Tackling issues in the organic supply chain

FEATURED SPEAKER Food ingredients Theater

The supply of organic food ingredients has become increasingly tight, but Pipeline Foods aims to improve their availability while also incentivising more US farmers to switch to organic production.

There were more than 14,000 certified organic farms in the United States in 2016, according to the latest available figures from the US Department of Agriculture, up 56% from 2011. But organic farmland still accounts for less than one percent of the US total, and demand for organic foods and beverages continue to grow, at an average of 10% a year from 2010 to 2016, according to a recent Rabobank report.

Bridging the gap between supply and demand requires a rapid ramping up of domestic production, as well as better access to trustworthy imports. Pipeline Foods intends to enable just that. Founded in February 2017, it is an organic, non-GMO and regenerative grain supply chain company that aims to simplify and improve the supply of sustainably grown and organic ingredients.

“Our core goals and values are sustainability, integrity and collaboration,” said Erin Heitkamp, Senior Vice President of Agriculture and Public Affairs at Pipeline Foods. “…We don’t farm or brand or retail any products, but we do just about everything in between in both the food and feed space.”

Apart from selling domestic products from trusted farms, the company imports organic wheat, corn and soybeans, as well as other grains and pulses, mainly from Canada and Argentina, but also from outside the Americas. In doing so, it aims to cut out any unnecessary trading, as Heitkamp explains that many ingredient supply chains snake between ports, changing hands without adding value, and simply creating inefficiencies.

Ensuring legitimacy is a challenge

“One of the problems in the supply chain is there are too many actors who aren’t adding value and they are incentivised to create opaqueness that allows the opportunity for fraud to come about,” she said.

Certified organic products command a significant premium, making them an attractive target for fraudsters. Built-in standards for farm management, animal welfare and provenance, as well as more regular checks than conventional products, should help make fraudulent organic claims less likely to succeed. However, fraudulent shipments still occur – including millions of pounds of imported conventionally grown corn and soybeans sold as organic in the United States in 2018, for example.

Pipeline Foods reduces the number of links in supply chains in an effort to cut out that risk.

“We can import some good quality organic products from Argentina or other parts of the world where we can do that with legitimacy, but the challenge is ensuring legitimacy,” Heitkamp said.

Boosting home-grown organic supply

Meanwhile, boosting domestic organic production is a cornerstone of the company’s strategy. A major problem for farmers is that converting from conventional to organic farmland is time consuming and expensive. It takes at least three years, during which time farmers must use organic practices but are not paid organic prices.

“I would say the most critical piece is the number of difficulties that farmers face in that 36-month period from when the grower decides to transition to organic and when they can start to charge the two to three times premium that organic products command,” she said.

The company provides agronomy support and financial services to farmers so they can make that transition more easily and, crucially, it also invests in infrastructure to allow local processing and sales.

“The business model of buying assets where an organic grower can have what a conventional grower has, like an elevator down the road where they can sell their grain – wherever you can take a risk out of the proposition is valuable to the farmer,” Heitkamp said.

Hidden transition, hidden demand

“We ultimately would really like to see our domestic organic production to grow to meet demand, which is why we provide services at no cost to farmers, but it is difficult to know how significantly that number of transitional farmers will come online because the USDA does not track acres in transition.”

In the meantime, she is optimistic that domestic production will expand rapidly in the coming years, noting that almost all the largest farmland managers and owners in the United States have said they would like to diversify. In addition, land fund managers and investors also are looking into adding organic farmland.

 “The rate of growth is so rapid and our domestic production starting point is so far behind,” she said. “…Who knows how much of the demand is hidden because the food brands are only creating products at a rate they can keep up with.”