Mad Cow Boosts Organic Farming... But Shoppers May Balk at the Prices

April 2, 2001 Business Week By Katharine A. Schmidt; Edited by 
Harry Maurer

Tossing hay to his cattle with a pitchfork, Gerhard Vogel tells a visitor how the organic farm he runs with his wife has been growing. Last fall, the Vogels signed a contract to lease an additional 20 hectares for the 50-hectare farm where they raise wheat, rye, spelt, vegetables, cattle, and hogs. Now, they're advertising in an organic farmers' magazine for a full-time employee to cover the additional workload and are planning to add chickens and turkeys to the products offered at their farmstead store. Eleven years after taking over the farm from his wife's parents, Vogel says: ''I feel vindicated in the decision to farm organically.''

Plenty of German farmers agree. More and more are running enterprises like the Vogels' farm in Welzheim, about 35 kilometers east of Stuttgart. On these spreads, weed-hackers replace pesticide sprays, and cows and sheep eat grasses and grain instead of industrially produced feed. While most organic farmers make the switch because they're dedicated to ecological principles, they also know they can get much higher prices for organic grain -- and earn more profit from their labor if they run a store like the Vogels' rather than selling to distributors. And in recent months, they've gotten a boost from the discovery of bovine spongiform encephalopathy (BSE) in Germany and from a scandal over antibiotics fed to pigs.

The umbrella organization of organic farming associations in Germany, AGO, reports that the number of farms being managed by members grew 7.5% over the past year, and the area being farmed with organic methods grew by about 10.5%. Since 1996, the total area farmed by AGO members has risen from about 310,000 hectares to 415,000. At Bioland, the largest of Germany's organic farming groups, more farmers have called in requesting information in the past few weeks than in the entire previous year. Demand for organic products at stores owned by Bioland farmers has risen 50% since the mad cow crisis began in Germany, and German natural-food wholesalers are reporting 40% to 60% increases in orders for meat and meat substitutes.

> The Consumer Protection, Food & Agriculture Ministry has high hopes for organic farming as an alternative to the kind of practices that encouraged development of BSE. Minister Renate Kunast, a member of the Green Party who took over the post in January, has said she wants to see organic farms in Germany rise from 3% of the total now to 10% in five years and 20% in 10 years. In a February speech, she called this a ''turning point in agriculture.'' She's proposing to boost the money the government pays farmers to switch to organic, and to work with distributors and supermarket chains to help organic food get more shelf space. Thomas Dosch, manager of Bioland, figures such goals are attainable. In Austria, he says, 10% of the land farmed is certified organic, while in Denmark it's now 6% and rising rapidly. ''In that light, we are not putting extraordinary demands on ourselves,'' he points out.

The question is, will consumers buy that much organic food? Vogel says that to reach even 10%, organic farmers must expand beyond farmstead stores. That means getting into supermarkets, where shoppers have shown more zeal for bargains than for grass-fed beef or unsprayed apples. Organic products usually cost 20% to 30% more than conventional food. ''It's not as if the supermarkets haven't tried. Customers just didn't respond,'' says Tilman Becker, a marketing professor at Hohenheim University. As organic farmers multiply, marketing and distribution costs will fall, but Becker thinks that, at most, 5% of German farms could be run on organic principles within 10 years.

Besides the mad cow scare, one factor that might lure shoppers would be reliable organic labeling. As things stand now, grocery stores can use ''organic'' house brands as long as the food meets minimum European Union standards. The biggest German organic farming associations are pushing for promotion of the EU seal as a single, Europewide sign of organic quality. Having one such seal, and making public the criteria behind it, would help nudge people to pay more money for organic products, says Margret Ursprung, spokeswoman for the retail grocers' association. Every little bit helps -- because no one expects organic food ever to compete on price alone.

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