Friday, June 16, 2006

Don't people at the Economist learn some economics? 

Reader (and fellow MAS member) Tim Slade points out this absurdity in another article on the WalMart-goes-organic story I discussed last week.

There are also supply problems. At some Whole Foods stores, up to 60% of the produce is organic in the summer�but that number dips in the winter because �natural� food has to respect the seasons. There is also a shortage of organic farms. �The sheer number of stores [offering organic products] has stressed the system,� says George Siemon, chief executive of the Organic Valley co-operative. The fertilisers and hormones that make mass agriculture easier are banned in the organic business.

Then there are pricing pressures brought on by large retailers. Organic Valley withdrew from supplying milk direct to Wal-Mart a few years ago after being undercut by a �significant� amount in price by its rival, Horizon Organic. But, says Mr Siemon, demand still exceeds supply�and with his co-operative growing 15-20%, there may soon not be enough organic milk to go around.

This is just silly. If Horizon can't provide the quantity of milk demanded at the price negotiated with WalMart, it either must raise the price to ration the available milk, or it defaults on the contract and pays damages to WMT. If in doing so it drives Horizon out of business, Organic Valley can step back in at the higher price.

Prices ration the available supply. It's Econ 101. And if prices rise, more farmers will be induced to switch from "mass agriculture" to organic farming. If you want the world to be more organic, what's not to like about that?