American Consumers Hungry for Organic Beef

U.S. retailers, consumers hungry for organic beef
June 30, 2004
By Christopher Doering

http://biz.yahoo.com/rc/040630/bizfeature_beef_organic_1.html
WASHINGTON, June 30 (Reuters) - Americans craving a juicy organic burger this July 4th weekend could leave their local food store wondering, "Where's the beef?"

Organic beef producers, once distant outsiders in the $175 billion a year U.S. beef industry, are poised to grab a larger bite of the market this year.

Sales of the specialty meat, from cattle that are not fed antibiotics, hormones or animal bi-products, are soaring, thanks to diet trends, the discovery of mad cow disease in Washington state last December and word of mouth.

The surge has prompted many in the fledgling industry to boost production to meet growing demand from major U.S. grocers, such as Whole Foods Market Inc. (NasdaqNM:WFMI - News), which have been unable to obtain an adequate supply of organic beef to keep their shelves stocked.

"A year and a half ago, organic producers were going, 'Geez, are we wasting our time and money doing this?' These guys were ready to throw their hats in," said Scott Lively, chief executive of Chicago-based Dakota Beef LLC, the country's largest producer of organic beef.

"Now, demand is overwhelming beyond belief. It will be another 18 months before I'm able to even think about keeping up with demand," he said.

Sales of organic beef totaled nearly $10 million last year, less than 1 percent of total beef sales, according to the Organic Trade Association. The group estimated cash register receipts will surge at a 30 percent annual clip through 2008.

ORGANIC VS NATURAL, TRADITIONAL BEEF

Consumers looking for an alternative to conventional beef have two options
-- meat labeled organic or natural.

Organic regulations, implemented by the U.S. Agriculture Department in 2002, ban antibiotics, hormones and animal bi-products in cattle feed.

Unlike producers of "natural" meat products, which are minimally processed and free of preservatives and additives, organic producers must be certified annually for compliance with organic standards to raise, feed and process their livestock. Organically raised cattle also must be tracked from birth to consumption.

However, the National Cattlemen's Beef Association contends any debate on the merits of organic and conventional beef should focus on consumer preference, not food safety.

"(Organic beef) is certainly not going to be deemed any safer than any of our other beef products, because everything on the shelf" must be inspected by the USDA, said Karen Batra, a spokeswoman for the beef trade group.

While organic beef consumption has soared since the first U.S. case of mad cow disease was found last December, it is riddled with challenges that have stunted its growth.

Organic cattle ranchers often have fewer livestock and, because the animals are not given growth-enhancing hormones, it can take up to 2 years to prepare them for market. And, when demand floundered a few years ago, the organic beef market did not foresee stepping up production to meet the current boom.

In contrast, organic chicken sales rose to $46 million last year because the birds have a shorter growing cycle of only a few months. Chickens also are easier to feed and can be processed more quickly.

"It takes time. Folks can't just become organic overnight," said Michael Levine, president of the Organic Meat Co. of Organic Valley, based in LaFarge, Wisconsin.

"Now that (the industry) has been given the green light, the market is saying, 'Yeah, in fact, this is valuable and we want in in a big way.' That has stimulated quite a few participants," he said.

Levine said his organic cooperative is poised to triple its beef sales this year to about $6 million, but could generate close to $40 million in revenue if thesupply were available. This year alone it added six livestock farmers to its co-op and signed grocer Safeway Inc. (NYSE:SWY - News) to its distribution network.

GROCERS SEARCH FOR ORGANIC BEEF

As more consumers opt for organic meat, retail food chains have begun to stock their shelves with the meat. In January, Safeway introduced organic beef in 240 of its 1,700 stores. Early sales of the meat, all in California stores, are promising, it says.

For most retailers, organic beef represents only 1 percent or 2 percent of overall beef sales because of limited supply.

Whole Foods, the largest U.S. natural foods and organic retailer, said the single factor preventing it from carrying the specialty meat in all its 150 stores is that it can't find a single supplier large enough.

Organic beef costs between $4 and $6 a pound, about double that of conventional ground beef.

"I think price is the single biggest impediment to more people choosing organic," said Sonja Tuitele, a spokeswoman with Wild Oats Markets Inc. (NasdaqNM:OATS - News).

The organic and natural foods chain is on track to exceed its earlier forecast of increasing organic beef sales this year by 20 percent in all 78 of its Wild Oats stores, Tuitele said.

"We are looking at increasing our selection of organic beef," she said. "People are definitely seeking safe alternatives to conventional beef."