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DAVID KRUSE

By Staff | Jun 8, 2012

If Big Box food retailers can buy local produce that is superior quality more cheaply, then they should do it.

If it lowers transportation cost and makes business sense, it is the thing to do. Too often though, what ends up being the case is that they go back to re-discover the wheel and find out why it is round.

It is just like the New York chef that spent three days cutting up a beef carcass only to have too little of the cuts he wanted and too much left over that he couldn’t use.

He validated the value of the boxed beef system delivering him just the product that he wanted with the quality he needed at a lower price.

He rediscovered why boxed beef dominates the supply chain.

In an attempt to appeal to the “foodies,” Wal-Mart reportedly wants 400 local vegetable/fruit suppliers for each one of its Super stores. They are going to find out several things in the process.

One big one is that you can’t grow fruits and vegetable outside in the winter in much of the U.S. That’s why we get them from Texas, Florida, California and Mexico.

They will find out that so many small local suppliers are difficult to manage and they will be unreliable. They will be subject to local weather conditions.

This week, the produce may be local and next week it is not. Consumers like product consistency and that is hard to always get locally. They will find out that there are good reasons why half of U.S. fruits and vegetables come from California. We don’t raise oranges or head lettuce in Iowa.

Winter greenhouses defeat the energy saving purposes Wal-Mart is trying to promote.

One other thing that Wal-Mart would need to do is get rid of those signs that say, “The lowest price always.” They would have to get used to being beaten on price on local produce.

Low prices were how they put their competition out of business. Placing new demands on their supply chain for reasons called “sustainability” will raise prices, not lower them. That is what monopolies are supposed to do, isn’t it?

They lower the price to kill competition and when they have that done, then they raise the price to cash in. Wal-Mart’s newly remodeled supply chain appears to be abandoning the price competitiveness.

This was the model through which it gained its market share and is moving under the mantra of “sustainability,” which will increase consumer food costs. Wal-Mart claims to have accepted the need to fight climate change through its supply chain. If it can save on transportation costs, who would have a problem with that?

The change goes much deeper, however. Wal-Mart and other major food companies are now starting to flex their market clout through their supply chains telling egg producers they can’t keep birds in cages and hog producers what kind of sow housing they can utilize in order for them to be included in their supply chain.

It did not come to the defense of LFTB, which is just beef, so only work the “foodies” side of the food aisle. Ultimately, consumers will see no benefit and actually be damaged by this, but it will be sold a bill of goods, told that the investment was worth it.

It isn’t just livestock producers who are being increasingly told what practices they are required to accept in order to participate in supply chains. The day is coming when demands will be made of grain farmers, too.

Wal-Mart wants products made with “sustainable flour,” which originates from sustainable wheat. Who decides how sustainability is defined – Wal-Mart? or foodies? or environmentalists?

This is ironic as all these demands put on the supply chain raise costs and Wal-Mart consumers are typically the lower income consumers who specifically are most concerned about the low cost.

By moving up the food chain, trying to attract more “foodies” as customers, Wal-Mart will raise food prices on the very people who can least afford them.

The pork industry is considering dedicating a slaughter plant that only kills hogs produced from sows in group housing as Wal-Mart demands and is going to charge them more for the pork because the costs are higher from such production.

Producers will be forced to decide whether to give up control over management practices on their livestock and crop production for the right to participate in the food supply chain. That, I suppose, will be an economic decision. If you define sustainable as organic or non-GMO, and Wal-Mart adopts that model, then they will use more land resources that will negatively impact food production overall.

Will I buy local produce? Absolutely. The green beans, tomatoes and sweet corn is great in season; but there are no farmer’s markets in February in Iowa and plums from Peru or peaches from California are great, too.

I think that virtually all flour is sustainable, LFTB is just beef and sows are safer in gestation crates, but that’s just me.

I get to decide whether to participate in the Wal-Mart supply chain, too, and this gives me a reason not to.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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