Wal-Mart: Alien Resurrection in the Local Food Movement

This blog posting is commentary on Wal-Mart’s press release issued today: “Sustainability Center Receives Grant from Wal-Mart Foundation”

Despite recent analyses to the contrary (Has Wal-Mart buried Mom and Pop?), it is legend among both media and public alike that Wal-Mart has negatively impacted numerous small businesses. In Iowa alone, it has been estimated that the opening of Wal-Mart stores resulted in the failure of no less than 555 grocery stroes, 298 hardware stores, 293 building suppliers, 161 variety shops, 158 women's stores and 116 pharmacies - for a total of 1581 business failures.

From the cries of small natural food suppliers on the Coop America listserve to websites like Wal-Mart Watch to the numerous "Why I hate Wal-Mart" blogs and postings, Wal-Mart's role as a disruptive force, particularly in the American food system, continues to reverberate.

Yet in all fairness, there are signs of positive change, particularly on the environmental front. More recently, Wal-Mart improved the fuel efficiency of their fleet, launched a campaign to reduce packaging and is promoting “sustainable” products to customers: selling energy-efficient light bulbs (100 million sold by October 2007), or concentrated detergents that use less water (saving 400 million gallons of water). The environmental savings numbers are testimony to the resounding impact the company has when it changes even one small policy.

But what of its role in our U.S. food distribution system?

Is Wal-Mart’s story changing – as on the environmental front?

Certainly fundamental changes underly the US Food system itself.

Watershed Changes in the US Food Industry, Distribution & Consumers

Over the past five years, and particularly recently with the U.S. economic turmoil, changes are afoot that have not escaped Wal-Mart’s corporate intelligence. In particular, several events in the 2007-2008 time frame are combining to make local growing using clean sustainable farming techniques extremely popular and local distribution economically appealing. These include:

Growing Food Safety Concerns. In recent years, there have been a number of food crises, starting with 2007’s E. Coli outbreak in spinach, contaminated pet food from China and, more recently, the finding of salmonella in tomatoes, sickening 228 people in 23 U.S. states. More people are aware of the distressing statistic that less than 2% of imported food is inspected by the FDA. The multiple food crisis events are taking their toll: A 2007 study by the Food Marketing Institute shows that only 66% of U.S. consumers are confident that food is safe, down 82% form the year before.

Price of Oil/ Rising Gas Prices. Although on a short-term downward hiatus now, there is consensus that the price of oil and gas is likely to stay high long-term. The concern of "food miles" is spreading out of the environmental population to the broader mainstream. U.S. Consumers are becoming increasingly aware of the absurdity that the average salad travels 1500 miles before reaching their table. By the same token, rising prices put increasing price pressure on food retailers – even Wal-Mart.

Food Price Inflation Over the past two years, with food stocks like corn and soy being repurposed for the new biofuels, combined with increased energy and transportation costs, U.S. food prices overall have soared. Food prices, which had taken the biggest one-month leap in 18 years in April 2008, rose by a more moderate 0.3 percent in May, but that still left food costs rising at a 6.3 percent rate so far for the year, well above last year's increase. People are paying 10.2 percent more for milk than a year ago.

New Generation of Consumers: Locavores and the Growth in Community Supported Agriculture

Related to the above trends, Community Supported Agriculture (CSAs), where food buyers support their local harvester through development funds, has especially mushroomed: According to Local Harvest, the number of CSAs in the U.S. was estimated at 50 in 1990, and since grown to over 1000. That's a 20-fold increase over 18 years of a CAGR of 18.1%.

Reviewing these trends, a large retailer like Wal-Mart can see the emergence of the locally grown food movement and, more importantly, its confluence with its corporate imperative, i.e. low price leadership.

Wal-Mart's Insertion Point in the Sustainable Food Movement

In July, Wal-Mart pledged to source more local fruits and vegetables. In that same press release, Wal-Mart, the nation’s largest purchaser of produce, noted that 20% of the fresh produce in its supercenters in the summer was already local.

Is this mere environmental lip service? Maybe not.

In a relatively obscure press release issued from Fayetteville, Arkansas, today it was announced that the Wal-Mart Foundation has given a $549,976 grant toward the Agile Agriculture Program a program that seeks to create a sustainable food system that links small producers with large markets. What's more notable is that the Sustainability Center was established in 2007 with a $1.5 million gift from the Wal-Mart foundation. What’s even more notable is that this center was “founded on the belief that sustainability is one of the 21^st century biggest business challenges and opportunities”.

But does Wal-Mart mean it?

Wal-Mart: Resurrector of Agrarian Agriculture?

I started skeptically but re-read this press release no less than three times. De-constructing portions of the release reveals that there is not only excellent intelligence of the trends described above, but that the Applied Sustainability Center has people that understand the core issues in America’s food crisis.

The best way I can illustrate this is by parsing portions some important highlights of today’s Wal-Mart press release.

From the press release:

“The current reality is that most of this market need […a safe and reliable supply of food from a sustainable local food system] is unmet because small-and medium scale agricultural producers and processors do not have access to facilities to aggregate their products to provide scales needed by larger markets.”

My Translation: This refers to the size mismatch between the food capacity capabilities of local farms and retail food demand by U.S. consumers. (This is part of the reason Whole Foods, otherwise a great supporter of local farmers, relies heavily on its (owned) United Natural Foods, for the bulk of its organic produce supply).

From the press release: “In addition most small producers don't have necessary insurance, product traceability, documented food safety systems and other food distribution programs needed by larger distributors.”

My Translation: This is the market reality that only a handful of local farms have the food safety, legal and business infrastructure to interact with large-scale distributors.

From the press release: “Numerous local and regional efforts exist to fill the gaps…….but there is a desire to greatly expand these efforts”

Translation: I believe this a reference to the laudatory efforts of the Organic Consumers Association, Local Harvest and other NGO supporters of organic farmers, CSAs and local farmer’s markets. As admirable as their efforts are, and as much as these groups have singularly lifted media consciousness of the safe food issue, these groups do not have the capital resources to solve the problem nationwide.

But here's the coup de gras: the convergence of Wal-Mart's price imperative with the local food movement is captured well in the quote from Michele Halsell, managing director of the Univerisity of Arkansas' Applied Sustainability Center.

"Distributors and retailers are motivated by rapidly increasing transportation costs and the desire to reduce waste of expired produce and other perishable products."

Ay! There we have it. She put her finger right on it: The interests of local farmers, the American public’s demand for fresh, safe and competitively priced foods are also in the interests of Wal-Mart. Jim Mackey of Whole Foods once pointed out, "Wal-Mart spills more milk in one day than we move all year". Well- you can imagine how much Wal-Mart spills. We're talking alot of brusied, damaged produce carried over those 1500 salad miles.

The Actual and Possible Evolutionsof Wal-Mart

The crude drawing above shows an admittedly primitive populist view of Wal-Mart’s history in the relatively centralized American food distribution system. But it also shows the promise of its role in future distributed local sustainable food systems.

While Wal-Mart’s first 40-year stage of "creative destruction" of small retail outlets might have some truth to it, it is tempting to think: If the Wal-Mart Foundation's work with the Sustainability Center can be extended throughout its vast 3,550 U.S. store matrix, Wal-Mart might serve as the critical agent in bringing the nation back to local farms. (Note in a CSR sense, this would be akin to a Marshall Plan, rebuilding the local businesses lost due to its presence in a community.)

It remains to be seen whether the corporate giant will indeed make good on this potential. It certainly will take more than the $2 million investment in the Sustainability Center and require going far beyond sustainability speaker series, training, executive education programs and other academically oriented activities. It will require serious financial spreadsheets demonstrating the capital infrastructure costs of moving from moving from today’s fairly centralized food distribution systems to a highly distributed one. (Hint: It's not anytime soon, folks. And it's not realistic at all as a final endpoint for all Wal-Mart Centers, particularly those in high density population areas.)

We’ll know it’s a real corporate vector when a real Wal-Mart store, say a Neighborhood Market, becomes a test bed distribution point for local produce from local farmers and when the executives being trained in sustainable agriculture and distribution are Wal-Mart’s own divisional executives.

Oh yeah- and when the press release comes from Bentonville ;-)

But as Stephen Colbert might say, “[Food] Nation, this is not a bad thing! This is a good thing!”  Wal-Mart's moves toward sustainability should be applauded.  Wal-Mart may be an alien in the local food movement, but it alone has the capability to resurrect America's local agrarian food industry - better for our health, local farmers and not a bad idea for national food security.