Some organic farmers contend Whole Foods is quietly using its formidable marketing skills and its credibility to convey that conventionally grown produce is just as good — or even better — than their organically grown products.
Like a whale and the myriad barnacles clinging to its sides, Whole Foods Market and organic farmers have long had a symbiotic relationship.
The grocer has helped stoke the American appetite for organic products, building stores that are essentially showcases for organic fruits, vegetables and flowers tagged with the names of the farmers who grow them.
That mutually beneficial relationship is fraying, as Whole Foods faces increasing competition from mainstream grocery chains and as organic farmers find more outlets for their produce.
Some organic farmers contend Whole Foods is quietly using its formidable marketing skills and its credibility with consumers to convey that conventionally grown produce is just as good — or even better — than their organically grown products. Shoppers can choose from fruits and vegetables carrying the designation of “good,” “better” or “best.”
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The longtime suppliers to Whole Foods are complaining that the program called Responsibly Grown can grant a farmer who does not meet the stringent requirements for federal organic certification the same rating as an organic farmer, or even a higher one.
Conventional growers can receive higher rankings than organic farmers by doing things such as establishing a garbage-recycling program, relying more on alternative-energy sources, eliminating some pesticides and setting aside a portion of fields as a conservation area.
“Whole Foods has done so much to help educate consumers about the advantages of eating an organic diet,” five farmers wrote in a letter sent Thursday to John Mackey, co-founder and co-chief executive of Whole Foods. “This new rating program undermines, to a great degree, that effort.”
Tom Willey, who has been farming organically for more than 40 years in and around Madera, Calif., and others say the program is a subtle way of shifting the costs of a marketing program onto growers.
“The reports we’re getting from speaking to farmers around the country are that they are spending anywhere from $5,000 to $20,000 to comply with this program,” said Willey, one of the farmers who signed the letter.
That Willey and other organic farmers, all of whom played significant roles in determining the federal regulations, are speaking out publicly is another indication of how much competition Whole Foods is facing from mainstream-grocery chains such as Safeway, Wal-Mart and Costco, not to mention farmers markets and food cooperatives, which are booming.
Farmers are not the only ones concerned about the impact of competition on Whole Foods. The company’s stock is trading near a 52-week low after falling 14 percent in May, when Whole Foods said comparable-store sales were up 3.6 percent, lower than Wall Street anticipated.
In addition, its gross profit margin dipped below 36 percent, which is still better than Costco’s at 13 percent and Kroger’s at 21 percent, but considered a sign of competition’s damage.
Sales of certified-organic products are skyrocketing, with sales up more than 11 percent last year to roughly $39 billion, according to the Organic Trade Association.
The surge in demand has been a bonanza for organic growers and companies. Organic berries now account for about 15 percent of sales at the berry company Driscoll’s, for instance, up from 10 percent five years ago.
“We definitely see demand for organic berries growing at a significantly faster rate than demand for conventional berries,” said Soren Bjorn, executive vice president of Driscoll’s. “We estimate it’s about twice the growth rate.”
The organic berries also bring a premium price, Bjorn said. Organic strawberries, for instance, sell for as much as 35 percent more than their conventional cousins.
Mackey, in a conference call last month, acknowledged the impact the rising demand in organic foods was having on his company. “We’re doing all we can, but the reality is, there’s more competition,” he said.
Costco has become the biggest purveyor of organic foods, selling some $4 billion worth in the past year, compared with an estimated $3.6 billion in organic sales at Whole Foods, according to Kelly Bania, an investment analyst at BMO Capital Markets.
Wal-Mart, which had a robust organic business, said last year that it was expanding the category, and General Mills and Campbell Soup have announced intentions to expand the organic pieces of their businesses substantially.
To compete with stores offering goods at lower prices, Whole Foods has announced plans for a new store concept named for its private label line, 365, which will also sell some branded goods mainly aimed at millennial shoppers.
The company has not said whether it planned to offer organic produce in the new stores, only that it will provide “high-quality, fresh foods.”
“Back in the day, Whole Foods was buying half of all the organic produce in the country; they helped a lot of organic farms get going,” said Jeff Larkey of Route 1 Farms, who grows a variety of fruits and vegetables on 65 acres north of Santa Cruz, Calif. “Now they’re competing with the large supermarkets, and that may be one reason they’re trying to make conventional look better.”
Larkey used to sell to Whole Foods directly, but today, most of his products go to restaurants through distributors or to smaller grocers such as New Leaf Community Markets. If Whole Foods gets any of his products, it does so through a broker in San Juan Bautista.
“Becoming organic is a big investment of time and money,” Larkey said. “This ratings system kind of devalues all that; if you can get a ‘best’ rating as a conventional farmer using pesticides and other toxic substances, why would you grow organically?”
Jumping through hoops
Matt Rogers, associate global-produce coordinator at Whole Foods, said the program was an attempt to help consumers make choices, and he noted that by forbidding some, if not all, pesticides and awarding points for conservation and reduced water use, Whole Foods is raising the bar for conventional suppliers and inching them closer to organic standards.
“Organic is an incredibly deep standard, and at Whole Foods we celebrate that in very consistent, long-term ways,” said Rogers, who worked for more than three years to put the program together. “But the organic standard does not cover water, waste, energy, farmworker welfare, and all of these topics are really important, too.”
That means, however, the conventionally grown produce may end up with a higher rating. For instance, photos taken at a Whole Foods store in Capitola, Calif., and included with the farmers’ letter show a heap of conventionally grown asparagus from Mexico that is rated “best” for $4.99.
Another photo, taken at a Whole Foods some 30 miles north in Cupertino, shows a pile of organic asparagus from Durst Organic Growers that is rated “good,” the lowest Responsibly Grown rating, for $7.99.
Jim Durst, the proprietor of Durst Organic Growers in Yolo County, Calif., chuckled when the photos were described to him. “Why our asparagus is ‘good’ and not ‘best,’ well, maybe we didn’t fill in the blanks correctly or didn’t have it done on time,” Durst said. Other Durst products have been rated “best,” he said, adding that Whole Foods has helped his business grow.
Jim Cochran, co-founder of Swanton Berry Farm, the first certified-organic berry farm in California, said he had sent more berries to other distributors recently because he found the ratings program cumbersome. He noted, however, that “it doesn’t represent some sort of unbridgeable rift with Whole Foods.”
His business with Whole Foods has shrunk markedly in the past two or three years, in part because of drought, in part because it has become harder to eke profit out of strawberries.
“I’m not real excited about having to jump through all the hoops and further support this program,” he said. “I’m hopeful that, as it has in the past, Whole Foods will make some modifications.”
Rogers of Whole Foods said the program would evolve. About 200 of Whole Foods’ suppliers — a relatively small number, Rogers said — accounting for more than 60 percent of its produce and floral offerings, have gone through the Responsibly Grown program. He said Whole Foods would work with farmers who have trouble paying to participate in the program.
He acknowledged that conventional farmers can get a “best” rating while continuing to use various pesticides, while organic farmers are largely barred by federal regulation from any pesticide use. A conventional potato grower for Whole Foods, for example, might spray the herbicide chlorpropham on potatoes to prevent sprouting, which is not allowed in organic production but permissible in the Responsibly Grown program.
“Organic farmers have other advantages,” Rogers said, noting that they could win 78 of 220 points required for a “best” rating simply because of things they already do to get organic certification.
“This program is our reaction to a fast-moving marketplace that gives us an opportunity to engage on these issues with our supply chain in a way we haven’t been able to before,” Rogers said. “None of that reduces the value of organic certification; it’s just there are more things now on the table that we as buyers have to understand and address.”