Introduction
Organic foods refer to the type of food that is grown without genetically modified seeds, chemical fertilizers or synthetic pesticides and herbicides. It is food devoid of any chemical or inorganic components, and its demand has increased drastically in the recent past. The US Department of Agriculture reports that the sale of organic foods grows by nearly 20% annually and experts forecast its share in the US food market will increase by almost 4% by the end of the year 2020. Some of the factors that have triggered the increase in demand for organic foods include increased awareness of healthy eating habits and their significance in preventing lifestyle diseases such as cancer. More people have become aware of the negative effects of chemical fertilizers and synthetic pesticides in food production and therefore altered their food preferences in favor of organic food. Additionally, there has been increased advertising of organic food products compared to inorganic ones, which has led to a shift in the demand curve for the two food categories. The shift in the demand curve for organic products has triggered a response from producers with some farmers converting to organic farming hence causing a gradual movement along the supply curve and eventual shift in the supply graph of organic food. The increase in preference for organic foods has led to an increase in their prices. Despite the rise in prices, the demand continues to go up indicating that farmers are devoted to organic foods regardless of the price. Organic farming is demanding, and that is why some farmers have been slow to change to organic farming. This has led to an imbalance in the demand and supply of organic foods hence kept the prices high.
Data
The demand for organic foods has gone up drastically, making the demand curve to shift to the left, as shown in figure 1 below. However, the rise continues to outpace the supply because of the costs and time taken for farmers to convert to organic farming. To change to organic farming, a farmer must leave the land to lie fallow for about three years before meeting the criteria of organic farming. The land must be allowed enough time to lose all the inorganic components and fertilizers before it is ready for organic farming. A three-year period without revenue is a tall order for many farmers, and therefore most of them opt not to go organic farming. Consequently, the supply of organic foods increases at a slower pace, only moving along the supply curve but not causing a shift in supply. The percentage rate of farmers or producers investing in organic farming is much less compared to the percentage rate of consumers opting for organic food products.
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Figure 1. The demand versus supply curve of organic food (Doering, 2015).
In figure 1 above, the shift in the demand curve coupled with the movement along the supply curve leads to a shortage of organic food in the market. Essentially, the supply of organic food in the market does not match the demand, causing a shortage and an eventual rise in price from P1 to P2. Summarily, the increase in quantity demanded from Q1 to Q2 without a corresponding shift in supply leads to a price increase from P1 to P2. An aggregation of data from the US Department of Agriculture on the prices of organic food indicates an annual price increase of about 1% from 1993 to 2013. The increase in price has been fairly stable and predictable hence giving farmers a safer investment (USDA, 2014). The increase in price of organic foods and the less than proportionate increase in its supply indicate that price is not the primary determinant of supply of organic food in the industry. There are other external factors in the market and industry that determine whether or not farmers convert to organic farming. Probably, the demand for organic foods does not give farmers a high premium enough for them to invest in organic farming. The return on investment in organic farming may still be low in populations that are yet to embrace organic food products. A case in point is regions with a high number of millennials or young people most of whom prefer fast foods because of their affordability and convenience. It could also be that most farmers continue to meet their revenue targets without necessarily dealing with organic food products. A huge proportion of the food market is yet to embrace organic food particularly the young generation market segment. Most definitely, the overwhelming costs of organic farming is a major deterrence to organic farming (Cronin, 2015). Many farmers are unable to afford the transition and would rather contend with diminishing but consistent revenues of inorganic farming.
Analysis
Based on the data above, the organic food industry is experiencing exponential growth. The preference for organic foods is still rising motivated by factors such as increased sensitivity of people’s wellness and health. Populations across the world are fast embracing organic foods because of their higher nutritional values and health benefits, which is contributing to a gradual shift from inorganic food products. Secondly, producers are responding to the rise in demand by making investments in organic farming. Although the demand is still higher than the supply, the supply is gradually increasing, and if the trend continues, the supply and demand curves in the organic food market will reach a state of equilibrium. The increase in advertisements and advocacy programs targeting wellness and organic food products is also stimulating investments and growth in the industry. Many consumers are becoming aware of the importance of organic foods which has triggered an increase in supply. Food stores are increasingly stocking their shelves with organic foods to meet the rising demand. In addition, the continued increase in demand for organic foods despite the increase in price indicates that the organic food industry will continue to grow. Consumers of organic foods are primarily mainstream and many of them understand that organic food is essential to their survival and has no substitutes. As a result, they are ready to pay any price to maintain their supply of organic foods. The devotion of these consumers to organic foods shows that the industry will continue to grow. The increase in prevalence of lifestyle diseases continues to alter lifestyles and food preferences in favor of organic foods. The more people become aware of the impact of fertilizers and pesticides on their health, the more likely organic foods will become mandatory for them.
Conclusion
Organic food farming is a lucrative business because of the price elasticity of demand is perfectly inelastic. The quantity of organic foods demanded will remain constant or continue to increase even with increases in price hence making organic farming a profitable venture. Moreover, organic foods can easily be categorized as necessities because their substitutes have negative impacts on health and therefore, less preferred. Ideally, this implies that the presence of substitutes in the market that would diminish a producer’s revenue margins is very low. To increase revenue in organic farming, it is imperative for producers to adopt a product diversification strategy where different categories of food are produced to cater to the needs of diverse customers.
References
Cronin, C. (2015). The Organic Food Industry: An analysis of supply and demand via aggregate prices. University of Pennsylvania ScholarlyCommons , 1 (1), 1–16.
Doering, C. (2015, August 5). Organic farmers face growing pains as demand outpaces
supply. Retrieved September 10, 2019. http://www.usatoday.com/story/money/2015/
08/05/organic-farmers-face-growing-pain-demand-outpaces-supply/31116235
US Department of Agriculture. (2014). National Organic Program. Retrieved from https://www.ams.usda.gov/about-ams/programs-offices/national-organic-program
