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Will Wal-Mart the Savior or the Death of Organics?

April 12, 2014

Walmart-associate-produce-e1392827617943Wal-Mart, the largest grocer in the United States, yesterday announced it would increase the availability of organic produce in its stores, setting a goal of making more than 100 new natural food products in available in at least half of their stores. The move will partner Wal-Mart with 17 different natural foods suppliers, including Annie’s, Burt’s Bees, Clif Bar, and Horizon Organic. And while the expansion of the organic and natural food markets is heralded as a good thing, the entry of Wal-Mart into the organic and natural food markets raises some important questions.

Wal-Mart has a history of employing hardball negotiating tactics to force suppliers to reduce their prices, a practice which Wal-Mart defends as allowing it to pass lower prices on to consumers. But manufacturers have long claimed that the practice forces them to cut wages, lower product quality, and sometimes even forces them out of business—often to save a fraction of a cent per item.

But the natural food market has been built on the idea of crafting a premium product and charging consumers a premium price. How will Wal-Mart’s strategy of aggressive negotiations play out in the context of the premium price market for natural foods? Can natural food producers compete against one another, traditional or mainstream suppliers interested in moving into the “green” market, and Wal-Mart’s drive for lower prices (and thus lower margins for its suppliers)?

And more broadly, will organic production even be able to keep up with the increased demand from Wal-Mart? Organic, natural, and fair trade suppliers traditionally operate in a fairly small niche market, often comprising less than 5 percent of market share. And while farmland dedicated to organic production is increasing, it is not clear that it can increase quickly enough to keep pace with the anticipated increased demand for organic products from Wal-Mart.

So while Wal-Mart’s decision can rightly be celebrated as a good step in the right direction, it’s clear that we need broader discussions around sustainable food production that address deeper economic questions.

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