Washington Insider--Tuesday

Whole Foods vs. the Market

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

House May Vote Again Today Following First Fast-Track Rejection

President Barack Obama's efforts to acquire the Trade Promotion Authority (TPA) the administration needs to strike a trade deal with Pacific Rim nations was dealt a setback Friday when Democrats blocked legislation giving him the enhanced negotiating authority.

TPA, or fast-track, is important because leaders in other countries won't risk political capital selling trade deals to their constituents knowing Washington could then amend the pact after it is completed. Said one analyst, other nations "don't want to give you their best offer" unless they know that when Congress considers the negotiated deal, "it's an up or down vote and that it can't be filibustered."

House Democrats rejected legislation to help workers who've been displaced by trade, despite last-minute lobbying by Obama. While the Democrats support the aid, voting for it meant a second bill approving fast-track authority that was passed would be sent to Obama's desk, which they didn't want.

Another vote could come as early as today, but the president first must convince approximately 100 fellow Democrats to back the trade bill most of them already sought to block. Meanwhile, the House's majority Republicans said it will be up to Obama to turn Democratic skeptics into supporters.

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Prepare to Kiss Trans Fat Goodbye

The Food and Drug Administration this week is expected to announce it either is banning or -- more likely -- phasing out nearly all uses of trans fat, a substance that is added to foods like popcorn, pie crusts and canned frosting. Trans fats, also known as partially hydrogenated oils, have been found to increase bad cholesterol, a leading contributor to heart disease.

FDA will deep-six trans fat by withdrawing the additive's "generally recognized as safe" (GRAS) status. Substances granted GRAS designation can be added to foods without undergoing a premarket review and approval by FDA. The agency has sought to address concerns about trans fat for years, and in 2006 it began requiring trans fat to be listed on nutrition facts labels.

Food manufacturers have withdrawn an estimated 86% of the trans fat from their recipes both in reaction to customers' concerns and in anticipation of FDA's likely action this week.

Food ingredients will be the subject of a June 18 hearing in the House Energy and Commerce Health Subcommittee.

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Washington Insider: Whole Foods vs. the Market

The complex world of food marketing has gotten even tougher to understand recently as major retailers compete for "special quality" consumers.

To compete for consumers looking for foods with "sustainably produced" qualities, some marketers are creating their own food standards and labels, and are encountering criticism in the process.

Consumer demand for special quality products, including those certified by USDA, is growing. Sales of certified organic products, for example, are up more than 11% last year to roughly $39 billion. This has meant good times for organic growers and companies.

That demand has attracted attention up and down the supply chain. Costco, it was recently announced, has become the biggest purveyor of organic foods, selling some $4 billion worth in the last year, compared with an estimated $3.6 billion in organic sales at Whole Foods.

Walmart, which already had a robust organic business, announced last year that it was expanding the category, and General Mills and Campbell Soup have both announced intentions to expand the organic pieces of their businesses substantially.

All this has translated into more intense competition for Whole Foods, which observers say once handled half of all the organic produce in the country. The company's stock is trading down, falling 14% in May when it announced that comparable-store sales were up 3.6%, lower than Wall Street anticipated. Its gross profit margin dipped below 36%, which is still better than Costco's at 13% and Kroger's at 21%, but considered a sign of the damage being done by the competition.

To compete with stores offering similar goods at lower prices, Whole Foods announced plans for a new store concept named for its private label line, 365, which it says will aim at "millennial" shoppers. The company has not said whether it plans to offer organic produce in the new stores, only that it will provide "high-quality, fresh foods." It is expected that these will carry the company's new "Responsibly Grown" labels.

The move to new labels and away from USDA's certified organic seal is upsetting to producers who helped build USDA's program over the last two decades. Whole Foods is struggling to control the pushback.

"Organic is an incredibly deep standard, and at Whole Foods we celebrate that in very consistent, long-term ways," a Whole Foods official who worked for more than three years to put the program together told the New York Times. "But the organic standard does not cover water, waste, energy, farmworker welfare, and all of these topics are really important, too."

So, Whole Foods will now brand products, "Good," "better" or "best." Certified organic products seem to win only about 78 out of 220 points required for a "best" rating simply because of things they already do to get organic certification the New York Times reported last weekend, a long, long way from their former "preferred brand" position with the company.

This also means that so called "conventionally" grown produce may frequently end up with a higher quality rating than organic products do under the Responsibly Grown labels. A recent NYT story highlighted examples of cases where that had happened.

The company also argues that the fact that conventional farmers can get a "best" rating while continuing to use inputs like pesticides that are barred from organic farmers does not "reduce the value of organic certification." Certainly, that statement will be a difficult sell to producers who see lower cost products pushing them from former markets.

Whole Food's move away from reliance on USDA's certification program will likely open up supply sources, which have expanded only slowly under the USDA program. The move would also open the marketplace to all sorts of lightly or unregulated claims of product quality. In the process, it would seem to bring closer the organic organization's nightmare of heavy cost competition taking precedence over the industry's long-standing emphasis on "quality."

It would seem to be one more battle in a long series, and one that producers should watch carefully as it proceeds, Washington Insider believes.


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(GH/CZ)