October 17, 2006
Wal-Mart Goes Green
Posted by Fred Tung

Let me jump on Gordon's Wal-Mart bandwagon for a minute.  Big news in the organic world is that Wal-Mart has gone green over the past year, and now it will carry organic milk (NYT).  Organic milk farmers must be whooping it up over this development, right?  Not exactly.  Wal-Mart's entry into the market has merely accelerated the corporatizing of organic food, which critics argue has lowered organic standards and may drive down prices for suppliers (BW).  The dairy that supplies Walmart (and also Safeway, Costco, Target, and Wild Oats) is under fire from organic activists and competing organic dairies for cutting organic corners and "diluting the principles of organic agriculture."  Its cows do not spend significant time roaming pastures and eating fresh grass.  Instead, these cows live on a high grain diet.  According to competing organic farmers, grass-fed cows produce more nutritious milk.  Whole Foods won't buy organic milk from Walmart's supplier.

Now, this raises an interesting conundrum . . .

Demand for organic milk is strongly increasing--sales last year were up 25% from the year before.  But higher standards must mean higher prices as well.  Wal-Mart has made no bones about its desire to bring organic foods to the masses.  Other giant food companies are also exerting downward pressure on organic standards, as corporate food lobbyists (for Kraft, Dole, and others) have gotten Congress to weaken some rules on organics. 

Should we cheer or deride these efforts?  Should organic foods remain "pure," but only within the reach of more affluent shoppers?  Or can some corners be cut in order to make healthier foods more affordable and thus more widely available?  At some level, this is just another manifestation of the tension that is Wal-Mart --achieving lower prices but paying its workers less and driving local competitors out of business.  OTOH, for organic foods, there may be a way around this specific conflict (which doesn't address Wal-Mart's labor practices or effects on competing retailers).

The fight over organics seems to me essentially a labeling or "truth-in-advertising"  problem.  Perhaps an "organic" either-or is too restrictive, given the probability that consumer demand is more nuanced.  Perhaps organic grading would be useful, in the same way the USDA grades beef.  Let consumers decide.


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Comments (4)

1. Posted by Lisa Fairfax on October 17, 2006 @ 9:37 | Permalink

Great issues. Like Gordon's post, this post reflects how much of an impact Wal-Mart has in our economy. Of course it also touches on the issue that defines Wal-Mart, what are the appropriate tradeoffs when a for-profit company seeks to give consumers the lower prices they appear to desire. I mean let's be clear, for all of those who attack Wal-Mart, there are many consumers, employees, etc. who appear to love it.

This issue about organic foods is interesting and as you point out, not one that is merely about Wal-Mart. Indeed, Whole Foods and other organic food stores have done a good job of convincing the public that organic is the way to go--even placing the stores in neighborhoods that cannot really afford the food. That may be unfortunate for them because now the public wants organic, but at affordable prices. Indeed, Giant markets its organic food as the healthier, but more affordable choice. Hence, it is not Wal-Mart that has created this problem but Whole Foods and others that have pushed to make organic food appealing to the masses, but have not made efforts to make the prices appealing. The result probably will be that we water down the definition of organic as we lower prices in this arena.


2. Posted by Ted on October 17, 2006 @ 14:45 | Permalink

"Organic" is marketing-speak for "price-discriminating against the gullible wealthy" since there's no appreciable health-difference, with the exception that organic food is slightly more likely to cause health problems in some instances.

Whole Foods can counter-market that their organic is higher-quality than Wal-Mart organic. They could even make up a new word that would allow them to raise price even more.


3. Posted by D. Daniel Sokol on October 18, 2006 @ 9:15 | Permalink

Lisa,

I am not sure that I understand your point of Whole Foods "placing the stores in neighborhoods that cannot really afford the food." From a business strategy perspective, there are significant sunk costs in choosing a store location and so a firm would not put in a store somewhere where there is not sufficient projected demand.

I suspect that you really meant to suggest is that Whole Foods may have stores in some urban areas in which not all surrounding members of the neighborhood can afford going to "Whole Paycheck" as someone here at UW refers to Whole Foods. This is a very different set of concerns that are important nonetheless. I posit that zoning to protect local high priced small stores in urban areas hurts the urban poor- giving them few choices at high prices. The best thing that can happen in an urban neighborhood is for a Wal-Mart or even a regular supermarket to move in and offer higher quality goods at lower prices. Today's WSJ editorial makes a similar point.

Specifically on organic issues, organic foods have a higher profit margin than regular foods. This is why so many companies have entered the organic business. People are willing to pay more money for real (or perceived) health benefits of organic foods. Last week's cover story in BusinessWeek exposed what is essentially the organic myth. Many organic products have become part of the large scale food system network and many organic brands are owned by corporate giants. The day of a few cows grazing and producing organic milk is long gone. The nature of what is meant by organic has become transformed by the global scale economies.


4. Posted by Lisa Fairfax on October 18, 2006 @ 12:24 | Permalink

You are correct regarding my point related to store placement--that is, it is not the case that some sector of the community cannot support the store, but rather that many more members of the community cannot. Indeed, some stores appear to be located in places that suggest that they can cater to all of the communities within the area, and in fact, stores market their placement in such a way, but in reality such stores only serve a particular segment of the population. But I think the marketing makes the "organice experience" attractive to even those segments for whom the prices are too steep--and hence a lost-cost alternative is necessary.

Love the "Whole Paycheck" reference.

And your point about the myths associated with organic foods is similar to the debate raging in some schools over the soda vs. "healthy juice" option in vending machines.

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