Organic commodities once sold at hefty premiums are now being priced competitively with conventional goods at major retail outlets.
Wherever possible, Loblaw Companies Ltd., Canada’s largest food distributor and organic retailer, is selling its line of 300 President’s Choice organic products at the same price as traditional goods, said Geoff Wilson, the company’s senior vice-president of public affairs.
The retailer, which owns Loblaws, The Real Canadian Superstore, Extra Foods and other grocery chains, wants to offer consumers quality products at competitive prices, a marketing philosophy that poses a threat to the burgeoning organic agriculture sector.
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“It seems to me that a policy of making conventional and organic prices the same is one that is going to hurt the organic industry,” said Canadian Wheat Board organic marketing manager Donna Youngdahl.
She worries it will eventually work its way back to the farmgate, eroding premiums that producers need to offset certification fees, lower yields and other direct and indirect costs associated with organic production.
“How can that be sustainable? Why would farmers go to all the trouble of being organic if there was absolutely no premium?”
Wilson said the marketing program isn’t hurting farmers. Instead it has opened up a much bigger market for their goods.
“Through expansion of our lineup and (aggressive) pricing we’ve been able to certainly increase the market potential for Canadian farmers.”
So far it appears to have had little impact on farmers’ prices. Organic growers earned healthy premiums in 2004, according to data collected by the Saskatchewan Research Council.
On average, Saskatchewan organic growers received a premium of $3-$3.75 per bushel on their malting barley, durum and red spring wheat compared to their conventional counterparts.
“There’s still a fair premium on almost all of the crops,” said Simon Weseen, an organic market analyst at the University of Saskatchewan.
And despite Loblaw’s uniform pricing strategy, he still notices a price difference at the retail level on store shelves around Saskatoon.
Like Youngdahl, he thinks those premiums provide a necessary incentive for growers to remain in organic production.
Weseen recently completed a marketing study that shows while production costs may be lower for organics due to the absence of herbicide and fertilizer expenses, they face many extra fees related to certification, segregation, marketing, transportation and handling, which have led to higher overall costs than conventional farming.
Youngdahl said there are also certification fees tacked onto cleaners, processors and other businesses all the way up the value chain, which is why she finds the Loblaw marketing strategy puzzling.
“Somebody is taking a hit if the retail price is exactly the same as the conventional price,” she said.
It appears that somebody is the processor, distributor or retailer and not the farmer.
“But they might only be willing to do that for a short period and then the pressure might turn to the farmers,” warned Youngdahl.
It will be up to producers to hold the line, which may prove difficult because as more farmers are lured into organic production by attractive premiums, the supply of raw ingredients expands so buyers will be able to pick the lowest priced goods, she said.
But Wilson insisted that is not what the company intends to do. He said Loblaw maintains a healthy working relationship with all its suppliers, which includes working with them to ensure that the quality and the economics are there to support a sustained partnership.
