INSIDE ORGANIC: Wal-Mart’s Move into Organic Retailing Creates Concern and Uncertainty in the Organic Sector (Sept 06)

     by Roger Blobaum · Inside Organics · MOSES Broadcaster · Sept-Oct 2006The surprise announcement that Wal-Mart, the world’s largest food merchandiser, plans to use its well-known price cutting approach to move aggressively into organic retailing is sending waves of concern and uncertainty through the organic food and farming sectors.

The Wal-Mart move, part of a larger “green” initiative, is expected to speed up expansion and mainstreaming of an organic sector already facing questions about growing ownership by conventional food companies and about the government’s willingness to enforce the rules and guarantee the authenticity of organic products.

Several of the world’s largest food companies have made big moves recently into organic processing and manufacturing through takeovers and buyouts of pioneer organic companies.  But Wal-Mart’s announcement that it plans to use its price cutting clout to begin claiming market share in organic retailing is a new level of conventional corporate involvement that is creating even more anxiety in the organic community.

Unsettled Industry

The announcement has stimulated widespread media coverage and much speculation about what this means in terms of prices paid to organic farmers, impact on the politics of  organic standard setting, consumer acceptance, organic imports, organic integrity, and overall corporate domination of the organic sector.  The New York Times was unusually direct in an editorial expressing dismay at this new development: “There is no chance Wal-Mart will be buying from small, local organic farmers,” it said.  “Instead its market influence will speed up the rate at which organic farming comes to resemble conventional farming in scale, mechanization, processing, and transportation.  For many people, this is the very antithesis of what organic should be.”

It would appear to be bad news for Whole Foods, Wild Oats, Trader Joe’s, and coop grocers that have developed and dominated organic retailing.  It can’t be good news either for Safeway, Giant, and other major supermarket chains that have been rolling out and promoting their own organic house brands.  Growing consumer demand has enabled conventional supermarkets to capture more than 50 percent of organic retail sales.

Huge Market Expansion

Retailers sharing the market now face a huge and highly competitive merchandiser that opens almost as many new stores annually as all of the Whole Foods, Wild Oats, Trader Joe’s, and coop grocery retail outlets put together.  Wal-Mart

has more than 2,000 supercenters and neighborhood stores with full-service supermarkets.  Another 1,100 smaller Wal-Mart stores plus the company’s 500 or so

Sam’s Clubs also sell some grocery items.  The latest annual report, which showed Wal-Mart had $312 billion in sales worldwide in 2005, also described plans to open at least 300 more store locations in this country alone in 2006.

Concern for Maintaining Price

The Wal-Mart announcement is viewed with so much concern by farmers and others in the organic sector because the retailer made it clear it plans to gain organic market share quickly by driving down prices.  Wal-Mart stated that 20 percent of its produce will be organic and that it will make organic food much more available and affordable by charging no more than 10 percent over the conventional price.  It already is the biggest seller of organic milk and the world’s largest buyer of organic cotton.

“When you hear ‘organic’ you probably think ‘expensive.’ We don’t think it should be that way,” the Wal-Mart web site states in a new “Organics for Everyone” appeal to consumers.  “We’ve already made a big splash offering organic milk and, as we expand our organic offerings from produce to name-brand packaged goods, you can always expect everyday low prices.”

Wal-Mart’s investors have been told that Wal-Mart would have 400 organic food items in stores before the end of this year at the Wal-Mart price.  Its new advertising tagline, “Introducing Organics at the Wal-Mart price,” promotes this new initiative.  The company web site doesn’t list its organic suppliers but it does include full-color promotions for Horizon milk, Kellogg cereals, and Hains baby food.

Supply and Demand

Wal-Mart’s unmatched ability to arm twist suppliers and import cheaper supplies from China and elsewhere clearly represents a long-term threat to the ability of organic farmers to maintain price premiums.  The organic farming sector is pushing now to meet rapidly rising demand.  Having Wal-Mart competing with Safeway and other national retailers with their own organic house brands should help keep prices strong into the immediate future.

Eventually, however, Wal-Mart and others will turn to big corporate suppliers, including both farming and manufacturing companies, that can meet heavy demand for huge orders and lower prices. It’s lots easier to source organic produce from one or two corporate farms than from a long list of small farmers.  And Wal-Mart will go to China, Mexico, Brazil, and other low-wage countries as well to source supplies needed to beat prices down.

Enter China

China’s export-driven organic sector, launched in the early 1990s, is expanding rapidly in northeast and coastal provinces and has significant government support.  The recent announcement in Beijing that China now has 12 percent of the world’s organically-managed land may well be an inflated number.  Although official data on Chinese organic exports is poor to nonexistent, much like USDA’s data on organic imports, there is little doubt that China’s organic export sector can become a factor in driving down organic prices at both Wal-Mart stores and on U.S. organic farms.

The Wal-Mart announcement has helped focus some critical media attention on China’s organic sector. A senior USDA economist with expertise in Chinese agriculture has been quoted as saying polluted water and air and contaminated soil, among other things, makes it “almost impossible to grow truly organic food in China.”

However China’s reliance on well-known international inspection and certification bodies has opened markets and enabled China to become a major exporter of organic tea, dry beans, rice, vegetables, and soybeans.  It is a major supplier of organic ingredients in Europe and a new report concludes Chinese companies now provide more than a third of the organic soybeans used by European processors. OCIA U.S.), FVO (U.S.), Ecocert (France), SKAL (Netherlands), JONA (Japan), and BCS (Germany) are among international bodies inspecting and certifying farms and processors in China.

Divisions in Organic Community

The Wal-Mart move also has stimulated both debate and confusion among nonprofit organizations that support organic farming. Some see it as a huge move to greatly increase the amount of organically-managed farmland.  It is seen by others as a worrisome move likely to increase the pressure on organic companies to abandon core values and on USDA to cave in to continuing attempts to weaken standards.

Carl Pope, executive director of the Sierra Club, suggests that it’s too soon to tell whether Wal-Mart is able to deliver on its organic commitment but that its impact could be great for the environment.  “I think the direction they’ve set is a positive direction,” he said.  “The question is, are they going to go there strongly enough?”

Environmentalists also were encouraged by Wal-Mart’s announcement that it plans to have all of its wild-caught fish, which accounts for about a third of its seafood sales, certified by the Marine Stewardship Council.  The MSC provides an international labeling system that promotes sustainable fishing practices.

The Organic Consumers Association has expressed concern that Wal-Mart does not care about organic principles and will achieve its price cutting by driving down prices to organic farmers and outsourcing from foreign suppliers.  “The Wal-Mart model of one size fits all and lowest prices possible doesn’t work in organic,” Executive Director Ronnie Cummins contends.

Issues raised by Wal-Mart critics are receiving serious attention because of comments about organic food and farming made by some of Wal-Mart’s representatives.  These comments suggest the company is unlikely to do anything to educate consumers about the many public benefits of organic. “Organic agriculture is just another method of agriculture, not better, not worse,” a company marketing executive noted recently.  “This is just like any other merchandising scheme we have, which is providing customers what they want.”

Consumer organizations that advocate organic farming have expressed concern about the way conventional food companies that have bought into organic are trying to undermine what organic labels promise to deliver.  Even before the Wal-Mart announcement, the national magazine published by Consumers Union, carried a warning about the impact of lobbying aimed at relaxing organic rules and whether the federal government’s organic guarantee is meeting consumer expectations.

Organic Buzz

It will be interesting to see whether Wal-Mart joins many of the large processors and manufacturers that have concluded consumers know very little about organic food and are clueless about organic integrity.  Organic industry advertising increasingly features unverified health and safety claims rather than the environmental and other benefits of organic farming verified by certifiers.

Organic Processing, the main industry magazine, says in a recent issue that it’s the buzz about organic and not the label and the regulations that are fueling organic growth.  An article entitled “Behind the Organic Buzz: What Consumers Think About Organic Labeling,” states that mainstream organic consumers are hard pressed to define organic as more than a product with fewer pesticides and that most know little or nothing about standards and certification.

It is too early to be sure how and when this latest move toward industrialized organic will begin impacting organic farmers.  But it clearly calls for a renewed effort by organic farmers and consumers to watchdog organic rulemaking, to do more to monitor and oppose attempts by food industry lobbyists to weaken the rules and undermine organic integrity, and to take other steps to make certain organic doesn’t become just another meaningless green label in the marketplace.


by Roger Blobaum

This article was first printed in the Sept/Oct 2006 issue of the Organic Broadcaster, published by the Midwest Organic and Sustainable Education Service