Amazon’s Amazon Prime offer – from investments to surfeit

Image copyright Getty Images Image caption The week after Amazon announced its purchase of Whole Foods, Walmart reported another blowout in sales

Even before Amazon’s purchase of Whole Foods, consumer giants such as Walmart were in advanced discussions with distribution partners in Mexico, India and South Africa.

Last week, just days after Amazon announced its purchase of Whole Foods, the world’s largest retailer reported another blowout in sales – and major expansion plans.

True, the e-commerce giant accounted for about 3% of Walmart’s total sales in 2016.

But Amazon’s web of rivals in food and groceries appears a long way from ceding ground to the US retailer.

America’s food surplus

Image copyright Google Image caption The US produces between four and five times as much food as it consumes, according to the Institute for Agriculture and Trade Policy

One critical aspect of the story is the US’s food surplus.

America produces between four and five times as much food as it consumes. By holding back food until it’s sold on the world market, it allows retailers like Walmart to import cheaper items and boost their profits.

In 2015, the US Department of Agriculture estimated that 8.6 billion pounds of agricultural commodities – meaning grains, fruits, vegetables and meat – were being held back by the US, mostly in grain and dairy crops.

This led to the formation of the Agribusiness Rule Initiative, which sought to ensure that the US keeps its surplus by enforcing the current tariff structures.

US officials are expected to release a new report on the problem next year.

Costs and supply chains

Image copyright Getty Images Image caption Restricting the movement of agricultural goods worldwide to control food prices lowers demand and hampers farmers

Many of the issues swirling around Amazon’s move into groceries extend beyond the challenge to Walmart and are linked to not just food sovereignty, but higher food costs as well.

Wasting food is one of the most serious health issues in America. A 2016 study in the Proceedings of the National Academy of Sciences showed that 40% of the foods Americans ate during the year went to waste, most of it in restaurant meals.

Another recent study found that consumers are wasting up to $300bn a year in excess food, roughly equivalent to Egypt’s entire annual income.

Some food organisations have argued that Amazon, along with the likes of Walmart and Costco, are jeopardising farmers’ incomes by diverting food away from US farms for export, making Americans poorer in the process.

But Walmart has also found common ground with Amazon’s move into groceries.

Under pressure from Wall Street, Walmart is planning to open 100 stores a year on top of its traditional format, creating thousands of new jobs.

Worst nightmare

Image copyright EPA Image caption The main economic challenge facing Amazon will be to win over large numbers of farmers who are dubious of its motives

Amazon’s move into food could be a problem only for small or medium-sized farmers. But the main economic challenge facing Amazon, and the farmers who grow much of its food, will be to win over large numbers of them who are dubious of its motives.

It will be an uphill battle for the company, which has much of its infrastructure designed to deliver highly-specialised goods.

But it may be one that is well worth it.

Post-industrial economies such as that of China will continue to suffer as their commodities processing industries are phased out, says Edward Bolen of the Council on Foreign Relations.

“The increased use of Amazon as an intermediary for food- and agricultural-based products is bound to have enormous opportunities for farmers and policy makers in India, Latin America, Southeast Asia and the rest of the developing world.”

Although the online giant could face a broad backlash, “the implications of the marketplace for food, farming and agricultural policy are likely to be positive,” says Mr Bolen.

“The larger the markets reach for farms and other food companies, the greater the leverage food firms will have over distributors and other industries.”

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