bread and pastries each week. We charged a premium price for our bread, which came to about 50% more than comparable product - but we had virtually no real competition at the time, and over the years reduced our margins as new players forced us to compete on price.
During this time, the organic farms set up their supply chains - millers, distributors and so on. Simultaneously the organic industry created its certification system, which extracted a percentage from each link in the supply chain, so as to maintain organic certification. Each layer therefore added a compound percentage to the cost of the grain reaching the retail market.
So while the promised economies of scale were achieved, the cost benefit to the consumer disappeared, as the certification industry absorbed this benefit.
Pretty soon we had competing certification bodies, all charging different scales of fees to the producers, processors and distributors. And in the process causing huge confusion at both ends of the supply chain. Consumers didn't know who to trust, and producers looked for the cheapest option, which wasn't always the best.
Many years later, organic flour is still twice the price of conventional flour. There are now lots of specialist organic bakeries – but I have strayed from the fold a little in the past few years. My labour intensive methods have meant that I was unable to use the substantially higher priced organic flour in my Artisan breads, and still compete with larger artisan bakeries on price.
However, now that we have established a strong following, I can once again use organic flour, at least in a small way. So I have started to do that, and my customers seem to be happy about it so far. But asking an extra dollar a loaf may well prove to be a bridge too far for some. I have chosen to keep using conventional flour in most of my breads, so as to keep the price reasonably affordable for my customers.
I’ll be very interested to hear from you about organic vs price. What are your thoughts? If you choose organic, how much are you prepared to pay compared to regular produce? Is it organic at any price? Or are there other factors in your buying decision making process? Would love to know...