Organic Farmers Struggle Despite Rising Sales

The recent bankruptcy of Pavich Family Farms

highlights problems for growers

GREENFIELD, Mass.—According to the Organic Trade Association, here, from 1998 to 2003 organic produce sales are expected to increase 8.4 percent a year. And yet, this year several organic farms have filed for bankruptcy or have been sold to larger concerns.

But that’s not stopping the number of new farms from skyrocketing. The Organic Farming Research Foundation (OFRF) in Santa Cruz, Calif., notes that in 1999 there were 4,400 certified-organic farms in the U.S. and about another 10,000 transitioning to organic.

According to OFRF, there are currently 6,600 organic farms and another 15,000 in transition, 85 percent of which are owned by sole proprietors or family farmers, estimates OFRF Executive Director Bob Scowcroft. “The explosion of farmers’ markets is bringing in more farms,” he says.

When it comes to organic farming, however, size matters. While small “market” organic farms—those under 100 acres—are growing, larger farms are feeling the effects of consolidation and are facing financial troubles or acquisition.

Industry insiders say the rumored sale of Lamont, Calif.-based Cal-Organic Farms to Grimmway Farms, a conventional carrot grower in Bakersfield, Calif., is a “done deal” but may never be announced by the two parties. Cal-Organic is a several-thousand-acre producer of organic carrots.

Fellow farmers say the “shopping-around price” for Cal-Organic was around $80 million, but the farm may have been sold for less than that. Representatives from Cal-Organic didn’t return phone calls requesting comment.

After announcing its restructing last summer, Penns Creek, Pa.-based Walnut Acres’ trademark was acquired by Acirca, a new Arlington, Va.-based company that was formed to focus on development of organic farms. According to Walnut Acres CEO Mark Rodriguez, Acirca did not buy Walnut Acres’ 400-acre farm, which remains the property of the local family who has always owned it, or its manufacturing and distributing facilities.

Terra Bella, Calif.-based Pavich Family Farms in October filed for Chapter 11 protection but has continued its business without any interruption, Scowcroft says. “Their product is available, their sales force is selling, and they are growing,” he says. Scowcroft is unfamiliar with the circumstances that led Pavich Family Farms to file Chapter 11, and calls to Pavich were not returned by press time.

All of these farms are around 5,000 acres—a size that’s considered small in conventional farming measurements but large in organic-produce farming. Depending on what part of the country they’re in, organic produce farms can be divided into three sectors: small, under 100 acres; midsize at 200 to 300 acres; and large, more than 500 acres. The large farms are the ones that face market consolidation, say industry insiders. Like organic foods manufacturers, they’re attractive targets for nonorganic entities that want to get into the business.

“No doubt you will increasingly see large conventional corporate farms buy up organic farms or start practicing organic themselves,” says Lyle Davis, owner of the 35-acre Pastures of Plenty farm in Boulder, Colo. Small farms are OK as long as they find a niche, Davis says.

Davis grows cut flowers and specialty vegetables on his farm and sells them exclusively at farmers’ markets. “For a market farm, you have to be getting that retail price. You can’t sell [to restaurants and grocers] and compete with those 1,000-acre-farms from California.”

But even though Davis puts in 50- to 60-hour workweeks in season, he can’t support his family solely by farming. His neighbor, Chet Atkins, owner of a 25-acre farm called The Fresh Herb Co., does make a living from his farm, but he was forced to switch products to do so.

Atkins used to grow salad greens for stores, such as Wild Oats Markets (OATS) and Whole Foods Market (WFMI), along with Denver and Boulder restaurants. But buyers’ requirements for stricter inspection of produce for the E-coli virus “turned the farm packing shed into a restaurant kitchen,” he says.

Also, natural foods supermarkets are relying more on national distributors than local farms. “There used to be a little more consideration for the little guy,” Atkins says. He changed to ornamental herbs and flowers and sells to garden centers and grocery stores in Colorado. “The market has changed,” he says. “No [small farm] is growing a lot of organic vegetables.”

Atkins believes that a farmer can’t make a living selling exclusively to farmers’ markets. Davis says successful small farms need to supplement the money earned from farmers’ markets with events, such as hayrides and pumpkin patches. “Maybe we imagined 10 to 20 years ago that organics would be the savior of the family farms. But that’s not the case,” he says.

At Timber Crest Farms in Healdsburg, Calif., owner Ruth Waltenspiel says business has decreased by 10 percent per year over the last two years for the dried fruit her farm produces. At 350 acres, Timber Crest falls in that midsize category that industry observers say is having problems. The farms are too big to sell at farmers’ markets and too small to compete with the large national distributors.

Waltenspiel believes the organic industry is suffering from the same problem as regular agriculture: crop surplus. Manufacturers such as Petaluma, Calif.-based Amy’s Kitchen this year told Waltenspiel that they’re “so oversupplied by everything” that she had to beg Smuckers (SMJ.A) and Heinz (HNZ) to buy her crops.

Timber Crest and other midsize farms are increasingly exporting product. Scowcroft says there’s also opportunity in co-ops, direct marketing and food services that sell to chefs. “It’s a question of diversification and exposure to different markets,” he says.