Growing Method, Organic Certification and their Impact on Wholesale Prices
Last month, Cabbige Insights featured analysis of wholesale channels for direct market farmers, and our conclusion was that broader, higher volume wholesale channels are necessary to open up significant revenue opportunities for small-to-mid sized farms.
And, as anyone who has worked to bring local food into wholesale channels knows, there is much to be considered and done in this area. Our May Cabbige Insights report focuses on farm growing method (ie. certified organic, not-certified organic, use of cover crops, no-till method, and the presence or absence of pesticides). We looked at trends from our internal data on what types of farms have organic certification, their growing methods, crop and sales channel mix, and price premiums associated with growing method across different sales channels.
First, we looked at the self-reported* growing methods of 35 of our growers and found that 12 of the 35, 34% among a cohort that leans strongly towards sustainable growing methods, are certified organic. It gets interesting when we look at the growing practices of the non-certified organic farms and find that 14 of the 23 (61%) do not use pesticides, 15 (65%) use cover crops, 8 (35%) have a CSA, and 6 (17%) employ no-till methods. In other words, a full 20 out of 23 (87%) employ at least one organic or sustainable method without being certified.
The question is: what happens to the 87% of small-scale growers that have typically sold through direct-to-consumer channels when they enter wholesale channels? More specifically, what prices do non-certified organically grown products fetch in wholesale markets, both the direct wholesale buyer that we found so prevalent in last month’s report, and larger-volume buyers.
Because we’re looking at farms across a lot of regions, we decided to measure the percentage of the retail price that farms are able to get through wholesale channels based on whether they have organic certification or are non-certified organic growers with organic/sustainable practices for 85 unique crops, and the results were very telling, though not surprising.
After determining the ratio of wholesale price:retail price, we grouped the crops into the following ratios:
Some savvy farms are fetching a higher price for their crops through wholesale markets than through retail, but, for the purposes of this report, we’re capping the ratio at 100%.
And, here are the results:
ratio wholesale to retail prices
While it’s no guarantee, it does seem that organic certification increases the chances that a crop will end up fetching 75+% of its retail price in wholesale markets.
These are small numbers and early days of direct-market farms moving into wholesale channels. It should also be noted that the majority of Cabbige farmers’ wholesale channels are direct-wholesale buyers, and we don’t have good representation among larger intermediaries. But, I think the question needs to be asked, “How will non-certified organic growers market and label their products for wholesale channels that can’t adequately communicate to the consumer the true value of the product? Will the move towards wholesale channels push more farms to seek organic certification or will an alternate means of communicating value of the growing methods surface?
*Growing method is an optional, self-reported question in a farm’s season set-up.