In his early years of farming, Jamie Kitzrow couldn’t count on the “organic” label to be a major sales driver.
Mainstream consumers in the early 1990s had little awareness of organic production methods, he said.
“We spent half our time explaining what organic was,” said Kitzrow, who farms 45 acres organically near Albany, Ore.
More than two decades later, sales of organic produce have moved from roadside stands and small food cooperatives to global grocery chains like Walmart. An estimated $34.8 billion in organic food was sold last year, according to the USDA. That’s about 4 percent of total U.S. food sales.
While the growing prominence of organic is seen as positive, the industry’s changing structure has also raised concerns about the future.
“We have to grapple with how we grow,” said Alexis Baden-Mayer, political director for the Organic Consumers Association. “We see the large companies as being more likely to cut corners.”
As larger corporate players jump into organics, the fear is they will displace the small U.S. producers who built the industry’s foundations.
“There are some question marks on the horizon,” said Mark Kastel, co-founder of the Cornucopia Institute, an organic industry watchdog group.
Greater availability of organic foods, for example, is often correlated with smaller price premiums for farmers, experts say.
“There’s definitely downward pressure on prices, which isn’t all bad,” Kitzrow said. “It’s made it easier for people to chose organic. In that way, we’ve expanded our customer base.”
Most recently, Walmart announced an “effort to drive down organic food prices,” vowing to slash prices by 25 percent with products from the Wild Oats company.
Walmart did not respond to requests for comment from Capital Press.
The company aims to sell a variety of goods without the premium usually associated with organics, said Jack Sinclair, Walmart’s executive vice president of grocery, on the company website.
“At Walmart, our perspective on this consumer demand is simple: We don’t think that people who want to eat organic should have to pay more for their food,” Sinclair said.
Bill McCue, spokesman for Wild Oats, said the companies plan to drive down prices by cutting waste from the supply chain.
"We think the organic food industry is one of the most innefficient in retail," he said.
If successful, the retail behemoth could greatly broaden the demographic of organic consumers, but critics are dubious of the grocery titan’s plans.
Food industry experts suspect that Walmart’s arrangement amounts to a “private label” of products manufactured for the retailer under the Wild Oats brand.
Critics see this process as incompatible with the organic philosophy of connecting consumers with the origins of their food.
“You can’t have the organic story and have it be private label,” Kastel said.
McCue said Wild Oats is a separate company manufacturing products for Walmart under its own label, not a private label supplier.
Doubts have also been cast on the economics of Walmart’s strategy.
Organic ingredients are already in short supply, so it’s unclear why farmers or brokers would want to sell to Walmart at a lower price, experts say.
Competition for supplies
Retailers like Costco, Kroger and Trader Joe’s are also trying to lock up organic supplies for their private label brands, said David Lively, vice president of marketing for the Organically Grown Co., a produce distributor.
“Where are they going to get that volume?” Lively said. “They’re going to need growers to provide it to them.”
A three-year transition period is required to certify land as organic, so there’s a lag time before demand spurs new production, said Chris Schreiner, executive director of the Oregon Tilth certification agency.
“I wonder how they’re going to deliver what they say they’re going to deliver,” he said. “I don’t know where the supply is going to come from.”
In the short term, Walmart’s entry into the organic market will mean yet another competitor chasing organic supplies, said Lively.
“The first thing they’d do is pull the price up,” he said.
Walmart could be planning to cultivate low-cost sources of organic food — either from overseas suppliers or “industrial-scale factory farms” that flout organic principles, Kastel said.
The lower-cost Walmart products may then damage other, smaller-scale organic producers by siphoning away their sales, he said.
McCue said Wild Oats is working with suppliers who are committed to making organic available to the widest possible audience.
More than 90 percent of products are sourced from the U.S., he said.
Walmart may hope to drive down prices for organic food without demanding discounts for organic crops, said Charles Benbrook a Washington State University professor who studies the industry.
Currently, popular shelf-stable products like organic marinara sauce are often made at facilities that also manufacture conventional food, Benbrook said.
Switching between organic and non-organic ingredients and processes hinders the efficiency of such facilities, he said.
By ramping up the volume of organic products, Walmart may be able to dedicate entire plants to organic foods, manufacturing them more cost-effectively, he said.
‘Economy of scale’
Building up such an “economy of scale” will not happen overnight, but Walmart wants to bring consumer prices down fast, Benbrook said.
“I sure hope they’re not mostly going to be depending on imports to fill the gap, because that would not be welcome in many quarters,” he said. “It would just take the bloom off the rose.”
Hardcore organic consumers could be turned off by Walmart’s approach, but mainstream shoppers may welcome the company’s foray into organics, said Neil Hooker, food policy professor at Ohio State University.
“Price is still a key issue,” Hooker said.
People who buy most of their groceries at an upscale retailer like Whole Foods likely have different expectations than those who shop at Walmart, he said.
Roughly two-thirds of consumers already buy some organic products, even as organics remain a small fraction of total food sales, Hooker said.
Fruits, vegetables and dairy are the most common organic purchases, as well as meats to a lesser extent, he said.
Walmart’s strategy may cause more consumers to buy organics from the “center of the store,” where manufactured foods are located, said Hooker.
Larry Lev, an agricultural economist at Oregon State University, points out that Walmart is just the latest global corporation to jump on the organic bandwagon.
“There’s a lot of players in the market already,” he said.
As major corporations expand their presence in the organic industry, there’s likely to be more segmentation of organic consumers, Lev said.
Some will be happy to buy products made without pesticides, regardless of origin, while others will “vote with their dollars” to support small-scale production systems, he said.
“I do foresee greater diversity,” said Lev.