A Gap in Organic Food Chain

The Farm Belt isn’t going organic fast enough to keep up with surging consumer demand, forcing makers of organic foods from milk to deli meats to look abroad for key commodities while struggling to recruit skeptical farmers at home.

The U.S. is the world’s largest producer and exporter of corn and soybeans, but organic supplies, which are used largely as animal feed for production of organic meat and dairy, are hard to come by here. Federal data show organic food producers are turning to China and India for organic soybeans, as total U.S. imports of those kinds of beans doubled last year and could surpass $100 million in value this year.

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Altfrid Krusenbaum can’t grow enough feed for his organic dairy farm in Elkhorn, Wis., and must buy organic corn and oats from a feed mill.

Food companies say fewer corn and soybeans farmers are adding organic acres, with some even returning to pesticides and processed fertilizer after trying organic production.

“We are not keeping up. You have seen a slowdown in the transition of acres,” said George Siemon, chief executive of Organic Valley, the largest cooperative of organic farmers in the U.S. Limited new supplies, he added, mean its dairies pay higher prices for feed, making producers less profitable as organic retail prices can only climb so high.

Besides hurting returns for dairies, a lack of new acres for organic row crops, which lag behind fruits and vegetables in new production, could restrict growth for other organic foods that rely on feed, such as poultry, the Organic Trade Association says. Some food makers also fear imports could turn off consumers who equate organic with locally grown food.

Federal data show the organic crop makes up a sliver of the 175 million acres of corn and soybeans planted this spring, though the organic data lag behind total plantings by several years.

U.S. sales of organic food, meanwhile, grew over the past five years by 35%—nearly three times the pace of the food industry as a whole—to $29 billion, according to the Organic Trade Association.

Altfrid Krusenbaum can’t grow enough feed for his organic dairy farm in southern Wisconsin and must buy organic corn and oats from a feed mill. He would like to produce everything locally, but conventional farmers aren’t switching their practices, and land costs are too high for Mr. Krusenbaum to rent or buy more ground. “For the most part, land is all locked up,” he said.

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Federal standards require farmers to forgo processed fertilizers and chemical weed killers for three years before their crops can be certified organic. Many farmers say that is an eternity when the cost of land has skyrocketed and prices for crops produced conventionally are at historic highs.

Ray Gaesser, who farms 6,000 acres of corn and soybeans in southwestern Iowa, isn’t switching any of his land to organic, saying it bars farmers from using pesticides, genetically modified seeds and other technologies without providing proven benefits to consumers.

“We feel like we have a world to feed and a consumer in the U.S. who has accepted the technology,” said Mr. Gaesser, who’s also on the board of the American Soybean Association.

The demand for organics—particularly soybeans—has food companies testing ways to boost production and trying to avoid Chinese imports because of concerns over consumer backlash.

Amy’s Kitchen Inc. of Petaluma, Calif., won’t buy imports from China even as it struggles to find enough organic soy and corn for prepared foods such as enchiladas and Asian stir fry. To boost supplies, Amy’s is experimenting with three-year contracts that allow farmers to lock in profit margins on their organic production rather than being subject to market prices.

Perdue AgriBusiness, a Perdue Foods affiliate that markets animal feed, has started a demonstration farm in Maryland that grows organic row crops as part of what a spokeswoman described as its aggressive effort to build interest among farmers. The company sources organic feed from around the globe for clients, but views imports as a stop-gap measure until domestic supplies catch up with demand, she said.

Bell & Evans, one the nation’s largest organic poultry producers, has shunned imported feed, particularly from China. Owner Scott Sechler said the decision means the Fredericksburg, Pa., company pays more, but he doesn’t want to damage the trust of consumers who are willing to pay twice as much for his products.

“We don’t want to touch imported stuff. It would take away from our credibility,” Mr. Sechler said.

Concerns over food safety are particularly strong when it comes to China, which has faced a string of food-related scandals. The U.S. Department of Agriculture, which requires organic growers abroad—as in the U.S.—to go through a certification process, found organic certifiers in China to be competent in a 2010 report. But the agency warned of challenges to oversight as the industry grows, from the varied education levels of farmers to the sheer size of China.

Christopher Ely, co-founder of Applegate Farms, a maker of organic hot dogs and deli meats, said the industry needs to be careful as it grows not to be too narrow in its approach and risk becoming elitist.

He suspects some of his suppliers may import animal feed, but trust the system in place to ensure it meets organic standards.

“Some are squeezing organic so hard because of their love for it that they may suffocate it,” Mr. Ely said. “We need to continue to allow organic to be something that’s reachable for everybody.”

Write to Mark Peters at mark.peters@dowjones.com

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