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Water: What Does It Mean To Have A Shortage Of Something That Sells For Less Than A Penny A Gallon? Can We Secure Farmer’s Rights To Ground And River Water? Why Raising Price Is Better Than Restricting Usage. 

The New York Times ran a lengthy piece, titled The End of California? — written by Timothy Egan, and for the most part it is about the ”great drought” and, in his telling, it is not going to come out very good for agriculture:

The morality tale behind California’s verdant prosperity will most certainly change. In the old narrative, the evil city took water from powerless farmers. Swimming pools in greater Los Angeles were filled with liquid that could have kept orchards alive in the Owens Valley, to the north.

It was hubris, born in the words of the city’s chief water engineer, William Mulholland, when he opened the gates of the Los Angeles Aqueduct in 1913 with an immortal proclamation: “There it is. Take it.”

But now, just about everyone in California knows that it requires a gallon of water to grow a single almond, or that agriculture accounts for 80 percent of the water used by humans here. Meanwhile, the cities have become leaders in conservation. It takes 106 gallons of water to produce an ounce of beef — which is more than the average San Francisco Bay Area resident uses in a day. Mayor Eric Garcetti of Los Angeles wants to reduce the amount of water the city purchases by 50 percent in the next decade, cutting back through aggressive use of wastewater and conservation.

It’s outlandish, urban critics note, for big farm units to be growing alfalfa — which consumes about 20 percent of the state’s irrigation water — or raising cattle, in a place with a third of the rainfall of other states. And by exporting that alfalfa and other thirsty crops overseas, the state is essentially shipping its precious water to China.

Still, casting California farmers — who produce about half of the nation’s fruits, nuts and vegetables — as crony capitalist water gluttons may not be entirely fair. Yes, the water is subsidized, through taxpayer-funded dams, canals and pumping systems. But that water, in some cases, ends up as habitat for birds and wildlife. As it drains away, it can recharge badly depleted underground aquifers. Farmers have already let more than 400,000 acres go fallow and took a $2 billion hit last year. They may add 600,000 acres to that total this year. Almonds, after all, are a healthy food source.

The new morality tale becomes further muddled when you consider that San Francisco, praised for its penurious water ways, gets its life-supporting liquid from the Hetch Hetchy dam, in Yosemite. Many people, dating from the sainted John Muir, believe that flooding that mountain valley was one of the bigger crimes against nature in California history.

And not every city is Spartan with its water. On any given day you can find, as I did in a new housing development in the foothills east of Sacramento, water running down the street — at a flow rate that looked bigger than that coming from the anemic Merced River. It was pouring onto a grass median strip, and then spilling over, in a development called the Estates at Blackstone.

Or consider that wealthy communities — say, Portola Valley, woodsy home to many an environmentally conscious tech multimillionaire — use far more water per capita than do the poor of Compton, in the Los Angeles area. When cost is no object, there is very little incentive to cut back.

But there is no getting around the fact that agriculture, for all its water needs, still produces barely 2 percent of the state’s gross product, and employs only about 3 percent of its workers.

Fair or not, it seems incongruous that farmers in the San Joaquin Valley are still planting new almond trees — they’ve nearly doubled the crop since 2005 — while people in the cities kill their lawns and dash in and out of low-flow showers.

The idea that California could have it all — a pool in every suburban backyard, new crops in a drought, wild salmon in rivers now starved of oxygen — is fading fast. There is only so much more “pop per drop,” as Ms. Marcus, the State Water Resources Control Board chairwoman, said, or neighbor snitching on neighbor, until the urban majority resists and demands a change in allocation.

What will come, then, from this disrupting drought is likely to be a shift of power. The urban “almond shaming” chorus is quick to note that the crop uses enough water to support 75 percent of the state’s population. In other words, there would be no water shortage in San Diego or Los Angeles if nut growers shut off the pumps.

“Imagine if somebody ever said, ‘Let’s have a vote on how to use California’s water,’ ” said Daniel Beard, a former Bureau of Recreation commissioner and a critic of federal dam building. “That’s the last thing big agricultural interests would want.”

The food industry is ripe for disruption. The land that has been left fallow now in the Central Valley is still less than 5 percent of all the irrigation acreage in California. Another 5 percent would leave most of the industry standing, and leaner. Low-value, high-water crops would disappear, as is already happening.

Absent a vote of the people, the free market could end up as the decider. The big city water districts have more than enough money to buy farm water in a freewheeling exchange. Indeed, they’ve been making numerous purchases for years — though limited by complex water contracts and infrastructure that makes it difficult to pipe large amounts from one place to the other.

Much of this just silly. Think of the size of an almond – how could it possibly hold a gallon of water? It doesn’t. These calculations of “water use” by agriculture include water that shrinks back in the ground and replenishes ground water stores and that evaporates in the air and winds up coming back somewhere as rain and snow.

Some of it is intellectually dishonest. It may be true that agriculture uses 80% of the water used by humans, but the implication left hanging in the air is that the water supply is divvied up between farms and cities and the split is 80/20. In fact, most water is reserved for environmental uses.

According to information gathered by Southern California Public Radio:

• Wild and scenic rivers protected under federal law get 31 percent.

• In other rivers, we keep water flowing at a certain rate for recreation, environmental reasons or both. Maintaining such “instream flows” takes around 9 percent.

• Keeping seawater out of the Sacramento-San Joaquin River Delta — the source of much of the state's drinking water — uses about 7 percent.

• Managed wetlands get 2 percent.

• Cities and towns get 10 percent.

• What that means is that agricultural irrigation accounts for around 41 percent of the state’s water pie. 

The Public Policy Institute of California helpfully shorthands that to: 50 percent environmental, 40 percent agricultural and 10 percent urban.

Of course, even this is a rather odd calculation as all those agricultural uses are for people — including Californians — to eat. Plus, even California imports quite a bit of food, from table grapes in the winter to processed foods made with Midwest grain. If you are going to count the water used in growing grapes as an expenditure of water, shouldn’t you count the use of water to grow grapes that are imported into California as an increase in the supply of water?

The Times article is better than most, but we wish all reporters, every time they talk about a shortage of water — in fact a shortage of anything — would learn to append this phrase to their sentence: At the present price level, with current governmental restrictions on sale and transfer…

In an economic sense, there is obviously no water shortage. Anyone who desires to can walk into any grocery store and buy all the water they wish — from France, from Fiji, from all over the globe.

There is zero oil in Hawaii, yet there is no shortage of oil. The reason? They bring it in on giant boats from where the oil is, even if it is half way around the world.

The issue with water is that it is mostly very cheap — generally less than 1/10th of a cent per gallon. This means the incentive to conserve is slight, and the incentive to utilize or develop new sources of supply — desalination, imports, etc. — is slight.

This points to the problem with Governor Brown’s Executive Order B-29-15, which mandates a 25% reduction in potable urban water use.

When something happens that disturbs the buy/sell equilibrium in such a way that an item seems scarce, what happens is the price goes up. When the price goes up, four things happen simultaneously:

1) People try to use less of the now-more-expensive product. All things being equal, if gas goes up, people drive less.

2) People adjust their lives in accord with the new reality. If gas goes up, people will not be willing to commute as long a range or will be more inclined to buy a hybrid vehicle or live near a train station.

3) Supply sources that previously were uneconomic can now be profitably tapped, so we can pay to have offshore oil reserves tapped or reserves in the arctic, etc.

4) It now makes sense to invest in more research and development both to find new ways to produce more supply and ways to conserve.

Orders requiring rationing and other restrictions on potable urban water usage are not optimal, partly because they cut off all these supply responses that higher prices bring. So an order not to consume water does nothing to motivate someone to fill a tanker or build a desalination plant.

The other problem with such orders is that the government is simply not able to judge the relative value of different uses of anything — including water. Who knows what value a person places on a clean car or a green lawn. Since water is available, it would make more sense to allow the price of water to rise to a market clearing price. Those who really value a luxurious lawn can water every day, others need not.

As for agriculture, the most important thing is to clarify that farmers own their ground water and their rights to river water, just as they would own the gold, diamonds or oil under their land, and are free to sell the water as they would be free to sell the gold, diamonds or oil . This would create incentives for conservation and, in some low value crops –mostly all non-produce — it may not make sense to grow them in California at all.

As far as environmental uses of water go, the problem, once again, is the lack of a pricing mechanism. It is too easy to just demand that water be used to preserve the life of the Delta smelt — when you won’t have to pay anything toward this. A lot of people feel very strongly about environmental matters; it is not obvious that Carly Fiorina is in the majority when she assumes that people would oppose the diversion of water from farmers to save the fish. In fact, being that the cost is virtually all absorbed by the farmers, we suspect many would be happy to exercise a sense of moral righteousness and demand the fish be saved.

However, things would be different if the water was owned by someone and the government — in order to avoid a case under the Constitution’s ban on the taking of private property without just compensation — had to raise taxes or borrow money to buy water to protect the fish. Voters’ willingness to endorse this path would likely be constrained, requiring deep analysis of the value gained versus the cost expended.

American ecologist Garrett Hardin wrote a famous piece in 1968 called The Tragedy of the Commons. Although he was focused on population issues, he was drawing on a broader pamphlet published in 1883 by William Foster Lloyd. Here is the key section:

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

As a rational being, each herdsman seeks to maximize his gain. Explicitly or implicitly, more or less consciously, he asks, "What is the utility to me of adding one more animal to my herd?" This utility has one negative and one positive component.

1) The positive component is a function of the increment of one animal. Since the herdsman receives all the proceeds from the sale of the additional animal, the positive utility is nearly +1.

2) The negative component is a function of the additional overgrazing created by one more animal. Since, however, the effects of overgrazing are shared by all the herdsmen, the negative utility for any particular decision-making herdsman is only a fraction of −1.

Adding together the component partial utilities, the rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another... But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit -- in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

But, of course, this tragedy — the word being used in the sense of an inevitable outcome — is only inevitable because of the way the situation is set up. If we sold off the commons to a private party, lots of good things would happen. First, the new owner would impose a price on use of this resource, and this would encourage others to provide competitive places to graze. Second, this price would discourage or prevent over usage of the resource. Third, with the value of the resource established, the search for new varieties of cattle, alternative foods, etc., could be economically justified.

There is no question that the price mechanism is the best way to resolve all problems of scarcity. It prevents the waste of resources by encouraging just the right amount of conservation and new supply development.

But water is highly politicized, and it is unlikely that politicians will reduce their own power and influence by privatizing these resources and allowing the pricing mechanism to function.

So what is a politically viable perspective?

The reality is that water is much like labor in this matter. There is no shortage of either, unless created by political restrictions. In the end, production agriculture, already constrained by a lack of land, will be more restrained by a lack of water and labor.

This means higher prices and more production moving out of the country.

One doubts the population wants to see farming constrained in this way.

So, perhaps, the most politically reasonable thing to do is to have urban areas adopt a price mechanism for water. Let them supply the cities with expensive desalinated water or imported sources.

Preserve the cheap water for the farms, using this as a kind of subsidy for all food consumers. Since wealthy people spend lower percentages of their income on their food budget than do poorer people, this subsidy would be progressive.

The challenge is that the agricultural industry would lose the price mechanism as a guide for when to invest in conservation. So buyers and peers would have to urge producers to keep waste to a minimum.

We were just in Salinas, and although many fields have invested much in high technology to minimize water use, we also saw a fair number of fields still spraying water in the air. We suspect it makes perfect sense economically for those crops in those places. We know, though, that it makes for very bad PR for the industry.

 




Will Reducing Food Waste Be Sufficient Reason To Embrace GMO Produce? Cornell Professor Brad Rickard To Guide A Controversial Session At The London Produce Show And Conference 

Brad Rickard is a rising star on the Cornell faculty, and he consistently delivers world-class presentations that take knowledge developed through intensive academic research and disseminates that knowledge to the industry where it can alter professional practices.

He has often presented at The New York Produce Show and Conference, providing valuable insights in presentations we profiled in pieces such as these:

Cornell’s Brad Rickard Returns To The New York Produce Show And Conference: Will 'GMO Free' Be The New Organic?

What’s In A Name? Professor Brad Rickard Of Cornell Produces New Research That Indicates Shakespeare May Have Been In Error… On Apples At Least

Cornell’s Brad Rickard To Unveil Generic Produce Promotion Research Done By Cornell And Arizona State University At New York Produce Show And Conference

Now the good professor has agreed to join the visiting faculty of the London Produce Show and Conference.

We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more.

Brad Rickard, Ph.D.
Assistant Professor of
Applied Economics and Management
Charles H. Dyson School of Applied Economics and Management
Cornell University
Ithaca, New York

Q: We’re so pleased you’ll be speaking at the London Produce Show and Conference this year. Your standing-room-only presentation at the New York Produce Show examined the potential impacts of commercialization of GMO fruits and vegetables, and consumer acceptance of different GMOs products. It generated a flurry of industry discussion long after the show ended. With GMO news continuing to make headlines, will you be sharing more on this topic across the pond?

A: Actually, I’m taking a different angle, so it is mainly about food waste as it connects to the GMO debate. I’ll look at the role of information/date labels on food waste; the potential role of technology, including GMOs on food waste; and, more generally, the effects of positive and negative information on consumer acceptance of GMOs.

Q: How do the issues of food waste intersect with GMOs?

A: It might be best to treat this as extension of what I talked about at the New York Produce Show, thinking about consumer response to GMOs — in particular GMOs for fruits and vegetable products.

Q: Since your studies involve U.S. consumers, is it important to frame this discussion in the context of the U.S. market, versus UK and European markets?

A: There’s this general question about consumer acceptance of GMOs, and most of what I’m talking about is in the U.S. However, with the deregulation in the U.S. of Genetically Engineered technology for apples and potatoes, it makes us wonder: What is the future for GE technology in fruit and vegetables markets? This issue is global in scope.

We see a prevalence of GMOs in corn and soybeans in the U.S. and various other countries, but we haven’t really seen GMOs in fruits and vegetables outside of a few examples -- genetically modified zucchini and squash varieties, Hawaiian papaya, and some sweet corn, engineered for virus- and pest-resistance, but nothing widely commercialized.

Q: Isn’t there a lot of work on GE fruits and vegetables being done behind the scenes?

A: Scientists are working with GMOs in other fruit and vegetable crops but haven’t done it on a wide scale. There’s the genetically modified Arctic apple that doesn’t brown, and a Russet potato genetically engineered to resist bruising, both recently deregulated in the U.S., and people are wondering about the commercial potential and whether that will lead to further deregulation of other GMO fruits and vegetables.

Q: You’ve tried to weight potential causes for why genetically engineered produce is practically non-existent on retail shelves—a void in industry research, regulation bottleneck, and consumer resistance. Based on your research, you’ve leaned toward the latter as the main culprit. Do you think things are changing?

A: Why haven’t we seen more GE technology in produce markets? A nice piece in Nature Biotechnology explores that question. Some wonder if there isn’t enough research done. In actuality, there is quite a wide range of research done, with scientists conducting experiments for various fruit and vegetable crops in many countries. The U.S. is the leader, but also in China, Japan and several European countries. We see it for potatoes, tomatoes, apples, oranges, lettuce, carrots, eggplants, pineapples and bananas. Many studies are being done on the technical aspects of GMOs for fruits and vegetables.

Q: How valid is this research? What are the findings?

A: What are the benefits of these experiments? Much of it is focusing on the production side -- yields and the quality of the products. In some cases, these crops are bio-fortified. They’ll have heightened content of vitamin A or B or E.

The tricky part is these crops are being explored by scientists in a lab, but not available in consumer settings to determine whether they’re valued. We did experiments on what characteristics are important to consumers, which I’ll discuss in more detail in London.

So in addressing the reasons why we see little GMOs in fruit and vegetable markets, we know research is being done for various produce specialty crops in field trials. The second reason might be government regulation. That could be a factor, relative to the number of commodity crops that have been approved. We have seen GMO apple and potato varieties deregulated very recently in the U.S. Maybe this signals a swing in momentum.

Q: What’s happening in Europe on that front?

A: In the EU, it’s different across member states. France and Germany seem to be stricter in approving GMOs, and places like the Netherlands and Spain seem more open to deregulating more crops. There is a surprising amount of GMO corn grown in Spain, which leads the EU in GMO crop production and field trials. The UK seems to be more open as well.

Q: Aren’t there some promising genetically engineered produce varieties making headway in the government regulatory process, such as the purple tomato and the pink pineapple?

A: Genetically modified purple tomatoes developed at the John Innes Centre in Norwich, UK, may be gaining ground in the approval process for sale on British retail shelves. Right now, I believe they are in large-scale production for purple tomato juice in Ontario, Canada. The GE purple tomato is bio-fortified with elevated levels of certain compounds also found in blueberries and cranberries that have health benefits. It’s another example of GMO technology that exists. But it hasn’t been approved in the U.S.

Q: Will a focus on developing GE products with nutrition and health attributes help drive the process forward?

A: The purple tomato perhaps has a better chance of approval in the U.S. because of its consumer benefits. Similarly, Del Monte engineered a pink pineapple, another example of a GM product with bio-fortified properties. The pink pineapple, with heightened levels of some antioxidants, is pending FDA approval. These are very new developments.

Breaking down barriers for reasons one and two, my story is the third one, consumer acceptance, which might be the sticking point.

Q: Would you say that’s exemplified by the flurry of GMO labeling bills appearing on numerous state election ballots in the U.S., and the growing influence of anti-GMO groups?

A: We’ve seen GMO referendums in California, Washington and Maine, and plebiscites in Colorado and Oregon. The takeaway… there are heated debates, for and against arguments voiced very loudly. Generally, the referendums have failed, the majority voting against GMO labels in California, Washington, Colorado and Oregon. In some small states, including Connecticut, Maine and Vermont in the Northeast, GMO labeling bills passed, but they haven’t been implemented yet.

Q: Why the delays?

A: They need to have critical mass of more states on board before these states will act. Also there are legislative concerns of states enacting their own referendums with varying standards.

Consumers willingly purchase genetically modified corn and soybeans. On the other hand, when you ask consumers what they think of GMOs, they express resistance. Now a bill in New York State is up for discussion. If you label with a GMO sticker, it forces companies to segregate ingredients. They will have to pass those costs on to consumers, which may increase their grocery bill $400 or $500 a year. That influences swing vote consumers.

Q: So in the end, it may come down to shoppers’ pocket books? Is it possible consumers don’t realize the GMO ingredients are in products they’re purchasing?

A: We have research consumers are more concerned with raw product they consume directly.

One more thing, how consumers accept GMOs in the U.S. versus the EU is worth discussion. There are differences. Maybe among member states, you’ll see preferences, with consumers more or less willing to accept GMOs. More broadly, though, I’m not sure these differences apply to fruits and vegetables.

Q: Is there evidence to support that?

A: There are some interesting statistics coming out of a study done by economists published in the European Review of Agricultural Economics: “Effect of Information about Benefits of Biotechnology on Consumer Acceptance of Genetically Modified Food,” based on evidence from experimental auctions in the United States, England, and France.  The surveys in the U.S. focused on three states: Texas, Florida and California. In one of their summaries, consumers in all three states were relatively willing to consider purchasing food using GMO ingredients. This did not include fruits and vegetables. For their initial acceptance, consumers in Texas were most willing, then Florida, then California. The difference between England and California was very small. Then France was considerably lower.

On a scale from one to nine, with nine most willing, Texas and Florida were 6, California and England were 4.5, and France was between 3 and 3.5.  It’s one of the most sited papers in agricultural economics. It involved a combination of several authors, some from the U.S., some from Italy, some from New Zealand, and one from the University of Redding in the United Kingdom.

Q: This is a good segue to your fascinating research, which is able to differentiate consumer acceptance of GE food products based on category and characteristics. In doing so, you reveal a stark contrast between consumer acceptance of GMO ingredients in processed food products, for instance, versus genetically modified fresh fruits and vegetables…

A: I’ll say something in my London talk about this paper I did with colleagues Dr. Brandon McFadden, University of Florida, and Dr. Jayson Lusk, Oklahoma State, published in Biotechnology Journalin a piece titled: “Which Biotech Foods are Most Acceptable to the Public?

For the research, we surveyed 1,100 consumers in the U.S. on their level of enthusiasm for GMO grains, fruits and vegetables, and meat; how they feel about GMOs, both in fresh and in more processed versions. Our findings were similar to our hypothesis. Consumers in general had some willingness to accept GMOs, but it was much greater for processed varieties than fresh — apple sauce versus fresh apples, corn chips versus corn on the cob. Also, they were most willing to accept GMOs in corn and grains, second fruit, and third meat. Resistant to GMOs in meat products was greatest, and it was somewhere in between for apples. That was the primary objective and finding in that paper.

Q: Did you get consumers to discuss the factors that would sway them to purchase genetically engineered products? For instance, if they knew the produce variety was bio-fortified with health benefits…

A: At the London Show, I’ll also talk about a survey we did at the end of the study. We asked: What would be reasons that would make you more accepting of GMO technology? This is interesting because we try to get an idea of what product characteristics are most important to consumers. Some GMO crops have clear benefits to farmers. The first-generation crops in the 90s had real benefits for farmers. Now we’re seeing a lot more research on second-generation GMO crops on attributes much more focused on the consumer.

In this survey I did with Brandon and Jason, we gave consumers different motivations in their food choices more generally. If the product had more consumer benefit, they were much more likely to try or accept GMOs in the food. If the product increased farmer yields and efficiencies, or protected the product from insects or disease, consumers weren’t motivated. But if it improved nutritional content, or reduced food waste, those were reasons they’d consider buying GE product.

Fruit and vegetable experimental work seems to focus on improving nutritional content of food. A lot of these crops, especially this apple and potato deregulated in the U.S., can show as part of their message that they will reduce food waste.

Q:  That seems an important point. Food waste has become a massive and complex issue, at a time when sophisticated global initiatives and widespread campaigns are under way to create consumer awareness and combat the problem.

A: This is a central message: What are characteristics to reduce food waste? Improve the quality of the product either in the transportation, processing or the shelf life stage. This GMO potato, which has been approved for sale in the U.S., can withstand rough and tumble during transportation, doesn’t bruise as much in processing, and is much more resilient, which in turn translates to less waste. With the Artic apple, once it’s cut, it doesn’t brown like a typical apple with oxidation. It’s not a new variety.

Part of their public relations effort should be that less of the product is wasted, and it has a much longer shelf life. Thinking of apple slices, more common in foodservice and with children, eliminating the browning effect also should lead to less food waste.

Then there’s a whole host of other GMO products -- varieties with heightened nutrition and bio-fortified like iron, and Vitamins A, C, and E. This is even more important in developing countries.

Q: What happened with Golden rice?

A: It’s difficult to know. Golden rice as a product, with heightened levels of Vitamin A, hasn’t’ been successful commercially, even though it’s been around a long time, because of consumer resistance to the technology, and that resistance can be found anywhere in the world.

Golden rice was designed mostly for developing countries, and the hope was it would be grown in developing countries with acceptance and commercialization of GMOs.

There is still a lot of research being done on these bio-fortified crops. At my presentation, I’ll reference an article in Nature Biotechnology  in January, 2015, which provides additional perspective on the status and market potential of transgenic bio-fortified crops. It goes way beyond Golden rice with items such as broccoli fortified with Vitamin E.

Q: This brings us back to the intersection of food waste and GMOs and sets up the foundation for your talk. When you’re addressing attendees in London, what is the key message you want to impart? Will you be able to share some of your new research looking more closely into the issue of food waste?

A: I want to emphasize in my UK talk that consumer acceptance is the main reason why we haven’t seen more GE fruits and vegetables. Experiments are underway now around the world, focusing on consumer value propositions, bio-fortified products and reduction of food waste. There is so much concern with food waste. The UK, in particular, is in the forefront of ways to reduce food waste. In a lot of the GMO research I’m reading, the genesis of policy discussions is related to food waste.

I have some early results on research I’m doing on food waste. I’ve got this new project looking at food waste, how and why people waste food, and what can be done to minimize food waste.

The study is in two phases: First, how do consumers respond to information about food waste, related to food labels. The second phase is how consumers respond to technical innovations in packaging and in the introduction of GMOs.  

I really only have results for the first phase — how are consumers thinking about information? But I’ll be able to speak about the second phase.

Q: Can you give us more perspective on what’s involved in the research?

A: We ran an experiment where we brought people into a lab and asked how much they were willing to pay for a product and what percentage of the product will be consumed in their households. When scientists think about food waste, they get an idea of the value of the product not consumed. Perhaps the better measure is instead of quantity, the willingness to waste; the probability of throwing away some of the food. It’s rough, but it is a pretty good proxy of measurement of food waste.

We do this for three products, breakfast cereal, salad greens, and yogurt. We also do it for two different sizes, small and large of each category. Some people are exposed to a “use by” label, some are exposed to a “best by” label, some to a “fresh by” label, and some to a “sell by” label. Everyone sees those three products in both sizes, and different people are exposed to those different treatments of those labels.

Q: You’ve hit on a controversial topic here, fraught with confusion…

A: There’s a lot of debate on these labels, all of which are sort of confusing to consumers. A lot of food is wasted because we misunderstand these labels. If it says “use by,” there’s some hint that it has something to do with food safety, when in reality it doesn’t have anything to do with it. If it says “fresh by,” it’s associated with food quality, but not necessarily food safety.

None of these labels are really regulated in the U.S. Different states have different interpretations, but no legal meaning. For the most part, packaging leads to confusion with no consequences on the food manufacturers or the retailers.

The truth of it is, a lot of these products are safe well beyond the label, and it’s really just a food quality or inventory tracking scheme. A lot of people who think about this really carefully realize this is a major driver of food waste in the U.S. Up to 30 to 40 percent of food is wasted in the U.S. Part of this could be due to food labels, while others feel it should be harmonized and consistent.

Q: In your research, what label created the most potential for food waste? And what label would best reduce it? Did it differ based on the type of product?

A: The punchline: The level of waste is highest when the label says “use by.” The amount is lowest when it says “sell by.” What I just described is true across all the different products. But most true in salad and yogurt.

The interesting thing… in the salad category, there’s quite a bit of waste when consumers see a “use by” date, but still quite a bit of waste when they see a “fresh by” label. In reality, we don’t see that label much, but we included it because consumer advocates think “fresh by” is a better label to use. “Best by” and “fresh by” had a surprising amount of food waste, and “sell by” the least.

“Use by” is more of a food safety label where “fresh by” is more quality label. This willingness to waste in the salad category seems to indicate product quality is a pretty important consideration in the salad category.

Q: Where will your research take you from there?

A: What we want to do next is see how consumers would respond to new technologies that have benefits in food waste. Most of these second generations are to improve food quality, whether packaging technology or GMO technology. Will it be accepted, and at what kinds of acceptance levels, and what impact will it have on food waste?

We’ve been reading about the sale of “ugly fruit” as a way to reduce food waste. It’s something we might be able to get at in this subsequent experiment. It’s an extension of food quality, how consumers think about food safety versus food quality. It’s a good time to present this topic to this audience. Instead of ending with an answer, my hope is to create a stimulating discussion and end with questions.

We started this research in December last year, with the building blocks. A lot of things are going on here. There is some link between consumer acceptance of GMOs, with food waste as part of a promotional campaign. It could be GMO advocates know food waste is a big topic so they’re using it as leverage, but if consumers are concerned about food waste, one seems to be a solution to the other.

******

Steve Jobs was dismissive of consumer research. He liked to quote Henry Ford who famously said that “If I'd have asked my customers what they wanted, they would have told me ‘A faster horse.’ “

So asking consumers if they would like GMOs or what attributes would make them like GMOs is challenging work because it is hard for consumers to imagine things that don’t exist.

Not to mention that these things inevitably sound dangerous and, even, crazy. Imagine telling people who have never even seen an airplane that you are going to create giant tubes of aluminum and fly billions of people through the air in these tubes. One suspects volunteers wouldn’t necessarily report as enthusiastic to hop on board in surveys.

Barring political intervention, the outcome is clear. Although consumers may report that they are not motivated by, say, farmer benefits such as higher yields, when they see identical products available for much lower prices — because of those higher yields — they will buy them anyway.

Consumers may report that they are indifferent to farmer’s struggles with insects or disease but, if, due to disease such as the Papaya ringspot virus, there is no more Hawaiian papaya save the GMO type, they may decide to buy what is available. Same thing with Florida citrus

To say that consumer resistance to GMOs is a big obstacle is not the way we would phrase the problem. Many stores carry Kosher, Halal or ethnic sections that are only purchased by a small percentage of the store’s traffic.

So it is, quite obviously, not necessary to have broad product acceptance to gain access to supermarkets. Whatever doubts consumers might have with GMOs, we would normally expect such products to gain placement and, with time, win market share if they offer desirable a tributes such as better pricing, nutritional benefits or reputational benefits as Professor Rickard alludes to in relation to food waste.

The problem is not consumer resistance to GMOs. The problem is that highly activist opponents of GMOs can dramatically change the cost/benefit analysis when a supermarket CEO looks at carrying GMO produce.

One variety of apples is an infinitesimal part of supermarket sales. So no increase in sales will possibly compensate for the loss in sales that can come about as a result of picketing and other forms of protest.

Consumers have extremely low incentives to research things such as this, and both production- and sell-side executives in the food industry have seen how easily a small but vocal group can tarnish the reputation of a harmless product such as lean finely textured beef, which is pejoratively known as “pink slime.” Retailers saw that they were at reputational risk from being associated with products that activists target.

So, a good market could exist to sell consumers GMO fresh produce, and retailers may never take the risk. The issue is not consumer resistance; it is retail resistance due to the small benefit of selling these items versus the enormous risk of being attacked by activists regarding these items.

So the real question is: Can any set of positive attributes appease activists who might otherwise  intimidate retailers? We doubt it. We are dealing with people who will be criminals to achieve their goals. In the Philippines, two anti-GMO groups destroyed the work of academics studying Golden rice as detailed in this piece, titled Activists Destroy ‘Golden Rice’ Field Trial. The idea that they will be persuaded because GMOs may reduce food waste strikes us as unlikely.

This will surely be a robust discussion. European sensibilities and institutions are strongly anti-GMO, but if new GMO varieties are more productive or offer other advantages, then European production agriculture will either go with GMOs to compete or be relegated to a protected domestic market.

We can’t wait to learn from Professor Rickard and be part of what promises to be a most interesting session.

You can learn more about the London Produce Show and Conference right here.

This is a small brochure we created that showcased the event from last year.

Please register at this link.

And, remember, we have a great “better half” program; you can learn about it here.

You get the most out of the event by staying onsite at the headquarters hotel. It maximizes networking and thus the value you take out of participating. Get discounted rooms at the headquarters hotel right here.

We still have a few booths left if you want to participate as an exhibitor, so please let us know here.

And sponsorship opportunities allow you to position your company as a leader; find out about opportunities right here.

 




Pundit’s Mailbag: Bruce Peterson Hits 'Nail On The Head' When It Comes To Retailers Hiring Credentials Over Experience

Our piece, Bruce Peterson, Founder Of Wal-Mart Produce Program, Will Urge Industry To Rage Against Mediocrity, Value Experience Over Education, And Merchandise To Wow The Consumer At The London Produce Show And Conference, brought much response, including these letters:

The interview with Bruce is very enlightening. I’ve told everyone on our sales and purchasing desk that it’s required reading. Bruce’s points about the individuals who are hired by retail so resonates. I’ve always known Bruce is smart, but he’s brilliant here.  

— Tim York
President
Markon Group
Salinas, California

**************

Bruce Peterson is spot on. His insights into the current state of the produce industry, retail produce execution, produce buyer/seller engagements, the power and importance of “experience” in our industry, the power and importance of the marketplace and being in the stores, the importance of our produce Consumer, the importance and power of being a “merchant” or a student of our industry, produce retailing, and the Consumer.

It is a GREAT article that I thoroughly enjoyed reading. Thank Bruce and thanks PerishablePundit.com

Chuck Sweeney
Director of Category Development
Driscoll’s
Watsonville, California

*****************

Love your articles!

Bruce has hit the nail on the head. I had the pleasure of knowing Bruce when he worked at Meijer, and dealing with him as a supplier when he was at Wal-Mart.

As to his story about the stone fruit, remind him of the special buys that his individual warehouse buyers used to do that really pumped sales on a particular item. This also allowed the buyers who were closest to the consumer to make these decisions.

I started in the produce business as a produce clerk at the A&P store near my home when I was in high school, and I worked in the stores all through college, unloading the meat and produce trucks in the morning, then going to school, and coming back in the afternoon to work in produce and other areas of the store.

I then became a produce department manager, and then went into the office as a buyer. I walked the Detroit Produce Terminal every day, and bought from the terminal, and also did FOB buying, both for our local plant that packed tomatoes, spinach, cole slaw, popcorn and nuts, and also for merchandise that went directly to the stores.

Today we are food brokers that specialize in selling nuts and dried fruits into the produce departments.

When I started in the brokerage business, the buyers didn’t need a spreadsheet to tell them when lettuce was moving from one growing area to another, or sense when United Fruit or Standard were long on bananas and needed to move them, or which stores to send those bananas to and what price to put on them when the person in charge of the ripening rooms came in and told us that we were long on bananas and they had to go to the stores that night.

Contrast that to a call I just made to the headquarters of one of the largest retailers in the country and the new category manager, who was just put in charge of about $200 million worth of business had never worked in a store!! As Bruce points out, if you never worked in a store and learned how to merchandise produce, how would you know what and how much to buy.

Jim, this is the most frustrating part of the business for me. I call on buyers who don’t have a clue about the produce business. They don’t make any decisions either because they don’t have the authority, or they don’t know what is the right decision to make.

I don’t think it is coincidence that Wal-Mart’s produce started going in the tank when Bruce left.

Please let this letter be my personal salute to Bruce.

—  Chuck Batcheller, President
Chuck Batcheller Co., Inc
Lathrup Village, Michigan

*************

There is a fundamental problem in that few retail CEOs came up through produce or perishables, so they are not always aware of the impact of hiring policies on the success or lack of success of the produce department.

Our society has become heavily weighted to a kind of “credentialism” that both blocks opportunities for individuals and results in less-than-optimal outcomes.

The problem is that organizations value people with degrees from top schools, not because of the value of what was learned there but because these school names are a kind of brand and they allow people ignorant of the substance of the matter to evaluate a law firm, accounting firm, investment opportunity, etc., by quickly seeing that this organization has hired a lot of smart people.

The problem is that selecting for high-prestige degrees is selecting for people who are good at the things that success in these schools demands. Those traits may or may not have much to do with success in the produce industry.

To some degree, this is all an outgrowth of the switch from predominantly privately-held supermarkets to predominantly publicly-held.

This inherently disadvantages produce, which is much more prone to wild fluctuations of price and supply than manufactured foods — fluctuations that disturb the market’s desire for steady increases in sales and profits.

This inherent issue is made worse by publicly-held companies that devalue produce experience in order to show investors a credentialed staff.

Many thanks to Chuck Sweeney, Tim York and Chuck Batcheller for weighing in on this important industry issue.




Pundit’s Mailbag — Branding, Private Label and TANSTAAFL

Our piece, What Is In A Brand? Will Marketing Boost Sales Of Inconsistent Produce? Industry issue vs. Individual Opportunity, brought many thoughtful comments, including one from a person who has worked in both branded and non-branded segments of the industry.

Eric Schwartz has shared his thoughts in pieces such as these:

Pundit’s Pulse Of The Industry: Dole Vegetables’ Eric Schwartz

Dole’s Schwartz Sheds More Light On Recent Recall

Pundit’s Mailbag — Dole’s Schwartz Comments On Silent Buyers

Pundit’s Mailbag — How About Subsidy Money For GTIN Conversion?

Pundit’s Mailbag — More Questions About Leafy Greens Board

Pundit’s Mailbag — The Deadline Approaches

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

Single Step Award Winner — Eric Schwartz Of Dole Vegetables

Bottom Line On Local: Geography Does Not Determine Taste

Pundit’s Mailbag — PMA’s Opportunity To Learn From Friends And Foes

Pundit’s Mailbag — Lesson From Avocadogate: You Get What You Tolerate

Dole Hit With Another Recall

Arizona Marketing Agreement One Step Closer To National Leafy Green Standard

Why The Secrecy On Inspection Agency Lab Results?

Now he points to the connection between branding, private label and efforts to increase produce consumption:

Great article on branding.

One of the biggest issues today is how we market. When I first entered the industry over twenty years ago, it was not unusual for a retailer to carry multiple brands. Produce companies had to work hard every day to build their brand and compete with the other guys next to you on the shelf.

The day you weren’t hungry anymore was the day your competitors were right there to clean your clock. The progressive retailers and branded companies figured out how to manage shrink in that environment.

Today, it seems that some key components of that model are gone. I’ve heard many say that the advent of private label has had a significant negative impact on the industry.

I would suggest that it is not so much private label but how it is marketed.

The dollars that brands allocated for innovation and the consumer are now discretionary and have to be significantly reduced or even removed altogether in some cases to get to the lowest possible dead net pricing.

At the same time, it is rare to see a store brand put the same resources against the consumer as the brands did when they were competing against each other on the shelf.

When you combine that dynamic with the supply side focusing on aesthetics and shelf life often times over taste, the end result is lost opportunity for everyone.

Anything the industry spends toward building more awareness is a good thing. However, we need to get back to focusing on the basics of affordability, availability, but, above all, taste.

I should add that some retailers are doing it right from an overall shopper experience standpoint (Kroger, Wegman's, Costco, etc.). I am focusing more on the benefits to a retailer from national brands focusing on all of the marketing channels, not just using produce FSI's or a price leader on a produce item to get people into the store.

National brands can bring an expertise and marketing machine to the markets that most retailers canot afford to have on staff.

— Eric Schwartz
CEO
United Vegetable Growers Cooperative 
Salinas, California

TANSTAAFL — is the acronym for “there ain’t no such thing as a free lunch.” The concept is the thematic center of Robert Heinlein’s 1966 science fiction novel, The Moon Is a Harsh Mistress, and Nobel Prize winning economist Milton Friedman used a version of the term as the title of his 1975 classic book.

The basic idea is that life is a series of trade-offs, and even if the cost of something is hidden, it is still there.

So it is with private label.

Retailers caught on to the idea that consumer packaged goods prices included a margin to cover advertising and other forms of marketing as well as research and development to create the next generation of products. By creating private labels, the retailer could avoid these costs and thus underprice the branded product.

In the short run it works.

The problem, though, is that marketing and R&D are the underpinnings of the growth of the category in the future.

If retailers drive out that margin, who is going to be developing the new products that will drive growth in the category in years to come? If retailers drive out the margin, who will pay for the advertising and marketing that persuades the next generation of consumers to love that category – be it soup or sandwiches or bagged salads?

In effect, what private label does is lead to underinvestment in category development.

Although chains could theoretically invest in these matters, that would add back in costs — getting rid of which was the reason d’etre of private label.

It is a classic free-lunch problem. Retailers viewed the money spent on marketing and R & D as a honeypot to increase margins while giving consumers a discount — but they forgot about TANSTAAFL — and the result is slow growth categories lacking in innovation and consumer enthusiasm.

Many thanks to Eric Schwartz for adding the benefit of his experience to this industry conversation.

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