Walmart Squeezes Organics

by Wenonah Hauter, Food and Water Watch

One of the most frequent questions I get about the food system is what to make of the fact that Walmart sells organic food.

Is it good news or bad?

Is it a sign of progress or the end of organic?

On April 10, a press release from Walmart added fuel to the debate. Not only is Walmart promising to sell more organic products than ever before, but the company says it will sell them cheaply.

There will be folks who spin this announcement as good news, claiming any increase in the volume of organic food sales, no matter where or at what price, is a good thing. But unfortunately, it's not that simple.

Walmart's business model is based on practices that increase the corporate consolidation of the food system, take money away from farmers, workers, and food processors, and drive agriculture to get more industrialized. The organic sector is already facing these pressures, and more exposure to the Walmart way of doing business could only make things worse.

No single company has more impact on food in this country than Walmart. It opened its first supercenter to sell food in 1988, and it took just twelve years to become the largest food retailer in the United States. One out of every three dollars spent on groceries in this country goes to Walmart.

With Walmart's huge market share also comes huge power, which has ripple effects throughout the economy. The company continually puts pressure on its suppliers to cut costs. And with Walmart as their biggest customer, food companies have little choice but to comply.

More than just size and market share have enabled Walmart to exercise such considerable control over suppliers. Walmart's success is the result of several very specific ways in which it does business. None of these bodes well for the organic sector.

The incredibly uneven power dynamic between Walmart and its suppliers puts the retailer in an excellent position to make demands, which it doesn't hesitate to do.

The pressure to cut costs has pushed companies like Levi's, Huffy, Rubbermaid, and RCA to close up manufacturing facilities in the United States and move them overseas. It has also pushed food producers such as Vlasic into bankruptcy as they try to meet Walmart's demands on pricing.

Walmart also demands volume. It sells an incredible amount of each food product, much more demand than a small- or medium-size producer could ever hope to meet on its own.

For a company obsessed with increasing efficiencies in its supply chain, it makes considerably more sense for the retailer to get products from a few large companies rather than many small suppliers.

And smaller producers, unlike the bigger players, are probably less able to afford Walmart's requirements for specific distribution technology and tougher contract terms.

So don't expect to see small, independent companies supplying organic foods to Walmart.

The Walmart announcement about selling more organic food wasn't about bringing more organic products in general to Walmart shelves. It was about a specific deal with one company: Wild Oats.

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This announcement was just the latest installment in a series of food-focused PR moves aimed at more affluent, urban consumers. The company has a problem: Many cities haven't let them build new stores. But to keep increasing sales, and to satisfy shareholders, Walmart can no longer rely on its existing suburban and rural markets; it needs to open new stores and sees potential for billions of dollars in new sales in urban areas.

So for several years now, Walmart has been waging an urban offensive, trying to convince cities to let it move in, and it's exploiting the food issue to seal the deal.

From promises to sell more "local" food (as defined by the company itself based on calculations that let sales in produce-rich Florida, California, and Texas do most of the heavy lifting) to standing with First Lady Michelle Obama and pledging to fix the problem of "food deserts" in inner cities, Walmart has spent the last several years telling urban consumers it is here to fix our food problems.

But previous experience with organic food at Walmart offers reasons for caution. When Walmart (and lots of other big retailers and food processors) talk about organic, it is different from what many consumers expect.

Earlier forays into organic at Walmart meant big food companies making organic versions of the processed foods that are already on store shelves.

Walmart's priority when it comes to organic products is finding the cheaper product, rather than meeting any principles of organic agriculture. And just like the rest of their food offerings, Walmart's continued expansion into organics will favor those large suppliers that use industrialized methods to produce their products as cheaply as possible, potentially pushing out of business smaller-scale, organic producers who could not otherwise meet Walmart's demands on price or volume.

Walmart's press release about its new organic plan crows about "removing the price premium associated with organic groceries." But it's worth a look at what that organic premium pays for.

As Ed Maltby, executive director of the Northeast Organic Dairy Producers Alliance, puts it, "U.S. organic farmers need a premium price for their products because they have higher costs of growing quality food with production practices that benefit the environment. Walmart exercising its purchasing power to drive down organic prices will mean lower prices for organic farm families, especially those that operate small- to mid-size farms that are the backbone of rural America. Those lower prices will force U.S. farms out of business while encouraging imports of organic food from countries that cannot guarantee the integrity of organic standards."

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The organic industry was built by people who were committed to building a different food system. But the more success they found, the more big food companies became interested.

Now, the structure of the organic industry has begun to mimic the rest of the food system, as some of the biggest conventional food companies have rushed in to capture the organic premium by gobbling up organic food companies.

A third of the largest food-processing companies purchased organic brands between 1997 and 2007, and half introduced organic versions of their conventional food brands. Over the past decade, every link in the organic food chain, from purchasing to processing to distribution to retail, has been dominated by a small number of huge corporations.

Walmart is just the latest food giant to get in on the act.

This growing corporate control of the organic industry has also threatened the integrity of the organic label and its credibility with consumers, as the large food processors have successfully lobbied to use more synthetic ingredients in organic processed foods.

As we continue to be bombarded with PR messages about Walmart's efforts to help people live better, it is time to look at the actual impact that the company's rise has had on our food system—and to reconsider whether this model has any place in trying to fix it.

Instead of sucking the money out of the organic supply chain, Walmart could make a real difference in the food system by changing its business model to invest in communities rather than draining money from them, and by paying its workers and suppliers fairly.

Then Walmart's PR about helping people live better might actually mean something.

This article was originally published in the June 2014 issue of The Progressive magazine.