GLOBAL TECH GIANT Amazon’s expansion into food retailing has wowed the financial markets, but is a real problem for farmers.
In the USA, the online retailer Amazon (worth $US470 billion) has bought Wholefoods for $US13.7 billion to accelerate its move into food retailing.
Big dollars for an average investor, but just a minor side bet for Amazon.
That caused the share price of Woolworths and Coles to slide in Australia because Amazon is stirring the Sydney, Melbourne and Brisbane industrial shed market, buying-up huge distribution centres for their move into Australia.
The financial market experts are all excited about the possible disruption to our grocery market, with predictions of drones delivering fresh produce to the front door of urban consumers. And Amazon/Wholefoods is particularly aimed at organic foods. The hipsters can hardly hold their pants up.
But, and this is just a very practical, down to earth ‘but’, what about the farmers and food producers and packers and manufacturers?
When Aldi last year started its push into fresh produce, it caused a stir in the produce markets and supply chains. And they are a minnow compared to Amazon’s financial firepower and market ambitions.
A further complication is that Amazon, in its trials mainly in north-western USA and the UK, has concentrated on organic foods.
Without debating the science of whether organic foods are actually better (the vitamin and mineral content in organic fruit and vegetables is often lower than an ‘industrially’ grown produce), they are very sexy for consumers — and more profitable for retailers.
But there’s often not much in it for farmers. They might get paid a little bit more, but the risks and costs are often much higher.
Last year, chicken manure was trucked nearly 1,000kms north from chicken farms around Gympie to north Queensland to prepare ground for some organic produce. Not many chickens are grown in big sheds in north Queensland because of heat and the effect of cyclones (piling dead chickens in the corner of a shed), so there’s a lack of chook poo — a major need for organically farmed vegetables.
Then you have to grow without fertiliser or chemicals for three years, getting lower outputs but the same ordinary prices, until your land is certified organic. That’s a very big investment. It is a big cash flow hit for a few years, but significant labour cost implications for a ‘perhaps’ increased return.
It’s the reason not many farmers have gone the whole organic transformation.
Already US farmers have run the calculator over the Amazon purchase of Wholefoods and wonder where all the extra organic produce is coming from to meet their hugely aggressive sales growth targets.
It’s possible existing organic food suppliers are about to make a motza over the next few years as Amazon and existing supermarket chains battle it out for organic produce.
Or, as shown in court cases last week, the sneaky supermarkets did dodgy deals with overseas suppliers whose commitment to supply organic grain and packaged produce was shown to be nothing more than faking documents of origin and slapping ‘organic’ labels on standard produce.
It’s all very well for the marketing gurus and strategic planners to develop impressive computer graphics showing a huge growth in organic produce driving their tech savvy online retailing, but someone needs to grow the produce — organically or not.
And be paid a reasonable price for the extra effort and risk!