Can Wal-Mart Really Make Organic Food Cheap For Everyone?

Apr 19, 2014
Originally published on April 19, 2014 11:40 am

It could be another milestone in organic food's evolution from crunchy to commercial: Wal-Mart, the king of mass retailing, is promising to "drive down organic food prices" with a new line of organic food products. The new products will be at least 25 percent cheaper than organic food that's on Wal-Mart's shelves right now.

Yet we've heard this before. Back in 2006, Wal-Mart made a similar announcement, asking some of its big suppliers to deliver organic versions of popular food items like mac-and-cheese. A Wal-Mart executive said at the time that it hoped these organic products would cost only 10 percent more than the conventional alternative.

Wal-Mart has, in fact, become a big player in organic food, with some remarkable cost-cutting successes. At the new Wal-Mart just a few blocks from NPR's headquarters, I found some organic grape tomatoes on sale for exactly the same price as conventional ones. Organic "spring mix" salad was just 9 percent more expensive than the conventional package.

Outside the fresh produce section, though, organic products were hard to find, and those I did spy were significantly more expensive. Organic diced tomatoes were 44 percent higher. The premium for a half-gallon of organic milk was a whopping 85 percent.

Now Wal-Mart is bringing in a new company, WildOats, to deliver a whole range of additional organic products, from pasta sauce to cookies, and do it more cheaply.

I asked the CEO of WildOats, Tom Casey, how he plans to do it. His answer, in a nutshell: Bigger can be better.

The production and distribution of organic food is still highly fragmented, Casey says. Wal-Mart can change that, delivering organic products in through its "world-class distribution system" and giving manufacturers of, say, pasta sauce a chance to operate on a larger, more efficient scale.

Charles Benbrook, a long-time proponent of organic agriculture who's now with the Center for Sustaining Agriculture and Natural Resources at Washington State University, thinks that this plan is realistic. Most organic producers have to use other companies' processing facilities, which also handle conventional food, Benbrook wrote in an e-mail. "This requires them to shut down, clean out the lines, segregate both incoming and outgoing product, and this all costs money," writes Benbrook.

According to Benbrook, larger production — to supply larger customers — will allow organic food processors to run "100 percent organic all the time" and will cut costs by 20 to 30 percent. This has already happened with packaged salad greens, which is why consumers don't pay very much extra for those organic products.

Benbrook does have one warning: Large scale can't be achieved overnight. It takes at least three years for farmers to get their land certified as organic, for instance. "There will be hell to pay if Wal-Mart turns mostly to imports, and they know it."

If Wal-Mart sticks with this effort and creates an organic supply chain that's as efficient as the conventional one, the company could help answer an unresolved question about organic food: How much of the organic price tag is because of small-scale production, and how much is inherent in the rules that govern organic production, such as the prohibition on synthetic pesticides, and industrial fertilizer?

Benbrook thinks Wal-Mart's experiment will show that organic farmers, if given an honest chance to compete, will out-produce their conventional neighbors, and that organic prices will come down.

Others disagree. Todd J. Kluger, vice president of marketing for Lundberg Family Farms, told Rodale News in an interview that Wal-Mart's goal of producing food 25 percent more cheaply is "fantasy. There isn't much you can do to cut the cost of organic ingredients," Kluger said.

In the same interview, Mark Kastel, an organic activist who co-founded the Cornucopia Institute, suggested that Wal-Mart's cost-cutting drive could undermine the ethical values of organic farming. "One of the reasons people are willing to pay more is that they think they're supporting a different ethic, a different animal husbandry model, and that family farmers are being fairly compensated," Kastel says.

According to Kastel, organic buyers will shy away from the kind of large-scale supply chain that Wal-Mart and WildOats envision. "We want to know where our food comes from, how it's produced, and what the story behind the label is," he told Rodale News.

Tom Casey, CEO of WildOats, says that the company has not yet decided whether it will disclose where it is buying its food. (That's pretty typical for supermarket brands.) "We want to be respectful of our suppliers," he told The Salt.

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It's WEEKEND EDITION from NPR News. I'm Wade Goodwyn. Organic food has taken another step away from its crunchy alternative routes. Walmart, the king of mass-market retail, says it will sell even more organic food, and it promises to bring down the price tag as well. Now the question is will organic producers be able to keep up with demand? Joining me talk about this is NPR's food and agricultural correspondent Dan Charles. Dan, welcome to the show.

DAN CHARLES, BYLINE: Nice to be here.

GOODWYN: Dan, Walmart says it's going to sell organic food more cheaply. How's it going to do this?

CHARLES: Well, you know, Walmart already sells organic food. But this - they're trying to make a statement saying we're going to set up our own house brand. It's delivered by a separate company actually called Wild Oats. And they're saying we're going to organize this, and we're going to deliver organic food more cheaply. And it's a good question. How are they going to do this? I mean, I actually talked to the CEO of Wild Oats. And he said it's all about logistics. He said Walmart is the king of distribution, right.

And so if we organize the production and the processing and distribution of organic foods on a large scale, there's efficiencies to be had. This is actually kind of an experiment, a test. You know, how much of the extra costs that you pay when you buy organic food - how much of that is just the fragmented nature of the business? How much of it is the small-scale aspect? And how much of it is inherent in organic production?

GOODWYN: Well, there's no question that Walmart is kind of the king of logistics. But if you talk to some of their suppliers, they'll also complain that Walmart is the king of squeezing them and making them produce the product ever more cheaply at their own expense.

CHARLES: Right. So you could say this is a threat to some organic producers who are used to higher margins. On the other hand, I mean, the organic production is expanding, and if Walmart wants large quantities, they may have to outbid other producers. There is a limit right now on the amount of organic food for sale. They say they want to expand that, and there's no reason why they couldn't. There's lots of land out there. Right now, organic is actually a very small part of American food production, people say 5 percent or less. So there's no reason why Walmart couldn't expand organic production if they offered a good price. The question is can they do it cheaply?

GOODWYN: Part of this has to do with trust. Are people going to stop going to Whole Foods and go over to Walmart 'cause they can get the eggs $2 cheaper? I'm a little skeptical.

CHARLES: OK, so this gets to this question of what is organic really because organic has an actual legal definition. You know, it's set out by the National Organic Standards, laid down by the USDA. And it has to do with how organic food is produced - no pesticides, no industrial fertilizer, certain other rules like...

GOODWYN: Chickens can walk around.

CHARLES: Chickens can walk around, etc. And you can do that on a large scale, and you can do it for Walmart. But organic, also, for the consumer sometimes, is cultural image. People think small-scale, local, nonindustrial, non-Walmart, right?

GOODWYN: Correct.

CHARLES: So, you know, so you can see the organic label kind of splitting. You can get organic eggs for $3 a dozen. You can get organic eggs for $6 a dozen. And the companies that sell them for $6 a dozen say we are the true organic. We go beyond the strict requirements of these rules. Our milk comes from small, family farms. Our chickens have lots of pasture, not just, you know, a door in the side of the chicken house. And we'll tell you where we get our products. You know, we're more true to organic roots. And maybe they will get a certain segment of the market, and the $3 eggs will get another segment.

GOODWYN: NPR's food and agricultural correspondent Dan Charles. Dan, thanks.

CHARLES: Enjoyed it, Wade. Transcript provided by NPR, Copyright NPR.