Or is it “down” if you’re a U.S. organic grain farmer?

by Anne Ross, J.D. LL.M., Director of International Policy, The Cornucopia Institute
Excerpted from Potential, Failures, and Pitfalls of the National Organic Program in Getting Control of Organic Grain Fraud, September 2019

If history is a reliable indicator, the situation for North American organic grain farmers could become increasingly dire in coming months.  A historical review of market trends and price data shows a predictable pattern of how diminished demand, coinciding with increased organic acreage and production, wreak havoc on the domestic organic grain market.

Current market conditions suggest that the effect on domestic organic producers could be more severe than seen before.

In 2007, organic acreage and organic grain production in North America were strong. At that time, market signals suggested that a high demand for organic grains would continue.  But, as events a year later would tell, a financial crisis and recession hit the American economy hard – organic grain farmers felt these effects all too much.   Prices for organic grain dropped right as organic acreage and production were high.

Market analysts have reported that between 2008 and 2010, North America lost approximately 20-25% of its organic field crop acreage.

By 2011, the market for organic grain was rebounding again at consumer level growth, but organic acreage was not growing in kind.  As a result of rising consumer demand and stagnant acreage growth during these years, an imbalance was created, causing shortages in the market for many organic grains and higher prices for producers.

Then in 2013, the conventional market started to drop sharply.  After several years of depressed conventional values, many conventional producers were incentivized to transition conventional land to organic.

However, American organic grain farmers, including those who had recently begun transitioning conventional land to organic, wouldn’t get a break.  Another crisis was lurking.  This time the crisis reducing the demand for North American organic grains would come not in the form of a faltering economy, but fraudulent organic grain imports.

By 2015, ethical U.S. organic grain producers felt the proverbial rug being ripped out from under them again – and the USDA-NOP laid out the welcome mat, by way of weak enforcement, for crooked importers.

Prices for domestic organic grain began to fall even though demand for organic feed grains increased two to three fold.

As chronicled in Cornucopia’s paper, The Turkish Infiltration of the U.S. Organic Grain Market: How Failed Enforcement and Ineffective Regulations Made the U.S. Ripe for Fraud and Organized Crime, the influx of fraudulent organic grain into the U.S. corresponded with stricter regulations imposed by the E.U.

When the E.U. took prompt action to curtail cross-border flow of organic grain into its territory from high-risk regions, bad actors were free to exploit the U.S. market.   A lack of effective monitoring protocols and vigilant enforcement made the U.S. a prime target for unscrupulous traders.

Despite continued calls for the USDA-NOP to act expeditiously, the anticipated proposed rule to close loopholes has been delayed and has yet to be released.  Organic grain farmers remain despondent, as vessels continue to offload grain of unverified authenticity and calls for vessel inspections are refused.

Unfortunately, the situation for North American grain farmers is likely to get worse before it gets better, unless federal regulators act now.  A look at current and future market conditions suggests history will be repeated, albeit with more severe consequences.

Fall harvests in 2018 and 2019 include acreage that began organic transition in 2014 and before the effects of fraudulent imports had been fully realized.   Organic field crop acreage is growing for the first time in many years.  Now, with the grain production from the converted acreage entering the market, the threat of cheaper fraudulent imports from high-risk regions compounds the U.S. market situation and further threatens prices to producers.  Cheaper imports of unverified authenticity continue to distort domestic markets.   More supply coupled with an unabated risk of fraud threatens to depress prices for domestic organic grain even further.

To complicate matters, foreign organic acreage and grain production have also increased. While U.S. regulators floundered and failed, several European countries positioned themselves to meet their country’s organic grain demands without relying on imports from high-risk regions.

When the E.U. acted to identify and prevent the cross-border flow of fraudulent organic grain in member countries, those countries fostered conditions that minimized the risk of transitioning conventional land to organic.  For many European growers, this meant production could flourish amid a reduced threat of unfair competition.

For example, recent data shows Austrian organic arable land grew to a record level in 2019, with wheat and soy showing significant increases. This means that the area has increased more than twice as much this year as in the previous year.

Since 2015, organic acres in Germany have increased by 40%.  The number of organic farms has increased by 28%.

In 2018, a record number of French farms switched to organic production. France added 5,000 organic farms last year, surpassing a prior high of 4,200 seen in both 2016 and 2017. The organic farmland area expanded by 17% to 2 million hectares, or 7.5% of all farmland.

What does this mean for the North American organic grain market?

Because Europe is increasingly self-sufficient and less reliant on grain from high-risk regions, unscrupulous grain traders will continue to aggressively push dubious grain into the U.S. market as markets overseas are increasingly satisfied with domestic production.  U.S. producers will be disproportionately affected by abundant supplies of feed grain because unblocked inroads leave U.S. markets vulnerable to fraud.

Increasing supplies of domestically produced organic grain will remain unsold if cheaper, fraudulent imports continue to infiltrate the market.

In 2008, the recession caused a drop in demand around the same time that an increase in organic acreage increased supply.

Today, little has changed – except fraudulent grain, not an economic recession, is reducing demand and forcing prices down.  A reduced demand coinciding with increased acreage and supply proved disastrous in 2008.

In the months ahead, the abundant global supply of organic grain in a market distorted by fraud leaves the North American organic grain market especially vulnerable.

These factors added to the worldwide scenario have the potential to make the U.S. even more dependent on imported grains to meet demand.

In an economic climate where talks of a recession also loom on the periphery, the results could prove far worse than in years past.  While there is never room for fraud in a fair market, there are times when its impacts could cause irreparable harm.  That time is now.  U.S. regulators need to act.