Whole Foods Thinks Small

With Wal-Mart's (NYSE: WMT  ) behemoth powers breathing down the neck of the organic movement, Whole Foods Market's (Nasdaq: WFMI  ) recent pledge to support small farms is no surprise, even as it comes on the heels of heated criticism from a foodie author. After all, many of the people who are fans of the organic movement have pointed out the fact that as organic living grows more popular, industrialization threatens to co-opt the original intent.

Last week, Whole Foods said that it will earmark $10 million per year to support small organic farms that provide locally grown produce. The funds will allow Whole Foods to make long-term, low-interest loans to smaller farms; when the loans are paid back, the company intends to recycle the money back into additional loans in order to foster local agriculture in many of the markets where it has stores. Whole Foods also said that it will dedicate part of its stores' parking lots to local farmers' produce, in a nod to the "farmers market" idea most of us are familiar with.

CEO and co-founder John Mackey is responding to a critic -- Michael Pollan, who wrote The Omnivore's Dilemma -- who accused the company of not only helping further the industrialization of the organic movement, but also of not offering as much locally grown produce as consumers might think. (For some interesting reading, be sure to check out Mackey's open letter to Pollan, complete with Pollan's response and Mackey's rebuttal.) Although Mackey did defend Whole Foods' support of independent farms (22% of Whole Foods' products come from large corporate farms, while the remainder comes from smaller independent farms), in the end the loan initiative emerged during the course of the debate.

Pollan argued that Whole Foods has had a key role in both expanding the organic market and helping to change organics into big agribusiness, but I think the real story of big business embracing organics is Wal-Mart's recent encroachment into the field.

The traditional investor might think it's silly that Whole Foods would earmark funds toward giving smaller farmers and entrepreneurs a leg up, but it fits well into Whole Foods' long-term strategy. (Indeed, the Whole Foods Foundation was already supplying micro-credit loans in some of the developing world communities it deals with.)

If Whole Foods investors have been stressing out about the interest that conventional grocers like Wal-Mart and Safeway (NYSE: SWY  ) have shown in providing organic foods, I'd say this is a perfect example of why they shouldn't be worried. Whole Foods adheres to a different set of values and principles than many other retailers, and its customers are aligned to those values, which attract them to its stores (and its shareholders are likely prepared for such strategies as well, as unconventional as they might be). Of course, this also underlines the fact that there is a certain degree of risk inherent in Whole Foods' mission, since it does open the retailer up to criticism that threatens Whole Foods' public relations, which is very much wrapped up in social responsibility. During the course of the debate, the idea of going to "the next level" in organics was mentioned several times.

In the long run, though, Whole Foods tends to do an excellent job of showing that it "walks its talk," and with the industrialization of organic agriculture -- a development many organic consumers don't want (and an issue that seems to be getting greater attention in the media) -- initiatives like this one should help bolster Whole Foods' competitive advantage against its rivals.

For more farm-fresh Foolishness:

Whole Foods Market is aMotley Fool Stock Advisorselection. Wal-Mart is aMotley Fool Inside Valuerecommendation.

Alyce Lomax does not own shares of any of the companies mentioned.


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