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Got Produce? What Is PBH’s Purpose If Not To Promote Consumption?

Jim Prevor’s Perishable Pundit, June 4, 2009

We’ve been wrestling with the pros and cons of the proposed fruit and vegetable generic promotion effort, so we were very pleased to receive a letter from a thoughtful member of the trade:

I am forwarding this notice to you because I think it gives a different perspective to the discussion concerning a National Fruit and Vegetable Research and Promotion Program.

The driving point for this discussion is the PBH Mission Statement. As the name implies, the PRODUCE FOR BETTER HEALTH FOUNDATION’s mission is to promote the consumption of fruits and vegetables in order to BETTER THE HEALTH of the American people. It is my opinion that, starting a discussion about an industry-funded national promotion program is exactly what PBH is for.

Your comments on the economics of agriculture are probably correct (I am by no means an economist), but I think they can also be applied to many aspects of agriculture. Farmers go out of business all the time because of an increase in production efficiencies or lower cost imports. We cannot control the amount of product a farmer grows or where a farmer grows his product, but we can try to promote a good reason for people to consume his products.

Thanks for giving the industry an outlet for discussion.

— Kevin Donovan
Sales
Phillips Mushroom Farms
Kennett Square, Pennsylvania

We appreciate Kevin’s letter because it gives us an excellent opportunity to analyze a few key points:

First, we have no disagreement with Kevin on the matter of PBH starting a discussion on generic promotion. There are, however, better and worse ways of starting such a discussion.

In this case, we never said that PBH was breaking the law by funding this campaign. The law is pretty flexible: As a 501(c)3 organization, PBH cannot advocate for candidates. So even if Barack Obama had built his entire campaign around increasing produce consumption, if PBH had advocated for him, it would have lost its tax-exempt status. But there seems to be no prohibition on advancing policy arguments.

Sometimes, however, there are things one is allowed to do legally that are not the best way to proceed.

In this case, years of fundraising were built around the notion that donations to PBH would be used for programs to increase the health of Americans by convincing and inspiring them to eat more produce. Never was there an inkling that if you donated money to this charity, it would be used to wage a lobbying campaign to get the produce industry to do a mandatory assessment.

Remember that this is a deeply controversial subject. After all, in Glickman v. Wileman Brothers & Elliott, four of nine Supreme Court Justices once judged the whole concept of mandatory assessments for marketing to be an unconstitutional abridgement of the right to free speech. The argument didn’t carry the day but just by one vote — and the vote was from Sandra Day O’Connor, who isn’t on the Court any more.

Many in the industry, who love the produce business and desire good health for all, oppose this measure as a matter of principle. They are horrified at what is being done with their donations because believing in the principle of good health through produce consumption is not the same as believing in the constitutional principle of mandatory assessments. The message being given — don’t count on your donations going specifically to PBH programs — may well lead to reduced donations in the future.

And it was all completely unnecessary. This is not a billion-dollar campaign. Surely those who endorse the idea of having this discussion would have gladly contributed to a special dedicated fund set up to pay the expenses.

In fact, if the plan ultimately is defeated, one reason it will have lost is because, in their rush to do things in the easiest possible way — take the existing pool of money and divert it to the lobbying campaign — the advocates did not submit their proposal to the rigorous scrutiny of individuals who have to dip into their pocket and fund the advocacy program. Had the advocates done so, we submit they would have wound up with a better plan, with more committed supporters and a program far more likely to win industry support.

It is simply too easy to say, “Yeah, let’s start a discussion… with someone else’s money.”

Second, money aside, the problem is not PBH’s involvement. It is the dual role PBH has taken upon itself. Had PBH decided to stay neutral as to the desirability of a generic promotion program but simply wanted to facilitate an industry discussion, that would have been reasonable.

Equally, had PBH decided it wished to advocate for this program but allowed others, without such a bias, to decide how the discussion should be conducted, that probably would have worked as well.

But one cannot be both one of the candidates and the League of Women Voters arranging the debate. One can’t be a Judge and a Prosecutor. One can’t be both a neutral arbiter arranging for a fair industry dialog in a non-partisan way and also be the primary advocate for the program.

Some of the advocates may think we are an enemy of the program but that is not true. We are actually the best friend the program has, because instead of looking at the situation from the vantage point of advocates who think they can slip this one by, we are telling them the truth: That their decision to take on both roles has made neutral parties into skeptics. They should decide which role they really want and limit themselves. They would be more likely to succeed.

Third, if you are going to start a discussion, there are two ways to do it and, unfortunately, the advocates took the wrong path. It is precisely the same mistake that Scientific Certification Systems made when it wanted to start an industry discussion on an ANSI Standard for sustainability.

SCS could have called for open dialogue and allowed all parties to pitch in their ideas; instead SCS elected to submit a predetermined proposal that others could try to rebut.

We campaigned vigorously against the idea that the advocates of that sustainability effort could create a presumption in favor of their own program and that somehow it was the obligation of those who disagreed with them to rebut their proposal.

Rebuttable presumptions are a phony kind of dialog; they bias the process.

Why was it necessary to have secret committees, with members selected by the advocates, meeting behind closed doors? What was gained by this? Nothing, except it allowed the advocates to keep control.

It is really a shame because all the new work in sustainability talks about how one reaches out to stakeholders without preconditions, that one gets them involved at the earliest possible stages.

It is also much more effective. The final generic marketing proposal would have been so much stronger if it had endured the rigorous scrutiny of adversaries.

This is just not the way to run a dialog. The advocates are making enemies, not friends.

Fourth, the whole issue of PBH being involved does have one big complication: PBH is a charity; its goal is to promote health through getting people to eat more produce. There is nothing in there about increasing the profitability of produce companies.

Yet a generic promotion effort is not a charity. It is a legal construct that allows commodity producers to market their commodity collectively in a way that, normally, would probably violate our anti-trust laws and, even if that obstacle was overcome, would suffer from free-rider problems. It is a business tool. In fact, the ideal thing for the industry would probably be not to increase production (and production pretty much equals consumption) at all, just increase demand through marketing and then control production so that prices will rise.

As a business tool, the decision to deploy a generic marketing program depends on getting a return on investment higher than alternative expenditures. In other words maybe the money would get better returns if we boosted the budgets of commodity-specific generic promotion efforts or boosted branded marketing or did something else with the money.

This kind of business analysis as to the efficacy of a major expenditure is completely absent from the advocates’ proposal. We don’t think that was a mistake; it is because their mindset is focused on increasing consumption — not maximizing return on investment.

Look, charity is charity and many in the industry support PBH when they have funds available to do so. We suspect that a completely different mindset — one rigorously focused on maximizing return on investment — will be applied to a mandatory program, which means they have to pay whether they have spare cash or not.

Fifth, when it comes to economics, Kevin is right on. People go out of business for all kinds of reasons, all the time. Here, though, there are three complications: A) The dialog includes people who won’t get a benefit from increased consumption.. They have the right to vote in their own self interest and say they elect to not support a program that will not deliver any benefits to their own operation. They are not charities obligated to help other for-profit produce companies. B) Some would even go further and say that even if their company, or they personally, will benefit from the program, a stalwart farmer, with his 200 acres, just should not be disadvantaged by paying for a program to benefit others. And they won’t vote for a program that doesn’t deliver for that good farmer. They consider it ethically wrong. It is their right to express this viewpoint through their vote as well. C) Benefits and costs do not fall equally or randomly around the industry. As we discussed in our piece on the rent dissipation hypothesis, what benefits that exist seem highly likely to fall to the producers of crops that take many years to grow to maturity — such as some pear varieties. Those who produce annual crops are less likely to see any benefit.

Which is kind of ironic because it means that the growers of commodities that do not increase production rapidly — meaning those that do not increase consumption rapidly — will get all the benefit of this program. Those growers who rapidly increase production to meet all the new demand created by this program for their commodities, the growers who do all the heavy lifting to increase consumption, will make little or even be worse off as prices drop and production costs increase.

**

We appreciate Kevin Donovan’s writing and the opportunity he provides the industry to help us all think through this issue.

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