Demand for Organic Foods Defies Weak Economy; Sector Attracts Investors as Sales in Europe and U.S. Continue to Grow

Even during a period of rising food prices and economic uncertainty, Damien Bignon, a poultry farmer in the Paris region, cannot meet the demand from local markets and stores for his organic eggs.

At the Ferme des Beurreries near Feucherolles, west of the capital, Mr. Bignon employs five people overseeing 3,000 chickens on 175-hectares, or 430 acres. He also produces organic cereals for his own feed and other clients, and wheat to sell to a neighboring mill.

Mr. Bignon thinks he could comfortably expand to 12,000, the number of chickens on the farm in 1990 before its conversion to organic operations. But he is determined to carefully manage any growth so as to maintain quality, keep the customers satisfied and not crowd out other local farmers. He charges (EURO)2, or about $2.80, for a half dozen - about twice the cost of battery-farmed eggs at a French supermarket.'

'The issue for us is retaining that success without falling into the traps of industrialized agriculture,'' he said. ''There's risks in organic becoming a mass market.''

Sales of organic foods appear robust across Europe and the United States, despite weak economic conditions and rising inflation in many countries. And that is attracting more interest and activity from investors, who see potential in mergers through economies of scale, especially in Europe's more fragmented market.

In December, Compagnie Biodiversité, the French owner of Léa Nature, which supplies organic food, health products, textiles and cosmetics through large retail channels, announced its purchase of a large stake in Ekibio, another French player. That alliance makes it France's second-biggest organic food specialist, behind Distriborg, which is owned by Dutch group Royal Wessanen.

Wessanen itself has been divesting itself of assets in North America and is expected by analysts to try to expand in Europe.

In Britain, Abel & Cole, which operates a home delivery service for organic products and has been owned by a private equity firm since 2007, is seen by analysts as an acquisition target, perhaps for a supermarket chain.

And Hain Celestial of the United States, which makes organic food, drinks and personal care products, this year bought Danival, a French organic producer, as well as GG UniqueFiber, a Norwegian natural foods company. The billionaire investor Carl Icahn has been building his stake in Hain.

Many farmers and analysts expect the sector to remain strong in coming years, helped by increased public sensitivity to the environmental and potential health benefits, better organization and production techniques, new demand from emerging markets and those periodic public scares that come with events like the recent nuclear plant radiation leaks in Japan.

Another theory is that, as with the luxury industry, the core consumers, typically with high disposable incomes, are less affected by hard times.

''Over all, it's very surprising how stable the organic markets have been even in this critical economic situation,'' said Urs Niggli, director of FiBL, an independent nonprofit research institute focusing on organic agriculture in Switzerland. He predicted sales would accelerate further in coming years, assuming economic growth picks up.

Organic Monitor, a market research firm and consultancy based in London, estimates that the global market for organic food and drink products in 2009 was $55 billion, 5 percent more than in 2008 and more than double the level in 2000. Significantly, the financial crisis and recession slowed the rate of growth in some countries, while the trend continued.

In the United States, sales of organic food reached $26.7 billion last year, according to the Organic Trade Association. That was a 7.7 percent increase from 2009, which itself was 5.1 percent higher than 2008. The United States has now overtaken Europe to become the largest market.

European sales grew 3.9 percent in 2009 after having experienced double-digit growth in previous years, according to Organic Monitor. In France, which is seen as a late starter, Sweden and Belgium, sales in 2009 expanded more than 15 percent, according to FiBL. British sales contracted in the face of weaker consumer spending and fewer product ranges at large stores, while the German market, Europe's largest, was stable after a period of strong increases.

Logically, the amount of land set aside for organic farming is also increasing. According to FiBL, land for organic use rose to 1.94 percent of all agricultural land in Europe in 2009 from 1.74 percent in 2008 and 1.25 percent in 2003.

According to the U.S. Department of Agriculture, certified American organic farmland grew 127 percent from 2002 to 2007 and then by 12 percent from 2007 to 2009.

While both Europe and the United States have helped organic farmers, the methods and motivations have been differed.

Europeans nurtured the sector because of perceived environmental and social benefits, while the United States supported standards, certification, research and education, treating the sector ''primarily as an expanding market opportunity,'' according to paper written several years ago by Carolyn Dimitri and Lydia Oberholtzer, experts at the Department of Agriculture.

In Europe, subsidies for organic farming are drawn from European Union funds and disbursed to farmers by national governments, as well as in less direct ways, like marketing and procurement programs.

Organic farms receive on average higher subsidies in absolute terms and per hectare than conventional farms, according to the E.U.'s Farm Accountancy Data Network. In Western Europe generally, the subsidy amounted to (EURO)438, or $614, a hectare against (EURO)355 in 2007.

Yet Christian Eichert, managing director in Baden-Württemberg for Bioland, Germany's largest organic farmers' association, said Europe lacked a coherent policy toward the sector. Some countries like Spain and Italy focus on exports, while German support is state-driven and often hostage to local political changes, he said.

Recently, there have been some signs that austerity pressure across Europe is eating into state support.

The French government announced at the start of this year that it was halving a tax break for small farmers converting land to organic production. In Germany last year, the state of Schleswig-Holstein sought to remove organic subsidies but backed down after public pressure.

There is a ''general uncertainty'' surrounding future support, Mr. Eichert said. And forthcoming changes to the E.U.'s Common Agricultural Policy after 2013 have led farmers to expect more cuts.