The Tools Every Organic Farmer Needs w/ Ryan Koory
Interview with Ryan Koory, Director of Economics for Mercaris
In the first episode of Organics Unpacked, we hear from Ryan Koory of Mercaris.
Ryan discusses tactical tips for organic farmers from California to Iowa, USDA regulations and what it takes to be successful in organic farming.
Learn more about Mercaris: www.mercaris.com
Connect with our guest on LinkedIn
INTRO: Welcome to Organics Unpacked, a podcast for the business-minded organic grower — an interview podcast where we hear from the top experts in the commercial organic industry, with a focus on the business elements of organic growing both in and out of the field. You will gain insight and grow your operation. This show is brought to you ad-free by Avé Organics, a Wilbur-Ellis company. To learn more about Avé Organics, visit our program notes. In the meantime, enjoy the show.
TOM: Hello, everyone. Welcome to Organics Unpacked Podcast, and thank you for tuning in today. I’m your host, Tom Buman. This is episode one of Organics Unpacked Podcast, where we talk about organic farming from a practical view. Today’s guest is Ryan Koory, the Director of Economics for Mercaris. Before we get started, please take a moment to subscribe to the podcast if you haven’t already done so. Well, as I said, today’s guest is Ryan Koory, an expert on market analytics. He’s joining us from Missouri. Welcome to the show, Ryan.
RYAN: Thanks, Tom.
TOM: So, Ryan, before we get started, I always like to ask guests. Give us a background on yourself. How did you get to this point of working with Mercaris, and what led you to this point?
RYAN: Sure. So my background: actually, I started off doing conventional markets, and I actually started off doing livestock, dairy and biofuels, building global models and doing analysis within those spheres. And I did that for about seven or eight years. Then, in 2017, I was approached by Mercaris to start working with them on organic issues. Quite frankly, prior to being approached by Kellee James, our CEO at Mercaris, I really hadn’t given the organic industry much thought. However, coming from a background of doing conventional and livestock, one of the things is there’s just so much that’s already out there that it’s hard to feel like you’re contributing much by participating in that field. Not that there are not lots of important and valuable things to be done, but, as a person who’s providing data, you’re about one of a million voices who’s talking about cattle and pigs and chickens. There’s not much new to tread there. So the thing that really attracted me to coming to Mercaris and working in organics is it really is a new and developing industry. And it’s an industry that doesn’t have however many years, 40 years, and billions of dollars of support from the USDA and every bit of information you could possibly want. There was a time, and still is to this day, an information hole within the industry, being able to work with people who work within this industry, farmers and people who work in procurement, and be able to build those tools to help people operate in this industry in an efficient way. People ask me what my goal is, and my tagline is I want to be able to provide every tool that a conventional farmer takes for granted for the organic industry. Just how little of that currently exists and how much of it we’ve been able to provide through this research and through the data products we put together, it’s just really fascinating. It’s fantastic to be able to work with people who are in this kind of industry because they’re very passionate people and really be a part of watching it grow.
TOM: That sounds really interesting. I’m always struck by the fact that the principles of organic farming seem like they’ve been around forever, but the actual kind of certification or being an organic farmer is relatively new. Can you give us any background on how the organic movement started and where it is today, as far as what I consider kind of a new industry?
RYAN: Sure. Kind of piggybacking on that idea of it being something new that you could build on, it’s also something that’s very old in a lot of ways because, really, what you’re talking about when you’re talking about organic is a management style. It’s specific things that you do to manage the productivity of your land and, because of the intent of organics to stay away from things like synthetic inputs, it requires using a lot of the farm management techniques and tools that we used prior to that. You’re talking about farm management techniques that go back hundreds of years, things like integrating green manures, integrating crop rotation, using cover crops, integrating livestock, all of these things that people have done since, essentially, agriculture began to be able to produce high-quality, consistent crops. It’s going back to those approaches to agricultural production so that we can get away from the use of synthetic inputs and also to farm in a way that is more beneficial for building the overall health and ecology of the soil.
Things like making sure that you’re keeping the live root in the ground to keep soil activity going, building up carbon stores within the soil, all kinds of different things that go into the ecology and just the general mindset of agriculture. It is kind of this combination of the old, in terms of using approaches that have been around for a long time, but with a new mindset and new motivation for doing it in terms of being ecologically sustainable. Really, it’s sustainable when it comes down to the rural economy aspect, as well. So it’s a lot of the same methodologies we’ve used for years but with some new motivations.
TOM: Well, it’s not too many years ago where there was some discussion about what really is organic farming, and I know USDA stepped in and said we can define organic farming, and we’ll try and follow the principles, but how did that come together? What was the result of that?
RYAN: Yeah, I think that’s exactly right. Whenever you think about organics and what is organics, first and foremost, it’s a certification delivered by the USDA. It’s a set of rules that you have to farm by in order to be able to prove that you’re producing organic, and you go through an audit process. There’s a paper trail, and everything has to be documented. That’s kind of the technical nuts and bolts of organic. But what’s interesting and challenging is, like you said, there’s this definition of organic. What does it mean to be an organic farmer? Really, within that definition, there are some key principles. It’s the integration of livestock. It’s crop rotation. It’s using cover crops. It’s all of these different things that are key to building healthy soils and producing organic goods that are really that definition of organic. Then, it gets challenging because one agricultural operation, one farm, even within the same county or even down the road from each other, every farm is different. If you’re farming river bottom versus farming on a ridge versus farming in Montana versus farming in Alabama, you have different issues that you have to address in terms of how you’re going to produce. You have different issues you have to address in terms of how you’re going to mitigate some of the things, like pest issues and weed issues and fertility issues.
So it’s a complicated thing when it comes down to the practice because the question becomes: we all know what the goal of organics is and what that definition is, but how do we write rules that are flexible enough to allow each producer to really farm in a way that’s optimal for their situation while also ensuring that everybody still farms to the standard that is organic by its definition? It’s a challenging thing, and it’s a conversation that continues to go on to this day. We’re talking about the organic seal that has really only existed for about 20 years, a little more than 20 years now. So there are a lot of things in terms of just understanding how this industry works together holistically, with the rules and with everybody producing while remaining flexible, that it just continues to generate conversations and challenges for the industry even today.
TOM: Yeah, I would guess it’s really hard to write rules for certification that make sense for the Iowa farmer versus the California farmer who has probably some high-value crops and maybe does not do his rotations as much. Those seem like real challenges to me.
RYAN: Yeah, it is a balance because you hit it absolutely right on the head. One thing that may work optimally in California could be exploited as a loophole in Illinois or vice versa. What’s interesting about organic is it’s national. It’s a USDA-backed certification. However, the USDA doesn’t issue the certification, which is somewhat interesting. It’s actually independent certifiers, and a lot of those independent certifiers, they hire independent contractors to go out and do the auditing. So, once you get down to that granular level, in terms of the USDA putting together these rules versus those rules being applied and monitored on the farm, the USDA is actually relatively hands off on that. Other than setting the directives by which everybody’s supposed to follow, they don’t actually go out there and officially audit any farms. That’s all done through certifiers and through auditors. So it really is kind of this network of people who are all kind of playing from the same rule book but working to apply it to their context while trying to make sure everybody’s playing fair. It has a lot of the necessary flexibility that you would need to have a system work like this, but that flexibility opens up risks for people to not play by the rules. It’s a huge challenge, and things continue to improve. The USDA, last year, announced the strengthening of organic enforcement rules, which was basically a revamp of a lot of the policies or a lot of the rules and the laws by which organic is regulated. That’s supposed to improve a lot of these issues that we see, but it’s a moving target. As people continue to work in the industry and new technologies come out and as people try to grow new crops or grow in new regions, these things will have to continuously be addressed. There is no final point on this. As the industry grows and as people learn, new things will come up and new things will have to be addressed.
TOM: Well, I would guess, Ryan, it takes a really, maybe, unique individual to begin to transition to organic farming. Can you talk a little bit about the demographics of maybe the existing organic farmers and new organic farmers? What do the demographics look like?
RYAN: Yeah, so I think that’s a good way of splitting it. Whenever you look at organic producers, really, you kind of have two different buckets. You have people who have been working in agriculture for a long time, who may already be farming on either rented land or a family plot, who are looking at organics as an opportunity to generate better returns for their farm. So they’ll be looking at things. They’ll be more profit focused in terms of their motivation. You’ll be looking at incremental transitions of acres there, and that’s kind of a demographic. Any of them within that demographic, you tend to see the people who are working in that direction. They’re generally younger. And, if you think about it, it makes sense because if you’re someone who has been farming for decades, you may not be as inclined to experiment with different production methods and maybe risk failing the transition period and losing revenue and all the challenges therein. But if you’re younger, you’ve got more time and more flexibility to experiment. You can see the long returns on transitioning to organic because it takes three years to transition to parcel plant organic. That’s three years where you really don’t see any organic premiums, but you’re bearing all the cost of organic production. So it’s kind of that Valley of Death period, where a lot of people struggle.
So you think about the age demographic. It generally attracts a younger person. But getting away from that group that is an established farmer that may be transitioning acres, one of the interesting things about organic is a lot of organic farmers are younger. They’re somewhere in their late twenties to early thirties. That’s incredibly young if you consider the average age of what’s classified as the chief farm operator, which I believe is somewhere in their late fifties or sixties. The reason for that is organic has created this opportunity for people who want a career that’s outside of the conventional nine-to-five office career. They want something that allows them to get back out there and get engaged with the soil and get engaged with the community in a different way. But, also, it generates a solid return once you get in and you start doing it. In addition to that, there are all these other aspects of organic farming that younger people find beneficial, the social aspects, the environmental aspects. So it really has become an avenue for a lot of, I say, younger people but people my age and younger who are interested in agriculture to come back and work within the industry and to build farms. It really is a path if you look at the state of agriculture, in general, in the United States, the aging farmer demographic and the shrinking of farms within the United States or, at least, the number of farms. It is an avenue, and it is an engine for growth with respect to those things because it does provide those benefits, and it does entice people in those ways.
TOM: So it seems like, in the market of organic farming, you probably see a scale of people that have a couple acres to maybe 10,000 acres. I know a lot of it depends on what crops you’re planting, where you’re at, where you’re in the transitioning, but what keeps a farmer from scaling on the level that a commercial farmer or a conventional farmer might scale, Ryan?
RYAN: I don’t think it’s so much a question of what keeps a farmer from scaling as much as it is why aren’t organic farms at that scale? Because, as you mentioned, there are large farms out there that are organic. So there’s not generally a technical barrier that would say an organic farm can only be so large. Why we generally see organic farms tend to be smaller than conventional farms is, first of all, that issue that I mentioned. You’re talking about younger farmers, in general, who are moving into the industry for the first time. As a result, you’re not dealing with family farms that have been passed down for generation to generation that are at the scale of several thousand acres. Even on those farms, where people are converting acres over, it’s a process, and a lot of people don’t go whole hog when they transition their farm. If you’re operating somewhere around a 5,000-acre operation, you may do 500 acres to start and see how that goes. Then, if you feel good about that, do another 500. It’s unusual to see somebody take a tract of land that large and transition it all at one time. So we’re still in the period where there’s kind of this trickle in. It’s still a young industry. As a result of that, it’s got young players who just don’t have that history behind them to build up operations of that size. The other thing that has lended itself towards keeping organic farms small is, well, one of the other things, is it’s a farm management issue. Whenever you look at organic farming, the fact that you can’t use synthetic inputs to manage things like weeds and pests and fertility, that means that you have to rely on mechanical processes and manual processes. As a result, it takes more labor per acre to operate an organic farm. Now, that more labor per acre doesn’t mean lower profitability because that’s compensated for by organic margins. But it definitely means that it’s more challenging to scale up quickly because you do have to consider things like labor, and you do have to really adapt. If you’re somebody who has been farming for decades, and you’re thinking about transitioning some land over, the way that you’re accustomed to managing a farm isn’t 100% consistent with the way you would manage an organic operation. So there’s a bit of a mind change, and that can act as a bit of a break in terms of transitioning acres, as well. But the fact that you’ve got younger operations, and they require more labor — those are two big reasons why organic farms are slower to scale up to that larger 10,000-acre enterprise.
Then, the third thing that really is kind of a driver behind that is the geographic history of organics. Organics, as an industry, really is born out of the Great Lakes and really into the Northeast. If you’re talking about operations conventional, organic or otherwise in places like Vermont and New York, you’re not talking about very many 10,000-plus-acre operations. They’re just generally smaller farms, and we’ve seen it expand past that for sure. There are organics produced in pretty much every state at this point, but a lot of those farms, those ones that have been around for about 20 years now or before, they’re really born out of these areas that just generally have smaller farms. If you look at some of the places that we see organic expanding the most, particularly if you look out towards the Northwest, we’ve seen a lot of expansion there as there has been increased consumer demand for things like food-grade rye and soybeans and wheat and pea proteins. Those operations, they’re larger operations. If you think about places like Wyoming and Montana, you’re talking average operational size somewhere around 1100 to 1500 acres. That may not seem huge, but you compare it to some of your Midwestern operations, places like Illinois, where your average farm size might be more like 300 acres. That’s considerably larger, and it has to do with the economics of producing out in that region. Actually, there’s a lot that has to do with the transitional period, too. If you’re looking somewhere out like the Northwest, it’s much easier to transition acres because a lot of that is range land or pasture land that’s, essentially, just had cattle run on it for decades. As a result, you can transition that land, essentially, within a year because it hasn’t had any kind of synthetic inputs put on it for decades. So, within about a year, you can scale up an operation very quickly versus if you’re looking somewhere in the U.S. Corn Belt, most of that land has had some kind of conventional application on it within the past 10 years. As a result, it is a slower process. There are just smaller plots of land, and it’s more competition for that land. So there are a lot of factors that go into why organic farms are generally smaller than conventional farms, but none of those are technical barriers that say they can’t be as large. It’s just a matter of time and a matter of where the industry is right now.
TOM: So it seems to me that organic farming is complicated enough in itself. But when you talk about that transition time where I have some of my acres in conventional farming and some in organic farming, and then you throw in you need to do rotations in your organic farms, oftentimes, that you don’t do in your conventional, it seems like that transition time really is a confusing time and a hard thing to manage for a lot of producers. Do you find that people that go into it wholesale and just say I’m converting all my acres, are they ahead or behind? Because I can see both sides of it.
RYAN: I don’t think it’s either. I think it’s extremely situational. It really depends on where you are and what you’re doing and, really, what does the support network around you look like? One thing that has been a barrier to people converting organic acres in the past has been the stigma of being organic, the stigma of being a granola-eating crunchy person who’s growing organic and not having a network of farmers around you who can teach you how to farm organic or are supportive. Having been to countless organic farmer conferences and met many, many, many farmers in my life, I can tell you it’s absolutely not true. An organic farmer really is no different than a conventional farmer in terms of their general lifestyle and their preferences and who they are socially. They may have some preferences in terms of what they see as being ecologically beneficial or sustainable for their farms relative to a conventional farmer, but they’re really cut from the same cloth. They’re just people who are farm operators, who are small business owners, who live in rural communities and have very much the same concerns as anybody else. I feel like maybe I’ve darted a little bit off of your initial question at this point.
TOM: Tell me a little bit about managing a rotation. If I’m in Iowa, I’m probably in a corn-bean operation under a conventional system. Now, I have to maybe throw in oats or hay to migrate or transition into organic. That must cause some real issues as far as marketing and looking ahead and how you do things, and you can’t necessarily react to markets by just saying I’m going to throw out the oats this year and plant all soybeans. There must be some complicating factors there.
RYAN: Absolutely. The organic rotation is one of the most important and, potentially, one of the most challenging things about being an organic producer. The reason for that is that there are many factors that can kind of create it, but there are a few primary ones. One being, if you are doing a rotational crop, a small grain crop, say you’re doing rye, you’ve got to find a buyer for that. That’s not always the easiest thing to do. If you’re looking at the feed-grade market, feed grade, small grain prices generally aren’t that heroic over conventional in the organic sector. If you’re looking at food-grade markets, they’re definitely more lucrative, but it’s harder to produce food-grade organic products. In those contracts, there’s not a large open market for them. A lot of those are done under grower contracts. You’ll find somebody who says, okay, grow, for me, 10,000 acres. Well, 10,000 is not probably a great example for feed-grade rye, but say, grow for me 500 acres of feed-grade rye this year or food-grade rye, rather, and you’ll be locked in at that price for that crop for delivery in the fall. That’s just how that market goes.
So it can be challenging whenever you’re dealing with the rotational aspects in terms of trying to find a buyer or in terms of what it means for your farm. Then, kind of the other thing that you mentioned is you don’t have that flexibility in terms of your crop rotation. There’s a degree of flexibility. But as you alluded to, in the conventional sector, if you’re producing in, say, central Iowa, you, in the spring, can look at what the CME is saying the margin is between corn and soybeans. This is where I think my profit’s going to be. I think soybeans are going to make me more per acre this year. I’m going to do soybeans. You can’t do that in organic. If you planted corn this year, you’re going to have a hard time planting corn again next year. Because you can’t just go out there and throw on a bunch of ammonia to get your nitrogen, because you can’t go out there and spray to get rid of your pests, you need to rotate your crops to knock down those pests and to rebuild those nitrogen stores. So what that means is acreage is generally less responsive to price. It means that whenever you’re thinking about an organic rotation, you have to think long haul. Actually, this is one of the biggest mental disconnects between being an organic farmer and a conventional farmer. In general, between the organic industry and the conventional industry, regardless of who you’re speaking to, it’s not about this year’s profitability. That is important, but it’s not about this year’s profitability. You have to be thinking, okay, if I have a crop rotation, and I manage this crop rotation over the next four to five years, what is my annual average profitability with this rotation? It’s really thinking of a long-arc profitability of a rotation and planning that rotation with that mindset of profitability around that rotation, not necessarily this year’s crop. That is really the engine behind managing organic returns. It’s less about this crop as it is about your rotation and where that rotation is going to put you over a period of time.
TOM: So it seems to me we often hear that, in agriculture, farmers take what they get, or they get what they take for markets. But with organics, it seems it’s probably even a little more of that way because there is a very limited organic market. There are probably fewer buyers. There’s less purpose for the product. So, as a grower, and if I’m thinking about transitioning, how do I think about the markets? Sure, there are the open markets and, then, there are the contract markets, but how do you encourage farmers to think about the markets when they’re transitioning?
RYAN: Yeah, that’s really key whenever you’re planning that rotation. What can you sell? To your point, if you’re working in the conventional sector, it may not feel like it, but you’ve got a million opportunities to sell your grain relative to working into organic. If you’re an organic farmer, you’d be blessed to have three elevators within 300 miles of you. There are just fewer elevators to deliver to. Actually, it’s improved a lot. That three within 300 may be a bit of an exaggeration at this point, but if you go back five years, it absolutely was not. Even comparatively to the conventional sector now, there are still just fewer places to deliver your grain. On top of that, the type of grains that you’re trying to grow and the types of crops you’re trying to put into your rotation, you have to have a buyer. If you’re intending to put in, say, feed-grade rye for a crop rotation, the ability to market that feed-grade rye is fairly challenging because there aren’t a lot of places that consume a lot of feed-grade rye. Feed-grade corn is by far the most preferred grain for putting into feed rations. So you see a lot of that, but there’s just a smaller market for it. So making sure that you have a buyer before you plan on doing that is really, really important because you may struggle to unload that grain at the end of the year.
Then, if you want to think even more broadly than that, if you start talking about some of your food-grade commodities, like soybeans or even food-grade corn or peas, your small grains, as well, a lot of those, like I mentioned, they’re done under grower contracts. Lot of that’s already bought before the seed ever hits the ground. So, if you’re going to experiment with putting in a food-grade commodity and then plan on harvesting it and selling it in the fall, you’re going to have a very difficult time. So what you wind up putting into your rotation, it becomes kind of this balance between what works for where you’re at, what’s profitable for where you’re at and what you can genuinely market where you’re at. There are a lot of constraints that go into producing an organic rotation. Unfortunately, it can’t just be what produces the most bountiful crop. It’s really a matter of what produces a bountiful crop but also really fits the marketing demographics of where I live and the consumer demand for where I live. Those things really drive that decision.
TOM: As I think of a farmer coming in, obviously, the passion of doing the environmentally right thing has a lot to do with it, but the economics is equally as important if you’re going to be successful. How do you look at the prices between a conventional crop and an organic crop? I mean, I heard somebody say once, well I expect the trend lines are that my organic crop brings so much more than what the conventional market is. Is that true or not true?
RYAN: So, historically speaking, it is true that there has been a fairly robust premium for organic commodities over conventional, particularly over the past 10 years where conventional commodities have struggled. Now, what that premium is isn’t a guarantee. There isn’t a factor that says, if conventional corn is selling at $3, you’re going to get $7.50 for organic because there’s a premium. It absolutely does not work that way. Really, what you’re talking about is two different markets. Organic acres are not conventional acres. You cannot easily and quickly move your acres between the two. So what gets harvested or what gets planted as organic comes out of the ground as organic and gets sold as organic. What’s planted as conventional comes out of the ground as conventional, and it gets sold as conventional. The supply sides are completely detached from each other. There is a relationship over the long run. If you see margins increase or decrease, and that attracts people to come into organics or slows down the growth of organics, sure, that’s changing organic acreage, and that’ll change organic prices. But for the current marketing year, or even if you’re looking two, three marketing years down the road, there isn’t a connection between the two of those. Then, even if you consider, from the demand side, if you’re making organic milk, you can’t substitute in conventional feed. It just cannot be done. If you do that and you get caught, you will be in deep, deep trouble. If you’re making organic bread, you cannot substitute in conventional wheat.
Organic products require organic inputs. In that same breath, if you’re growing organic wheat, unless something’s gone terribly wrong, you’re not selling it as conventional wheat. So, for both the production and the demand side, the two markets are completely decoupled. So the margin between the two has to do with what’s going on in the two markets. A great example to come back to is corn because corn is such an easy one to see. If you look back somewhere around 2017, when organic corn was going for about $8 to $9 per bushel and conventional corn was going for about $3 to $4, you had a $5‑bushel margin. If you look at where it is now, conventional corn, and I apologize that I don’t know that exact number because I don’t watch conventional that closely anymore, but last I heard, it’s sitting somewhere around $6 a bushel, where organic corn is sitting somewhere around $7, $7.50 a bushel. Now, you got a $1.50 margin. There is no rule that says if one is one, the other’s got to be this or that the margin will be this based on that. It’s two separate markets producing and being demanded by two separate entities within that. They’re both agriculture, but they’re separated. So that means the prices themselves will be separated. Some factors will influence both like trade policy or weather. You have a drought; it’s going to drive up prices for both. You have some kind of detrimental trade issue or macro-economic issue; it’s going to impact both. Outside of that, though, from a production and a consumption standpoint, separate markets. Their prices will operate separately. One will not dictate the other, and the margin’s not just some simple add factor that you can throw in to figure out the difference.
TOM: Well, that makes a lot of sense, Ryan. That really clears up a lot of things as I look at that organic market or some of the listeners do. So, in the last few minutes, let’s talk about the company you work for, Mercaris. How do you interact with the organic market? What services do you provide? What does the company do?
RYAN: Who we are is we are a data provider for IP commodity markets, and, specifically, what we really focus on is organic and non-GMO field crop markets, corn, soybeans, rye, wheat, things like that. In terms of providing those services, we do everything from collecting prices through our various pricing surveys to generating acreage estimates, generating livestock estimates, feed demand estimates, production, trade estimates, all those different aspects that are the fundamental drivers behind a market price. We try to provide those different data points because there really aren’t any other good publicly available sources for those. Now, in doing that work, we work with a lot of different people across the organic industry. We work with everybody from grain buyers to people who work in the investment sphere to packaged consumer goods companies all the way down to farmers. And because we work with so many different people within the industry, we provide a pretty vast array of different products. The things that would make sense for a CPG or a large feed purchaser, a large livestock producer, aren’t the same things that are going to be relevant to somebody who’s an organic farmer. So we do everything from a free farmer plan that we provide to organic farmers. If they go to our website, www.mercaris.com/farmers, they can sign up for that. With that, essentially, they get a report twice a month that, essentially, tells them what organic commodity prices look like in the United States. All the way up to larger, broader products that do deeper analysis in terms of what do we anticipate the supply and demand balance for soybean meal in the United States? We try to provide as many different services. Like I said before, my personal goal is I want to be able to provide everything for the organic industry that the conventional industry takes for granted, and that’s really our goal. It’s to continue to provide insight and to bring transparency and clarity to the organic market.
One of the things that I run into whenever I have conversations with people is that it is a situation in which you have to be willing to give up some of your personal information at your operation to be a part of the Mercaris Market Survey. I agree nobody is better off giving up information, but everybody’s better off when everybody cooperates and provides information and creates transparency. An industry that doesn’t have transparency is an industry that can’t actually view and understand the challenges that it has before it, and it can’t come up with ways of solving those challenges. It’s an industry that, basically, you’re blind in terms of your marketing, and you’re a severe price taker because you have no way of knowing what the competitive price is. Sure, you may know a fistful of elevators in your area that you can call, but you have no real perspective of what the national picture is. You don’t have a view of what the import picture looks like. How much competition are we getting from foreign markets? Just what does the growth prospect look like for consumer demand in organics? Will it continue to grow? Will it continue to provide margins? There are all these critical pieces of information that are required for organics to continue to grow that really require the cooperation of an industry to put together so that we can all mutually know it and benefit from it. That’s really what we strive to do at Mercaris, to fill in and to provide those bits of information and to create market transparency.
TOM: That’s really interesting. So, without giving away any trade secrets, where do you see the organic industry going into the future years? If you had to kind of draw a map out for farmers who are thinking about that transitioning period or increasing acres, and I know, again, we’re covering a lot of commodities here over a lot of geographic areas, and it may not be real fair. But can you, in a nutshell, just say where you think the organic industry is headed over the next five, eight, 10 years?
RYAN: Yeah. I think if you look at the organic industry anytime, and this is going to be the cold-hearted economist in me, just looking at it from a numbers game, if I look at an industry, the first thing I consider is what are the long term growth and demand prospects? What’s demand going to do over the long term and understanding where you think that’s going to be and how that’s going to continue? If you look at the conventional sector, one of the parables I like to tell is if you go back and you look at 2005, 2006, 2007, 2008 all the way up to 2014, 2015, the sky was the limit. You had $8 conventional corn at one point, and nobody believed that corn prices were ever going to be back down below $4 a bushel. It happened. It happened because we expanded acres faster than we grew demand, and, eventually, we just had more supply than we could push into the market. Ethanol production stopped growing as swiftly. China stopped buying as much as they were. They ended their stock dropdown program, and prices fell off because of demand. So, in organics, the real question in terms of long-term growth and profitability is what are the prospects for growing demand? With respect to that, I think they’re quite fantastic. If you look at the U.S. consumer, one of the benefits of being in the United States is we’re generally a fairly affluent country, and what that means is more dollars don’t mean we eat more food. The average U.S. consumer doesn’t really eat that many more calories than they did 10 years ago. What we do is we eat more expensive food. By that, I mean, we, as a society, are in a position where we can choose to consume foods that have non-nutritional benefits, whether those benefits are ecological or social or whatever they are. Fair trade, organic, cage free, these things that have other benefits to society and to ecology beyond just the base nutrition of what we consume, and that’s not going to change. Given that we know that that’s the trend of consumer demand and that that trend is unlikely to change, so long as we remain a relatively affluent country, you’ll continue to see people move into organic goods.
If you look at where organic consumption is now, the OTA puts out an annual survey where they estimate how much organic sales are each year. Last year, I think it was the 2019 number, so not 2020. I’ve got to get used to it being 2021 now. The 2019 estimates were $50 billion in organic food sales if I remember correctly, and that puts us at somewhere around 6% of food sales. Well, that 6% of food sales is really actually just food-at-home sales. If you include food out of the home, we’re actually only at about 3%, which means we could triple consumer demand for organic goods in the United States, all the way up to $150 billion. Essentially triple the amount of revenue that’s going into this market, the amount of production and everything else within the organic industry, which isn’t a hard thing to conceive, and still not be at 10% of consumer demand within the United States. So, if you consider the fact that we have both this propensity and this trend in the United States to consume goods that have benefits beyond just nutrition, that provide other social and ecological benefits, and the fact that we have so much room to still grow, there’s so much more market share out there that could still invest in the organic industry. There’s a huge amount of room for this industry to grow, and there’s a lot of motivation for it to grow as we move forward. Really, the big thing, I think, is, in terms of managing that growth, what do those crops look like? Is that growth growing consistent with how organic farmers produce? That is a challenge in the organic industry. The goods that are demanded for growing organic foods, organic chicken and things of that nature, aren’t always consistent with an organic rotation. That’s a challenge that we have. If you feed a corn rotation to an organic chicken, you can’t have a corn-soy crop rotation. You have to have other crops in there. So that’s really the linchpin there, managing that demand growth as we go forward and making sure that we manage how we’re satisfying that demand growth with respect to what’s required for an organic rotation. Those are really the key drivers, and those are going to be issues that we contend with as we move forward, but they’re issues that we’re well positioned to deal with as we move forward and to succeed in overcoming.
TOM: Well, I want to be mindful of your time, Ryan. I really appreciate you joining us, but I kind of have this last question. If you were in a room with a farmer, and you had two minutes to convey information on your services at Mercaris and why farmers should be helping out with the markets and being more transparent and what that means to people, what would you tell them in those two minutes?
RYAN: What I would say is, specifically, we want you to succeed. We want the organic industry to succeed, and we want to see it continue to grow. Towards that success, what we want to do is be able to provide you the best, most actionable information that we can to allow you to make the best decisions for your farm. To that end, because we don’t have something like the USDA that obligates everybody to send in information on a recurring basis, it really takes a community, a network of people who are willing to share that information so that we can build these perspectives and allow the industry to understand what’s going on and allow people who work within the industry to make good long-term choices and good planning choices to help their operation and, also, the entire industry continue to thrive.
TOM: Ryan, thanks for your time today and to the listening audience. Thanks for tuning in. We appreciate your interest in the market of organic farming, and tune in again next week, where we unpack another really interesting topic on organic farming and maybe help you understand the industry just a little bit better. Again, thanks for your time.
OUTRO: Thank you for listening to Organics Unpacked. If you enjoyed this episode, please consider subscribing and giving this show a five-star rating and review, so we can continue to help organic growers improve their operations.