The rapid sales growth in organic foods, a thirty two point two billion dollar business last year, has caused major supply problems for organic food companies. U.S. retail sales of organic food more than tripled over the decade through 2013, according to the Organic Trade Association. But this market explosion has caused organic production to lag behind market demand, causing higher prices and a shortage of products. Some companies have had to buy supplies overseas, raising issues of certified organic quality as well as additional shipping costs.
Now, organic food companies are expanding the conventional agricultural business model of supplier and buyer by investing directly in their supply chain. Nature’s Path, a Canadian organic cereal maker, has paid two million dollars for a Montana farm to secure its supplies of wheat and oats. Pacific Foods, a soup maker, and Chipotle Mexican Grill are making strategic moves to finance farmers, offer technical training, and recruit more organic growers. Hain Celestial Group, maker of brands such as Earth’s Best and Health Valley, has promised multi-year contracts to farmers for organic corn. In the case of organic foods, the market is demanding business innovation.
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