Growing Organically

Business NH Magazine, Oct 01, 2006 by Mowry, Matthey J

0rganic - it used to be a word associated with crunchy granola types. Now it's an entire section of mainstream grocery stores and grown into a $10 billion industry with giant corporations like Kellogg's cashing in.

It's not just small mom-and-pop operations that are selling to organic consumers. Walk into Hannaford's or Shaw's and you'll find a plethora of products claiming to be "natural" or "organic. " As Americans become more aware of what they are putting into their bodies, consumers seem more willing to pay higher premiums for organic products.

While organic sales accounted for only 1.8 percent of total U.S. sales of food in 2003, it has become "one of the fastest growing segments of U.S. agriculture for over a decade," according to the U.S. Department of Agriculture (USDA).

In 1997, organic food sales rang in at $3.6 billion nationally. By 2003, it grew 20.2 percent to $10.4 billion. Certified organic cropland doubled between 1992 and 1997 and doubled again between 1997 and 2003.

There are approximately 100 businesses certified organic through the state of NH. The NH chapter of Northeast Organic Farming Association (NOFA) boasts 450 members, up from 180 members six years ago. It's still a small percentage of NH's 3,400 commercial farms and the state's $935 million agricultural industry.

While small, it is not an insignificant industry in NE. According to the USDA, certified organic acreage accounts for more than 10 percent of the vegetable acreage in NH. "In many states, particularly in the Northeast and Southeast, most certified organic operations are small-scale farms that produce a vast array of vegetable crops, fruits, herbs, and flowers for marketing to consumers in the local area," the USDA states in a report.

"We've seen a fairly modest, but steady, growth in the number of farms certified organic [in New Hampshire]," says Dick Uncles, market supervisor at the NH Bureau of Agriculture, Markets and Food.

Most of the certification (see sidebar) has been among businesses growing organic vegetables and niche products. "We haven't seen as much conversion (to organic) among apple and dairy farms," Uncles says of two of the state's largest agricultural crops. "The area we're seeing a lot of interest in is organic certification of processed foods." That means such things as organic salsa makers that don't grow their own ingredients, but buy certified organic ingredients.

Hirshberg's Mission

For many organic farmers, growing organic products is more about fulfilling their personal philosophy than profits. Organic products are generally higher in price for a reason. Most small organic farms are not rolling in cash despite commanding higher prices because the costs associated with organic farming are higher. They don't use chemical pesticides and many pick bugs off plants by hand. Organic fertilizers, feed and other materials needed to nurture organic crops come with high price tags as well. In short, growing organic products is an expensive, labor-intensive proposition. Also, organic farms tend to be small and don't have economy of scale.

So why do it? Organic farmers are passionate about contributing to healthier lifestyles and being environmentally friendly. That's not to say profits and passion are mutually exclusive. Stonyfield Farm in Londonderry is the world's largest maker of organic yogurt, racking up hundreds of millions in sales annually and employing 331 people. Gary Hirshberg, president and CEO, has been cultivating an organic empire and is one of the premier advocates for organic businesses.

"When we started 24 years ago in Wilton. I had this hypothesis that business could be a positive force for environmental change and that organics would be a real catalyst in saving and preserving family farms," Hirshberg says.

Stonyfield Farm started as an organic farming school in 1983 with the goal of teaching people that sustainable, or organic, agriculture is a food system with a future. "There was no supply or demand [for organics]. We had a rocky time building that supply and demand," Hirshberg says.

Under his leadership, Stonyfield has become one of the giants in the yogurt industry and is celebrating its 14th straight year of more than 26 percent compounded growth. "It's obvious now that our hypothesis was right." Hirshberg says.

Stonyfield is now attempting to replicate that success in Europe for Groupe Danone. At the end of the '90s, Stonyfield had 300 shareholders and had to come up with an exit strategy for them, but Hirshberg didn't want to sell the company. He sought out a partner and found it in the France-based consumerproducts giant. They established their strategic partnership in 2001 and by 2003, Groupe Danone acquired all non-employee shares of Stonyfield's stock, becoming the majority owner of the company. Through the strategic partnership, Hirshberg remains as president and CEO and retains majority board control.

The partnership is yielding fruit. "They embraced the idea that we could export our business model," Hirshberg says. He has been busy establishing new organic opportunities for Groupe Danone in Europe. In June, Stonyfield and Groupe Danone formed Stonyfield Europe, an organic dairy firm headed by Hirshberg as managing director The new firm shortly acquired more than 37 percent interest in Glenisk, Ireland's leading organic dairy. "We're helping them to expand their facility and with developing new products and marketing," Hirshberg says. In September, Stonyfield Europe announced a new line of organic yogurts under the auspices of newly created Stonyfield France. "We're trying to prove Stonyfield is not a one-time fluke. This is a business model that is highly relevant to any number of categories," Hirshberg says.