[permaculture-oceania] Why you pay more for organics and free trade foods

[Russ Grayson]

AUTHOR SAYS STATUS, WILLINGNESS TO PAY MORE ACCOUNTS FOR HIGHER PRICE OF
ORGANICS AND FAIR TRADE PRODUCTS, NOT HIGHER PRODUCTION COSTS.

Years ago, I was told how supermarkets priced goods higher in wealthier
suburbs than in poorer. Somehow, I got the idea that organic retailers did
the same. It was all based on the  willingness to pay more ­ and the ability
to pay - for the perceived benefit of a particular product.

My interest was piqued when I saw the price of a loaf of a particular
sourdough bread I like ­ it¹s the one with the French name ­ in the
so-called healthfood shop in Glebe Point Road (Sydney) that used to be
Russell¹s. $6.50. In Byron Bay, I used to pay $4.70 or thereabouts for the
same loaf. Why the price differential, I wondered? I skipped the loaf in
Glebe Point Road.

Stopping off at one of Manly¹s (Sydney¹s Manly, not Brisbane¹s) organic food
retailers to make a few purchases, I noticed a bottle of water branded
³Balance ­ water for travelling². It is water with some kind of flower
essence added ­ although when I actually bought a bottle of the stuff in
Adelaide airport (I was very thirsty) I found it hard to taste any
flavouring at all. Later, I read the small print, there is plenty of it down
the side of the bottle and you need really good eyesight to read it at all.
It says that the essence does not flavour the water. Perhaps it is a symptom
of this suspicious age that we ask how it is that we know there essences in
there at all? Have to take the manufacturer¹s word for that.

Oh, yes, the essences come from some ³of the most remote, pristine and
unpolluted areas of Australia². Well, if that¹s so, why are they not
disclosed ­ you know ­ to instill a bit of consumer confidence rather than
expect us to take the manufacturer¹s word? What the benifit of the essence
is is anybody¹s guess. The small print says that the six floral essences
³were specifically chosen for their travel benifits². Those benifits, too,
go undisclosed, though the text does say that ³Australians know about
travel². Truly? It goes on to say that travel can upset some undisclosed
³natural balance of our bodies².

The point I am trying to make has to do more with price than with content.
This flavourless floral water sells for about $3.70 for 500ml. The shop down
the road sells local Mangrove Mountain water for about $1.50 for the same
volume. No flowers though.

Manly¹s other organics retailer provides customers with a card that, when
presented, gives you a three percent discount on purchases (Vegies Organic,
East Esplanade). Why I prefer to shop there now is because last I bought
something from the first-mentioned retailer - and I have bought plenty there
­ he addressed staff in a brusque manner that verged on incivility ­ in
front of customers. Am I naive in expecting that any shop with allusions of
virtue through selling organic products would treat its staff in a similarly
virtuous manner? 

Sydney Morning Herald economics writer, Ross Gittins, writing in the 7 June
edition of the paper, provides an interesting insight into the relationship
between markets and the prices you pay for organics and fair traded
products. To quote:

He writes that a cup of fair trade coffee in certain shops in London costs
25 cents more than an ordinary coffee. He admits the Guatamalan farmers
supplying the coffee receive almost double the market price but that the
quantity of beans used to make the cup of fair trade coffee is so small that
the ³ ...extra cost works out at only 2.5 cents a cup. So 90 per cent of the
higher price of fair trade coffee ends up in someone else's pocket². What
would be interesting would be a breakdown of where this surplus value goes.
Who pockets it? Does any of it cover extra hidden costs of import, transport
and marketing? If so, why is this extra cost structure imposed on the fair
trade product ­ does it really cost more than conventional coffee to grow
and ship to customers?

Gittins goes on to say that it is the same story with organic fruit and
vegetables. ³The higher price you pay is a lot more than can be justified by
the higher cost of production and higher rate of spoilage.

³Then there's the wide range of prices you can pay for a cup of coffee in
Starbucks and other fancy coffee shops, depending on the style of coffee and
size of the cup. There's no way the difference in price is adequately
explained by the differing costs of producing the various styles or sizes².

Gittin¹s source of information is a new book, The Undercover Economist, by
Tim Harford. He quotes Harford on the price of eggs: ³I'll bet the higher
price of free-range eggs isn't justified by their higher cost of production,
just as the extra leg room and better meals don't account for the much
higher price of business class air fares.²

The reason behind the price differential, says Gittins, is ³ ...a common
phenomenon of capitalism economists call price discrimination. I suspect
that, the better off we become financially, the more often we're suckered by
it.

He attributes the common belief that retail price is determined by the costs
of production and distribution plus a mark-up for profit to ³propaganda from
business interests... Business lobbies inculcate this thinking whenever, in
their fight to stave off a new impost some government is proposing, they
claim that they'll simply "pass it on to the customer".

Price is set by both the cost of production and the strength of demand.
Willingness to pay for a product is an important part of the price
calculation ­ there is a maximum price that the public is willing to pay
and, for retailers, the trick is to estimate what that price is. Charge too
high a price and customers pass up the product. Too low a price leads to the
perception that the product is inferior ­ unless, that it, the product is
targeted at a low-income demographic.

I encountered the former just the other day when a woman with whom I am
doing some work, and who is just changing her buying and eating habits to
organic foods, said ³There is no way I am going to pay $8 for a bag of
rolled oats² - the asking price in the organics shop she visited (she is now
going to buy from a nearby farmer¹s market). Gittins quotes Harford on the
practice of internet bookseller Amazon, ³ ...which used to vary the prices
it charged particular customers according to their record of purchases, but
it drew too many complaints and had to abandon the practice².

Gittins writes that businesses do not know the upper limit customers are
prepared to pay, so they set prices according to buyer demographic (a
guestimate of socio-economic, cultural and residential characteristics) -
low prices for low willingness or capacity to pay, higher prices for greater
willingness to pay.

³The trouble is, they can't just advertise two prices for the same item: $1
for cheapskates, $2.95 for spendthrifts. So they have to find a plausible
excuse for charging two or more prices. With some things, it's easy. You
charge children, students and pensioners a lower price... not out of
consideration for their lesser means, but because their lesser means affects
their ability to pay. Were you to charge a uniform price, many of these
people wouldn't buy. A related trick is charging lower prices for
less-well-placed seats in a theatre (your real motive is just to offer a
range of prices to suit all budgets).

³To make higher profits out of charging two different prices, however, you
have to be able to keep the markets separate, to stop the high-payers buying
the cheaper product. Harford says the no-frills products in supermarkets
have unattractive labels not to save on printing costs but to discourage
purchases by people prepared to pay more for the big-name products. He notes
that organic oranges are rarely stocked beside ordinary oranges so it's
harder to see how much extra you're paying.²

People who buy organics and fair trade do so because they are finacially
capable of doing so and are willing to pay, even though the extra cost
brought down to a single item or transaction does not account for the extra
charged above the average price of a conventional product.

So what accounts for this willingness to pay more? Status and ideology.
Status, because being seen to buy organics or fair trade raises the buyer¹s
esteem in the eyes of their contemporaries as ³caring people². Ideology,
because buying these products is a form of economic and social activism that
benefits either the agricultural environment or the economic and scoial
wellbeing of the fair trade farmer.

Gittins article gives us a different insight into how price is arrived at by
business. His assertion, if that is what it is, that the difference between
the price of organic and non-organic product is in excess of the extra cost
of production imposed on the farmer by environmental-friendly agricultural
practices (which is not in dispute) is not so much a reflection on farmers
as on those that process, distribute and retail the farmer¹s products.

The effect of this practice, however, is to boost the common perception that
organics is for the financially better-off, although, like me, many readers
prefer the organic product although we may not be high income earners. .

People struggling financially are already priced out of the organics market.
A friend, who works with a box scheme that delivers food to low-income and
movement-limited clients, explained patiently to me that his clients cannot
afford even an extra $5 more a week on food, so organics is most definitely
out. He and his crew source fresh food at Sydney markets to package into the
weekly boxes of clients.

The implications of this is clear ­ we will always need cheap, mass market
conventional foods available from sources within easy reach (supermarkets)
even if organics penetrates the food marketplace further that it has at
present. That is, we end up with a two-tier food system, one for the better
off, the other for the poor. The alternative is malnutrition for the poor
and reliance on charity-provided food.

There is another altenative ­ the food cooperative. Coops offer price
reductions based on the amount of time volunteered to running the system. I
find that the cost of the food I get from the Manly Food Coop is about the
same as you pay at nearby Coles, in part because the coop has a minumum
waste policy which means you bring your own recycled food containers and
fill them from bulk containers. Oh, yes, most of the products are organic.

I like shopping at the coop ­ the greeting you get from the sales person is
genuine, not perfunctory, it costs the same or little more than the local
Coles supermarket, it is more fun (if that is the right word to describe
shopping, something I consider more of a drudge) and the coop smells better
than the perfumed, out-gassed odours at Coles.

The problem here is that food coops are few and far between, they require
specific skills,  determination and start-up capital to get going and many
coops are finding difficulty in attracting voluntary work from members.
This, it seems, is due to factors like the casualisation of the workforce ­
people now work more than one casual job ­ and the time-poverty fully
employed workers sometimes experience. What this means is that, a solution
food coops might be, they are unlikely to address the low buying power of
the less financially well off.

Organics faces another challenge, this time from the environmentally-minded.
The issue is wasteful packaging - packaging waste from organic products,
just like that from the supermarkets, becomes a public cost (paid for by
your local government rates and state government charges) while contributing
to private profit. Perhaps the industry has not had enough time to address
this issue in their struggle to become a viable sector of Australia¹s
farming and food retail industry, but the packaging issue has become more
prominent over the years and will have, sometime and somewhere, to be
addressed by the industry.Not to do so will hand the advantage to
environmental zealots.

Inspired by comments made by someone from a food lobby, I visited the local
organics retailers to get some idea of packaging and the retailer¹s
committment to local product. As for packaging, it was a bit like the
supermarket ­ there were products packaged minimally and others with
excessive packaging. What is needed in judging packaging is some idea of how
poarticular foods have to be packaged. Which really do need plastic bags?
Which really need to be put (like cofee, so I am told) in aluminium foil
bags? Why are some biscuits packaged in a plastic tray within a bag when a
sturdy and recyclable cardboard box would seemingly offer better protection?

The portion of stock made up of local food products versus imported (with
its food miles) depends on the availability of the local product, itself
dependent upon farm production capacity, price comparison with imported
product and whether it is true, as has been alleged by some, that organic
farmers cater first for export markets with the resulting gap in the local
market being filled by imported product. It seems that the answer you get
depends on who you ask. In the sense that organics is part of the globally
traded food system, catering for export rather than local markets, assuming
export brings better prices, is what would be expected.

Checking out this one particular shop (therefore, findings might not be
typical), amid the imported and certified Italian tomato paste, pulses and
beans, there was a fair portion of Australian product.

If you can cook or even read a cookbook, and if you have the time you can
make your own sauces and goodies, just like Michel Fanton at Seed Savers
Network does (be careful and try only a small portion if Michel offers you
something ³interesting² but poorly identified from a bottle. Actually, his
bottled lemon and wine is quite good, or it was last I sampled it).

Gittins article and Harford¹s book dissecting the pricing practices of
organics, free trade and other markets should be welcomed by eaters and
buyers. It sheds light on industry practice, disclosing pricing to be more
than cost of production + profit margin, and is a practical example of the
³fourth estate² role of the media in regard to the ³public right to know².

It positions readers to continue their support of free trade and organic
foods in full knowledge of the factors influencing the prices they pay. In
doing so, it enacts the overused and often misused notion of free marketeers
and of capitalism of the ³right to choose², but this time in full knowledge
of the facts.

^^^^^^^^^^^^^^^^
RUSS GRAYSON
journalism, online content production, photojournalism, instructional
manuals, media services for overseas aid

PO Box 1045, Manly, NSW 1655 AUSTRALIA
info at pacific-edge.info
P: 0414 065 203
www.pacific-edge.info

TerraCircle international development team, Oceania
www.terracircle.org.au

Australian City Farms & Community Gardens Network
www.communitygarden.org.au
^^^^^^^^^^^^^^^^^^


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