To:

  • Myself

On:

August 3

If I splash out on an "organic" product, what actually happens to all that extra money I pay?

When I buy food, clothing, or other household items, I like to try and buy something that’s “responsible”. Organic, fair-trade, ethical – you’ve heard the buzzwords.

Now as you probably know, these products are typically more much expensive than their vanilla siblings – just today I encountered “organic” bay leaves that cost 4x the standard ones. But as you also probably know, when you purchase a product, there’s a significant markup between the cost of materials and the final price. This markup is often a fixed percentage as opposed to an absolute amount, and as a result, those organic bay leaves are also making a bunch of people a lot more money.

So the thought recently occurred to me - where does this increased profit actually go? How much of the organic premium goes to organic materials and methods, and how much of it supports increased corporate profits, and in turn supports the harmful industries I was trying to avoid in the first place?

Could purchasing organic products actually result in diminished environmental outcomes?

As far as I can tell, there are two pieces of data needed to answer this question:

  1. What percentage of a product’s price goes to its bill of materials - including both packaging and materials for the product itself?
  2. What fraction of an increase in GDP will drive production of bad stuff?

Now let’s assume:

  1. The bill of materials is around 30% - which would be half of General Mills’ total costs based on the gross margin in their 2021 annual report.

  2. That any GDP increase will result in a flow of money towards production of bad stuff equal to 20% of that increase. I’ve ballparked this number based on the fact that fossil fuel production costs are currently about 10% of the global GDP, and then I’ve doubled it to take into account other negative externalities that arise from increased consumption.

  3. That for any “organic” product, the bill of materials results in no bad stuff, while for standard products, the bill of materials is 100% bad stuff. This is an oversimplification, but it gives the benefit of the doubt to organic products, which is I think fair in the context of this discussion.

  4. That the proportion of the price attributed to the bill of materials is the same for the standard and organic products.

So our variables are:

  • bom: the proportion of price attributed to the bill of materials
  • bs: the proportion of a GDP increase that flow into an increase in bad stuff
  • m: the organic markup
  • p: the standard price

The total bad stuff produced is:

  • For standard: px + py(1-x)
  • For organic: mpy(1 - x)

Assuming a bom of 0.3 and a bs of 0.2, we can solve to find that if the organic price is more than roughly double the standard price, there’s a good case to be made that the organic product will be more environmentally harmful than the cheaper alternative — at least without any guarantee from the supplier and midde men that they’re not giving an equal bump to the profit margin.

So those organic bay leaves I bought for 4x the price of the standard ones? They probably made things worse. Well, fuck.