How to Invest in Organic Food and Agriculture

Investing in Organic Food and Agriculture

The next time you are out on a walk and notice a humble honey bee buzzing from flower to flower, take a moment to stop and appreciate the importance of the busy little insect. The honey bee is at the heart of all organic agriculture.

According to the FDA, “About one-third of the food eaten by Americans comes from crops pollinated by honey bees, including apples, melons, cranberries, pumpkins, squash, broccoli, and almonds, to name just a few.” Pollination is essential to agriculture; without it, many plants cannot produce seeds and fruit, and our dinner plates would look very sparse indeed.

Unfortunately, honeybee numbers are declining, bringing risks to whole ecosystems and farms.

Beekeepers in the U.S. have been sounding the alarm for years, reporting sharp declines in honey bee colonies for over a decade. April 2020 to April 2021 was the second worst year on record, with beekeepers reporting estimated annual losses of 45.5% of their managed honey bee colonies. The losses from April 2021 to April 2022 of 39.0% returned closer to the average, but remain high.

This sharp decline in honey bee colonies is thought to be caused by several factors, including shrinking crop diversity, habitat loss, insecticides, and parasites. In particular, a widely used group of insecticides called neonicotinoids are coming under increased scrutiny as mounting research demonstrates the toxicity of the chemicals to honey bee populations.

Farmers apply neonicotinoids to their fields in an effort to prevent pests such as aphids, but end up unintentionally damaging honey bee colonies, which in turn damages crop yields and the surrounding ecosystem as a whole.

Declining honey bee populations in the U.S. are symptomatic of an ongoing conflict in modern agriculture that pits short term profitability against long term sustainability. Spraying a field with herbicides may kill weeds one year, but the weeds that sprout the following year will be herbicide-resistant, and the farmer will have to invest in new and increasingly complex chemical concoctions to stay on top of the evolving weeds.

In response to the industrialization of modern agriculture, a thriving movement has emerged that emphasizes quality over quantity. Organic agriculture is a process of producing food that focuses on environmental sustainability by using the tools of the ecosystem to optimize farming, and avoiding the use of external products.

The Rodale Institute, a leading organic agriculture nonprofit, considers organic agriculture to be a “vision for working and living in harmony with nature. The result is healthy soil, which grows healthy plants, which make for healthy people. By abstaining from synthetic inputs and encouraging natural systems, organic farmers help create a better future for people, animals, and the environment.”

For those interested in the investment potential of this growing market, there are a few important points to understand.

What is organic agriculture?

In the context of the U.S., “organic” is a labeling term that food producers affix to products to indicate that their products comply with the organic standards of the U.S. Department of Agriculture (USDA). The USDA’s organic standards are lengthy and cover many agricultural processes, including crop production, livestock/poultry production, and product handling/labeling.

Before a food producer can apply an organic label to their product, USDA inspectors must first certify that the producer complies with the relevant organic standards. In general, the USDA’s organic standards require that food producers use natural processes to produce food.

With crop production, for example, one of the organic standards is that the land cannot have any “prohibited substances” (such as synthetic fertilizers or weed killers) applied to it for at least three years before harvesting an organic crop. The organic standards also mandate that organic livestock and poultry have access to the outdoors year-round and may only be temporarily confined due to poor weather or concerns over the animal’s health.

You don't need to be an expert to invest.

Making the transition to organic or going organic from the get-go can be a difficult, expensive endeavor for food producers. It is undeniably cheaper to produce food using synthetic chemicals and industrial processes.

Environmental benefits aside (which are substantial, if difficult to value monetarily), going organic offers food producers access to a rapidly growing market. Young adults are increasingly focused on food quality when they shop, with a recent YouGov study noting that 68% of millennials surveyed responded that they are willing to pay more for higher quality products.

For a young consumer with health and environmental concerns on their mind, the choice between an organic tomato costing $2.25 and a non-organic tomato costing $1.50 may not be as obvious as one would assume. In this space, there are significant opportunities.

Why invest in organics?

Organic agriculture is a rare investment opportunity where you can literally put your money where your mouth is. Consumer demand for organic food is booming in the U.S., but domestic supply has not kept pace. The development of precision agriculture has helped, but the shortcoming largely boils down to the fact that producing organic food is more difficult and expensive than producing food via conventional agriculture.

To facilitate the transition to organic from conventional while satisfying their customers’ growing demand for organic food, large food companies are increasingly partnering with small producers. Established brands like Annie’s, owned by General Mills GIS, are partnering directly with domestic farmers, eliminating many of the hurdles new organic producers face in bringing their products to market.

With a consumer base willing to pay more for products they value, and with the support of established companies that recognize organic agriculture’s potential, the organic agriculture market is primed for substantial growth and expansion in the coming years.

According to research from the Organic Trade Association, sales of organic products in the U.S. reached $63 billion in sales between 2020 and 2021, a 2% increase over the prior year. Consumer interest in organic products is strong. Young consumers are more concerned about their health and the health of the environment than any preceding generation, and these consumers are on the cusp of becoming the most dominant group with respect to consumer spending.

Organic agriculture represents a unique opportunity in the investment landscape because it offers the potential to serve an undersupplied but growing market with products that are increasingly seen as ethically and environmentally superior to similar products available at lower prices.

How to Invest in Organics

For investors, finding the right investment in the organic space can be overwhelming with so many options. Organics impact almost every aspect of the food and agriculture industry from farmland to your local grocery aisle. Get started with a search on Magnifi and then use the compare tool to narrow down your options:

References:

“Helping Agriculture's Helpful Honey Bees,” U.S. Food and Drug Administration, 30 July 2018, https://www.fda.gov/animal-veterinary/animal-health-literacy/helping-agricultures-helpful-honey-bees
Steinhauer, Nathalie, et al, Bee Informed Partnership, “United States Honey Bee Colony Losses 2020-2021: Preliminary Results” https://beeinformed.org/wp-content/uploads/2021/06/BIP_2020_21_Losses_Abstract_2021.06.14_FINAL_R1.pdf
Aurell, Dan, et al, “United States Honey Bee Colony Losses 2021-2022: Preliminary Results from the Bee Informed Partnership,” Bee Informed Partnership, https://beeinformed.org/wp-content/uploads/2022/07/BIP_2021_22_Losses_Abstract.pdf
Daley, Jim, “Safety concerns mount over neonicotinoid pesticides in unexpected places,” PBS News Hour, 6 May 2019, https://www.pbs.org/newshour/health/safety-concerns-mount-over-neonicotinoid-pesticides-in-unexpected-places
“What is organic agriculture,” Food and Agriculture Organization of the United Nations, fao.org/organicag/oa-faq/oa-faq1/en/.
“Why Organic?” The Rodale Institute, https://rodaleinstitute.org/why-organic/.
“About the Organic Standards,” Agricultural Marketing Service of the US Department of Agriculture, https://www.ams.usda.gov/grades-standards/organic-standards
“Millennials’ food choices are driven by quality and they’re willing to pay more for it,” YouGov America,” 9 September 2019, https://today.yougov.com/topics/consumer/articles-reports/2019/09/09/millennials-food-choices-are-driven-quality
Cernansky, Rachel, “We don't have enough organic farms. Why not?” 20 November 2018, https://www.nationalgeographic.com/environment/article/organic-farming-crops-consumers.
“2022 Organic Industry Survey Shows Steady Growth, Stabilizing Purchasing Patterns” Organic Trade Association, https://ota.com/news/press-releases/22284.