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.”