Costco Works with Questionable Partners to Boost its Organic Supply

Costco launched a new program to boost its organic produce supply. The company counts itself as a major player in organics, which have quickly crept into position as one of the fastest-growing categories in food sales. Boiled down to basics, the company will work with farmers in various ways – including loans, supply contracts, and other investment incentives – to help them produce larger quantities of organic products as the company struggles to keep pace with consumer demand.

Andrew and Williamson Fresh Produce is one of the companies that finds itself on the list of the new program’s participants. The San Diego-based company will receive assistance purchasing equipment and 1,200 acres  of land in Baja California, Mexico. Costco’s program may be motivated by altruism, a shrewd business sense, or both, the program may be getting far more than it bargained for by including Andrew and Williamson in its ranks. Costco, by way of its new organic produce program, is not just granting license to a company that caused a nationwide outbreak of Salmonella-contaminated cucumbers to grow more produce for human consumption, it is also providing them with the means to do so — means that include a large amount of land in the same area the tainted produce originated from less than a year ago.

The Costco Program in a Nutshell

The idea behind the company’s new program is to ensure a greater supply at a time when demand is outpacing supplies. “We cannot get enough organics to stay in business day in and day out,” Costco CEO Craig Jelinek said. Since the company is unable to get enough, it will create enough, or so the idea goes. Specifically, the program aims to increase organic produce supply by working with growers to help them buy land and equipment to grow organics. The program now joins a long list of other food initiatives that try to ensure the warehouse giant can meet the voluminous demand of its customers.

Statistics regarding the striking increase in demand for organic products are unequivocal: data released by the Agricultural Marketing Service’s National Organic Program showed that certified organic operations in the U.S. increased to nearly 300% since the count began in 2002, and Agriculture Secretary Tom Vilsack recently backed that up by stating “organic food is one of the fastest-growing segments of American agriculture.”

So far, Costco has partnered San Diego-based Andrew and Williamson Fresh Produce  buy equipment and land in the Mexican state of Baja California. Costco’s backing of Andrew and Williamson constitutes the program’s very first endeavor, but Costco is looking at expanding the initiative. Costco emphasizes that the company must ensure a greater supply of organic foods when demand has far surpassed supply.

Without doubt, some elements of the new Costco program deserve to be questioned and have the potential to be improved upon, but this holds true across time and industries when it comes to new ideas being implemented to on the ground. At issue here is not the program itself. At issue is the company that Costco chose to back, and what that decision might mean for the public, the retailer, and, to a lesser extent, Andrew and Williamson Fresh Produce going forward.

The Fresh Produce Partnership Between Costco and Andrew and Williamson Fresh Produce

The partnership between Andrew and Williamson Fresh Produce (AWFP) and Costco is an unlikely one, to say the least. AWFP heard that a seed company was in the market to sell 1,200 acres in Baja California, and wanted to purchase the land. However, AWFP was cash-strapped and did not have all of the cash on hand it would need to buy the land outright.

That’s when AWFP, which purports to have experience growing organic strawberries, raspberries, blackberries and tomatoes, informed Jeff Lyons, Costco senior vice president of fresh foods, that it wanted to make the purchase. Despite the produce company’s financial situation and the fact that it has been weighed down by massive amounts of negative press in the past year, Lyons supported the company’s desire to buy the land, deciding that it made strategic sense for Costco to get involved. Armed with that logic, Lyons and Costco ended up loaning A&W all necessary money to buy the land, though the amount of the deal has not been disclosed.

Costco’s decision came despite the fact that AWFP “has been dealing with fallout of a Salmonella outbreak linked to cucumbers produced in Baja California and distributed by [AWFP] that infected 888 people in 39 states, hospitalized 191, and resulted in six deaths in four states,” as one news outlet reported. (Editor’s note: the CDC concluded that 907 Salmonella Poona infections linked to AWFP cucumber were reported from 40 states, including 204 hospitalizations and four outbreak-related deaths.)

In fact, Costco went further: the company loaned AFWP the money to buy equipment “to grow organic raspberries on another piece of land, also in San Quintin, that [AWFP] is leasing.” Lyons rationalizes that Costco got access to and purchased 145,000 cases of organic raspberries that Costco “normally would not have access to, because [AWFP] normally would not have fotten the deal done or could not have done it. Or, if they could have, we may not have gotten first dibs.” As it stands now, Costoco will have first right to everything that meets it requirements that comes off the financed land.