Amazon's Big Food Move and One Arizona Rancher's Take

Amazon's Big Food Move and One Arizona Rancher's Take
Growing a family first, business second, the Smallhouse family doesn’t take for granted any changes taking place in the market and certainly in their core agriculture industry, beef. Photo courtesy of Joe Boots Parker.

If you haven’t heard about Amazon’s purchase of Whole Foods in the last few months, you might be asleep at the proverbial food truck wheel. Tracking the evolution of this merger has been compelling and certainly worthy of agriculture’s notice.

So, I thought a conversation interview with a rancher and farmer was warranted. I got my rancher but my two produce growers I reached out to happen to be in the middle of the 2017 produce season in Yuma (bad timing on my part, though who’d have guessed Whole Foods would become Amazon’s newest baby).

My rancher, Stefanie Smallhouse, has some intriguing insights on the new deal. Arizona Farm Bureau’s First Vice President, Smallhouse has spent a good chunk of her professional career involved in natural resources management after earning her Bachelor of Science degree in Wildlife and Rangeland Science from New Mexico State University. She began her career as a wildlife biologist working for the Bureau of Land Management in Southern Utah. In this position, she participated in local research projects, reviewed land use applications and carried out habitat and species surveys. In 1999, she married Andrew Smallhouse, a fifth-generation Southern Arizona rancher, and shifted her work to the private sector while learning the business of the family farming and ranching operation. While she has tested her skills and husband’s patience at operating farm equipment and gathering cattle in the Lower San Pedro River Valley, she passionately advocates for the sustainability and profitability of farming and ranching as an industry in Arizona.

In 2014, she was appointed by the Director of the Arizona Department of Water Resources to fill the executive director position to manage a statewide grant program which grants funds for the implementation of locally-led conservation projects which enhance water quality, quantity and riparian habitats in the State of Arizona.

Since 2000, Smallhouse volunteered at the county and state level for the Arizona Farm Bureau Federation. Says Smallhouse, “I am able to exchange the knowledge of my own family operation with others in the agricultural industry while engaging with consumers and policy makers about the lifestyle and science behind growing food.”

Arizona Agriculture : Regarding Amazon’s latest entry into the retail food business by purchasing Whole Foods, what’s your take as a rancher?

Smallhouse : First, I’m just a grower who provides a specialty product and Amazon obviously knows an opportunity when they see it. Amazon is known for making anything available on the internet a commodity, excuse the play on words, and anytime a healthy protein such as beef can be made more available to the consumer, I’m for it. We’ll have to wait and see how excited the customer base of Whole Foods is about buying the same products online and having it dropped from a drone in their yard. If you have ever been in a Whole Foods, you know it’s not just grocery shopping, it’s a sensory experience.

They are the cyber Walmart. Walmart can demand lower prices from wholesalers because of the massive amounts they order. However, we do not produce widgets, we produce food with limited resources. Organics are more expensive because of inputs, process, certifications and more. We [Carlink Ranch] sell beef to Whole Foods because of our certifications for animal welfare. If we don't get a premium, then we will not do the certifications and not provide the same beef. I can see how they might be able to bring down the cost as Costco has, but eventually the organic argument will face the reality of imminent short supply due to grower limitations. Of course, there is always vertical farming.

Arizona Agriculture : Chris McCabe, a former Amazon performance evaluation and policy enforcement investigator, recently said, “Amazon’s using the same playbook they always have when competing with booksellers and other retailers. They take out their revenue stream by killing them slowly on price.” While we might guess the impact on local grocery stores, is there a residual impact for farmers and ranchers even though you’re further up the food supply chain?

Smallhouse : Agriculture is extremely sensitive to supply and demand on a global scale which means it is very important to diversify what you grow. There are many growers providing traditional crops while at the same time growing niche products like organic, ancient grains and specialty proteins. It seems as if Amazon is trying to bring these niche products to the masses knowing the masses are not willing to pay niche prices. In the short-term, I believe it will increase demand for these products which is good for growers. In the long term, I think it will be challenging for the entire supply chain to maintain- to include farmers and ranchers.

Arizona Agriculture : Can Amazon get truly cheaper organic product in its Whole Foods grocery Stores?

Smallhouse: For the most part, farmers and ranchers are price takers. When we grow specialty products we can have more impact on the price either directly or indirectly depending upon the product and the market. As these products are provided by more growers and available in more places, they naturally become more affordable to the consumer through competition at the retail level. However, the price to produce them does not necessarily become more economical for the grower unless operations merge. Folks who shop at Whole Foods don’t generally like the idea of agricultural mergers at any level.  Amazon may be the cyber Walmart but farmers and ranchers do not produce widgets, we produce food with limited resources.

The cost of production for many specialty products is higher than that for traditional crops and therefore demands a higher price, otherwise growers would not put in the effort. In a beef industry example, to participate in the Global Animal Partnership(GAP) program with our beef, we must meet certain standards and obtain certifications which also have fees associated with them. This makes our beef marketable to Whole Foods. There are not a lot of growers who qualify for this program which forces the price up throughout the supply chain. If Amazon were to make our GAP 4 certified ribeye less expensive to the masses, then either they lose or we do. Our production costs are not likely to decrease and we have the freedom to walk away from the certification process if it doesn’t pencil out.  A program like GAP only works with certain operations. It was not difficult to meet the animal care standards because that is the way we have always operated, but the record keeping, certification and audit process is intense and costly.

These food products are not necessities for people and the traditional product provides the same nutritional value. If Amazon is successful in broadening the customer base by lowering the price, that does not mean we as growers will be able to meet the demand at the same rate. Even if growers could increase production, you are eventually faced with the law of finite resources amidst compliance with label restrictions.

So, to answer your question, in the short term yes because Costco is already doing it, but in the long term I would think something must give which will change the product.

Arizona Agriculture : Often disruptive businesses can help fix kinks or weaknesses in supply chains. Can some of these moves by Amazon be kink fixers?

Smallhouse : There are already a handful of entrepreneurs with major financial backing growing meat in petri dishes. Disruption can force change and sometimes that change is permanent and sometimes it’s a trend. With the speed of technology, we see paradigm shifts much faster now. Who knows, maybe someday we will get a premium for our beef just because it comes from an actual animal. I think Amazon’s acquisition will force the Krogers-of-the-world to rethink convenience but you’re either a Ford Escort or a Lamborghini. You can’t be all things to all people.

Arizona Agriculture : Is there an opportunity here to tell consumers more of our agriculture story based on the attention Amazon is getting from their moves? If so, how?

Smallhouse : Amazon’s entrance into the grocery business via Whole Foods tells me they have an interest in the whole food system from the bottom to the top. It will no doubt be a learning experience for them as to sourcing mass amounts of distinct food products. Along the way, it will provide an opportunity for us to educate the consumer about the differences between traditional- and specialty-food production systems in how they are grown, what consumer they satisfy, and production limitations.

Editor’s note: Stay tuned. I still plan to have the produce farmer perspective on this Amazon story.

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