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WIKI ANALYSIS
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This article describes a concept which could impact a variety of companies, countries or industries. To see what companies and articles reference this concept page, click here. |
Organic and natural foods are those produced au naturel, without the use of any chemical fertilizers, pesticides, or additives. Organic foods were historically grown on small, family-run farms, limiting the sale of these goods to small grocery stores and farmers' markets. Natural foods are now much more popular and widely available, as evidenced by the growing number of natural/organic retailers like Whole Foods Market (WFMI) and Wild Oats Markets (OATS). The sales of organic and natural foods have boomed as well, significantly outpacing the growth of conventional food sales.
Natural and organic foods have become increasingly popular for a number of reasons, the most significant of which is the health and wellness benefits associated with naturally grown foods. Though there is some controversy over the details, organic foods nonetheless have a reputation of being healthier, safer, and more sustainable than conventionally grown foods. Additionally, purchasing organic and natural foods has become somewhat trendy, adding to its popularity.
Natural vs. Organic Food
According to the United States Department of Agriculture, labelling of food as 'Natural' depends on whether it follows the following criteria: (1) the product does not contain any artificial flavor or flavoring, coloring ingredient, or chemical preservative (as defined in 21 CFR 101.22), or any other artificial or synthetic ingredient; and (2) the product and its ingredients are not more than minimally processed. Minimal processing may include: (a) those traditional processes used to make food edible or to preserve it or to make it safe for human consumption, e.g., smoking, roasting, freezing, drying, and fermenting, or (b) those physical processes which do not fundamentally alter the raw product and/or which only separate a whole, intact food into component parts, e.g., grinding meat, separating eggs into albumen and yolk, and pressing fruits to produce juices.
Organic food is produced by farmers who emphasize the use of renewable resources and the conservation of soil and water to enhance environmental quality for future generations. Organic meat, poultry, eggs, and dairy products come from animals that are given no antibiotics or growth hormones. Organic food is produced without using most conventional pesticides; fertilizers made with synthetic ingredients or sewage sludge; bioengineering; or ionizing radiation. Before a product can be labeled "organic," a Government-approved certifier inspects the farm where the food is grown to make sure the farmer is following all the rules necessary to meet USDA organic standards. Companies that handle or process organic food before it gets to your local supermarket or restaurant must be certified, too.
Drivers of organic and natural food consumption
Health and Wellness
The principal driver behind the organic movement is a public desire for increased health and wellness. It is widely believed that organic and natural foods are healthier, better for the environment, and more sustainable, than conventionally-grown foods.
Specifically, organic foods are promoted as being:
- Safer - Natural and organic foods are produced without the chemical pesticides and additives commonly used in conventional foods. Advocates of natural foods argue that this makes organic foods safer, which is widely believed by the public. Though this has not been explicitly proven, the belief that organically grown foods pose fewer health risks remains.
- Better-tasting - A study at Washington State University in 2001 found that organic apples were sweeter and had better texture and firmness than conventionally grown apples. Studies such as these have contributed to the opinion that organic foods are not only healthier, but taste better than traditional foods.
- Environmentally friendly - Organic farms have been shown to use less energy and produce less waste than conventional farms. Also, natural farming doesn't use synthetic pesticides, some of which can harm the environment and wildlife.
- Farmer friendly - Farmers who grow crops in the conventional method generally use pesticides, which studies have linked to various health problems ranging from headaches to cancer. Again, this is not a scientific fact, but it is used as another reason to buy organic and natural foods.
In addition to these reasons, health scares can make organic and natural foods seem like better options than conventional foods. For example, the recent recall of cat and dog food made from wheat gluten imported from China has raised some questions about conventional farming methods. The wheat gluten contained melamine, an industrial compound that is commonly used as fertilizer and animal feed in China, despite laws preventing its use in food products. It has not been proven that melamine caused the deaths of cats and dogs who ate the contaminated food (which are estimated to be in the thousands), but the negative publicity has still led some to question the use of artificial chemicals in food products.[1]
"Conspicuous Consumption"
Another force driving the demand for natural and organic foods is the upscale, trendy image associated with the segment. Organic foods are more labor-intensive to produce and are generally more perishable than conventional foods, requiring special care. As such, natural foods often carry higher price tags and are purchased primarily by higher-income consumers. Though health reasons are the biggest driver of natural/organic food demand, buying organic can also be something of a status symbol, signifying refined tastes and the ability to afford the luxury of eating healthier, natural foods. This "conspicuous consumption" effect, while difficult to measure, can lead to increased demand for "luxuries" such as natural and organic foods.
Companies that benefit from an increase in organic and natural foods
Retailers & Distributors
- Whole Foods Market (WFMI) is the largest grocer in the natural/organic niche. They recently announced their intended acquisition of fellow natural retailer Wild Oats Markets (OATS). Though this merger has been blocked by the Federal Trade Commission, the two companies have united to challenge the FTC in court.
- The success of Wal-Mart Stores (WMT) is yet to be determined; it's entered the organic foods segment, but its primary customer base (low- to mid-income consumers) is not the key demographic that purchases natural and organic foods.
- United Natural Foods (UNFI) is a national distributor of natural and organic foods for U.S. retailers.
Food Manufacturers
- Hain Celestial Group (HAIN) produces a large portfolio of healthy and organic foods, which are distributed and sold throughout North America and Europe.
- Hansen Natural (HANS) offers a line of natural soft drinks, which have become increasingly popular due to rising demand for natural beverages.
Restaurant Retail
- Panera Bread Company (PNRA) is a bakery and cafe chain that offers a large selection of natural and organic foods.
Related Products
- Bodisen is a micro-cap company based out of China that produces organic fertilizers and pesticides.
Companies that benefit from a decrease in organic and natural foods
Dairy Producers
- Dean Foods Company (DF), Kraft Foods (KFT), and other companies that sell dairy products in the U.S. would likely be harmed by an increase in natural and organic food consumption. Dairy farmers in the U.S. commonly use artificial growth hormones to increase milk production, which is not in keeping with organic practices.
Food Manufacturers
- Coca-Cola Company (KO) and its perennial competitor Pepsico (PEP), the two largest traditional beverage manufacturers, could could be negatively impacted by an increase in demand for natural and organic products. PepsiCo also makes snacks and other foods, though few are of the natural or organic variety.
Restaurant Retail
- Yum! Brands (YUM), McDonald's (MCD), and Wendy's International (WEN) are all large Quick Service Restaurant (QSR) chains. These companies are not generally known for their natural or organic offerings.
Related Products
- E.I. du Pont de Nemours and Company (DD), Syngenta AG (SYT), and BASF AG (BF) are companies that offer genetically modified food seeds and pesticides. As such, they would be doubly hit by the continued growth of organic and natural foods.
- Monsanto Company (MON), in addition to manufacturing crop seeds and pesticides, also produces recombinant bovine somatotropin (rBST), a synthetic hormone injected into dairy cows to increase milk yield. Monsanto is the only producer of this hormone, which is banned in Japan, Australia, Canada, New Zealand, and all 27 members of the European Union.
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