Sales of organic food in the US continue to be robust but a limit to the growth of the industry is the gap between demand and the supply of ingredients and raw products. just-food’s US columnist, Victor Martino, says the growth of the US organic industry has prompted the sector to look at a new designation, the so-called “certified transitional” organic, which he argues can grow into a real segment in the category.
The growth in consumer demand for organic food products in the US is ushering in a new but related player: certified transitional organic.
The “certified transitional” designation, which was put into effect this year by the US Department of Agriculture, essentially means the product bearing the designation is on the way to becoming organic.
At its core, certified transitional organic is an attempt to solve a growing and potentially vexing problem for food companies in the US, ranging from global US-based packaged foods titans like Kellogg and General Mills, to more moderate and smaller-sized national and regional food companies and brands in the organic foods sector. That problem is the most basic of priorities in the food industry – adequate supply. The growth of organic acreage in the US has in recent years struggled to keep pace with demand for organic products and increasing amounts of imports continue to fill the gap.
It is also, however, a legitimate marketing attempt by packaged foods companies to create a new segment around the popular organic foods industry and movement.
Under USDA rules, it takes three years of organic farming and regulatory compliance, which includes regular inspections, for a farm to become eligible for organic certification. This three-year period results in increased operating costs and lower yields for farmers because the use of chemical fertilisers, pesticides, fungicides and insecticides is prohibited.
Many if not most US farmers find the long-term play of organic certification not worth it, even though once certified as organic they can sell their crops for a significant premium over conventionally grown.
Unlike the certified organic seal, which is administered by the USDA, the certified transitional seal is offered and administered through a partnership between the department and US industry body the Organic Trade Association. Using standards developed by the OTA, the National Certified Transitional Program provides oversight to approved “accredited organic certifying agents” offering transitional certification to producers.
The most prominent player in certified transitional right now is Kellogg with its Kashi brand cereals and snack food products. Kashi’s moves in the area pre-date the National Certified Transitional Program (which was launched in January) and the business works with another third-party certifier, Quality Assurance International.
Earlier this summer, I met up with a group of Kashi employees in Modesto, California, in the heart of the San Joaquin Valley, the largest agricultural-producing region in the world.
The employees stopped off in Modesto as part of a multi-state bicycling tour, during which they were promoting Chewy Nut Butter Bars, a new line of Kashi certified transitional snack bars, made with almonds and launched this summer. The almonds are grown by a farmer in the Modesto region who, with the help of Kellogg, transitioned some of his almond orchard acreage into transitional organic.
Kellogg also has worked with farmers in the Midwest on some of its Kashi brand cereals, particularly its Dark Cocoa Karma variety, which the company is heavily promoting as certified transitional along with the Chewy Nut Butter Bars.
Kellogg is not the only big food company bullish on transitional organic. General Mills, for example, has made a significant investment in farmland that is being transitioned to organic. It has plans, currently under wraps, to launch a number of products under one or more if its natural and organic brands – Annie’s and Cascadian Farm are two good bets – in the near future.
Other natural and organic packaged foods companies, such as California-based rice company and grower Lundberg Family Farms, which is a leader in certified transitional, have products on the market, with plans to launch additional more items.
From a marketing and sales perspective, certified transitional organic offers challenges and opportunities to packaged foods companies.
The top two challenges are, one, differentiating certified transitional organic from organic and, two, communicating that difference in an understandable and meaningful way to the consumer. So far I have not seen either being done. However, it is very early in the game, so that is expected and not yet a problem. It does have to be achieved though in order for certified transitional organic to be a success.
There are multiple opportunities for packaged foods companies with certified transitional organic. Chief among them is retail price.
The main barrier preventing organic from capturing a significantly higher percentage of total US retail food sales – the sector represents an estimated 5-6% currently – is what is called the organic premium, simply meaning the considerably higher retail price-point organic products command over identical and similar conventional items on store shelves.
Certified transitional organic has a lower cost than certified organic, thereby offering the potential to provide higher sales volume on a per-item (but not overall as a category) basis. For example, a certified transitional organic cereal priced 20% lower than an identical organic item has the potential to move more unit volume per-store, per-week than its higher-priced organic twin. Since unit-movement is so important, this could offer an incentive for packaged foods makers to explore certified transitional, along with being an incentive for food retailers to create shelf-space for items in the new segment.
Consumers will make the final determination as to the ultimate success or failure of certified transitional organic. However, it offers both the opportunity for building a new segment around “organic”, along with serving as an incentive to encourage farmers to transition a portion or all of their farmland to organic. Certified transitional organic has the potential to grow into a real segment alongside organic.
just-food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur and writer, specialising in the food and grocery industry. firstname.lastname@example.org / www.twitter.com/nsfoodsmemo.