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Wal-Mart: Everday low (organic?) prices

Dan Weissmann Apr 11, 2014
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Wal-Mart: Everday low (organic?) prices

Dan Weissmann Apr 11, 2014
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Walmart has announced a new line of prepared organic foods — ketchup, pasta sauce, breakfast cereal — marketed under the name Wild Oats. And cheap: Wild Oats spaghetti sauce will cost the same as Ragu brand. But it’s one thing to try to grow demand for organics by offering lower prices. Supplying that demand could be tough, especially at low prices. Already, supplies of commodities like corn, wheat and soybeans are tight.

“There’s not as many acres,” says Tim Daley, who buys and sells organic soybeans for Stonebridge, a brokerage in Iowa. “Maybe three or four percent of the marketplace is organic. And a lot of that is still coming in from offshore.”  

If not for imports, he says, prices would be even higher. “And they’re already high. So if you’ve got $14 soybeans on the Chicago Board of Trade, you’ve easily got $24 or $28 soybeans.”

That’s conventional beans, versus organic beans. 

Increasing supply can’t happen overnight. 

“It takes three years for a producer to achieve organic certification,” notes Kellee James, CEO of Mercaris, a company that supplies market data on organic commodities. “So even if tomorrow prices go up and a producer decides he wants to grow, say, organic wheat, it’s going to take three years for that supply to come online.”

Walmart says it plans to keep prices in line by locking in five-year contracts with producers.

Which may not work, says Paul Mitchell, who teaches agricultural economics at the University of Wisconsin. If market prices go up everywhere else, he thinks producers will want to re-negotiate.

“They’re going to … say, ‘Look, WalMart. We sold you our can of corn at $1.50 a can, organic. And now the market price is $2. Well, we don’t want the $1.50 anymore. We want to sell it for $2.'”

And if they don’t get it? Tim Daley, the soybean broker, says beans under contract might “disappear, magically” when market prices climb. “That has happened out here, more than a few years in a row.”

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