Agriculture / Organic Farming, EDITORIAL
When Choice Matters: Organic Food vs. Organic Investing
By Anthony Wile - December 06, 2014

Morgan Stanley recently predicted a good deal of growth for organic/natural food sellers. In fact, this area is "hot." And because it is, I want to clarify certain concerns regarding organic/natural food from an investment standpoint. Increasingly, we have an interest in this area.

But first, something from Morgan Stanley via Yahoo Finance:

A recent study by Morgan Stanley sheds some light on the prices consumers pay for groceries at several major store chains. The study compared the cost of 100 commonly-purchased food items at different stores, focusing on organic/natural food sellers:

The Kroger Co (NYSE: KR),

Whole Foods Market, Inc. (NASDAQ: WFM),

The Fresh Market Inc (NASDAQ: TFM) and

Sprouts Farmers Market Inc (NASDAQ: SFM).

The study found that organic products command an average cost premium of 47 percent when compared to non-organic products within the same store. The organic premium was highest at Sprouts, where customers pay 57 percent more for organic products than non-organic products. The lowest organic premium was found at The Fresh Market (33 percent).

… The study also compared perceived quality and location convenience of the four stores to 11 other supermarkets.

According to customers, Whole Foods has the highest perceived quality among Morgan Stanley's four focus stores, trailing only Trader Joe's Company overall. Kroger had the lowest perceived quality among Morgan Stanley's picks. However, Kroger still handily beat the perceived quality of Wal-Mart Stores, Inc. (NYSE: WMT) and SUPERVALU INC.'s (NYSE: SVU) Save-A-Lot, which took the bottom two spots.

What do we learn? Already consumers are differentiating among sizeable providers. But how are they doing so? This is a very important point for both consumers and investors. Currently, definitions in the "organic/natural" arena are often muddled and abrupt.

As already stated in a recent editorial column, it will be increasingly important to clarify often-confusing terminology used in this area.

"Natural," for instance, is an industry term that has little in the way of a formal government definition. "Organic," on the other hand, is already significantly defined from a legal standpoint, though there are private definitions as well.

Professional investors seem to accept government definitions regarding organic food – no matter that they may include provisions that go beyond the actual food itself and what it contains. But eventually this could change.

As already reported, Whole Foods has begun moving beyond what is mandated in the government definition of "organic" with its own in-house standard. We wrote about that here:

Organic Trend Grows Despite Political Correctness

With the expansion of both public and private definitions, this will continue to be a confusing sector – at least for investors. In fact, for investors, confusing standards, especially in-house ones, may result in lost opportunities and deteriorating positions.

Morgan Stanley ,in its study, stated that it expects the "organic/natural food industry to continue to grow at a 9 percent annual rate." It also over-weighted several providers like Whole Foods and Kroger.

This is encouraging news worth paying attention to. But in my view, Morgan Stanley ought to be even more predictive. As this sector matures there will be an increased number of definitions including such elements as "sustainability" of farming methods as well, of course, as the "carbon footprint."

Will these prove important to consumers? Time will tell.

There are indeed numerous facets to consider. Over time, we'll see what the consumer thinks – and winners and losers will begin to evolve. The Internet makes it more difficult to impose a one-size-fits-all government standard on a specific industry.

One scenario: At some point, consumers may at least in part turn more to locally grown produce and meat because these offer transparency and evident high-quality with less concern about non-essential impacts …

Or perhaps not. Perhaps these issues will prove MORE important to consumers. Predicting these trends will be an important part of investing in organic/natural foods and in building a successful business as well.

Posted in Agriculture / Organic Farming, EDITORIAL
  • Bruce C

    I’ve always been surprised that the official alleged benefit of organic vs non-organically grown foods is not that they are more nutritious or taste better or may be less contaminated, but that it is easier on the environment. In other words, ‘the choice to buy organic is the choice to help the environment,’ was a recent quote by an organic foods advocate.

    To me that makes the organic food movement a little shaky because environmental memes are often bs. People are starting to wholly reject the crazy ‘climate cooling…no warming…okay just changing’ theme, so I would think that when they learn that “organic” farming may actually be “harder” on the environment or at least makes no net difference then the prospect of paying 50% more for that certification may seem more like a marketing ploy, especially if organic foods are not more nutritious or tastier or maybe even less contaminated. Organic foods may end up being more like Kosher products.

    • john cummins

      Bruce, this is an excellent point. The idea that organic foods might taste better or be more nutritious is one I as a consumer could go for IF actually proven in scientific studies (I’ve not seen them). However, throwing in the environmental BS almost automatically turns me the other direction. My suggestion is always grow and buy local. I can practically guarantee that the food will taste better in that non-shipping varieties of fruits and veggies will be grown by the sensible growers which will at least taste better, automatically, no matter how they are grown. Nutrition levels will most likely be up as well when veggies and fruit are picked at peak ripeness (the stress ought to up the nutritional attributes through increase in secondary metabolites). Now, to prove environmental benefits would be a much, much harder proof than either taste or nutrition.

      • lulu

        Seems to me you could as easily use the logic that scientific evidence might prove that there is no nutritional difference not to mention comparisons regarding environmental impact. You use your own common sense and experience to value local so why not use your own judgement regarding organic vs non organic? Taste is an obvious indicator. Many people experience health benefits after eating organic and especially by eliminating USA wheat products, such as immediate clearing of acne or other skin ailments.

        • Marten

          Yes gluten is a the real deal, right now….and it is not a good friend

    • lulu

      Anyone I know who buys organic does it for personal health reasons. However, I have never read that organic farming is harder on the environment. How so? Not that I have read everything, but this notion is certainly not a visible theme.

      • Bruce C

        I’ll have to try to remember where I read this. It had something to do with certain regulations actually being counterproductive in certain ways. I’ll see what I can find.

        That said, I sort of agree with you that it doesn’t make sense, but that is what I remember. Besides, like john cummins says below, I tend to reject appeals to environmental “protection” in general.

        About half or more of the fruits and vegetables, and almost all of the meats I eat are “organically” grown because to me they do taste better, have less water content, look better, are not “over sized”, shouldn’t have pesticides, should have a better nutritional profile, etc. But maybe more people think like me than I’ve read. Again, official spokespersons for organic foods and farming who I’ve heard or read emphasize environmental concerns almost exclusively, and consider the other aspects to be superficial. Strange but true, at least in my experience, and that’s what makes me suspicious. It could be that big-Ag doesn’t want all of that brought to light.

  • I highly recommend the following research:

    1 “GMO: Global Alert” by Professor Seralini, will provide link below

    2 “The Horrific Truth About Monsanto’s Roundup Herbicide” at Mercola(.)com

    3 “Chemtrails: Synthetic Alien Biology and Climate Change War on Mankind” at Veterans Today

    • “GMO: Global Alert” youtube.com/watch?v=Njd0RugGjAg

      this only covers a tiny fraction of the evil of ‘genetically modified organisms’….

  • wrusssr

    BigAgraChemPharma gonna look out for ya. Don’t go worring about the environment. Or things you can’t see that aren’t banned. Move along now. , ,

    . .http://www.greenmedinfo.com/greenmed/display/toxic-ingredient

  • wrusssr

    This just in from the Journal of Fertility and Sterility. Coupled with GM staples and their derivatives, it might explain the vertical descent of male sterility in the U.S. over the last decade or two. And the enthusiastic distribution of GM food to UE’s; that contains a similar sterilizer.

    http://www.greenmedinfo.com/blog/research-bisphenol-bpa-causes-100x-more-harm-previously-imagined

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