Annual sales of organic products in Britain have risen to the verge of £2 billion but higher production costs and increasing demand mean prices are likely to be forced higher.

Sales of organic food and drink increased by 22 per cent in a year, with the market for boxes of organic vegetables growing by 53 per cent. Each week the British public spends an average of £37 million on organic products – bringing spending in 2006 to £1,935 million.

Organic farmers are, according to the Soil Association, three times more likely than other farmers to sell their produce locally or direct to customers. The shortage of homegrown feed for livestock was cited by the Soil Association, which today publishes its annual Organic Market Report, as one of the biggest threats to price stability. Rising fuel prices and the impact of global warming were also factors regarded as likely to increase costs passed on to the consumer.

“While this year’s report confirms a positive future for organic food and farming, the organic movement faces challenges in the long-term from climate change and rising oil prices, as do all farmers and growers,” said Helen Browning, director of food and farming for the Soil Association. “Rises in feed and fuel prices will need to be reflected in food prices at the checkout that enable farmers to get a fair return on their production costs.”

She said consumers and retailers must learn to accept higher prices as an unavoidable consequence of the “true cost” of producing staple products.

A “significant short-fall” of animal foods produced in the UK was a major concern to the Soil Association, which provides certification for organic producers, but she said the situation should be embraced by farmers as an opportunity to switch to organic cereal production.

The report found that the UK’s self-sufficiency in organic cereals fell below 50 per cent, which meant farmers were having to import more grain from abroad. Poor harvests, the diversion of crops to the biofuel market instead of being used for food, and rapidly rising demand for meat and grain in countries such as China and India where the economy is fast expanding, were factors blamed by the report for pushing up feed prices. Organic pig production was among the hardest-hit sectors with animals sent for slaughter down 10 per cent on the previous year. Production costs, estimated to be up to twice as high as those for nonorganic pigs, were blamed.

Ms Browning was confident that the outlook for organic producers remained positive and she said the huge growth in sales was “extremely encouraging”. She said: “The year-on-year growth in sales not just in food and drink, but also the newer booming clothing and health and beauty sectors confirm organic has moved well beyond a mere fad or niche.”

The report highlighted the growth in the organic and free-range egg sector, now outselling eggs produced by caged birds. The Soil Association claimed that public concerns with battery hen welfare had driven the shift.

Households with children under 15 were identified as the best organic customers, with London, the SouthEast, the SouthWest and Wales the most organic-friendly regions.

The homegrown sector now comprises 79 per cent of total organic meat sales in the UK – a fall of 9 per cent. But only 4 per cent of organic dairy products sold in the UK are imported.

The average size of the UK’s 4,639 organic farms fell, largely because of the number of large hill farms in Scotland abandoning organic status, but inquiries on how to convert to organic production were up by 30 per cent.

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