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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



Headstrong Tesco Claims Success
With 98-Cent Fresh & Easy Line

As part of our in-depth analysis of Tesco’s journey to America in the form of Fresh & Easy, we recently ran a piece titled, Fresh & Easy’s 98-cent Sale Causes More Consumer Confusion. As part of that piece, we ran the assessment of a noted retail produce expert:

Fresh & Easy currently has a big outdoor sign saying that it will feature six 98-cent items each week.

This week it is: 2# cello carrot, 1# roma tomatoes, 2# bag yellow onions, 4 pack of very small peaches, 3 each gala apples, and 1.5# of minneola tangerines.

They have all of the 98-cent items as the first in line in produce with 6 RPCs and signing.

My thoughts:

It is hard to make a price impact with just 6 produce items especially with Fresh & Easy as they sell so much by the package, not by net weight so consumers can’t figure out if it is a good deal or not.

Fresh produce is the opportunity to make a quality statement for the store. Promoting it solely on price means the store misses out on that opportunity. It degrades the produce and the store.

Fresh & Easy now features a grocery end with “Everything under $1”. They have canned tuna mustard, pasta, canned green beans, rice, and pasta all in private label on the end.

We also questioned whether it was the right solution to the problem:

We know value is the hot thing today and, certainly, consumers like a deal. However, one day the store is promoting its green credentials; the next day it’s the place you get stuff for under a buck.

This is no way to build a consistent image.

We also wonder if it is actually addressing the problem consumers experience in shopping for fresh produce at Fresh & Easy.

If it is true as the press release implies — that consumers have been switching from fresh to canned to avoid spoilage in tough economic times — we suspect that what consumers really want is the ability to buy the quantity they need.

Maybe they want one apple, two Minneolas, an onion, two peaches. Whatever the price, people feel cheated and wasteful if they have to throw out half the product because the only option was a prepack of produce.

Let consumers buy what quantity they want, as most stores in America do, and consumers won’t have the same problem with waste. This 98 cent plan may be a solution to the wrong problem.

Well now Fresh & Easy is claiming it has a fantastic success on its hands:

FRESH & EASY’S PRODUCE SALES INCREASE
MORE THAN 11% WITH NEW 98-CENT LINE

98-cent Produce Packs are helping customers
stretch their budgets in tough economy

Produce sales at Fresh & Easy Neighborhood Market stores have increased more than 11 percent since January, when the grocer introduced 98-cent Produce Packs in response to customers looking for fresh fruits and vegetables on a budget. This sharp increase in sales shows people are continuing to look for ways to stretch their budgets while seeking out quality items.

“Our customers told us finding high-quality produce at affordable prices was challenging,” said Simon Uwins, Fresh & Easy chief marketing officer. “We are making changes so our customers have even more options on their weekly shopping trips. The 98-cent Produce Packs offer customers a great way to save money without compromising on quality or freshness.”

The 98-cent Produce Packs are delivered fresh daily to stores and currently include grape tomatoes, yellow onions, green bell peppers, pears, lemons and oranges. Customers can always choose from six different fruits and vegetables that will rotate depending on seasonality and availability.

As is typical with announcements from Tesco, the release sheds more smoke than light on the situation. Sales are up 11% but we don’t know if that means in volume or in dollar terms. We also don’t know if that is a function of seasonal factors or what percentage produce sales fluctuated last year. We don’t know if this is 11% on a same-store sales basis or a corporate basis, including new openings.

The release also doesn’t say if promotional activity changed. Very often people attribute a sales change to a price change but, often, the price change included a promotional effort. Sometimes it is the promotional effort, not the price change, that accounts for the sales increase. We also don’t know if produce sales were up disproportionately to sales in other departments.

Obviously it would be easy to be clear, but Tesco prefers to grab a PR headline and leave shareholders in the dark.

We’ve received some varied feedback on the operation. First a retail expert pointed this out:

In addition to the 98 cents produce promotions at Fresh & Easy, they are turning the heat up on advertising. Their mailer is an 11” x 20” single page with hot specials, their 98 cents produce items, and a $6 coupon off when you spend $30.

I did notice that they were still stocking at the regular retail of 98 cents their 1# bagged regular carrots while they had a 2# bag (same brand and same quality and size) on at 98 cents. Usually when you have something like this special, you do one of two things — discontinue the 1# bag or reduce the price.

So, possibly the fact that they “turned the heat up” on advertising is responsible for the sales boost.

In any case, we then heard more a couple weeks later:

Just some observations on Fresh & Easy:

  • They are doing more bin promotion outside like 8# bag navels at 3.99 and prior it was 5# russets at .99.

  • They are displaying some items on the bottom shelf of the wet rack in original RPCs.

  • They are cross-merchandising bagged avocados with chips, bagged combo lemon/limes in the liquor isle.

  • More non-Fresh & Easy labeled product in produce and meat.

  • They finally dropped the retail on their 1# regular carrot from 98 to 79c. They have had the 2# regular carrot on as one of the 98c produce packs for three weeks.

  • I give them credit for doing the grill combo packs of 4 Italian sausages, 4 beef patties, and 6-8 pieces of seasoned chicken at a really good retail of $5.99 for 4 lbs 11 oz.

  • When they opened, they were in a real hassle with Coke as Coke refused to deliver to their distribution center and not do Direct Store Deliveries (DSD). Pepsi went along with the request. I don’t know how the product is getting to the store, but I do notice the Coke products are advertised specials and have promotional spots.

  • They do not allow any of the vendors to do DSD and that includes all of the chip companies.

  • They have reduced their out-of-stocks significantly in the center of the store.

  • They still have a lot of perishable out-of-stocks in the evening and prior to their load arrival.

  • They are doing a better job of scheduling their labor to their work load as I noticed a few times as many as seven people stocking the perishables when the load came in.

It is all very interesting and there are some real improvements. It is, however, not likely any of this will change the fundamental problem of the concept.

Part of the problem is that they are just “headstrong”.

In a commentary we published in April last year, Reading Tesco Between The Lines, David J. Livingstonincluded his assessment that Tesco’s propensity to speak in “coded language” was an “insult to everyone in the industry.”

Late in 2008, he had been out in Las Vegas looking at stores and made that point in a note he sent the Pundit:

I have never seen a company so headstrong about building so many low volume stores.

— David J. Livingston
DJL RESEARCH, LLC
Waukesha, Wisconsin

David is right, they are headstrong, and now that they have slowed expansion the competitors are starting to make life even tougher. We discussed Wal-Mart’s Marketside here, here and here. But we also see a change in the competitive response of other retailers.

Kroger’s Fry’s division, for example, ran a promotion late in 2008 in which it accepted all competitors’ coupons, including those from Fresh & Easy, thus blunting the usefulness of Fresh & Easy’s prime promotional weapon.

Safeway has been running $10-off-a-$50-purchase coupons. Add in more Wal-Mart Supercenters, Neighborhood Markets, Trader Joe’s, etc., and all Fresh & Easy needs is for Aldi to declare Phoenix, Las Vegas and Los Angeles its next three markets and they can just turn off the lights.

Fresh & Easy has a strategic problem and a merchandising problem. The strategic problem is that it locked itself into an enormous warehouse and infrastructure model, so it is not feasible to be profitable with the current store count. Yet headquarters has lost faith in the concept and won’t give them money to expand into other regions.

The merchandising problem is simple: The idea of offering a uniform merchandise offering across a range of demographic and ethnic groups is a loser… and a big one.

It needs drastic surgery. We suggested here splitting the chain up into an Aldi clone and a Trader Joe’s clone. We suggested here bringing Bruce Peterson in to be CEO.

If they try to muddle through, expect them to either merge the operation with a US operation as an exit strategy, buy a much larger US company — we suggested Meijer here — as a face-saving way to make the Fresh & Easy numbers go away or, despite the ego invested in the concept, put a lock on the door.

It is incredible that such a brilliant company should do such a bad job. We suggested here that the real problem is that we both speak English.




Advice For Republicans:
Seize The High Ground

The debate over President Obama’s stimulus proposal is gaining traction as people come to see it as a grab-bag of special-interest projects the Democrats are trying to push through without scrutiny.

So when Mitch McConnell (R-KY), the Senate Minority Leader, proposes modifying the stimulus bill with specific plans of interest to specific industries or interest groups, such as his proposal for cheap mortgages to boost housing, he is taking precisely the wrong approach.

Americans are going to simply see his proposal as a plan to replace Republican special interests with the ones the Democrats took care of in their version of the bill.

Now is the moment for the Republicans to seize the high ground by insisting upon “interest-neutral” principles. Some of these can be good government rules, such as insisting that Congress adopt its own version of President Obama’s pledge to allow five-day online comment periods before he would sign a bill:

Sunlight Before Signing: Too often bills are rushed through Congress and to the president before the public has the opportunity to review them. As president, Obama will not sign any non-emergency bill without giving the American public an opportunity to review and comment on the White House website for five days.

All Republican Senators could issue a joint statement that there is simply too large a danger of wasteful and ineffective special-interest projects winding up in such an enormous bill and so they will oppose the bill unless its final version receives five days of sunlight before they are asked to vote on it.

Republicans could also adopt substantive standards by which the stimulus bill could merit their votes, perhaps echoing David Brooks, who echoes Larry Summers:

First, the stimulus should be timely. The money should go out “almost immediately.” Second, it should be targeted. It should help low- and middle-income people. Third, it should be temporary. Stimulus measures should not raise the deficits “beyond a short horizon of a year or at most two.”

In other words, the Republicans need to publicly articulate the standards a stimulus bill would need to meet to merit their support. The Republican critique of the Democratic bill should be, as Alice Rivlin, the former chief of the Congressional Budget Office, explained:

The anti-recession package should be distinguished from longer run investments needed to enhance the future growth and productivity of the economy…. there are two kinds of risks in combining the two objectives. One is that money will be wasted because the investment elements were not carefully crafted. The other is that it will be harder to return to fiscal discipline as the economy recovers if the longer run spending is not offset by reductions or new revenues.

Or as David Brooks put it:

Democratic leaders merged the temporary stimulus measure with their permanent domestic agenda — including big increases for Pell Grants, alternative energy subsidies and health and entitlement spending. The resulting package is part temporary and part permanent, part timely and part untimely, part targeted and part untargeted.

The Republicans have a choice. If they fight for their favored expenditures they will come across as no more principled than the Democrats. If the Republicans, instead, insist on an intellectually defensible set of principles for evaluating the Democrats’ stimulus bill, they will come across as wise stewards of the public interest and the people’s purse.

In his inaugural address, President Obama attempted to dismiss arguments regarding the scale of government:

…the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works…

Yet this stimulus bill may yet persuade Americans that an effective government — a government that works — is one that can achieve intended aims. Yet a government — or a bill — that attempts to do everything from stimulate the economy to promote alternative energy to increase college aid and expand access to the Internet will do none of these things well.

So the bigger the stimulus bill — measured not in dollars but in multitude of programs and aims — the less likely to achieve any of the stated goals. Thus big government becomes weak government.

By insisting on policies narrowly tailored to achieve intended aims — in this case stimulate the economy to get us out of a recession — Republicans will actually be the party of strong government, defined as a government capable of achieving its intended goals.

That leaves the Democrats to defend large but incompetent government, genuflecting to interest groups but failing to achieve anything. Not good for the Democrats and not good for the country.




Pundit’s Mailbag — More Credit For Banks, More Debt For Families

As the industry and the nation mull over the matter of a giant national stimulus program, we might do well to turn to the wisdom of Joe McGuire. We’ve quoted Joe before — in this piece, where he spoke of “special interests,” and in this piece, where he accused the Pundit of being excessively socialist.

Since then we’ve had a chance to watch Joe in action. He was one of our students at the United Fresh Produce Executive Development Program — the deadline for which is coming up fast so register here) and, most recently, he was at the PMA FIT Leadership Symposium down in Dallas, so we had a chance to observe him raising trenchant points during the breakout sessions.

Now by day Joe is a mild-mannered Vice President of Sales at Rosemont Farms. On nights and weekends, however, he is obviously a student of classical economics, as is evidenced by this letter he submitted to us at the peak of the financial crisis and specifically in response to our piece, Laws Encourage Imprudent Behavior On Wall Street

It seems to me that your remedies could be addressing the symptoms and maybe not the core illness. I think we really need to diagnose the problem of why the patient is so sick, why he keeps getting sick and how we can cure him. I think it would be helpful to examine the system of money and banking. Even The Wall Street Journal recorded the primary “sin” of the current crisis as the policy of excessive credit (easy money). Read “The Mortgage Fable”, from September 22, 2008. It strikes me as odd that some think we can cure the problem of excessive credit with more credit.

I am not an economist but it seems awfully bizarre that bankers and politicians would have the power to determine the amount of money that is in circulation through monetary policy. Why wouldn’t that be a function of simple supply and demand? It would seem to me that the market would evenly match the supply of and demand for savings through the cost of money-lending and the return of savings. Or, in other words, the interest rate for money is determined by the market and it is the great equalizer..

Everybody wants to blame the immoral mortgage banker but we need to ask where he got the money in the first place to create the loan?

Don’t get me wrong, I think he is guilty as well but not necessarily the core of the problem.

So where does all the ‘new’ money come from and who benefits most from it? I read this article, What We Learn from a Play Money Auction, and it appears to me that the people who created the crisis will benefit the most from the supposed cure because they will be closest to the new money creation. Now that is immoral. We should look closer at this.

Do you think there is any room for fundamental change in the current system of money and banking that we have in America? It seems to me that the Federal Reserve is failing woefully in its job of price stability.

— Joe McGuire
Vice President Sales
Rosemont Farms
Boca Raton, Florida

We were reminded of Joe’s letter by a piece by Dick Armey, both a former majority leader of the House of Representatives and a former Economics Professor, who wrote a column in The Wall Street Journal titled, Washington Could Use Less Keynes and More Hayek:

In the long run, we are all dead,” John Maynard Keynes once quipped. An influential British economist, Keynes used the line to dodge the problematic long-term implications of his policy proposals. His analysis of the Great Depression redefined economics in the 1930s and asserted that increased government spending during a downturn could revive the economy.

President Barack Obama and congressional Democrats (very few of whom likely have read Keynes’s 1936 book, “The General Theory of Employment, Interest and Money”) have dug up the dead economist’s convenient justification for deficit spending in defense of their bloated stimulus legislation. But none ask the most important question: Was Keynes right?

According to Nobel economist Friedrich Hayek, a contemporary of Keynes and perhaps his greatest critic, Keynes “was guided by one central idea . . . that general employment was always positively correlated with the aggregate demand for consumer goods.” Keynes argued that government should intervene in the economy to maintain aggregate demand and full employment, with the goal of smoothing out business cycles. During recessions, he asserted, government should borrow money and spend it.

Keynes’s thinking was a decisive departure from classical economics, because arbitrary “macro” constructs like aggregate demand had no basis in the microeconomic science of human action. As Hayek observed, “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”…

Hayek, who famously debated Keynes in a series of articles after the release of “General Theory,” gave what I believe to be the most devastating critique of government action to stimulate “aggregate demand.” Hayek viewed the boom and bust of the business cycle as primarily a monetary phenomenon created by governments’ artificial inflation of money and credit.

Sound money policy, conversely, allowed the disparate knowledge of millions of economic actors to be conveyed through the price system, rationally allocating capital and labor through relative prices. The problem with government attempts to manipulate the economy through fiscal policy — spending that takes resources away from those who are productive and redistributes it to politically favored interests — is that it is audacious. It assumes that government knows better how to spend and invest than individuals acting in their families’ best interest.

“The real question,” according to Hayek, “is not whether man is, or ought to be, guided by selfish motives but whether we can allow him to be guided in his actions by those immediate consequences which we can know and care for or whether he ought to be made to do what seems appropriate to somebody else who is supposed to possess a fuller comprehension of the significance of these actions to society as a whole.” …

There are many details of the stimulus bill that are debatable. Is it large enough? Is it too large? Will the money be spent too slowly? Will it be spent in areas of the economy with spare capacity? One could go on and on.

The key question though is whether, even getting the details right, is “stimulus” what we actually need? Or as Joe puts it, “It strikes me as odd that some think we can cure the problem of excessive credit with more credit.”

The issue is this: All across America families feel the need to rebuild their balance sheets so as to compensate for declining real estate and stock values. To “compensate” for this reduction in demand, the proposal is to burden each family with additional debt that will have to be paid with taxes in the future. Does that actually make sense? Is that really the road to prosperity?

Many thanks to Joe for helping us think through this important topic.




Pundit’s Mailbag — After Avocadogate,
A Closer Look At Boards Of Directors

We first discussed the issues surrounding the allegations of financial improprieties at the California Avocado Commission with a piece titled, Audit Of California Avocado Commission Raises Questions Of Use Of Funds And Governance Policies.

This was quickly followed with Pundit’s Mailbag — Lesson From Avocadogate: You Get What You Tolerate, in which we compared the situation of Mark Affleck of the California Avocado Commission to that of Dick Grasso from The New York Stock Exchange and Dennis Kozlowski of Tyco:

What do we think unites the Grasso and Kozlowski case with Mark Affleck’s case?

What really happened in both the Grasso and Kozlowski case was that the respective boards of directors thought these players were invaluable. They had both been phenomenally successful in building their respective organizations and, in both cases, the boards of directors were content for them to have whatever kind of compensation they wanted, to run whatever kinds of offices they wanted and, in general, to allow them to run the show as long as they kept producing results.

Maybe every “T” wasn’t crossed and every “I” wasn’t dotted, but that was the gist of it. It was only later when the board members realized that they had fiduciary responsibilities to shareholders and might be personally liable for their failure to supervise and that their own reputations could be sullied in the matter that, all the sudden, these much beloved CEOs became bad guys.

So, what seems to have happened here was that the board — or at least some key members of the board — were not choosing to look. Mark Affleck was a hero; he had built what was commonly perceived as one of the most effective commodity promotion groups in the country. Consumption and prices had risen over long periods of time, and events, such as the admission of foreign avocados into the US that were once perceived as disasters, were managed without too many problems. If he needed an extra $25,000 a year, nobody was going to risk losing him over such an issue. And if he felt that he had to offer his staff extra benefits, so be it.

The problem seems to have been two-fold. First, although certain board members seem to have accepted this perspective, not all of them did and, certainly, not all avocado growers did. So the commission started talking out of both sides of its mouth. The growers were being told there was a salary freeze, while Mark had the flexibility to give compensation in other ways. Second, whatever flexibility Mark was given, he still had the responsibility to follow the tax laws.

These pieces led to several letters. One from a man at the epicenter of all the controversy:

I have enjoyed your writing from the moment I started reading the Perishable Pundit.

I have learned much about the business, and from the incisive way you cut to the heart of matters in the produce world.

It is unfortunate to say that you are no less correct, nor any less incisive, when you turn the focus on my own industry.

Your column rings very true when you begin to explore how the Avocado Commission got to where it is today.

Add to the mix only nine board meetings per year, and the abolishment of committees by a previous chair, you have the perfect recipe for what happened.

Rick Shade
Chairman
California Avocado Commission
Irvine, California

We appreciate the kind words about the Pundit and have to commend Rick for being a stand-up guy willing to confront these issues forthrightly. There is an enormous tendency in these circumstances to try and hide. It never works and only leads to wild speculation. Whatever happened in the past, Rick and the board have been very forthright in dealing with this matter and deserve a great deal of credit for that.

Not only have they had to deal with difficult questions from the state, from the media and from their fellow growers but they have had to try to make delicate distinctions that the auditors did not.

For example, there is this whole section in the audit on tickets to sporting events and it seems to paint with a broad brush claiming abuse. Yet, many companies in the industry have season tickets to sporting events and they attend games with customers. If they can’t find a customer, they typically offer the tickets to staffers and their family members.

Now according to IRS Code it is probably true that a company can’t give its employees tickets without reporting it as income, but it is widely done — we would say it is done almost to the point of being customary and not what most in the industry would consider abuse.

Yet, that doesn’t mean there was no abuse. Were more tickets ordered than could reasonably be expected to be used with customers? Was a genuine effort made to find customers to take to the games? If there were extra tickets, were they given out generously to inspire all the people in the organization? Or did the top executive hoard the tickets for his personal pleasure?

As much as anything, what the audit portrays is a complete lack of internal controls so nobody can really answer any of these kinds of questions in a reliable and believable way. So innuendo just hangs there and people will come to assume the worst.

We are sure the Avocado Commission will right itself as people like Rick Shade are dedicated to making it happen.

We hope that the industry as a whole will use this occasion as a “learning moment” to realize that invitations to serve on boards of directors are not merely honors, they carry legal responsibilities. One industry executive who has served as Chairman of many associations and boards sent this note along:

Regarding Mark Affleck, I have to tell you I am conflicted. I read the full audit report, and there were clearly some things that were happening that weren’t “kosher”, but it’s hard to read black and white and understand the intent.

Regarding the high compensation for Mark Affleck. I wonder if this level was at all a performance-based bonus because it’s one of the premier grower associations and he achieved so much in his time there? I don’t know.

Your company and mine are each one of many members of PMA, and I have no idea what Bryan Silbermann, president of the organization, gets paid, nor do I think as a member it’s my business. The Executive Committee takes care of it (as I did when I was on Executive Committee), and even the board is unaware of the salary level of any staff member.

I think that’s as it should be, and if PMA or United or any industry association or board is successful, then I hope the Executive Committee will reward the CEO and work hard to keep him.

Other things like Tommy Bahama shirts for the booth or shows may not sound good, but I can’t tell you how many times we have been to member food shows and needed to buy a football jersey, baseball jersey, overalls, whatever, to keep with the show theme. And there is something to be said for a sharp, uniform look of your representatives.

Is the commission entitled to give gifts to employees sans tax consequences? I believe, so, we all do it — we give employees cash at Christmas, logo jackets, logo Ipods, etc. All unreported.

So, as I said, I am a bit conflicted, as I watch this very capable leader getting trounced. On the other hand, I will tell you that my CFO and I have reviewed that report and are reviewing our own books for “gray” areas that may not look good under the light of closer scrutiny. I guess in the end, it’s different as a California-chartered commission versus our privately owned firm. Seems a bit unfair to Mark, but maybe he not only didn’t handle money properly, but grower relations as well.

Thanks as always for the good reflections and insights.

We appreciate the thoughtful letter yet must say that there are some points made that concern us:

  1. The IRS rules on providing clothing for employees is clear.Clothing that is required as a condition of employment AND cannot be worn as ordinary clothing is not taxable. So basically uniforms are not taxable. These can be clothes that by their nature are not ordinary clothing — say, a nurse’s outfit — or can be regular clothing made unsuitable to wear as ordinary clothing by the addition of a logo, so all those golf shirts with logos given out to employees at conventions are fine. What you cannot do is tell your employees to go to the mall and buy Armani suits that can be worn anywhere and tell them to expense the suits. Since they are suitable as “ordinary clothing,” giving them to an employee is the same as giving money and is taxable.
  2. We don’t know how much cash our friend gives out at Christmas time but it is a bad idea. A bonus is taxable income; giving the bonus in cash doesn’t magically make it tax-free when payment with a check would be taxable.
  3. In general, items with conspicuous logos that cannot be removed are advertising for the firm and thus not taxable. Probably nobody will bother you if at Christmas you give out a door prize at the company Christmas party, but the principle remains: If a company gives money to its employees, that is taxable income. You can’t subvert that rule by saying you will give the employee a stereo system instead.
  4. In general, non-accountable expense allowances are strictly limited by IRS rules. You can’t just give your employees $750 a month for gas, as the California Avocado Commission did with some employees, and then declare that a business expense. There are legally allowed mileage allowances or you can keep a diary of exact expenses, but just giving allowances is typically a taxable event.

We haven’t published compensation lists because we don’t want to appeal to the prurient interests of people, and the connection between a typical member and an association is such that few people would consider it their business. Yet we would make two points:

First, although a typical member who is contributing a membership fee to a national association isn’t vested enough to care, we think these mandatory contribution organizations, such as the California Avocado Commission, are a different bird. After all, an avocado producer is contributing 3% of his sales into the commission and a much higher percentage of his net profits. So any reasonably sized avocado producer “owns” that organization in a way few members feel they “own” national voluntary associations. If we were contributing such a big chunk of our income to an association, we would say it is definitely “our business” what they are paying people.

Second, as a matter of law, we do not think that punting the responsibility for setting executive compensation over to a compensation committee or an executive committee can, in any way, lesson the responsibility and liability of members of the board of directors. After all, how could the board of directors judge if the compensation committee or executive committee is doing a good job if they don’t know what they are deciding? The entire board has a fiduciary responsibility to the members to ensure their money is being spent prudently and, if it is not, they could be sued. We think every board member should be aware of the contractual terms with the CEO of the organization. In fact they should have to vote to accept the contract, and they should not vote without reading the contract.

We wrote a piece in the current issue of Pundit sister publication, PRODUCE BUSINESS, titled The Squandering of Goodwill, in which we point out that the loss to the industry as a result of this problem is far more than money. The industry advances in no small part because of trust and faith that various communal efforts will work for the betterment of the industry. The events at the California Avocado Commission will place a shadow of doubt over such efforts for a long time to come.

The best hope is for boards of directors to declare themselves to be Reaganites. When it comes to communal institutions: Trust, but Verify.




Pundit’s Mailbag — Organic Industry’s
‘Situational’ Standard

Our piece, ‘Spiked’ Organic Fertilizer Raises Consumer Doubts About Organic Definition, brought a number of responses. One pithy note came in response to a point we made comparing a violation of kosher requirements with a violation of organic standards. As we wrote:

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?

Which brought this response from the head of the Cornell Kosher Food Initiative and one of the world’s preeminent authorities on kosher food:

Interesting issue. You’re right on with respect to the kosher analogy for the organic folks.

Joe Regenstein
Professor, Food Science
Department of Food Science
College of Agriculture and Life Sciences
Cornell University

A less academic response came from an important industry executive:

This position from your piece, ‘Spiked’ Organic Fertilizer Raises Consumer Doubts About Organic Definition, is absolutely incredible.

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…

It’s not about punishing farmers or not. It’s about protecting the integrity of the standards and meeting the definition of what is allowed on a crop to market it as organic. I empathize with the farmers for not knowing their supplier was not above board. However, the standards to meet their certification should have nothing to do with the financial or supply ramifications for farmers, no matter what the reason.

If we start granting variances every time a bad actor gets in the mix, we might as well just pick whatever standards fit the situation at the time so we can still market the products as organic and the consumers beware.

— Eric Schwartz
President
Salyer American Fresh Foods
Monterey, California

Both Professor Regenstein and Eric Schwartz are correct. The whole concept is a betrayal of consumer trust and would be viewed as fraud against the consumer in any other context.

The problem is really that California Certified Organic Farmers is, in fact, a producers’ group and not a consumer group. The organization proclaims that “CCOF promotes and supports organic food and agriculture…” which is a completely different mission than, say, “Ensuring consumers that they get what they pay for when they buy organic.”

If you are generous, you say that the premise of the organization is that consumers want to eat not just organic today but that they want to see the range and availability of organics increase, so according to this premise consumers would rather cut producers some slack under difficult situations because this will encourage an increase in organic production and in firms electing to produce organic product. After all, if the penalty for having an unethical supplier is a massive recall and then three years of penance while the land gets recertified as organic, many will hesitate to invest in going organic.

If you are more cynical, you will say that the producers who control CCOF are watching their own P & Ls and are creating a kind of situational standard that avoids their paying a heavy cost.

Our take is that when organic was a small community, it was reasonable to think that consumers, deeply committed to organic, would have thought it important to encourage the growth of the organic industry. Today, however, the typical organic consumer is some mom at Wal-Mart buying organic baby food or milk, and the mom has no connection to the “organic community.”

These people are just being tricked because the organic standards are too situational.

Right now, producers are still of the mindset that allowing the industry to avoid expensive recalls and recertifications is what most helps the industry. But as word gets out that a consumer can’t be certain that the organic product he or she is about to buy — typically at a premium — is actually organic, consumers will start to keep their money in their pockets.

Much of the interest in local is rooted in distrust that large national organic producers actually care about their customers. News such as this will only encourage that belief.




Perishable Thoughts —
Taking A Stand On Presidential Language

“I’m frustrated with myself, with our team…I’m here on television saying I screwed up…”

— President Barack Obama
Interview with NBC’s Brian Williams
February 3, 2009

Political leaders are not just responsible for enacting policies; through their conduct they affect the tone of political discourse in the country and the manners and mores that define the character of a people.

So who, precisely, decided that the country will be better off if politicians show how “common” they are by the use of earthy language?

It is a bi-partisan issue. During the campaign John McCain apologized to David Letterman for cancelling an appearance on his show by publicly announcing that “I screwed up.”

Now President Obama explains his failure to both properly vet candidates and to judge the impact of their mistakes by declaring, “I screwed up.”

Of course, this has been going on for a long time. Back in 1990, in his The New York Times Magazine “On Language” column, titled Screwing Up, William Safire, pointed out that President George H.W. Bush was fond of the word:

…when the President of the United States was asked about our soldiers’ search of the Nicaraguan Ambassador’s residence during the invasion of Panama, he was quoted as replying, “It’s a screw-up and they have expressed their regrets that it happened.”

The locution as a past participle is also a Presidential favorite. In another setting, Mr. Bush kiddingly told students at the University of Tennessee that while he was delivering the State of the Union address, they were watching the Vols playing Vanderbilt in basketball, and “some of you had your priorities all screwed up.”

Safire noted some objections…

Frank Mankiewicz, a bluenosed public relations executive in Washington, writes: “Screw up, it must be noted, is the euphemism for the eponymous SNAFU.”… “You are too young to remember World War II,” continues Mr. Mankiewicz, “but surely your older brother must have told you about the acronymic frisson that snafu gave otherwise proper men and women to use the word.”

Safire concluded that the word would become commonplace:

In sum, the Presidential use of screw up, in conjunction with frequent newspaper quotation of the term with no concern for its sexual etymology, has legitimized screw up as verb and screwup as noun; this in turn may one day lessen the sting of the slang meaning of the central word without its gentling use of up, but let’s let a generation go by.

It is just about a generation later, and Safire was probably correct. Still, is “change” always a matter of laxer standards? Must we constantly define decency down?

The Jr. Pundits are age 5 and age 7, and we don’t want them to use words like “screwed.” Is that the way President Obama and his wife want their children to speak?

Surely the President and his wife want their children to be engaged with the news and to read and watch what the President says and does. So why does the President elect to speak this way? What would be wrong with simply saying, “I made a mistake”?

Maybe there aren’t that many people alive who remember why presidents shouldn’t use even minor vulgarities in public discourse. But the country would be better off if more people did.

In the end, the country is a better place to the extent that the people are better people, so statecraft should inevitably be concerned with the character of the people. Through their conduct, government officials can help to elevate or depress what is acceptable behavior. Standards of dress and speech… all play into this.

Perhaps a change we can believe in would be one whereby our president considers thoughtfully his role as head of state and uses the ”bully pulpit” of the presidency to inspire the children… and the adults… of America by conducting himself with a standard of behavior that others might aspire to obtain and that, if obtained, would nudge America, at least a little, to being a better, more civil, society.

****

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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