Organic Farmers in 17 States Market Commodities At Premium Prices Through New Marketing Agency 1972-1975

By Roger Blobaum

Larry Eggen, like many Midwest organic producers, used to talk about getting state or local marketing setups organized to help farmers sell organically-grown production to buyers in big cities.

That was when Eggen had a small vegetable and hog operation near Walnut Grove, Minn., and was active in signing up organic farmers in southwest Minnesota as members of the Minnesota Soil Association.

Organic farmers in that area usually feed most of their grain to livestock and sell the rest to local elevators even though they know organically-grown production will bring a premium price from the right buyers.

When organic farmers ask Eggen now about getting together to market their own production, however, he is less than enthusiastic. He has found through experience that finding buyers and keeping them happy isn’t much easier than getting a dean of agriculture to say something good about organic farming.

“As an organic farmer, I was always led to believe that organic production was a scarce commodity, that all you had to do was tell the buyers you had it, and that they’d beat a path to your door,” he recalls.

“What we’ve found the last two years is that there’s a surplus of organic production, that the buyers are in a strong position, and that they’ll buy only the best quality production offered at the best price.”

Eggen now manages Living Farms, a fledgling marketing agency set up in 1975 by four Minnesota organic farmers. A continuing demand for capital has left Ardell Anderson of Walnut Grove as the venture’s sole owner. He still produces corn, soybeans, rye, and wheat on his 320-acre organic farm.

The Living Farms operation has offices over a country bank in Tracy, Minn., and is one of a handful of agricultural marketing agencies selling unprocessed organic production on a nationwide basis. Their grain and other commodities end up on the shelves of food co-ops and other retail outlets served by organic food distributors.

“When we started this business, we thought we’ll just put in this phone right here, send out some letters to buyers, and then sit back and wait for the phone to start ringing,” he said. “It never did.”

What it took to make the phone ring was a costly promotion effort that included regular trips to both coasts for sessions with buyers, a stringent certification procedure to assure that all production handled is organic, and quality control to guarantee the kind of shipment buyers demand.

Living Farms is now the marketing agency for farmers in 17 states who are certified as “organic producers,” who are in scattered locations across the country, and who produce a wide variety of organic commodities.

“Obviously we could represent a large number of organic producers right here in Minnesota and ignore other geographic areas if we wanted to,” Eggen points out. “But we’d probably have only corn and soybeans to sell and there’d be no way in the world we could sell all that production to organic buyers.”

He said buyers want to select from long price lists and like to order truckloads of assorted commodities ranging from specialty crops like lentils and pecans to food grains like wheat and corn. They are usually picked up from several farmers at designated points as the trucks head toward destinations like San Francisco or Boston.

Eggen said the agency attempts to expand its offerings regularly, particularly for specialty items, with the most recent addition being organically-grown items for the sprouting industry. He cited the alfalfa seed market as an example of the unpredictable nature of this outlet, which provided a market for only 500 pounds in 1975.

“This year we could have taken orders at the rate of 30,000 pounds a week and did for awhile,” he reports. “This apparently was due mainly to increased sprout production in California.”

One serious problem has been making organic farmers, who are accustomed to growing grain for livestock feed, aware of the need to produce “human consumption” grade commodities. This means grain that is good enough and clean enough to meet U.S. No. 1 specifications, Eggen points out, and that has been stored and handled so it meets close tolerances for things like moisture content.

“In addition to meeting tough buyer standards, we also fall under the jurisdiction of state government health agencies, the U.S. Food and Drug Administration, and the U.S. Department of Agriculture,” he said. “What this means is that farmers who want to market under the organic system will find they have a lot of work to do.”

Farmers who market through an agency like Living Farms usually end up investing in storage facilities and some also acquire their own cleaning equipment. Although grain can be cleaned and bagged on a custom basis, an organic farmer has much better quality control if he does this himself.

Eggen said a good on-farm cleaning setup meeting FDA standards probably would cost around $10,000. However, he said, experience has shown that farmers can pay for this equipment in a short time from premiums received from selling organically-grown production.

“The farmer is taking the place of the local elevator in storing the grain, cleaning it, bagging and labeling it, and sending it on its way to market,” he said. “I like to think that the premium that he receives, that extra amount over the local elevator price that he gets, as being kind of a middleman price that compensates him for cleaning and other extra work involved in marketing.”

Living Farms ties its standards to those established by the government, partly because most of its shipments move in interstate commerce and partly to avoid disputes with buyers. This is important, Eggen points out, because no established commercial standards exist for organic production.

“The only way of determining a bad shipment in the past was for the buyer to use the ‘eyeball’ method,” he said. “Although this method can work out as successfully as any other, it may lead to disputes between buyers and sellers.”

Standards for certifying organically-grown production were established by the farmers who set up Living Farms. They require producers to follow strict crop rotation plans that include legumes. The standards do not allow use of any commercial chemically-fortified plantfood-type fertilizers; any anhydrous ammonia, urea or other non-organic chemicals, or any insecticides, herbicides, fungicides, or rodenticides. The standards also do not permit such practices as corn after corn in a crop rotation.

Eggen defends higher prices charged for organically-produced food, explaining that this is due mainly to high transportation costs and the small volume handled on a nationwide basis. He said up to half the price of some Midwest commodities delivered to either coast goes for trucking.

He said most buyers of organic production prefer to purchase by the truckload, ruling out the economics that would result from shipping by hopper car or putting together a unit train like large grain companies do.

“We could ship organically-grown commodities by boxcar for a third of what it costs to go by truck,” he said. “It is because of our smallness that organic foods are still priced higher.”

Eggen said he expects premiums for organically-grown production to disappear over the next few years as people become more aware of the dangers of food additives and the need for better nutrition and as organic farmers become much more numerous.

“I may be an optimist but I would say that within 10 years organic farming may be the rule rather than the exception and that this change will come about mainly because of economic and energy reasons,” he predicted.

“I also feel confident that the organic industry will grow large enough to convince people that they should modify their eating habits to include more whole foods, whole grains, raw vegetables, and semi-processed commodities.”