Can/should/will a Niche Become the Norm? Organic Agriculture's Short Past and Long Future

I. INTRODUCTION Organic agriculture is essentially a different production process, compared to conventional methods, that provides a commodity with some attributes that consumers consider "higher quality" and thus more desirable than those of the current standard product form. (1) The incentives for farmers to use organic methods are many (social, environmental, and economic), but higher prices received is one of the most important (Burton et al., 1999, 2003; Fairweather, 1999; O'Riordan and Cobb, 2001). Higher prices are received for organic commodities when consumers believe there is a quality premium available in an organic product's attributes (Boland and Schroeder, 2002; Loureiro et al., 2001; Thompson and Kidwell, 1998). The drawback to organic methods for farmers is that lower yields are often produced, raising unit costs (Lansink et al., 2002; Tzouvelekas et al., 2001b). Therefore, increased profitability is not a certainty when shifting to organic production methods, thus inhibiting some producers' willingness to make the shift (Lohr and Park, 1992; Offermann and Nieberg, 2000; Pietola and Lansink, 2001; Tzouvelekas et al., 2001a). However, if a new market does reward early participants with profits, other farmers will be attracted to that market. Agricultural product markets evolve over time as product attributes and consumer demand change. Small changes in demand or supply can create market niches that succeed or fail based on both the desirability of the product attribute differences and the profitability of serving the niche. Some niches disappear quickly, others grow, and some become the market norm. For organic agriculture, there is some debate about "how big can the niche get?" (Klonsky and Tourte, 1998). It has been hypothesized by some in the American organic industry that about 20% of total product sales is as big as an organic niche can or should get. Those people expecting the niche to remain a minority in the market think there is some constraint on consumer attitudes that prevents organic products from achieving general acceptance. For example, for some people, organic also means supporting local farmers and minimizing transport. To the extent that these concepts are embodied in the organic philosophy, it surely limits how big the sector could become, especially in cold climates. On the other hand, those people arguing that the niche should remain small to generate optimal economic results fear that general market acceptance will bring unfavorable changes to the industry. This article attempts to address the three questions: "how big can/should/will organic markets get?" The first question is theoretical. It is shown how organic agriculture, in general, can become the norm in many American commodity markets. Then the two other questions are addressed, noting that there is disagreement over the normative "should" question and much uncertainty about the positive/probabilistic "will" question. The article makes at least three contributions to the literature. First, a new theory is derived to explain the market evolution of products developed as a quality variant. The new theory is a composite of standard theories for different market structures and is modified for application to commodity markets. Another contribution is the review of the literature covering the many economic issues involved, noting differences necessary when dealing with agricultural commodities rather than branded products. Along the way, three general propositions are presented from which testable hypotheses can be drawn for future research. These propositions will contribute to the understanding of and debate about agricultural niche market evolution. Finally, some policy implications for organic markets are presented. This topic is important because the increasing pace of technological innovation is likely to make developing and pursuing quality variant markets an important new strategy for agricultural producers. …