Costco isn’t exactly where you’d think of shopping for natural products, but they certainly starting making their mark on the organic food market.
In fact, Costco has such a huge demand for organic food that the bargain giant can’t supply the needs of their shoppers. Actually, they’re currently one of the largest distributors of organic food products in the United States.
Costco Organic Food Demand Rises
Currently surpassing $4 billion in annual sales from organic produce, Costco has even eclipsed Whole Foods’ market share (1).
“We cannot get enough organics to stay in business day in and day out,” CEO Craig Jelinek told investors during a shareholder meeting.
And so, Costco is trying an unconventional yet very logical solution: they’re offering financing and loans to US farmers who want to grow organic produce for them. The loans will help farmers buy land and equipment. In exchange, the company will have first pick of any produce grown on the farm (2).
So far, Costco has helped San Diego-based Andrew and Williamson Fresh Produce purchase 1,200 acres in Mexico, but they hope to help out more farmers in the near future.
“By helping them with financing, we got access to and purchased about 145,000 cases of organic raspberries that we normally would not have access to,” said Jeff Lyons, Costco’s senior vice president of fresh foods. “Because they normally would not have done the deal or could not have done it. Or, if they could have, we may not have gotten first dibs.”
While Costco’s main motivation is to supply their customers, they’re also considering the farmers.
“There are lots of discussions going on,” Lyons told the Times. “The challenge for the farmer is: ‘We may go down this road and what happens if something bad happens?’ We have to make sure we don’t get them in a position of financial trouble. We need to make sure the loans are totally secure.”
The Challenge Of Organic Farming
Organic farming still has its challenges- mainly scarcity of land and cost.
The U.S. Department of Agriculture has set the transition period to go from conventional to organic farming to three years. This period allows for pesticides and other non-organic substances to wash away from the soil. Hence, even if you grow food on conventional land using organic practices, it takes three years before the produce can be certified organic
“The difficulty is that in this three-year window, you’re using organic methods but you’re only getting conventional prices for what you’re selling,” explains Will Rodger, director of policy communications with the American Farm Bureau. “The margins right now are better on organic produce. But you have to take that three-year hit.”
The switch often also requires new equipment and new processes to grow and manage the crops, which translate to more costs. Plus, virgin land that is ready to grow organics is scarce or excessively expensive.
A Rising Trend
Despite the initial cost, other food companies are going down the same route: Nature’s Path and Pacific Foods have purchased their on farms to grow produce and meat require to make their products. Chipotle has also begun offering financing for farmers who want to switch to organic crops, According to the Wall Street Journal (3).
Smaller chains, like Whole Foods and PCC Natural Markets, are also doing their part through loan programs and the preservation of farmland.
Costco’s bold move may be a surprise to consumers, but it’s hardly uncharacteristic. In recent years, the giant acquired a poultry plant in Alabama dedicated to raising chickens for the fresh meat and rotisserie chickens it sells.
They also started working with a Mexican fishing company to supply wild shrimp instead of the popular Thai-caught shrimp, which have been involved in a human-trafficking scandal. Costco is even in the process of writing up a contract with an organic cattle farm in Nebraska.
“A few years ago, Craig [Jelinek] came to me and said: ‘Fresh food — we need to have sustainable lines of supplies into the future,'” explains Lyons.
Can More Be Done?
Although this is great news, some argue that more could be done: “Our preference would be that they employ regenerative farming practices that address global warming by restoring soil health,” commented Ronnie Cummins, the international director of the Organic Consumers Association. “But the project is a step in the right direction.”
As Costco’s recent actions have demonstrated, there’s nothing stopping the organic food movement. It’s estimated that organic-food sales reached nearly 5 percent of total food sales last year. Plus, according to the Organic Trade Association, the sales of organic food jumped from $11.13 billion in 2004 to $35.95 billion in 2014.
Meanwhile, organic farmland makes up only about 1 percent of U.S. farm acreage and many organic retailers must rely on imports to meet customer demand.