Famed growth investor T. Rowe Price often spoke of finding stocks in "the fertile fields of growth" and holding them for a long time. Organic food is one such field that lends itself to punning quite nicely, and rapid growth should have investors ready to pick some winners.
In its 2011 Industry Survey, the Organic Trade Association noted that organic food sales grew 7.7% in 2010, down significantly from the previous high of 21.1% in 2006, but an improvement over 2009's 5.1% growth. Organic food sales have grown about 13.4% annually for the last nine years, while conventional food sales have remained largely flat. Even during the recession, when you would expect trade-downs to occur, organic sales have still outperformed cheaper conventional alternatives.
Hard soil to plant in
Impressive growth is all well and good, but unless you own some farmland it might be difficult for you to take advantage of this trend. The most direct way to invest in organic food would be to buy shares of the farms or the manufacturers producing it. Unfortunately, they are mostly unavailable to ordinary investors. Most are privately owned, run by co-ops, or are a drop in the bucket of some much larger corporation.
Horizon Organic, the largest supplier of organic milk in North America, is owned by Dean Foods
There are a few manufacturers that are close proxies for a pure-organic play. The Hain Celestial Group
A different way to get exposure to organic's growth is to invest in those companies that help facilitate it. Whole Foods
Going further downstream, there's United Natural Foods
Unfortunately, United operates in a very low-margin business, and most of the company's sales growth has come from big deals like that with Whole Foods, which get volume discounts. As a result, United expects margins to narrow even further but hopes this will be offset by efficiencies gained from its significant infrastructure investments.
Still just a sapling
Despite its rapid growth compared to conventional food, organic food still represents only 4% of total food sales, leaving it a lot of room to grow. As more consumers become health-conscious, organic should continue to outpace conventional food, and serve as a strong growth driver for companies focusing in this area.
Fool contributor Jacob Roche holds no position in any of the stocks mentioned, but sure wishes there were a Whole Foods closer to him. Whole Foods Market is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended buying calls on SUPERVALU. The Fool owns shares of Dean Foods and SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.