Luddites and Land Prices

With Amazon acquiring Whole Foods there has been speculation that organic produce profit margins for farmers will come under pressure. Currently Whole Foods accounts for about 2% of organic produce sales, and there is only so much organic produce supply, so at first glance it seems like there will not be much of an impact on organic farmers as there is likely a market for their product from another buyer if Whole Foods is unwilling to pay a good price. However if all supermarkets are going to start competing more heavily on price, then it is feasible that there could be some pressure on organic produce prices in the short run. In contrast, this is bullish for farmland prices in the long run.

One of the arguments for higher farmland prices is that the supply of arable land is fixed and the population is growing, so there is going to be the same supply and more demand. What is missing from this dynamic is that historically land has become more and more productive. There have been numerous advances in technology over the last few decades that has dramatically increased the yield on conventional farms. Interestingly, organic farming limits many of the yield enhancing improvements.

Below is the yield in cwt/acre for organic carrots farming compared to carrot farming in general.

The Luddites were textile workers who protested the mechanization of their skills and now is a common phrase for those who rally against new technology.  There may certainly be health benefits to eating organic produce as compared to conventional produce, just as hand woven textiles may be better than machine woven ones (Though, the Luddites were more worried about their jobs rather than the quality of the product). It is not for us to say what is more preferable. The underlying dynamic here, which this blog is focused on, is that Amazon hopes to push organic produce to more consumers. Jeff Wilke, CEO of Amazon Worldwide Consumer stated, “We’re determined to make healthy and organic food affordable for everyone. Everybody should be able to eat Whole Foods Market quality.”

If Amazon plans on bringing organic food to everyone, then we are going to need to grow more organic produce. This, in turn, means that we will get even lower yields from farmland, of which there is a limited supply.