Mauti’s poetic predictions about organic pricing

Produce analytics expert Mike Mauti waxes poetic, in an somewhat eerie way, about the future of organic prices.
Produce analytics expert Mike Mauti waxes poetic, in an somewhat eerie way, about the future of organic prices.
(Photo and graph courtesy of Mike Mauti and Execulytics)

If anyone asks, you didn’t hear this from me — but a primary strategy for many fortune tellers, soothsayers, prognosticators or whatever else you want to call people working in the “predictive arts,” is to study history with the expectation that it is likely to repeat itself.

That’s one of the tricks used at Execulytics, with one notable addition: Since our predictions rely on historical math, we also include a healthy dose of chaos theory in our foretelling of future events. Simply put, we observe seemingly complex relationships within produce data from the past and use them to find order, enough to develop accurate storylines into the future.

When it comes to future trading of organics and conventional produce, this poem states our vision:

Fields of purity with costs amind

In the fourth decade of millennial three  

Accounts will be balanced

Amongst friends with more common form

If I’ve lost you in this shroud of mystery, keep reading, as it will soon become clear.

One fine day

Our story begins on the first of January 2016. On this day, if you were a produce buyer procuring organic produce, you would pay an average price $30.47 FOB, or free-on-board, for a single case. This calculation was made using the average FOB cost of 50 common, organically grown, produce commodities on this date.

For comparison’s sake, this average organic product commanded a 48% premium over their conventionally grown cousins.

This matters because consumers are becoming increasingly interested in organic produce. According to recent Execulytics consumer research, about half of the population intends to choose organic fruits and vegetables for at least a portion of their produce purchases. More importantly, while nearly two-thirds of consumers are willing to pay a premium for organic produce, a scant 1 in 8 shoppers will pay a premium greater than 50%. Unless something changed, it seemed, organics would be forever relegated to “specialty” status.

Well, things did change.

After that blustery day on Jan. 1, 2016, the average FOB cost of those same 50 organic commodities changed. Some weeks the average cost increased, and some weeks it decreased.

Graph: Courtesy of Execulytics deflation of organic prices
Organic produce prices have been deflating, and that's expected to continue. (Graph courtesy of Execulytics)

The accompanying graphic demonstrates each weekly cost over the subsequent six years. The red line in the middle of the graph represents the general direction of the costs and provides us insight into the rate of change experienced over this time.  While minimal, the downward slope of the trendline shows average annual deflation was 1.65%. In other words, organic costs have decreased between 2016 and 2021. Park that bit of information while we turn our attention to conventional produce over this time.

As shown at the beginning of the analysis, organic produce traded at a 48% premium to conventional produce. This pegs the average cost of conventional produce at $20.56 per case on Jan. 1, 2016. And like organic produce, costs changed over time. This time the graph shows us an upward sloping trendline that demonstrates average annual inflation of 0.55%. While minimal and hard to detect with the naked eye, it is real.

organic inflation chart graph
This is what's expected for conventional produce prices. (Graph Courtesy of Execulytics)

When organic meets conventional

Let’s take a moment to recap. On Jan. 1, 2016, the FOB cost of a typical case of organic produce was $30.47 and for the six years that followed, that same case experienced average annual deflation of 1.65%. At the same time, a typical case of conventional produce carried an FOB cost of $20.56 and experienced average annual inflation of 0.55% in the subsequent six years.

Something interesting happens when you begin with a point on the upper left quadrant of a graph and draw a downward sloping straight line AND a point in the lower left quadrant and draw an upward sloping straight line.

If you extend those lines until the end of time, those lines eventually meet.  

In the case of organics, we do not need to wait until the end of time for its average cost to match conventional’s cost. Instead, we only must wait until May 14, 2033. Based on this model, this is the point when organic and conventional costs meet.

graph
This is what's expected for both organic and conventional produce prices. (Graph courtesy of Execulytics)

Is this even possible? In only 10 years? Presumably, if organic yields can increase to the point of approaching conventional, a situation could arise where it does not pay to grow conventional produce. The line between conventional and organic could cease to exist — morph into a point of singularity.

That mysterious-sounding prediction poem, translated into something more digestible, could read:

In the fourth decade of the current millennium, produce grown WITHOUT most synthetic herbicides, pesticides and fertilizers will equal the cost of produce grown WITH synthetic herbicides, pesticides and fertilizers.

That may be hard to believe, but the math shows the industry to be on this very path. Produce customers are telling us they do not want to pay high premium for organic produce.

So, is it possible? I am currently taking bets that the point of singularity really will be May 14, 2033. At stake? One dinner — at an organic restaurant.


Mike Mauti is the founder and managing partner of Execulytics, a consulting firm for produce professionals, and one of our 2021 Packer 25 honorees. He worked for Loblaw Cos. For 20 years, serving as a produce category manager, director and eventually merchandising, operations and analytics.

 

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