process.env.NODE_ENV is undefined

process.env is a reference to your environment, so you have to set the variable there.

To set an environment variable in Windows:

SET NODE_ENV=development

on OS X or Linux:

export NODE_ENV=development

tips

in package.json:

"scripts": {
  "start": "set NODE_ENV=dev && node app.js"
 }

in app.js:

console.log(process.env.NODE_ENV) // dev
console.log(process.env.NODE_ENV === 'dev') // false
console.log(process.env.NODE_ENV.length) // 4 (including a space at the end) 

so, this may better:

"start": "set NODE_ENV=dev&& node app.js"

or

console.log(process.env.NODE_ENV.trim() === 'dev') // true

For people using *nix (Linux, OS X, etc.), there's no reason to do it via a second export command, you can chain it as part of the invoking command:

NODE_ENV=development node server.js

Easier, no? :)