A new report from BB&T Capital Markets suggests that organic price premiums vs. conventional pricing may still be too low from a producer and supplier standpoint, according to news site cnbc.com.
"Although organic food products generally command a price premium, it has oftentimes been insufficient to fully offset the higher cost, resulting in narrower margins," said the report. "Consequently, supply has not kept pace. This disconnect has exerted cost pressure on most organic ingredients, which is likely to worsen should demand growth continue to outpace conventional."
The report raises the possibility of higher retail prices down the road for organics and cautions that "could negatively impact demand from more fringe consumers, as well as limit the number of new adopters to organic foods."
In its report, BB&T Capital looked at organic and conventional pricing for nearly a dozen categories and found a wide range of differences — from organic lettuce trading at just a 20 percent premium to nonorganic and organic beef trading at a 173 percent premium, both through the fourth quarter of 2015.
Much of the organic-to-conventional price gap cited by BB&T Capital was found to have increased in the fourth quarter of 2015 as opposed to the third quarter, indicating that "seasonality of the holiday may be affecting this," said Rafi Mohammed, a Boston-based pricing consultant and author of "The 1% Windfall."
"It may very well be that demand is so high, that there is a temporary disequilibrium resulting in high prices and profits for organic producers," said Mohammed, who argues that it's wrong to take the price premium as merely a sign that something is costly to produce organically. "Over time, new suppliers will enter the field."
