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Tuesday, June 13, 2006

Wal-Mart and Organics

Organic delusions
Wal-Mart will be stunned to learn it can't market non-chem veggies like
widgets
http://www.nowtoronto.com/issues/2006-06-08/news_feature.php

Like kids in a candy store, Wal-Mart executives may have eyes bigger than
their stomachs. Do they really think they can manage a major expansion of
organic food sales while driving organic prices down to within 10 per cent
of conventional foods?

The strategy now being attempted in U.S. stores and bound to appear soon
north of the border may have unintended consequences. By throwing its
weight around on the organic block, Wal-Mart may just provoke the
politicization of North America's organic food business.

This sector has so far remained aloof from politics and managed to keep the
tensions of a decade's exponential expansion both quiet and internal.

Everyday low prices for quality organics would certainly boost sales by
organic farmers. But it's not clear that the company can actually
accomplish this. Inside-the-box-store thinking may be leading Wal-Mart
officials to think they can duplicate successes in other areas without
taking into account the unique character of organic food production.

It's all food for Wal-Mart executive afterthought: organic food really is a
different beast.

Wal-Mart's classic methods are less likely to succeed in forcing down the
prices of organic food than they were in depressing the prices of
manufactured goods, including organic milk, which the company already leads
the world in selling.

Wal-Mart method 1. Special deep discounts exacted in return for high-volume
purchases work for widgets made in factories, where the per unit price goes
down with mass production.

But the per unit costs of goods grown on organic farms don't follow a
typical factory graph. More of the same organic crop on one farm field
doesn't lower per unit labour costs, but usually means more pest problems,
since monoculture, the precondition for mass production methods, is a
magnet for pets and parasites.

Wal-Mart method 2. Just-in-time logistics slash the costs and risks of
storing blue jeans, plastic toys and hard candies. But ripening crops and
unpredictable weather aren't always as amenable to a mega-corporation's
squeaky-tight schedule as factory owners are, and organic methods are even
more vulnerable to nature's whimsical timing than non-organic. Wal-Mart
could find itself holding the bag after a cold spell.

Wal-Mart method 3. Cheap retail labour and buildings don't do much harm to
dry goods or conventional foods whose additives help them perform like dry
goods. But unskilled labour and poorly equipped stores can wreak havoc on
goods that follow natural cycles and go bad on retail shelves.

Welcome to the factors that explain why food was one of the last of the
economic sectors to be industrialized, although it was one of the first to
be commercialized. Industrialized food may be the best thing since sliced
bread, but sliced bread wasn't perfected until the late 1920s.

Apart from cookies, jams, white bread and similar sweet nothings, food
production and processing weren't mechanized until the 1950s and 60s,
centuries after light industries such as clothing, and a half-century after
heavy industries like steel and auto.

Organic bookkeeping adds another slew of problems and introduces another
set of perpetual conflicts for industrial-scale retailers.

It's true, some of the high cost of organics relates to the sheer economics
of big demand and small supply. The lure of mass sales to Wal-Mart and
other retailers will certainly encourage large-scale farmers to switch over
to organics.

That new production may well swamp the market, as has happened occasionally
with milk and a few crops, such as garlic and onions. A few of these
over-produced organics are already being sold into pools of conventional
food, at regular prices.

But the main reasons for higher organic prices are structural and will
stick around for the long term or foment a huge ruckus when Wal-Mart
insists on diluting organic methods.

This is a sticking point for customers, especially the kind of customers
trained in Wal-Mart-style consumerism.

Relatively high prices for conventional pop, cookies, pastries, frozen
french fries, potato chips, ice cream, microwave meals, and similar
pseudo-foods are accepted without complaint because that's the price of
what's deemed a special treat.

But there's no excuse other than yuppie snobbery for charging extra for
plain organic potatoes, carrots, spinach and breads, many non-organic
customers complain.

Having long suffered from this double standard on food prices, those who
know and respect what organic food is about are pretty defensive about its
high prices. In contrast with the artificially low price of synthetic or
industrialized food, the relatively high price of organics captures
something like the full cost and value of growing and marketing real food
that meets environmental and human health needs.

Organic prices "internalize" these costs. By contrast, the low sticker
prices seen at Wal-Mart and other superstores come from "externalizing" the
full cost of cheap fertilizers and pesticides by dumping them in the
environment and on unsuspecting animals, including people.

Wal-Mart, an icon for such externalization practices, is increasingly
reviled for the everyday expensive pollution and exploitation linked to its
everyday low prices.

But organic producers can't externalize costs without losing their way.
They can't dump manure from factory barns into rivers and then buy chemical
fertilizers; they have to compost manure and return it to the soil, which
is more expensive. They can't grow miles of one crop and spray with
chemicals; to discourage pests, they have to grow a wide range of crops,
which is more labour-intensive and expensive.

They can't jam produce into a truck, then spray it with fungicides that
keep it from spoiling and gases that keep it from looking haggard;
post-harvest handling has to be quick, skilled and careful, which costs
money.

The only way to mess with organic prices is to mess with organic rules,
already under constant pressure in the U.S., where the Department of
Agriculture controls the organic label and has allowed standards to erode
to the point where factory-style cow and livestock barns are setting the
norm.

The same pressures will be applied to a Canadian government label, expected
sometime in the next year.

The impact of a cost-cutter like Wal-Mart on government-managed organic
standards will cause the organic manure to hit the fan. Wal-Mart execs may
be getting more than they bargained for when they try to mesh organic
processes with hyper-industrialized retail.

1 comment:

Bernardo Kodopoulos said...

Hello, congratulations on your blog!

I have an organic news blog (www.longlivingorganic.com), and I 've been posting news about this Wal-Mart issue, including this same text here, edited.

Cheers,
Bernardo Kodopoulos
www.longlivingorganic.com