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Perishable Pundit
P.O. Box 810425
Boca Raton FL 33481

Ph: 561-994-1118
Fax: 561-994-1610


email:
info@PerishablePundit.com

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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Aldi Challenges Wal-Mart
As Low-Price Leader

One of the great mysteries of American retail history is why supermarkets were so slow at emulating the Wal-Mart supercenter as it began to roll out across America over the last 20 years.

Although Kroger purchased Fred Meyer, it did little to roll out supercenters across its marketing regions. Meijer remains privately held and regional. It is only recently, with concepts such as HEB Plus and Kroger Marketplace stores, that major supermarket chains have entered the market with supercenter-like concepts. Even then, the concepts tend to be pale imitations, weak on things such as consumer electronics and toys and not exactly rolling out with abandon across the country anyway.

Of course, supermarkets didn’t have, and for the most part still don’t have, the expertise in general merchandise to feel they could out-execute Wal-Mart. So it is fair to say that most chains have spent the past two decades not so much trying to figure out how to compete with Wal-Mart but, rather, figuring out how to get out of its way.

Although many chains have succeeded and an awful lot of Wal-Mart’s growth came at the expense of independent operators, the opera is not over and one suspects that these chains may yet regret ceding to Wal-Mart the great middle-class customer base and the great growth format of the latter quintile of the twentieth century.

Now, however, one wonders if Wal-Mart, in its response to Aldi, isn’t setting itself up to fail by not moving to copy the Aldi format — just as supermarkets once failed to respond to the Wal-Mart supercenter.

The Wall Street Journal just ran a piece entitled, Aldi Looks to U.S. for Growth, that details how an already-established and growing concept is primed to use the current economic situation to pursue even more rapid growth:

German store chainAldi is so cheap that Wal-Mart Stores Inc. closed its discount outlets in Germany two years ago partly because shoppers found the U.S. giant too expensive in comparison.

Now, the U.S. arm of Aldi is cranking up expansion in Wal-Mart’s home turf and seizing on the economic downturn to lure consumers to its Spartan stores and cheap groceries. The discount chain will open at least 75 U.S. stores this year, well above its typical pace, including its first Aldi store in New York City.

The company is counting on the economic downturn to crash a traditional barrier to the U.S. grocery business: Americans tend to be loyal to big-name brands.

Store-brand goods generally make up 22% of U.S. food sales in terms of unit volume, according to research by Nielsen Co., while in some European markets, they account for about 30%. At Aldi, 95% of the goods are the retailer’s own brands.

Aldi’s expansion shows how the tough economy is changing the competitive landscape across industries. Aldi first arrived in America in 1976 and began opening what has now become a collection of 1,000 U.S. stores, mostly in the Midwest and Northeast.

“This is the perfect confluence of factors for us,” says Jason Hart, president of Aldi’s U.S. division. He is charting a push into the Dallas-Fort Worth area next year with 25 new stores and a $40 million distribution center that will serve stores planned for Texas and Oklahoma, prime Wal-Mart territory.

A Wal-Mart spokeswoman said Aldi’s plans wouldn’t affect its price strategy or operations.

Supermarket chains such as Safeway Inc. and Kroger Co.are reporting higher sales of store-branded products. Mr. Hart and other Aldi executives say they had planned to expand before the downturn, but the moves have new urgency.

The push comes as the retailer is running out of room to grow in its German home market, where an estimated 90% of households shop at its stores, and Aldi and other deep discounters account for 40% of all grocery sales.

For expansion in the U.S. and Britain, where it is also building new stores, Aldi tweaked its retail formula. New stores have higher ceilings and more windows to make the 17,000-square-feet outlets feel less cramped. It is adding more fresh produce, designed to lure middle-class shoppers.

But the essence of the business is low prices through store-brand foods. It buys in bulk from suppliers and commissions them to make its own store brand of groceries cheaper than rivals. In the U.S. Midwest, for example, its prices are between 15% and 20% less than Wal-Mart and 30% to 40% cheaper than regional chains, said David Livingston, a supermarket analyst with DJL Research in Waukesha, Wis.

David Livingston has contributed to the Pundit here, here and here, and he knows what he is talking about.

There has been an explosion of new concepts at Wal-Mart lately — Marketside, which we have spoken about here, here and here, and the super-secret “Project Sombrero,” which we explained here.

A concept that consistently underprices Wal-Mart, though, is not just another competitive concept; it is a competitor striking at Wal-Mart’s core competency.

Wal-Mart failed in Germany for many reasons but, most of all, it never acquired the low-price image it has in the states, and it didn’t do so because it was not, in fact, the low-price leader.

As it has grown, Wal-Mart has had a problem in that it has acquired a thicker expense structure than it started out with. This makes it difficult to be the low-price leader and maintain decent margins.

Wal-Mart should use the Aldi challenge as an opportunity to get back to its cost-cutting roots and open a concept that can under-price Aldi. Otherwise, 20 years from now, it may be wondering when it lost its place as low-price leader in the minds of US consumers.




FDA Scientists Allege
‘Corrupted And Distorted’ Review Process

A group of FDA scientists wrote a letter to the Obama transition team critiquing the way the agency was managed during the Bush Administration:

“The purpose of this letter is to inform you that the scientific review process for medical devices at the FDA has been corrupted and distorted by current FDA managers, thereby placing the American people at risk,” said the letter, dated Wednesday and written on the agency’s Center for Devices and Radiological Health letterhead.

CNN’s Louise Schiavone did a thorough report on Lou Dobbs:

The report details a number of serious charges:

• Scientists and doctors have been threatened and told, on occasion, to ignore FDA regulations.

• Devices have not been properly labeled.

• Managers without appropriate experience have been given authority to make final decisions about device regulation and have done so while ignoring serious safety and effectiveness concerns.

• FDA experts have been excluded from product meetings because manufacturers felt that they were “biased.”

• Manufacturers have been allowed to market their products without FDA approval.

An internal investigation of the charges, the scientists said, has resulted “in absolutely nothing: No one was held accountable, no appropriate or effective actions have been taken, and the same managers who engaged in the wrongdoing remain in place and have been rewarded and promoted.”

The allegations are serious and disturbing as this alleged behavior, if true, would have a high likelihood of having caused serious harm, even death.

Also disturbing, though, is that nine scientists at the FDA have been sufficiently concerned to write such a letter but did not resign in protest over what they claim has been happening for years.

These are highly credentialed scientists with many opportunities to make a living, yet, somehow, despite the seriousness of their charges, they weren’t willing to quit to make the point.

Now the FDA prior to the hand-over to President Obama was saying it was “actively engaged in a process to explore the staff members’ concerns and take appropriate action.” The CNN report pointed out that Tom Daschle, President-elect Obama’s now-confirmed nominee for Secretary of Health and Human Services, was being urged by the scientists to demand resignations from all senior executives at FDA and allow the new FDA commissioner to clean house.

In his confirmation hearings, Daschle claimed he is committed to a science-driven approach:

“I want to reinstate a science-driven environment,” Daschle said. “I want to take ideology and politics as much as humanly possible out of the process and leave the scientists to do their job.”

We are all in favor of science and, certainly, allegations of top level executives can be investigated and we hope future leadership will be effective.

But if scientists don’t have the personal integrity to stand up and refuse to be part of such serious allegations, our problem is much more serious

In fact, although we are told that the scientists signed their names to the letter, the version that was leaked to CNN and other media did not contain the signatures.

Despite the Kennedyesque flavor of the Obama inauguration, these FDA scientists, unwilling to speak out publicly and with their identities being protected by their friends on the Obama transition team, are hardly profiles in courage.




‘Spiked’ Organic Fertilizer
Raises Consumer Doubts
About Organic Definition

A hat tip to David Sasuga , founder of Fresh Origins, for sending along this fascinating piece by Jim Downing in the Sacramento Bee, titled Organic Farms Unknowingly Used A Synthetic Fertilizer:

For up to seven years, California Liquid Fertilizer sold what seemed to be an organic farmer’s dream, brewed from fish and chicken feathers.

The company’s fertilizer was effective, inexpensive and approved by organic regulators. By 2006, it held as much as a third of the market in California.

But a state investigation caught the Salinas-area company spiking its product with ammonium sulfate, a synthetic fertilizer banned from organic farms.

As a result, some of California’s 2006 harvest of organic fruits, nuts and vegetables — including crops from giants like Earthbound Farm — wasn’t really organic.

According to documents obtained by The Bee through a Public Records Act request, California Department of Food and Agriculture officials were notified of the problem in June 2004 but didn’t complete their investigation and order the company to remove its product from the organic market until January 2007.

State officials knew some of California’s largest organic farms had been using the fertilizer, the documents show, but they kept their findings confidential until nearly a year and a half after it was removed from the market. No farms lost their organic certification.

The nonprofit California Certified Organic Farmers, which certifies about 80 percent of the state’s organic acreage, decided not to penalize farms that had used the product on the grounds that farmers did not know they were using an unapproved chemical…

Above all, the California Liquid Fertilizer case shows how much the organic regulatory system depends on trust….

The biggest organic operations now cultivate thousands of acres and sell to mainstream buyers like grocery chains.

With farms under pressure to cut costs and deliver big harvests, demand has grown for a new class of potent liquid fertilizers that help crops thrive.

“Organic agriculture is becoming very dependent on these amendments,” said Thaddeus Barsotti, who runs Capay Organic farm in Yolo County. “If you don’t use them, and your competitor is using them, you’re going to suffer.”

Liquid fertilizers work particularly well for cool weather crops like strawberries and salad greens, and market leaders Earthbound and Driscoll’s became big customers for California Liquid Fertilizer, according to executives from those companies.

But liquid fertilizers are used on farms producing virtually every variety of organic fruit, nut and vegetable. On his mid-sized farm, Barsotti likes to give his bok choy, cabbage and pepper crops a nitrogen boost early in the growing season, though he said he never used California Liquid Fertilizer’s products.

We’ve chatted with the Sacramento Bee before and specifically with Jim Downing here. They do some great reporting there, and this piece raises some important questions.

One issue is this preponderance of a growing reliance on organically permitted liquid fertilizers and chemicals in general. We think many consumers believe that organic farming primarily involves releasing lady bugs into the field. We suspect that they would be shocked at how many chemicals are used in organic agriculture.

Certain things are inherently deceptive. We said here that Wal-Mart was being technically correct but fundamentally deceptive by including the sales of Indian River grapefruit in Florida or Sunkist oranges and Salinas lettuce sold in California as part of its “locally grown” program. So it seems that the use of a lot of chemicals in growing organically may conform to the law, but it doesn’t exactly conform to the public perception of what organic is.

The other issue raised by this piece is the question of whether organic certification is not too protective of the industry and too dismissive of consumers.

We can agree with not “penalizing” growers who didn’t know they were being sold a synthetic chemical. In other words they shouldn’t be fined or go to jail. On the other hand, if organic is to have meaning, consumers have to be able to rely on the certification to consistently mean something.

It is not really a question of evil intent or not; it is a question of consumer protection. If a Kosher hot dog manufacturer in good faith orders kosher beef but a vendor delivers pork and it is put into hot dogs and shipped, that hot dog manufacturer has to recall the hot dogs as they are falsely labeled and then the entire plant has to be made kosher again through a process involving both cleaning and rabbinic authorization.

This is not to punish the hot dog manufacturer but to protect consumers who wish to pay for kosher food.

Why would organic consumers merit any lesser protection?

Many thanks to David for passing on this article and thus encouraging us to think through such difficult issues.




Educational Entrepreneur Ed McLaughlin

Ed McLaughlin is well known in the food industry. As the director of the Cornell University Food industry Management Program, he also directs the Nestle-sponsored Food Executive Program. Furthermore, under the auspices of the Food Industry Management Program and under the directorship of William Drake, Director of Executive Education, Cornell University Food Industry Management Program, one also finds programs such as the National Association of Convenience Stores Executive Leadership Program, the National Grocers Association Executive Leadership Program and numerous International Programs.

Of course, Ed is especially well known for his involvement with fresh foods. We would like to say that this is because of the many columns he wrote for Pundit sister publication, DELI BUSINESS, some years ago:

Strategic Blueprint For Deli Success

Service Still Neglected?

Breaking The Barriers

Suppliers Playing Catch-Up

Distribution Changes Needed

Food System Choices

Back To “Supply & Demand”

Industry Structural Change

Store Visits Open Eyes

Interest In Prepared Food

Balance Of Power

Consumer Ennui

Or perhaps we could say it is because the Pundit did his first workshop at PMA in a joint appearance with Ed, when some research Ed did on the retail scene brought this column in Pundit sister publication, PRODUCE BUSINESS. The column so intrigued PMA’s Retail Board that they suggested a debate, though we wound up doing more of a joint appearance. Some would say the debate was more like elements of the Saturday Night Live parody of the “Point-Counterpoint” segment of 60 Minutes.

Alas, the Pundit can actually claim no role in Ed’s fame as he earned that all himself with exceptional research and teaching.

In the produce industry, he is well known as one of the fathers of PMA’s Leadership Symposium and as the designer and director of the United Fresh Produce Executive Development Program. This program is upcoming, and if you haven’t signed up either personally or to send someone from your organization, you really are missing out.

The Pundit has been honored to be a member of the faculty since the founding of this program and can personally attest to the incredible value any attendee can gain from spending a week on Cornell’s Ivy League campus, away from the day-to-day battles, focused solely on becoming a more effective executive. You can register for the program here.

What is not widely recognized about Ed McLaughlin, at least not in the food industry, is what an incredible educational entrepreneur Ed is. Cornell operates an Undergraduate Business Program, one of only two in the Ivy League, and Ed is the Director of the Undergraduate Business Program.

It is a relatively new program, first gaining accreditation in 2002. Yet by last year Business Week ranked the program as the 4th-ranked undergraduate business school in the country. We could poke a little fun as, of all people, when The Cornell Daily Sun ran an article on the achievement last March, it quoted the chair of the Undergraduate Business Program’s Advisory Council, who was pounding his chest about how many Cornell business grads were coming to work at his organization which happened to be… Lehman Brothers:

Tom Marino ’78, managing director at Lehman Brothers and chair of the Undergraduate Business Program’s Advisory Council, said that students from Cornell are “elite, not elitist.”

Attesting to the work ethic of Cornell students, Marino explained that at Cornell “you learn how to work hard,” so students that come from Cornell are as well-matched as any other students.

He sees the AEM program as a “broad-based educational experience” composed of “real world perspective, innovative teaching and leading-edge research and industry outreach.”

Marino also said that he is very proud that Cornell is “right at the top in terms of numbers of students coming to work at Lehman Brothers.”

Oh, well, you win some and lose some. The Cornell grads, of course, actually go to a wide variety of grad schools, work for a large variety of employers and start a wide variety of entrepreneurial ventures.

In fact, all these “rankings” are sort of artificial because the methodology used in these rankings is inherently arbitrary. There is no agreement on what criteria are most important for an undergraduate business school and thus no list can capture the nuances of all these programs.

It is also notable that schools move around these lists with shocking alacrity. Next edition, Cornell could move up or down the rankings, and the actual educational experience at any of these schools seems unlikely to change so quickly.

Still and all, to start an undergraduate business program and have it be ranked #4 in the country, even one building on a well established base in agriculture and having the advantages of Ivy League students and faculty, is a mighty achievement. That the man who has made much of this happen, Ed McLaughlin, is so closely affiliated with the produce industry is really something we should note and be proud of.

Consider it so noted.

Of course, Cornell being #4 in undergraduate business schools is a great achievement but, for many, the big news is that Cornell is now ranked #4 in Hockey.




Pundit’s Mailbag — Reshuffling The Tree Fruit Industry

Our piece, Tree Fruit Industry In Turmoil, brought much attention, including drawing this letter from a man whose name is synonymous with industry efforts to make the consumer experience of consuming tree fruit a more satisfactory one:

Thanks for illuminating the challenge in the tree fruit industry. There is a swifter current just under the surface than what is casually observed. I have attached a few comments from my perspective.

We appreciate your intelligent insight to the produce industry dynamics.

— Steve Kenfield
Vice President of Sales and Marketing
HMC Group Marketing Inc.
Kingsburg, California

Steve was then kind enough to lay out his assessment of things:

Tree Fruit Industry in Turmoil:
A decade of declining gross receipts, rising costs, inefficient organizational structures, rising retail prices and persistent inconsistent eating quality has brought the industry to this tipping point.

The root cause of the problem is a decline in consumption. CTFA strategic plans over the last 5 years zero in on the consumer’s frequent disappointment with their experience with peaches, plums and nectarines. The Perishable Pundit’s own family’s experience and discussions with consumers across the country have confirmed this.

The average retail prices have crossed the $2 per pound mark the last two years and the consumers are making a value judgment. This decline in consumption has fundamentally shifted the pendulum of supply and demand. Gross receipts to the growers have been flat-to-declining over the last 10 years with the cost of production, packing and distribution increasing at an accelerating rate.

What the California tree fruit industry is currently experiencing is not only a change in volume from orchard pull-outs but also a change in the structures of the organizations. The organizational structure of a company greatly impacts the efficiency of the business, the consistency of the product quality and its margin structure. The advantage of being a vertically integrated operation is being magnified. The flatter organizational structure, the improved coordination, the ability to make investments at all levels (varieties, farms, packing, post harvest handling, distribution and marketing) to raise the value of the product. The lower costs across all functional area is leveraged by the cumulative margins being available to support the entire entity, as opposed to separate profit-driven entities diverting profits from reaching the ranch. The result is a combined advantage favoring the vertically integrated operations.

The results of the last two years are driving us to this tipping point. Year 2008 saw a steepening of the decline of revenues and accelerating production costs, given the $.50 increase in minimum wage, higher costs for fuel, fertilized, packaging, transportation and water.

The current financial crisis is not so much one of liquidity of the lenders as it is a flight to quality. The old model of lending against land values is gone. The lending criteria have tightened and only the most credit-worthy, from a cash-flow standpoint, will have access to capital to maintain and expand their operations.

The “tree fruit bailout” is one of growers and companies bailing out of the industry. This will lead to significant shifts in the supply positions of the vertically operations and non-vertically integrated commercial packers and marketers. We are aware of one large packer closing their doors, two medium-sized packers will also not return in 2009, a significant amount of acreage is attempting to be sold that will likely change hands of marketers.

Several “marketers” who have advanced millions to growers are at risk of not recovering this capital. This desperation has put a significant amount of acreage on the market with a very limited pool of buyers. The land prices are down significantly from two years ago and the trend is expected to continue. These dynamics will be impact the marketing of tree fruit in 2009 and will be amplified in 2010.

The flight to quality is not only limited to the financial institutions… we are seeing the same with vendors, talent and customers. The top 5 companies in the tree fruit industry are all vertically integrated. They are being offered opportunities daily in the form of ranches, talented people and related services.

HMC is one of these top 5 companies. Over the last 3 years, we have been investing for quality in our current ranches, packing facilities, distribution and marketing to advance the consistency of our offering to the consumer and our customers in all channels. A deliberate move was made over the last three years to suspend our annual land purchase practice. Land prices became inflated fueled by the real estate boom in central California.

During this time we redirected this capital investment into existing assets, updating varieties, smoothing supply curves, R&D, etc. The current market situation has brought prices and available properties to the point where we are again strategically purchasing land to expand our stable base of production.

We are optimistic about the future of the tree fruit industry. This optimism is based on our knowledge that by aligning the supply chain, we can deliver a consistent eating experience that the consumer will respond to. People, like your son, love a great-tasting peach and this has not changed. The inevitable thinning on the industry will bring supply and demand into balance and the industry will be in the hands of capable marketers who can extract the true value of the product.

We appreciate Steve’s willingness to both explain the nature of the problems and provide a hopeful perspective on the future. Of particular note is that Steve does not simply posit that “the last man standing” after weak players go broke will survive but suggests that the future of the industry lies not just in reducing production but in a difference in the nature of business organization in the tree fruit industry.

Specifically, Steve believes that a vertically integrated supply chain is easier to align toward the production of fruit of enhanced eating-quality. Since Steve explains that “The root cause of the problem is a decline in consumption,” a reorganization that produces better eating quality contains the seeds of an industry rebound.

More broadly, Steve points out that all of production agriculture is experiencing a flight to quality on the part of banks in making lending decisions. This is startling for many as the continual rising value of land over the past several years covered a multitude of sins.

Rising land values meant that growers always had new collateral, so, as a result, they didn’t actually have to pay back money they borrowed. With that party over, banks are imposing normal business criteria and lending only to projects that provide evidence the bank will get paid back.

It is not really a crazy standard but can feel oppressive to those who operated in another mode for so long, and it doesn’t just apply to tree fruit. All over the country, indeed, around the world, growers are being asked to establish that their operations are likely to be profitable and produce free cash flow.

Some won’t be able to do so, and so production will drop in many areas. As Steve points out, this dynamic creates opportunities for well-financed companies willing to invest. Land, personnel, suppliers, customers all get put up for grabs when an industry reshuffles. Reduction in production also reshuffles the deck on the relationships between buyers and sellers. Many a buyer who has felt free to dictate price and terms may find nobody willing to sell under those conditions. Won’t that be a wake-up call!

If we can come out of all this, in tree fruit and elsewhere in the industry, with suppliers that are not only larger but more focused on consumers with better abilities to provide consumer value, the reshuffling, though painful to many, will be a big win for the produce industry.

Many thanks to Steve Kenfield and HMC Group Marketing for sharing this perspective with the industry.




Perishable Thoughts — Shovel-Ready

President Obama was still just a President-elect when he appeared on Meet the Press with Tom Brokow on December 7, 2008. During that interview he used a phrase that has become the very centerpiece of the American political debate over the President’s proposed stimulus package. The phrase he used? “Shovel-ready” — as in this quote:

“Well, I think we can get a lot of work done fast. When I met with the governors, all of them have projects that are shovel-ready, that are going to require us to get the money out the door, but they’ve already lined up the projects and they can make them work.”

President-elect Barack Obama
Transcript
‘Meet the Press’ December 7, 2008

The Washington Post is calling it The Obama Buzzword That Hit Pay Dirt:

The image is positively retro.

Picture a sweaty brow, rolled-up sleeves, knotty forearms, calloused hands. Picture virgin land, just waiting to be transformed.

Shovel-ready land.

This is America on the eve of the Obama era.

Shovel-ready.

He keeps telling us so. On “Meet the Press,” fill-in host Tom Brokaw wants to know how quickly Barack Obama can create jobs, and the president-elect promises to move fast. After all, he says, he’s met with a bunch of governors “and all of them have projects that are shovel-ready.”

Announcing his energy team, Obama beams about “shovel-ready projects all across the country.” Unveiling his choice for education secretary, Obama plugs his plans “to start helping states and local governments with shovel-ready projects.”

So many shovels.

All of them, apparently, quite ready.

But what the heck does this mean, and where does shovel-ready come from? Ah, this requires a word detective.

The article goes on to trace the phrase to an unlikely source:

We discover shovelready.com.

The Web site says it is maintained by the Upstate New York economic development arm of National Grid, an electric utility. Art Hamlin, the company’s Upstate New York economic development director, is on the horn.

So, what about Obama and all this shovel-ready business?

“I laughed when I heard it on the radio this morning,” Hamlin says. “It’s very satisfying.”

Hamlin says his company started throwing around the term back in the late 1990s. At the time, they were looking for ways to stimulate development of “brownfields,” the abandoned and frequently contaminated industrial sites that were being cleaned up and made available for development.

Executives at the company, then called Niagara-Mohawk Power, figured entrepreneurs would be more likely to develop the brownfields if they knew in advance that the sites already had electrical service and gas and sewer lines, as well as preliminary environmental permits. But they needed a catchy way of saying that.

They came up with shovel-ready.

“It had a nice ring to it,” Hamlin says.

Such a nice ring, in fact, that they decided to stake a claim. In 1998, the company bought the shovelready.com Internet domain name and even trademarked it.

Regardless of derivation, though, the phrase “shovel-ready” is absolutely crucial to President Obama’s stimulus package. The Congressional Budget Office did an analysis of the public works portions of President Obama’s plan that The Wall Street Journalcharacterized in this manner:

According to Congressional Budget Office estimates, a mere $26 billion of the House stimulus bill’s $355 billion in new spending would actually be spent in the current fiscal year, and just $110 billion would be spent by the end of 2010. This is highly embarrassing given that Congress’s justification for passing this bill so urgently is to help the economy right now, if not sooner.

And the red Congressional faces must be very red indeed, because CBO’s analysis has since vanished into thin air after having been posted early last week on the Appropriations Committee Web site. Officially, the committee says this is because the estimates have been superseded as the legislation has moved through committee. No doubt.

The unfortunate truth is that the stimulative effects of “shovel-ready” projects are probably near zero. Why?

Well, if a project is truly “shovel-ready,” this means that a lot of money and effort have already gone into design, engineering, perhaps land acquisition, a permitting or public review process, very often environmental impact statements have been produced and lawsuits have been litigated or settled. Contractors have been selected, construction bonds secured, insurance arranged.

What this enormous investment and effort means is that the project was judged important and worthy by local officials and was highly likely to proceed, with or without a stimulus package.

If the expenditure would have taken place anyway, the stimulative effect wouldn’t occur. So that leaves us with three possibilities: 1) Projects that are not “shovel-ready” and thus will not provide the quick stimulus that is the basis for this policy, 2) Projects that are shovel-ready but would have been funded anyway, and 3) Projects that were “shovel-ready” and were not going to proceed because of, say, budget cuts. The immediate stimulative effect would only come from this relatively small third group.

Of course, that also implies that these were the projects local officials saw as having the least value.

Words are powerful things, and a phrase such as “shovel-ready” carries with it the powerful symbolism of a nation about to get back to work. No such effect, however, is likely from the proposal currently on the table.

****

Perishable Thoughts is a regular section of the Perishable Pundit. If you have a favorite quote that you would like to share with the industry, please send it on. You can do so right here.

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