Organic poultry and egg market sees good growth and higher premiums

By Lydia Oberholtzer, Catherine Greene, and Enrique Lopez, Economic Research Service, USDA - Organic poultry and egg markets in the United States are expanding rapidly.
calendar icon 8 January 2007
clock icon 8 minute read
USDA Economic Research Service


Statistics for the sector, especially the number of organic broilers, also signal expanding domestic supply. This report examines trends in markets, animal numbers, and prices for organic poultry and eggs. Price comparisons between organic and conventional show significant organic price premiums for both broilers and eggs.


Eggs and poultry are now among the fastest growing food products in the U.S. organic sector. Organic eggs are widely available in both conventional and natural food supermarkets, and organic chicken is appearing in grocery stores as well. In niche markets, such as farmers’ markets, gourmet food shops, and restaurants, customers are offered farm-fresh organic eggs and locally processed organic chicken and poultry products.

USDA’s National Organic Program regulates organic products (see box National Organic Standards). USDA allowed the use of an organic label for meat and poultry in 1999, well after other organic food labels were established, and these products are starting to catch up with the rest of the sector. Total U.S. sales of organic foods were estimated at almost $14 billion in 2005, about 2.5 percent of total U.S. retail food sales. U.S. organic sales have had annual growth rates of about 20 percent since the mid-1990s and are forecast to rise to $24.4 billion by 2010 (NBJ, 2006). Along with growing sales, organic products have shifted from being a lifestyle choice for a small share of consumers to being consumed at least occasionally by two-thirds of Americans (Hartman Group, 2004; Whole Foods Market, 2005).

Organic poultry and egg sales currently account for a small share of the overall U.S. egg and poultry market. Both markets, however, like much of the organic sector, are growing rapidly, organic poultry in particular. Both sectors are still in their infancy, and many changes are likely as they develop.

This report uses new data from USDA’s Agricultural Marketing Service (AMS) to show that price premiums for organic poultry and eggs at the intermediary level2 were considerable from 2004 through mid-2006. At least in the near term, price premiums will remain high as production struggles to keep pace with fast-growing consumer demand. High costs and shortages of organic feed grains, along with a lack of processing capacity, are limiting the short-term expansion of the organic poultry and egg sector. At the same time, a growing number of consumers cite concerns regarding health issues, the environment, and animal welfare as factors influencing their decisions to purchase organic poultry and eggs, and these individuals are willing to pay the price premiums demanded in the marketplace.

National Organic Standards

Congress passed the Organic Foods Production Act of 1990 to establish national standards for organically produced commodities, and USDA implemented the standards in October 2002. The national organic standards require that organic growers and handlers (including food processors, manufacturers, and some distributors) be certified by State or private agencies/organizations under the uniform standards developed by USDA, unless the farmers and handlers sell less than $5,000 a year in organic agricultural products. Final retailers of agricultural products that do not process agricultural products are also exempt from certification, but they must meet all of the certified organic handler requirements to maintain the organic integrity of the organic products they sell.

The national organic standards address the methods, practices, and substances used in producing and handling crops, livestock, and processed agricultural products. Although specific practices and materials used by organic operations may vary, the standards require every aspect of organic production and handling to comply with the provisions of the Organic Foods Production Act. Organically produced food cannot be produced using genetic engineering and other excluded methods, sewage sludge, or ionizing radiation. These standards include a national list of approved synthetic, and prohibited nonsynthetic, substances for use in organic production and handling.

The labeling requirements under the national standards apply to raw, fresh, and processed products that contain organic ingredients and are based on the percentage of organic ingredients in a product. Agricultural products labeled “100-percent organic” must contain (excluding water and salt) only organically produced ingredients. Products labeled “organic” must consist of at least 95-percent organically produced ingredients. Products labeled “made with organic ingredients” must contain at least 70-percent organic ingredients.

Products with less than 70-percent organic ingredients cannot use the term organic anywhere on the principal display panel but may identify the specific ingredients that are organically produced on the ingredients statement on the information panel. The USDA organic seal— the words “USDA organic” inside a circle—may be used on agricultural products that are “100-percent organic” or “organic.” A civil penalty of up to $10,000 per violation can be levied on any person who knowingly sells or labels as organic a product that is not produced and handled in accordance with the regulations.

Organic Poultry Market Overview

The organic meat sector is currently one of the fastest growing segments of the organic food industry, and poultry accounts for nearly two-thirds of this sector. U.S. retail sales of organic poultry were $161 million in 2005, well under 1 percent of conventional poultry sales. However, retail sales of organic poultry have almost quadrupled since 2003, and estimates of annual growth rates range from 23 to 38 percent through the end of the decade, with annual sales reaching almost $600 million by 2010 (NBJ, 2006).

Approximately half (51 percent) of organic poultry sales were in natural food stores in 2003, 45 percent in mass market grocery stores (including conventional grocery, mass merchandiser, and club stores), and 4 percent through direct sales and other distribution channels (see box Local Consumer Connections for Organic Poultry and Eggs) (NBJ, 2004). As in the conventional food sector, sales of broilers account for the majority of organic poultry sales.

In a recent international survey, approximately 12 percent of U.S. consumers reported purchasing organic poultry regularly (ACNielsen, 2005). In fact, organic meat and poultry recently became recognized for the first time as a “gateway” organic food (Demeritt, 2004). Organic gateway products, which also include produce, dairy, soy, and baby foods, are perceived as important frontline commodities for the industry. They are often the first organic products to be purchased by consumers and can steer consumers toward purchasing other organic products, such as cereals and snacks.

Drivers of the growth in consumer demand for organic meat include concerns about the use of antibiotics and growth hormones in animal livestock, the environment, and the humane treatment of animals (Demeritt, 2004; NBJ, 2004). The expansion of organic meat sections in natural food stores, the growth of organic meats in deli counters, and the increasing use of organic meats in manufactured products, such as soups and frozen meals, are also boosting demand.

Insufficient supply, however, has been a limiting factor for some supermarkets interested in carrying organic meats (NBJ, 2004). In addition, the presence of competing labels, such as “natural,” have historically impacted organic meat sales. Organic meat still faces intense competition from meats labeled “natural,” which developed a market before meat was allowed to carry any label of organic and are not required to meet the stringent production standards that USDA set for organic products. However, implementation of the national organic standards in 2002 has heightened interest in organic products, including meat, and is changing the dynamic between organic and natural meat products (see box Labels in the Specialty Poultry and Egg Sectors for more information).

Not much is known about the structure of the organic poultry sector, and the extent to which it may develop. The conventional poultry sector is characterized by a high degree of vertical coordination, in which firms control all or part of the food supply chain, and contracting (see box Conventional Poultry and Egg Production). Although some organic poultry companies are using contracts and coordinating inputs for organic broiler production, prac- primarily marketed their products regionally. With the recent growth of the sector, however, it appears that a number of established organic poultry businesses are expanding their production and processing capabilities in terms of both capacity and geographic scope.

In addition, at least one national organic company has developed a fresh and frozen poultry line that is distributed nationally. As the industry further expands, it faces such challenges as the lack of smaller-and medium-sized processing facilities, either new or existing, for organic poultry and eggs (Levondoski, 2006). Although some conventional poultry companies, including some of the largest, have introduced organic brand lines over the last few years, all seem to have recently dropped organic production to focus on the “natural” market. As the organic poultry market develops, however, these conventional companies are likely to re-emerge as competitors in the sector.

Further Information

To read the full article, including other animal product markets, click here (PDF)

December 2006

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