When a company like Wal-Mart serves notice it will expand its interest in organics, it is either a sign of the evolution and maturation of the sector or a sign of the apocalypse, depending on perspective.
“We are particularly excited about organic food, the fastest-growing category in all of food,” Wal-Mart chief executive officer Lee Scott said at a recent shareholder meeting.
That momentous sentence has elicited a mixed reaction from organic players such as Jason Freeman, sales and marketing manager of Farmer Direct Co-operative Ltd., a producer-owned co-op in Regina representing 65 organic farm families.
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“The positive is that it really brings organics into the mainstream,” said Freeman.
Heightened interest from the world’s largest retailer and other big corporations has thrust organics into a whole new realm of consumer acceptance and has delivered a King Kong-sized kick in the butt to sales of organic products.
The negative is that it signifies further consolidation of the sector into the hands of multinational corporations, the scourge of the founding forefathers of the organic movement.
“That is the worry, that if it goes mainstream into the Wal-Marts, then eventually the price to the farmgate is going to decrease because Wal-Mart is such a big buyer they can affect the market,” Freeman said.
Phil Howard, a postdoctoral researcher with the Center for Agroecology and Sustainable Food Systems at the University of California, has created a chart full of arrows detailing how the organic processing sector has been usurped by multinationals.
Through a series of acquisitions and strategic alliances, the world’s leading processors such as Kraft, Heinz, ConAgra, Cargill, General Mills, Kellog and Dean Foods, have swallowed the leading organic retail brands in the United States.
“Almost all of them have been purchased by large multinational food processors,” Howard said.
The corporate takeover began in the late 1990s when the U.S. national organic standard began to take shape, providing rules and structure to what had been an unregulated industry experiencing phenomenal growth rates.
That’s when multinationals started gobbling up independent operations at prices way beyond their book values, Howard said.
“It was hard for these smaller organic companies not to take these deals.”
Canada has not been immune to the consolidation trend, although the acquisitions haven’t been as plentiful. The country has fewer manufacturing companies and the focus has been on smaller crops such as flax and peas instead of corn and soybeans, which are the crops the large corporations are interested in.
The SunOpta Food Group from the United States has acquired Pro Organics, Wild West Organic Harvest, Simply Organic, Supreme Foods and a bevy of other companies as it sets its sights on becoming the leading distributor of certified organic fresh food in Canada.
SunOpta generated $306 million in revenue in 2004, including $76 million from its Canadian Distribution Food Group.
The company, which has its roots in steam explosion technology, industrial minerals and environmental recycling, has shifted its focus almost entirely to organics, a $10 billion US food sector experiencing annual growth rates of 15 to 20 percent compared to one to three percent for the overall food industry.
Laura Telford, executive director of Canadian Organic Growers, said the growing sphere of corporate influence isn’t sitting well with founders of the organic movement, who set out to develop a new model of agriculture that empowered local farmers and created vibrant rural communities.
“We had this grand vision so in many ways it is disappointing that we are replicating the conventional agriculture system,” she said.
On the other hand, the fact that the big players are being lured by a 20 percent return on investment is an affirmation that organic growers are doing something right.
“In some ways it is a compliment to our industry that we’ve designed this system that actually seems to be working and attracting investment, so I have kind of mixed feelings about it.”
The old organic model isn’t dead. A lot of product is still moved through co-ops, health stores, farmers’ markets and other forms of direct customer contact.
Even on the processing side there are holdouts, a few manufacturers that have resisted the urge to sell. One of those is Nature’s Path Foods Inc., a family owned business in Richmond, B.C.
Dag Falck, organic program manager for Nature’s Path, the largest certified organic breakfast cereal manufacturer in North America, said the company has fielded sweet deals put forward by most of the major multinational food processing firms.
“We receive a minimum of two inquiries a month and sometimes more from various brokers and investment bankers and so on.”
The answer is always the same.
“Nature’s Path is not for sale.”
He said the organic sector is still in its infancy and many struggling companies attempting to establish a foothold for their brands were simply bowled over by the offers they received.
Nature’s Path, which has been in business since 1985, is in a financial position where it can resist such temptations.
“We’re doing very good,” said Falck, who refused to divulge the company’s annual revenues.
Company president and founder Arran Stephens wants to remain true to the organic values of social responsibility, environmental sustainability and economic viability.
Falck said that is not necessarily the case with the bigger players. He equated it to a conventional farmer converting to organics. There is a tendency for them to be predisposed by the old ways of doing things.
“That is the dilemma with the really large companies, that they come in and don’t change their mindsets. They don’t take on the organic principals.”
For instance, he has noticed a distinct drop in corporate support for organic conferences, trade shows and annual meetings since independents sold to the multinationals.
He’s also concerned that the multinationals will attempt to water down organic standards and regulations in an effort to reduce their manufacturing costs.
Some say that is already happening in the U.S.
Last month a congressional committee inserted a last-minute provision into the U.S. Department of Agriculture’s 2006 budget, specifying that certain synthetics be allowed in organic food as proposed by the Organic Trade Association, an organization whose members include companies such as
Kraft.
Telford said it’s too simplistic to blame the multinationals for what’s happening south of the border with organic food and feed regulations, especially considering they were one of the driving forces behind establishing a national standard in the first place.
She said in a purist world there would be no need for synthetics but in reality there are no organic substitutes for ingredients such as ascorbic acid, which is used in many products.
But others say the real threat multinationals pose is their buying power.
Robert Beauchemin, chair of Table Filiere Biologique du Quebec, an organic lobby group, said the farmgate price of organic food in his province is dropping while retail prices continue to rise.
“So where is the money going? The money that used to go into the food system is now going into the food distribution system.”
Beauchemin said it might be time for organic producers to explore different distribution channels.
Farmers Direct is employing that tactic, Freeman said. He has a mandate to contact food manufacturers directly, cutting out the brokers and traders.
But he acknowledged one of the companies he provides feed grain to in the U.S. is an organic dairy co-operative that lists Wal-Mart as one of its end-use customers.
Organic Valley Family of Farms, the largest organic farmer co-op in the U.S. and maker of the second leading brand of organic milk, has a deal to supply 370 Wal-Mart stores.
Contrary to published reports stating that the co-op had withdrawn its dealings with the chain due to price gouging tactics, Organic Valley is still doing business with Wal-Mart.
What actually happened was that sales had to be temporarily curtailed due to a supply issue. The company couldn’t keep up with Wal-Mart’s overwhelming demand, said David Bruce, spokesperson for Organic
Valley.
In fact, the company is pleased with its ongoing relationship with the world’s largest retailer.
“Certainly it hasn’t been a negative thing,” he said.
