Walmart understands the growing consumer preference towards organic food. The food industry has experienced notable shifts owing to increased sensitivity in what consumers buy and how the food they eat affects them. In the United States, obesity is considered a health hazard, which is due to consumption of fast foods. Health professionals have warned against dependence on fast foods despite the convenience they bring to consumers, such as less time of preparation thereby allowing one to carry on with other urgent activities. Even if that is the case, fast foods are causing more harm than good as such health conditions as obesity lead to a population that is not physically fit. This undermines the country’s economy in terms of access to labor, thereby being forced to outsource talent, which is considerably expensive. Having such an understanding, Walmart stands to gain from delving into the production of organic food.
Rationale to produce
There are various options, which Walmart can choose as pertains to venturing into the organic food market as a producer and not retailer. For instance, the company could form a relationship with an already existing producer of organic food. From such a partnership, Walmart could invest branding the products to create consumer awareness of its presence in the organic food market. However, it is important to consider that despite there being growing consumer preference towards whole foods, organic food companies continue to suffer due to small profit margins. Brian Stoffel (2017) noted that there is no security that these companies are adhering to the various laws set forward for farmers when it comes to growing organic foods. Some of them are using, for instance, herbicides and pesticides, which are not recommended for organic produce. This has led to increased concerns from consumers who want to know the processes that these companies take when growing organic foods.
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Production and costs
In order to avoid it is recommended that Walmart invests in becoming a producer of organic foods. That being the case, the company should consider factors of production such as labor, land and capital. When it comes to labor, this is considered a fixed cost because the company will have to come up with a payment plan for its workers. Variations are bound to exist as there will be different positions based on rank. As an example, in order to ensure safety and security of food grown, the company will have to invest in experts who have knowledge regarding this particular area of interest. These individuals are not likely to receive the same salary as those who are tasked with operating required machinery. In regards to land, this will fall under a fixed cost as the company will either, for instance, lease for a particular period at a particular fee. The cost of establishing a security system such as a fence around the farm is also fixed as this is done only one. However, if it is an electric fence, the bill is likely to fall under variable cost following differences in consumptions. Lastly, capital involves such things as machines, trucks to transport the products, buildings to package and brand them, among others. Some of these resources such as machines and trucks fall under variable costs as, for instance, the cost of operating them varies. For instance, the price of fuel is not expected to remain constant in the economy meaning that changes are likely to affect Walmart’s investment in these resources.
Impact of choice of inputs
Compared to other activities, farming is also vulnerable to changes in, for instance, climate. This means that there is a likelihood for some seeds to experience difficulty growing under certain conditions over others. That being the case, the company would be expected to invest in other breeds of seeds, among other inputs such as the soil or manure used. Such changes are expected to be in response to variations in the environment, thereby ensuring that there is constant flow of a particular product. Other factors such as environmental policies are likely to affect the company’s investment in trucks used to transport the products to its stores. As an example, the Environmental Protection Agency (EPA) has demonstrate the need to low carbon dioxide emissions through establishing vehicle and engine performance standards covering truck models for the years 2021-2027. This could affect Walmart’s decision on what trucks to purchase that adhere to the agency’s recommendations of engine performance.
Recommendations
Organic farming is vulnerable to challenges one of them being minimal global presence as it occupies about 1% of the cropland (Crowder & Reganold, 2015). From a financial perspective, this means that companies involved in production of genetically modified foods are growing or rather occupy a bigger portion of the globe’s cropland. However, it is important to note the shift towards organic food as individuals are making healthier foods choices. There is fear in consumers that genetically modified foods will lead to health problems, which is true, and that being the case, they are moving toward foods grown organically. Therefore, Walmart should consider investing in this industry and focus on the long-term benefit. According to Crowder and Reganold (2015), despite there being lower yields in organic agriculture, there is significant profit generated compared to those who have invested in conventional agricultural techniques. Furthermore, there is room for global expansion, in addition to environmental benefits, which lead to sustainability. These aspects are bound to place Walmart at an advantage over its competitors in the market.
References
Crowder, D. W., & Reganold, J. P. (2015). Financial competitiveness of organic agriculture on a global scale. Proceedings of the National Academy of Sciences of the United States of America , 112 (24), 7611–7616. http://doi.org/10.1073/pnas.1423674112
Stoffel, B. (2017, September 10). Organic Food Companies: Should You Invest In the Growing Health Trend? The Motley Fool . Retrieved from https://www.fool.com/investing/2017/09/10/organic-food-companies-should-you-invest-in-the-gr.aspx
