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Without Change, The Question Will Not Be Who Will Survive, But Rather Can Either Survive? “A Modest Proposal” Take-2 From The Pundit

Jim Prevor’s Perishable Pundit, July 30, 2012

We have received a series of important letters on the topic of the collapsed PMA/United merger effort. Our July 21 edition featured four of these letters. This one we thought deserved careful attention:

I appreciate your thoughts and efforts you have made to keep this process moving. It is very clear to me that neither organization’s management or boards are in favor of merging because they do not know why they should merge, and each wants to maintain their legacy programs.

It is baffling to think that any proposal would include maintaining two trade shows and not immediately merge redundant programs, so not being able to agree on who will be boss is understandable. Hopefully I can articulate what Industry Ownership is saying.

· One national marketing trade show is enough.

· The mere size and number of attendees is not a way to measure a trade show’s success. Given the ever-increasing number of exhibitors and buyer consolidation, the show floor is comprised of mostly other exhibitors checking out their competition.

· Trade organizations depend on their trade shows for operating revenue. Ironically the Trade Organization receives less than 20% of the dollars spent by exhibitors attending a trade show.

· One trade organization, in particular, whose board is comprised primarily of buyers, continues to increase its costs of exhibiting and sponsorships while at the same time buyers are expecting lower costs of goods from their vendors.

With this said, I believe both the PMA and United need to retreat and re-evaluate. I do not believe that it is possible to have a single organization given the profound differences upon which each organization was founded. The problem is that the missions and objectives have become blurred.

There is no room for one-upmanship between these two outstanding organizations, and each must focus on its roots and strengths. If the management of the PMA and United cannot agree how to co-exist with a single national marketing trade show and elimination of redundant programs and advocacy, the question will not be who will survive, but rather can either survive?

— Rick Antle
CEO and President
Tanimura & Antle
Salinas, California

We appreciate this thoughtful and articulate letter because it points to so many of the thoughts whirling through the industry.

It is hard to express how flabbergasted many supporters of merger are when they learn that the plan was to continue with two trade shows for at least four years! Now, in fairness, the plan was to try to reorient one of the shows toward equipment and technology — a plan that has been tried in the past without great success.

There also is the fact that this decision was probably motivated by cancellation penalties in facility and hotel contracts. We are not privy to exactly how much those are or if it would have been worth paying them to end the second show right now, or if aggressive negotiations could have allowed us to reduce or repurpose those penalties, but it points to the difficulty of unwinding activities.

Then, of course, there is the business fact that the two national trade shows exist because both are profitable. Typically the organization of things such as this are not determined by an analysis of needs but by the activities of people and businesses. Do we need two national newspapers in the industry? Probably not, especially with the web now being the focus of so much news. But people support these publications and so they continue. Do we need two carrot shippers? Probably not. Logistically it might be more efficient to just have one. But many buyers think having two shippers keeps costs lower and ensures better service than just having one.

We can only speculate, but our money is on this proposition: In four years, if the new association has two profitable events, this will prove that the industry wants the two events and the new association will continue them.

It is really a conflict of visions. One views the trade shows as an occasion to support the associations and one views it as a business opportunity presented by the associations. Of course, as Rick points out, if one’s goal is to support an association financially, exhibiting is an inefficient way to do so. One is much better off just making a donation or buying a sponsorship.

Even the issue of redundant programs is tricky. Some have said we don’t need Robert Guenther, Senior Vice President Public Policy at United, and Kathy Means, Vice President Government Relations & Public Affairs at PMA — but that is not 100% clear. Maybe one person walks the halls of Capitol Hill, button-holing Congressional aides, and one works the phones with regulatory agencies.

Do we need both David Gombas, Senior Vice President Food Safety & Technology at United, and Bob Whitaker, Chief Science & Technology Officer at PMA? We don’t have the schedule of each to compare but it is a big industry, there are lot of groups to speak to and a lot of work to do, and maybe we need to have a backup in case one quits or gets sick? If you only have one food safety expert and he, God forbid, gets in a car accident the day of the next spinach crisis, doesn’t that leave the industry very vulnerable?

Rick is 100% correct that the mission and objectives of these associations have become blurred. The problem is that there are real reasons for the blurring.

On United’s side, it engages in marketing-related activities — say the trade show with FMI — to get money to fund its priority activities. One of the points established during the strategic planning program the Pundit ran for United back in the 1990s was that United had to move to get a higher percentage of its revenues from dues, and United has worked hard to do that over the past two decades.

It is always the case that very small companies are expensive to solicit as members. So the problem is that the very large companies in the industry have not shown that they value government relations enough to pay sufficiently higher dues to support the association. United’s top dues category is $25,745, so if a company has $5 billion in fresh produce sales, it will pay $25,745. Now admittedly these large companies tend to be the ones that do a lot of sponsorships and show support in other ways. Still, there is not much evidence that the big companies want to pay dramatically higher dues.

It is worth noting that this is not the case in other industries. In the association for the magazine industry, there is no trade show and dues are a set percentage of revenue. Every company pays the same percentagethe only cap is a rule that no company should pay more than 1/6th of the total budget of the association. The largest publisher pays dues of $1 million annually. There is just no indication that the big boys in produce want to take on that kind of obligation.

So, in effect, United has to go into marketing mode in order to raise the money to support its activities. Thus two trade shows.

PMA has a different situation. It has over 1,500 companies that are PMA members but are not United members. This creates a dynamic whereby PMA feels compelled to respond. These members view PMA as their association and expect it to be able to help them in DC or with scientific and technical matters.

In recent days, as word of the failure of merger talks has sunk in, many in the industry have responded by saying that if we are going to have two associations, we better make sure we rationalize their structure and goals to avoid duplication and waste.

Yet because of the realities of financial need and unduplicated membership, merely admonishing the associations not to compete is not likely to work. We need a structural solution that changes these realities and incentives.

With that in mind, we would like to suggest a structure that actually would work.

Many associations have local chapters and when one joins and pays dues, one automatically becomes a member of a local chapter, and a set amount of the dues goes to fund the local chapter. Why can’t the produce industry do the same thing but with PMA and United? Here is how it would work.

1) We go back to the four “cornerstones” defined in the merger agreement — Global Networking, Advocacy, Business Solutions and Marketing/ Consumption. PMA will do Global Networking and Marketing/Consumption. United will do Advocacy. Business Solutions, which is mostly education and food safety, will be jointly branded or done by a joint charitable foundation.

2) PMA’s board of directors will always have a majority of its membership from the buying sectors of the industry in order to sustain PMA’s successful business model.

3) United’s board of directors will always have a majority from the grower/shipper segment of the industry in order to make it a legitimate national voice for grower/shippers.

4) When one joins the new association, one automatically becomes a member of both associations.

5) A set percentage of dues and profits from other activities automatically goes to United to be used for advocacy purposes.

Now United would have no need to get involved in marketing because its funding needs would be taken care of by PMA’s marketing activities. PMA would no longer have a need to get into advocacy since all its members would also be members of PMA, and such needs could easily be referred to the sister association.

Grower/shippers need not fear that their voice would be lost, because they have a majority on the board of United. Yet, since they are also members of PMA, they can take advantage of all the networking opportunities etc.

Retailers and foodservice operators need not worry that their association will get bogged down in the minutia of government relations for growers. By being members and allowing for a revenue share, they are doing their bit for the supply base

Because all this would be contractually defined, the United board could take what advocacy positions it wished without fear that its funding would be cut off.

PMA would be saved from dealing with divisive issues such as NAFTA, the PACA Trust etc., and could thus proceed to even greater success in its core competencies.

Merger seems increasingly difficult to make work because the different associations have different priorities. Yet the industry must avoid duplication and waste. This proposal should allow for the efficient pursuit of all four “cornerstones” that were to be the basis of the new association.

Many thanks to Rick Antle for leading us to think through this important issue.

****

For those who are looking for more background on the issue, we have now run six Pundit editions related to this issue:

PMA And United: To Merge Or Not To Merge? That Is The Question gave a basic review of the issues surrounding merger.

The United/PMA Fiasco: THE SPIN IS JUST HALF THE STORY — Lessons Learned: Open Up To Industry Input And Focus On Big Things First assessed why the talks failed.

July 21 Pundits dealt with four important industry letters addressing the merger issue.

A Modest Proposal For Reviving The Merger Of PMA And United laid out a practical way a business decision can be reached when the parties are at an impasse, with a specific proposal for how to choose a CEO.

United/PMA Impasse More Than Just A Decision About A CEO – It Is A Battle For The Soul Of The New Association explained that the failure of the merger agreement to clearly define, in a binding manner, the priorities of the newly proposed trade association raised the stakes enormously as to who would be the CEO.

July 30 Pundits included a Baker’s Dozen of Letters from industry leaders and included “A Modest Proposal Take 2” – in which we suggested an alternative organization that could serve the trade’s interests while avoiding duplication.

For those wanting more background, we have been writing about the subject for many years.

 

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