Bigger and badder: Prof. Phil Howard on consolidation in the organic industry
You've probably seen the work of Phil Howard, even if you don't know his name. He's the professor behind those massive colored charts that show how most organic brands — usually the ones with the bucolic farms on the packages designed to make you feel all warm and fuzzy — are actually owned by large multinational corporations.
Recently Phil, who is an assistant professor of community, agriculture, recreation and resource studies at Michigan State University, alerted me that he had collaborated with Skye Bender-deMoll, an author of Stanford University's SoNIA program (for Social Network Image Animator), on a short animation of the consolidation of the organic industry since 1997. It's pretty mesmerizing. He let me play with it, add credits and a little music, and post it to YouTube.
Unfortunately, YouTube's compression algorithm makes it hard to read the brand names, but Phil has a 9-MB, full-resolution Quicktime version on his MSU website that you can watch instead if you want to track individual hippie-sounding minnows like Walnut Acres and the Organic Cow of Vermont as they get snapped up by the sharklike Heinz, General Mills, et. al. (He has all kinds of cool stuff on there, including other useful graphics, and a comprehensive database of books and films about community, food, and agriculture.)
Phil has been following the sustainable-food movement a long time. He says that although he first joined a CSA back in 1993, it wasn't until he started his Ph.D. program in rural sociology at the University of Missouri in 1998 that he became interested in studying the food system. After that, he did his postdoctoral research at UC Santa Cruz's Center for Agroecology and Sustainable Food Systems, joining MSU in 2006.
We spoke by phone from East Lansing, Michigan, last month about the impact of this trend toward corporate monoculture, concentration ratios, the Whole Foods-Wild Oats merger, and more.
What changes have you observed in the past 10 years?
Well, the consolidation just continues. It seems like the antitrust laws that are on the books from the populist and progressive eras are hardly being enforced. But that’s contributing to a reaction, and so we've seen the rapid growth of farmer’s markets and CSAs. Which is tiny compared to what’s going on in the mainstream system, but it may not stay that tiny forever.
It seems to us that a tipping point has been reached, but I worry that's wishful thinking. Less than 2% of food sales occur from farmers markets, CSAs, and so-called natural food grocery stores. This movement has been in progress for a long time — and that's all it's got to show for it?
Yeah. But it’s remarkable how much popular interest there is now. To have on the bestseller list books like "The Omnivore’s Dilemma," and "Animal, Vegetable, Miracle" and movies like "King Corn" — a few years ago I wouldn’t have expected that to happen. And more young people seem interested in becoming farmers now. There is a lot of hope there even though change is slow. A lot of people within the movement talk about how the change doesn’t occur overnight. We need to think in terms of decades and maybe even a hundred years in some cases.
How depressing. OK, so why should consumers care about industry consolidation? People are always complaining about how they’d love to buy organic but it’s just "so expensive." Isn't this sort of democratizing organic?
Well, I think it’s mixed. If you look at dairy milk, prices have declined as Aurora and Horizon have scaled up organic to industrial scale. Consumers have seen lower prices at the grocery story, but it’s come at a cost and there’s been a lot of controversy about having organic dairy in these basically factory-feedlot-style operations. Consumers have a very different perception of what organic is supposed to be, and that’s typically not what they have in mind when they’re buying organic. There are classaction lawsuits being filed by consumers against Aurora due to all the controversy about the USDA’s basically saying they weren’t following the letter of the law of organic. Consumers feel like they’ve been ripped off.
Does bigger have to mean badder? When Whole Foods CEO John Mackey met up with Michael Pollan to discuss Pollan's depiction of Whole Foods as "Big Organic," he was basically arguing the Google mantra, that it's possible to be a billion-dollar business and not be evil.
Well I think it’s very, very difficult. I don’t know him, so I don’t want to say he’s not being truthful. But I think if you look at the lot of the people who have gone public or sold out to larger companies, you see a lot of disillusionment. Although Ben & Jerry’s wasn't doing organic before Unilever bought them, you look at their story and how disillusioned they were with what happened after Unilever took over. Steve Demos of Horizon, after he sold out to Dean [Foods], apparently he was not happy with the way things went. There was a case where they started importing a lot of soybeans from overseas rather than buying from U.S. farmers. And I don’t know if that was his issue.
It depends on what you really value. If your main interest is in reducing use of synthetic pesticides, then yes, Big Organic is a good thing. But if you’re concerned about other issues, like a fair price for farmers and decent wages for farmworkers and humane treatment of animals and so on, packaging, how far the food travels, all those things tend to get short shrift when organic gets really big.
Economists are always arguing that unless the organic industry is able to scale as other sorts of commodities have, then it won't be able to feed the world. Isn't it inherent to our capitalist society that to be successful, any business must get big and therefore make compromises?
Well, I think there are examples where it doesn’t have to happen that way. I mean I have one chart with some of the people who haven’t sold out [below]. A lot of them are continuing to grow, but at the pace that they think is right – one that doesn’t force them to cut corners. If you look at organic, it was growing very fast, and it took off even faster after the national organic standards because big corporations got involved and were able to put their distribution and marketing behind it. But I don’t think there’s any question it would have continued to grow even without those national standards.
Have you talked to any of these independent brands to find out why they’ve resisted being acquired?
Some of them. Many felt like they didn’t want to compromise their values, or in some cases they had a strong commitment to staying in the business with hopes to pass it along to their children. If you look here in Michigan, Eden Foods, which produces all kinds of different foods from canned beans to popcorn, they’re pretty vocal about their dissatisfaction with what the USDA Organic stamp represents and what the Organic Trade Association represents.
It's tempting to say that independent brands that didn't sell out are somehow ideologically superior. But surely others may have just thought they could maintain their values within a larger company?
In some cases they have been able to do that. Look at Stonyfield Yogurt: Danone has been pretty handsoff. And I think they will continue to be as long as they’re seeing those growth rates and those profits. But if they start to slow down, then you see what happened with Ben & Jerry’s. Those ethical ideals are the first things to get cut.
Supermarkets also tend to favor large brands that can afford to pay slotting fees, ensuring shelf placement. Which means smaller brands are kind of locked out of the market in general, aren’t they?
Yeah, definitely. Some of these companies that are still independent have mentioned that they couldn’t make it today if they were just starting out. Organic is so big that they couldn’t get into the distribution networks. One case that was well publicized was how it cost tens of thousands of dollars to get a jar of pickles on the shelf of the supermarket in a city in Florida. So yeah, that’s a factor that even the people with a lot of strong ideals might feel like they have no choice but to sell out or go out of business.
Could you explain the concentration ratio theory of economics and how it relates here?
Sure. The brief version is that if you look at the total sales in a particular sector and add up the percentage of the sales just for the top four firms, if that equals 40 percent or more, economists would traditionally say that market is no longer competitive. Because you have the ability to do things like signal your intention to raise prices. And when there are so few firms dominating that larger percentage of the sales, it’s in everyone’s best interest to follow suit when one firm decides to raise prices. It gets a lot more complicated than that. That was before the Internet, and now it’s become much easier to communicate with other firms and to signal all kinds of things. The tough thing is that in some sectors consumers really haven’t borne the brunt of the lack of competition. Consumers are seeing relatively low prices, especially in the U.S.
Such as for food.
Yes. We pay a lower percentage of our incomes on food than any other industrialized country. It’s more the farmers, the producers, the workers who are getting squeezed. I mean there are exceptions. Cereals, for example, is dominated by a few firms. There have been cases – well, there have been suits at least, accusing those firms of price fixing.
Well almost every sector of the food chain has concentration ratios over 40 percent, don't they? Every meat sector and major crops except for fruits and vegetables?
Meatpacking’s a great example because it’s more concentrated now than it was when they broke up the trusts. The meat trust was one of the big trusts that everybody worried about.
So what about the Whole Foods/Wild Oats merger? I noticed that you have a chart showing the overlap of their stores' locations. How will the deal affect the concentration ratio in natural foods?
I was a little surprised that the Federal Trade Commission was so adamant about blocking it. I guess they don't worry about these mergers that affect the workers and the farmers and so on. It’s more about the consumers. But there have been much bigger mergers in nonfood sectors that they have not opposed. And there’s so much competition with Kroger and Supervalu and so on creating Whole Foodstype stores – their argument that Whole Foods is dominant in that sector isn’t overwhelmingly persuasive.
Do you think the merger will be harmful to farmers – organic as well as beyond-organic farmers?
That’s tough to say at this point. One of the great things about Mackey is that he has such a thin skin. Just some criticism from Michael Pollan can get him to take action. It may be window dressing, but they're bringing back in some of the farmers who used to sell direct and then got kind of shut out when they centralized their distribution system, and making loans available for farmers. So in the short term, maybe it’ll be even more beneficial to have continued growth in Whole Foods and more opportunities to sell directly and so on. But long term, it’s a publicly traded company. He’s under pressure from his investors to increase sales, which are beginning to slow. Who knows how long those type of programs will really hold.
Is there any hope for sort of small, independent organic producers given the competition from big corporations and even supermarkets with their own organic house brands?
I think so. Consumers are becoming more aware of kind of the limitations of a global, industrial, consolidated food system, and that’s part of what’s driving interest in organics. I mean, if you look at the motivations for buying organic, health is way up there. But as we see more of these food-safety scares, I think more and more people will question the mainstream food system. People start to buy organics; they start to rethink other values. They start shopping at farmer’s markets and joining CSAs and becoming more critical of just the USDA Organic label. In general, this is a good thing, and it is reducing the amount of synthetic pesticides that are used. It’s just a constant battle to redefine what those more holistic values are, the ones that have been lost in what used to be the organic movement. At this point, they’re going to have to come up with another word for it.
Yeah. We flog our acronym SOLE food, but it’s not really catching on, darn it. Thanks for talking to me.
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