March 7, 2010

Makes sense - market saturation

The Organic Foods movement grew so big that a lot of traditional farmers switched over and got certified. Big expense and lots of bureaucratic red-tape to deal with. An interesting story of what happens when a market for something saturates. From today's Seattle Times:
Organic coffee: Why Latin America's farmers are abandoning it
Some 450,000 pounds of organic coffee sit in a warehouse here, stacked neatly in 132-pound bags. It's some of the world's best coffee, but Gerardo De Leon can't sell it.

"This is very high quality and it's organic. But ... the roasters don't want to pay extra these days," says the manager of FEDECOCAGUA, Guatemala's largest growers' cooperative, which represents 20,000 farmers.

De Leon is asking $2 per pound for the unroasted coffee, about 50 cents more than the going price. But he says he'll soon have to sell it as conventionally grown coffee, which sells for less.

That's why many Mesoamerican farmers here are starting to give up on organic coffee: The premium price that it used to fetch is disappearing.

From Mexico to Costa Rica, at least 10 percent of growers have defected in the past three years, estimates the Center for Tropical Agricultural Research and Higher Education in Costa Rica (CATIE). Researchers say that each year, about 75 percent of the world's organic coffee comes from Latin America.

Farmers have returned to the chemical fertilizers and pesticides that increase production, albeit at a cost to the environment. Although organic still pays a premium of as much as 25 percent over conventional coffee, it's not enough to cover the added cost of production and make up for the smaller yields. For consumers, the defections threaten to make the coffee harder to find.

"This is a critical point for organic coffee. It was starting to make the conversion to the mainstream," says Jeremy Haggar, who oversees the research for CATIE. If farmers continue to abandon organic coffee, "prices will definitely go up and it will return to being a niche product."
Sad that the farmer should be the one to bear the brunt of this. If the market saturates, you can either raise the prices throughout the entire chain or promote the product -- form a cooperative and pay for advertising to build brand awareness. You can also establish a niche market -- Coffee growers in Hawaii did this very successfully with their Kona Coffee. Posted by DaveH at March 7, 2010 7:36 PM | TrackBack
Post a comment

Remember personal info?