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Organic Produce Deflation

As the local season began to wind down last fall, and one by one those lovely local produce items became unavailable to us, our Produce departments began the annual shift toward sourcing more fresh organic produce from warmer climates such as California and Mexico. This happens every year, depending on when the first hard frost hits and how many storage crops our farmers have managed to squirrel away for winter use. 

Everything seemed normal, but then in the fall and earlywinter of 2016, as organic produce from California and Mexico began to dominate our shelves, we started to notice an odd trend—though we were selling just as many pounds of produce as ever, week after week our sales reports showed that our sales dollars were not meeting our expectations. At the same time, the pricing we were able to offer was better than we’d ever seen—so much better, in fact, that we were bringing in considerably less sales revenue than we usually expect for the amount of fresh fruits and vegetables we were selling. 

For example, the best price we were able to offer for organic red bell peppers in the winter of 2015/16 was $2.99/lb, which seemed like a great price for a product that historically has been in the $5/lb range or higher. This year, we were able to put those same peppers on sale for as low as $1.79/lb. Even though we sold the same number of peppers, we experienced a 40% drop in sales dollars for that item. 

This is deflation, and it’s a hot topic in the grocery industry these days. Grocers everywhere are seeing their sales flatten and even decline as the extremely competitive nature of the business has forced prices down to record lows. Though I knew this was a trend in the overall market, this was the first time I’d seen evidence of drastic deflation at our Co-op. As I dug deeper into the issue, I was able to understand exactly what was happening, and what it means for everyone along the food chain. 

It turns out there are three big reasons why we saw record low produce prices this winter 

The first is a simple matter of weather. Nearly all of the organic (and non-organic) heat-loving veggies that are available in the winter (things like tomatoes, zucchini, cucumbers, and bell peppers) come from Mexico. It turns out that Mexico had a picture-perfect growing season. They experienced a bumper crop and in order to sell it all, they had to lower prices.

The second reason is the global organic produce supply, which has struggled to keep up with ever-increasing demand, is finally starting to catch up. Several years ago, many very large conventional produce companies began to notice that the organic trend wasn’t going away, and in fact, was continuing to grow at astounding rates. Anticipating continued growth, they started the process of converting conventional cropland to certified organic (a process that takes three years), and planting perennial fruit crops intended for the organic market. 

I talked to one friend who works at an organic produce brokerage firm on the West Coast about these issues, and he remembered a trip he took to Argentina three years ago. He was visiting South American organic fruit growing operations and was astounded by the number of baby organic blueberry plants that were being planted. “People there thought those growers were crazy,” he remembered. Here we are three years later, and those blueberries are now hitting the market. The result was a greater supply and lower prices than we’ve ever seen for organic winter blueberries. 

The third and perhaps largest factor is that the organic produce supply chain is currently undergoing a seismic shift. This industry has now grown to the point where it is being commoditized just like any other large agricultural product. Giant food retailers such as Costco and Walmart are now the largest sellers of organic produce in the nation. They have developed direct relationships with large produce companies, and they are demanding extremely low prices. In these relationships, price is the driving force. Quality and the ethics and true sustainability of the produce itself are seldom a factor. This phenomenon is driving down pricing across the board, as every other retailer and distribution house struggles to stay competitive.

So who are the winners and the losers in all this? That question is a bit more complicated than you might think, and the answer not at all black and white. 

Winners:

•Consumers: As we all noticed this winter, the deflationary trend in organic produce is a really great thing for consumers’ wallets. Never before have we been able to offer such affordable pricing. Organics are now available at nearly every grocery store, and lower prices along with increased access are opening up the market to people who couldn’t afford or even find organic produce in years past. 

•Very Large Farms and Retailers, Multinational Produce Companies: These players are relatively new to the organic produce world, but they have now nearly taken it over. As the growth of other food categories has mostly stalled out, the organic produce industry has continued to grow. This adds to these companies’ bottom lines, and makes their shareholders and owners quite happy.

•Farm Workers: The plight of farmworkers was virtually ignored by most consumers until relatively recently. In the past few years, news stories, boycotts, strikes, and other actions have brought farmworkers into the public consciousness. This has led to an increase in the minimum wage in California, where it is mandated to gradually increase to $15/hour by 2022; and increased public pressure to raise farmworker wages in Mexico as well as a dramatic increase in certified fair trade produce coming from Mexico.  

Losers:

•Medium and Small Farmers: The price farmers can get for their crops is decreasing at the same time that they are paying more for on-farm labor. The result is that small- and medium-sized organic farms that sell produce into the national and international market are getting squeezed out. To deal with the labor increases, large farms typically turn to more mechanization, or move their operations across the border. Small- and medium-sized farms don’t have this option, and even if they did, they are often committed to less mechanized, more sustainable farming methods and to staying in the communities where they live.  

•Distributors: At the same time that small farmers are feeling squeezed, the distribution houses that typically buy their produce and market it to retailers are seeing a decline in business. Huge retailers have direct relationships with huge growers, and they don’t need to use the existing distribution chain. 

•Medium and Small Retailers: Yep, that’s stores like your Co-op. We’re seeing a decline in sales dollars, while we’re selling the same amount of produce as in years past. The money that we recoup to pay our staff and other operating expenses is a percentage of the selling price, so when prices go down, we also get less to cover our bills. 

     Despite this, it still takes the same number of produce stockers, buyers, and receivers to ensure you’re getting the high-quality produce you rely on us for, and we’re committed to paying those people a good wage. That commitment will not waver, but it definitely becomes a tougher equation in the current climate. 

•Consumers: Yes, I include consumers as both winners and losers. Price has declined, to be sure, but at the same time, real consumer choice has also declined. As the small- and medium-sized farms get squeezed out and our distribution network is increasingly stressed, we aren’t able to gain access to as many products from small- to medium-sized non-local farms as we used to. Increasingly, what’s available to us is from the very large companies that now dominate the market.

     Luckily, we have really strong relationships with a network of wonderful small Wisconsin farms that keep us stocked through much of the summer. However, if you are one of the majority of our Co-op Owners who wants to buy fresh lettuce, broccoli, or cucumbers during the winter months, there just aren’t as many choices as there used to be. 

So, what’s a Co-op Owner (or a Co-op Purchasing Director) to do in this new world of organic produce? 

We are now onthe front lines of a changing produce supply chain, and the choices that we collectively make can make a real difference in how the organic produce industry develops in the years to come. 

Unfortunately, there are no easy answers. What I hear from Owners is that you want lower prices, you want to know that the farm workers picking your produce get fair wages, and you want to know that we are supporting small farmers everywhere who use sustainable and ethical growing practices. Produce that perfectly fulfills all three of these requests is getting harder and harder to find. 

That said, we are committed to doing our best at the things we’re good at: continuing to inform you, our Owners, about complicated issues like this so you can make educated decisions about what you buy; and to offering as many choices as possible in the organic produce aisle and beyond. Making a variety of options available is just the beginning, though; what you purchase drives what we sell at your Co-op, and by purchasing the products that represent the food system you want to see, together we will be able to effect real change.

 

 

 

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