High costs and shortages of organic feed grains coupled with a lack of processing capacity are limiting the �short-term expansion� of the U.S. organic poultry and egg markets.

That�s according to a new report published Wednesday by the U.S. Department of Agriculture�s (USDA) Agricultural Marketing Service (AMS) examining market and pricing trends for organic poultry and eggs.

�Despite steady prices for organic poultry and eggs over the last few years, other evidence suggests that the organic poultry and egg sectors are in a state of flux created by rapid growth and will likely remain so until the industry and market matures,� the report said.

Industry analysts expect annual retail sales of organic poultry to double those of organic eggs by 2010, the report said.

Meanwhile, price comparisons between organic and conventional show significant organic price premiums for both broilers and eggs.

�At least in the near term, price premiums will remain high as production struggles to keep pace with fast-growing consumer demand,� the report said.

That demand is being fueled by conscientious consumers� concerns over health issues, the environment, and animal welfare.

Organic broiler production has changed significantly over the last five years as the continued expansion of organic poultry and egg products into mass-market grocery stores, and the introduction of organic brands by conventional firms, impact both the supply and prices for organic poultry and eggs, the report said.

The organic meat sector is currently one of the fastest growing segments of the organic food industry, and poultry accounts for nearly two-thirds of this sector. U.S. retail sales of organic poultry were $161 million in 2005, well under 1 percent of conventional poultry sales.

However, retail sales of organic poultry have almost quadrupled since 2003, and estimates of annual growth rates range from 23 to 38 percent through the end of the decade, with annual sales reaching almost $600 million by 2010, the report said.

�Not much is known about the structure of the organic poultry sector, and the extent to which it may develop,� the report said.

While some organic poultry companies are using contracts and coordinating inputs for organic broiler production, mimicking the much larger, vertically integrated conventional poultry producers, some supply constraints and the current small size of the organic poultry sector means �personal relationships� still mainly govern the sector�s business practices, the report said.

Conventional broiler and egg systems mostly use confined, high-density, mechanized housing. Most broilers are raised on litter in houses of 20,000 and more, while most layers are caged in houses of 40,000-100,000 birds. Unlike organic poultry, conventional poultry do not have access to outdoors or natural light.

USDA defines organic production as a system that integrates �cultural, biological, and mechanical practices that foster cycling of resources, promote ecological balance, and conserve biodiversity.�

The market for organic poultry is also still developing, and many changes at the marketing level are expected, according to the report. To date, organic poultry companies have primarily marketed their products regionally.

With the recent growth of the sector, however, it appears that a number of established organic poultry businesses are expanding their production and processing capabilities in terms of both capacity and geographic scope.

Organic eggs have had slower growth rates over the last few years than organic poultry, although with a larger sales base. Organic egg sales were $161 million in 2005, up from $140 million in 2004, with an average annual growth rate of 19 percent between 2000 and 2005.

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