New fiduciary standard cultivates consumer confusion

Rochester Business Journal
May 20, 2016
Mark Armbruster
On Investing

What do a rutabaga and a turnip have in common with your investments? Quite a lot, as it turns out.

For the past hundred years or so, as agricultural science progressed and found new ways to grow food more efficiently via the use of chemicals, a small organic food movement has persisted. Proponents of the movement argued that chemically or genetically adulterated food was unhealthy and potentially dangerous.

Over time—and as more non-natural ingredients found their way into our food— the organic movement grew. What was once relegated to the confines of small, local farmers markets was now available in grocery stores. Interestingly, this occurred despite significantly higher prices for organic food.

Consumer demand for organic food grew so much that conventional farms and food producers took notice. Not only were they losing market share, but they also got excited about the much higher margins that could be achieved with organic food. As economic theory tells us, higher margins lead to more competitors. Many new players, including conventional food producers, jumped on the organic bandwagon.

Inevitably, some bad apples entered the organic space. Some producers continued to use conventional farming methods that relied on chemical pesticides and fertilizers but passed off their produce as organic in order to reap higher prices.

Ultimately, the government decided that it needed to get involved in order to regulate the use of the word “organic.” This was ostensibly done in order to protect true organic farmers as well as consumers. While that may sound like a good idea, there are often unintended consequences.

The larger players in the food industry lobbied to get the rules changed so that they could use the organic label without significantly changing their practices. It seems to have worked. While the USDA now defines organic food as that grown without synthetic pest controls for a minimum of three years, it allows some synthetic pesticides to be used by organic farmers. It even also allows a small amount of banned pesticides to be present in foods it deems to be organic.