Wal-Mart to source more fruits and veggies locally

NEW YORK (Reuters) - Wal-Mart Stores Inc is sourcing more produce sold in its U.S. supercenters and Neighborhood Market stores from local farmers as it tries to offset the soaring transportation costs that are driving up food prices.

The world's largest retailer said on Tuesday it had increased the number of local U.S. farmers that it works with by 50 percent in the past two years, and it would like to continue expanding that figure at a double-digit rate.

While Wal-Mart declined to provide an exact figure, it said it now works with "hundreds" of individual farmers, and this year it expects to source about $400 million in locally grown fruits and vegetables from farmers across the United States.

"When we're buying local, there are less trucks on the road, less miles that that produce is traveling and therefore less fuel," said Pam Kohn, Wal-Mart's general merchandise manager for grocery.

Wal-Mart defines "local" as buying from farmers in a state and selling the produce at stores in the same state. Over the summer months, it said locally sourced fruits and vegetables make up a fifth of the produce available in Wal-Mart stores.

Grocery is a big business for the company, accounting for 41 percent of sales in its U.S. Wal-Mart stores for its fiscal year ended January 31. As food prices rise, shoppers have been flocking to its stores in search of cheaper groceries.

But soaring fuel costs mean the cost of transporting food to its 2,555 supercenters -- a full grocery store combined with a discount store -- and 138 Neighborhood Market grocery stores is more expensive, making it tougher to keep prices low.

While reporting first-quarter results in May, Wal-Mart said transportation costs would remain a "potential headwind" for the rest of the year, and Chief Financial Officer Tom Schoewe said he was worried about the ongoing jump in fuel prices.

Wal-Mart said that in the United States, produce travels an average 1,500 miles from farms to consumers' homes, and it should be able to save millions of "food miles" -- the distance food travels from farm to plate -- through local sourcing, better packing of its trucks and improved logistics.

In an example, Wal-Mart said that by sourcing peaches in 18 states instead of just two, as it did before, it saves 672,000 food miles and 112,000 gallons of diesel fuel -- or more than $1.4 million dollars in transportation costs per season.

Kohn said while the organic food trend continues, customer demand for local produce "is a very big trend, a very big trend."

(Editing by Braden Reddall)