The Day Organic Farming Died

Do you have that very famous lyric in the Don McLean song “American Pie,” running in your head?  You should. Organic farming — as we know it — could be over. No, I am not an organic farmer, but if I was, I would be very concerned about a new pricing concept being pushed by large-scale retailers.

Note: This is a post supportive of organic farming, not against, so, dear trolls, please read the entire piece in entirety before you spam the comments, please and thank you.

WalMart recently announced the launch of its own organic brand — Wild Oats. Organic farmers should be rejoicing, yes? No. Because in announcing the brand’s launch, they’ve also announced a big price cut.

According to a WalMart press release:

Walmart caters to (consumers choosing organic brands) and says it will price Wild Oats products at par with conventional items and at least 25 percent below branded organic foods. The Wild Oats offers will include staples such as salsa, organic olive oil, canned black beans and tomato paste.

“If we can make that price premium disappear, we think it will grow much, much faster,” Jack Sinclair, executive vice president of grocery at Walmart U.S., said of the retailer’s small but faster-growing organic sales.

If organic produce or food is priced the same as its conventional competition on the retail shelf, the organic farmer will lose his or her pricing premium needed to justify the increase in production costs per acre. Organic farms are smaller, more labor intensive, have certification costs and require a price premium to justify the production cost structure. Traditionally, organic production has been more expensive in the grocery store so a reduction in prices may be beneficial for consumers, but is it sustainable for the farmers?

According to a CNBC story:

“We know our customers are interested in purchasing organic products and, traditionally, those customers have had to pay more,” said Jack Sinclair, executive vice president of grocery at Wal-Mart U.S. “We are changing that.”

Let’s look at some simple economics: If Walmart is going to drive down the costs of organic food, while in all likelihood retaining its margins, who do you think is going to receive less? Taking away the premium for organic farmers will kill organic farming as we know it today. Its over. Farmers will not engage in organic farming practices long term if there is no economic case to do so.

Wal-Mart’s intention is to increase sales to its grocery department, a department facing intense competition and declining same-store sales growth. This is how commerce works and truthfully there is nothing wrong with that. The title of the CNBC story was, Wal-Mart looks to organics to revive grocery. Getting behind the economic sustainability of organic farmers is definitely not its real concern. Wal-Mart’s customer is the consumer, and its business is making money at retail, not supporting a certain farming system.

As margins shrink for organic farmers they will be forced to either leave the business or find economies of scale through farm size growth.  I have often thought that organic farms becoming larger and commercialized is how organics will jump the shark.  When the Fonz jumped the shark Happy Days was over.  Hopefully large retailers do not force organic farmers to “jump the shark.”

 

 

Shaun Haney

Shaun Haney is the founder of RealAgriculture.com. He creates content regularly and hosts RealAg Radio on Rural Radio 147 every weekday at 4PM est.

@shaunhaney

Trending

Canola Council to cut budget by 25 to 30 percent in 2018

The Canola Council of Canada is reviewing all the services and programs it offers, including staffing, as it prepares for a significant budget cut and restructuring in 2018. At least two large grain company and processor members are not willing to maintain their current funding for the council. Both companies that sources say are pushing for…Read more »

Related

13 Comments

Lyndsey Smith

Here’s my take…it won’t be North American-grown organic, or at least, not for long. I still sit and stew about the long-term impacts of trying to meet consumers’ “demands” that seem to change on a whim. Fad, trend or real step-change? It’s hard to distinguish the difference, but livelihoods are at stake (for both organic and conventional farmers).

Reply
Mischa Popoff

The CBC recently admitted something I’ve been saying for a very long time: that over 80% of the certified-organic food sold in Canada is imported from countries like China, Mexico and Argentina. Given that the CFIA (like the USDA) relies on mere record-keeping and record-checking to ensure organic authenticity, there is little likelihood that any of this food is truly organic.

T.

Just read a post you did re Manitoba dog rescue. Thanks so much for doing that post as I am a farmer and have experienced the same treatment. I know this isn’t the correct venue, but I just wanted to let you know how much I appreciated reading your comments. Good luck with farming. 🙂

Reply
robwallbridge

To paraphrase another famous American, the reports of organic farming’s death may be greatly exaggerated. All of the commentary I’ve read on this topic so far seems to overlook the simple fact that retail prices are an imperfect reflection (at very best) of a farmer’s cost of production. Not that there is zero cause for concern, but dig a little deeper into Walmart’s announcement, and I don’t think you’ll find much fire behind the marketing smoke: http://t.co/KokR6YoSrs

Reply
Mischa Popoff

That’s a fair point Rob. Walmart will hopefully squeeze the people in between the organic farmer and the consumer rather than squeeze organic farmers on price.

Honest, hard-working organic farmers most definitely deserve a hefty premium considering all the risk they take in producing an organic crop. But after an organic harvest leaves the farm, there is basically no added risk.

I have never understood why organic processors and handlers think they deserve any premium. After all, milling organic wheat is no different than milling conventional wheat. In fact, it often occurs in the same facility!

Reply
Kelly Bennett

One thing you need to keep in mind is segregation. The processor needs to handle and process and store everything separately, and if truly doing it right, do a thorough cleanout when switching from conventional to organic, or have dedicated equipment. So to be fair to the processor, they have sometimes significant extra costs.

fazzbender

Unfortunately, the organic farming community are not being treated equally with the non-organic lot. In reality, we/Government, should be pushing for accreditation & safety standards for ALL foods produced and not just organically singled-out, indeed, you could say there’s even more necessity for standards now that GMO is involved! The farming industry needs to be treated equally and more of the population so able to do, should grow more of their own (vegetable) food.

There is much with the US which is out of kilter with the rest of the developed world and because the country is so vast, it is perhaps understandable that it’s population believes that if it isn’t American, it is not to be trusted but in reality, some other countries are way ahead of the US in may ways. Food Standards in the UK are a long way ahead of the US but this results in costlier food prices overall and the same market-forces created by big supermarkets here, also occur in the UK.

As a former UK citizen now living in the US, GMO is bitterly opposed and all foodstuffs with GMO additions have to be labelled as such by law but all foods are way more expensive there than here anyway. Generally speaking, everything bought in the US is way below the cost of anywhere else in a first-world country, so Americans are able to buy everything at lower cost anyway.

Reply
Jen Christie

Great points by Rob & Mischa. Inevitably, if they squeeze the farmer too much & they go out of business, thereby limiting or cutting off their supply, then they no longer have an organic product to sell either. I do see concern with importing though to satisfy the demand. If they commit to North American ingredient sourcing, then all the power to them with this strategy. Otherwise, I’d want none of it either.

Reply
fazzbender

@Shaun Haney: I forwarded this story to a climate scientist I know back in the UK (roughly, divide the prices by 1.5 to equal the dollar-rate) and here is his response:

BULLY for Walmart and finally someone in retail has got to grips with the organic issue, but Shaun Haney has it completely wrong!!!! This could start the organic revolution in the US because if shoppers are offered organic at the same price – or a marginally higher price than the industrial foods, who wouldn’t people buy it? It will take time for the public to realise what is on offer but if they keep their nerve this could be mega good and can impact on the GM problem.

Oh so many years ago I knew how the retail industry has severely damaged the organic movement because they charge a huge premium for it when there is no need for it. The biggest cost premium at farm gate for organic crops is for the grains because they have a high nitrogen demand so cannot be mono-cropped. The yield is about 30% below the intensive stuff BUT it is more nutritious having more protein and minerals per unit weight. Working on wheat being made into bread you will know the enormous on cost to go from the price of the grain to the retail price of a loaf. The current price of milling wheat is around £210/ton, so the wheat cost of a large loaf (800gms) is just 17p. Now consider the wheat cost of a large loaf using organic grain – assuming the farmer is fully compensated for his costs of being organic and it is 24p. Every activity done to produce the loaf on a shelf for the consumer costs exactly the same (milling, transport, baking, retailing etc) so if the inorganic loaf retails at £1.00 the organic one needs cost no more than £1.07 and this is an extreme figure because the organic farmer spends much less on the pesticides and fertilisers and other chemicals.

The retail problem is that they ‘mark’ everything up by fixed %ages, so if the flour costs 40% more – they charge 40% more for the milling, 40% more for the baking etc. The enormous premiums charged simply increase the profits of the retailers and the supply side industries!!! If the retailers wanted to help the world go organic – or if one wanted to steal a march on their competitors – they can price based on the cost difference which will actually increase their profits as more people will shop there!!!!

Wheat and bread is the extreme example as the yields on most organic crops are around 80% of the intensively farmed produce, though over time it is often argued the organic yields catch up. Working on root crops, for example, there is a tiny cost premium certainly compared to the enormous mark up that occurs on all these foods. In the case of bread which is a very basic commodity needing very little done to the wheat it to turn it into bread – the 17p inorganic cost often becomes £1.50 here for the loaf. The farmer does all he does for 17p and the chain adds £1.33 to that or a multiplier of over 13 times!!!!

Rock on for Walmart and see if you can get this to Shaun Haney who actually shouldn’t be worried because, were Walmart to required to pay the same for organic – the farmers wouldn’t produce it so the price would have to be the proper one.

Reply
Amber

I don’t necessarily see this as a bad thing. I think having healthy food at an affordable price is fantastic. As for the farmers, having consumers be more health conscious can only increase our profit margins. There will always be a difference between the food you buy at Walmart and ‘farm fresh’. As a farmer that produces ‘all natural, grass fed meat’, I welcome the publicity Walmart is bringing to our cause, it’s up to us to keep our education going and find new ways to keep our production costs down.

Reply
Kelly Bennett

“it’s up to us to keep our education going”
This I agree with, but the education that needs support is that organic food is not any better than tranditionally produced food. Organic production is a premium marketing opporunity for farmers. Take the premium away, and it is not worth it.
GMO education is another huge area – huge misperceptions, misrepresentations and fear that simply is not true.
Modern food production and farming practices will allow us to feed the world with safe, quality food that is affordable for everybody, not just the affluent few.
We don’t expressly need organic food. What organic farmers need is the premium so they can be profitable.

Reply
fred

I work in a organic and non organic feed mill and can tell you there is no difference in the feed produced,same additives and same bulk ingredients,we just do a between small flush between the runs,all goes through the same pipes, legs,bins mixers, mills, trucks.it is just a big scam to get more money for the feed. I feel bad for people who think they are getting organic feed, its all in the bookwork and peoples minds

Reply

Leave a Reply