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Produce Business

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Wal-Mart’s ‘Opportunity Buy’ Policy
Reveals Much About The Company

For those who need a review of our latest coverage of Wal-Mart and its changing relationship with vendors, here’s a brief roundup of articles published since March:

  1. We began by addressing the change from DC assignments to dollar-value assignments, plus looked at the growth of “opportunity buys” in our piece Wal-Mart Continues To Change Its Buying Practices.
  2. Ron McCormick, Vice President/Director of Produce and Floral for Wal-Mart, then pointed out Wal-Mart’s reorganization of procurement, including distinguishing between strategic and tactical vendors. We entitled that article Ron McCormick Of Wal-Mart Elaborates On Its Procurement Reorganization.
  3. Wal-Mart’s Changing Treatment Of Suppliers was built around a letter sent from a supply-side member of the industry decrying how vendors on the fruit side of the business felt they were being treated.
  4. We then received many calls from Wal-Mart vendors that differed in specifics, but all seemed to feel things had changed for vendors at Wal-Mart and in a negative way. We named this piece, Calls On Wal-Mart Point To More Vendor Negativity.
  5. Our next piece was called ‘Anyone But Wal-Mart’, and we pointed out the enormous psychic switch in which Wal-Mart, once the preferred customer, has suddenly been the one everyone wants to diversify away from.
  6. Then we asked whether Wal-Mart’s thirst for lower prices on produce is symptomatic of a value-shift. We called this piece, Has Wal-Mart’s Desire To Buy Cheaper Changed Its Values?

Now, as we analyze the bitterness in the vendor community toward Wal-Mart’s evolving procurement policies, we see that it often revolves around so-called “opportunity buys.” Some of this is anger at a change in policy whereby Wal-Mart is no longer using opportunity buys (formerly called Special Buys) as a supplement to contracted weekly volume but as a replacement for contracted weekly volume when markets are weak.

Some of the bitterness is also a sense that there is not an “even playing field” between expectations made of vendors supplying the opportunity-buy product and normal Wal-Mart contracted vendors. One of Wal-Mart’s vendors sent us this note:

Most of the time when Opportunity Buys are offered to Wal-Mart, it is because excess volume is imminently expected, already being harvested, or possibly already on the floor.

Shippers and/or brokers approaching the Opportunity Buy will desire investing as few additional dollars as possible into this excess product thus, at the minimum, the RPC compliance won’t be a part of the picture, let alone who knows what else?

Usually the reason an opportunity buy is offered in the first place is because the shipper realizes his other options are to probably disc or dump the offered product if a CHEAP sale can’t be made.

Not really a win/win situation.

Over the years, Wal-Mart’s insistence on RPCs has brought it many advantages — including better quality produce. After all, most buyers didn’t want RPCs so if you were going to pack in RPCs for Wal-Mart, you surely wanted to make sure the quality was more than high enough to avoid a rejection.

The growth in the use of opportunity buys, however, is basically raising the question of what Wal-Mart really wants. Does it want everything in RPCs? Or does it want shippers to offer the lowest price?

In our opinion, RPCs are the least of it. We raised the question of the mysterious loss of Joan Menke-Schaenzer as head of Wal-Mart’s food safety team. Is Wal-Mart prepared to assert that everyone it does an “opportunity buy” from has been verified by Wal-Mart to function to the same food safety standards as regular contracted vendors? Including suppliers without Wal-Mart vendor numbers whose product Wal-Mart asks contracted vendors to buy and resell for a small brokerage?

One interesting thing about the whole Wal-Mart procurement reorganization is that in encouraging looser, more episodic ties with vendors, Wal-Mart is moving away from the trend to a more integrated supply chain. It is a throwback really to the traditional produce industry in which transactional deals ruled the day.

Wal-Mart and other sophisticated buyers had abandoned that model because they came to believe that the adversarial relationship intrinsic in daily jostling for price did not add value to the supply chain.

This meant that on a range of issues, from RPC to RFID to Food Safety, Wal-Mart executives thought that more value was added by working together in a committed relationship with vendors — the word “partnership” was frequently used — than could be gained by saving a few pennies on price through daily haggling.

Yet buying an opportunity buy and not insisting it be in an RPC is just another way of saying that Wal-Mart executives are changing their minds about what is important.

This has implications for the entire trade.




Richard Branson Chimes In On Food Miles

As we have warned in numerous pieces, such as Carbon Footprinting Gone Wild!, the movement toward promoting “food miles” as something retailers and consumers are supposed to take into account in purchasing is not merely unlikely to achieve any environmental benefit but, in fact, could cause harms of all different types.

Sir Richard Branson, whose mind has been focused on the issue because he owns an airline that has just inaugurated service between the United Kingdom and Kenya, has apparently come to the same conclusion as the Pundit:

Sir Richard Branson has accused Marks & Spencer of abandoning Africa through its policy of reducing “food miles”.

The billionaire Virgin Atlantic boss said cutting food imports from Africa will leave millions of farmers in poverty while doing little to stop global warming.

He added that moves to reduce imports by air were “stupid” and “a knee-jerk reaction” by firms desperate to appear to be green….

His comments come in the wake of a drive by M&S to cut carbon emissions by bringing less food to the UK by air.

M&S chief executive Stuart Rose recently launched an “ecoplan” involving stocking less food flown in by plane, calling it “plan A — because there is no plan B”.

Sir Richard said: “There are some very stupid things that have been suggested by some people to combat global warming — knee-jerk reactions”.

“What we cannot do is damage a continent like Africa by banning their goods. There’s global warming but there’s also extreme poverty throughout Africa”.

“To get all the children of Africa to go to primary school is very important, and it’s very expensive. Africa needs trade to do that.”

In a thinly veiled attack on M&S, he added: “We must continue to stock African produce. Tesco are, and there should be pressures for others to carry on doing so.”

More than a million people in Africa rely on selling fruit and vegetables to UK shoppers.

Sir Richard is well known as an environmentalist with a major focus on global warming but, in this case, he has decided that the interests of poor Africans are more important than whatever environmental benefit might be derived from a reduction in food miles:

Sir Richard said that tackling global warming was one of the world’s most pressing issues but added that stopping trade with Africa was “a step too far”, adding: “Let the Africans have a chance to have some dignity and have a life.”

We are glad to have Sir Richard with us on this issue but by focusing exclusively on the issue of buying from Africa, he pulls back from the logic of his own positions.

There are three issues here:

  1. CONFLICTING VALUES

    As Sir Richard points out, one can be an environmentalist and still care about poor African people. So one has to choose. Unfortunately, this just happens to be a very dramatic and clear example of a conflict between different values.

    Most of the time the conflict is oblique but no less present. One might think that buying strawberries from “rich” America is not something to worry about. But if those strawberries are picked by poor Mexicans whose remittances keep their families fed, then the impact of one’s decision is still very complicated.
  2. INACCURATE ASSESSMENT OF CARBON FOOTPRINT

    It is also a shame that Sir Richard did not use the occasion to point out that Virgin is launching passenger service from London to Nairobi. Perhaps the people will fly in sufficient quantities and pay sufficient fares that Sir Richard’s airline would fly the route profitably without any cargo

    If so, the contribution to the “carbon footprint” of all those “food miles” between Kenya and England is close to zero.

    In other words, food miles is a simplistic to the point of meaningless concept because it tells us nothing — literally nothing — about the impact on the environment of any given product.

    Distance just doesn’t tell us much.
  3. IGNORANCE OF OTHER FACTORS

    If you are concerned about the environmental impact of a given item, you need to carefully study the efficiency of the entire production system.

    New Zealand is very far away from the U.K., but studies have indicated it is a very efficient producer when it comes to looking at carbon footprints. A country could be closer, but an inefficient producer. To pluck out one and only one fact — the “food miles” — is as likely to lead buyers — trade or consumer — to harm the environment as to help it.
  4. DISTRACTION FROM IMPORTANT ISSUES

    The truth is that commercial transportation by air, sea, rail or truck is pretty efficient because we are moving large quantities at one time.

    What is really inefficient is individual consumers getting in their Range Rovers and driving to pick up a few items for tomorrow. If these well meaning consumers have been told to look to avoid “food miles” and drive 15 minutes out of the way to get some locally grown product at the farmer’s market, they probably emitted more carbon than would have been saved by not transporting things commercially from the furthest reaches of the earth.




Pundit’s Pulse Of The Industry:
Jack T. Baillie’s John Baillie

First we ran pesticide Spraying Gets More Attention and that was followed by Pundit’s Mailbag — Green Acres Is The Place To Be?!? These pieces were both focused on pesticides, not so much as an issue on produce but an issue related to the movement of people to rural areas and the intersections between people and farms.

After we ran those pieces, John Baillie called to let us know how California had been wrestling with these issues. We’ve spoken to John numerous times before, including this piece that focused on food safety and, in the midst of the spinach crisis, a poignant piece we called In Defense Of Salinas. We asked Pundit Investigator and Special Projects Editor Mira Slott top speak with John about pesticide drift and the issue of residential encroachment on farmland:

John Baillie
President, Jack T. Baillie Co.
Baillie Family Farms and
Tri-County Packing
Salinas, California

Q: Dangers related to pesticide-spraying drift have been receiving greater media attention lately. How are these issues being handled in the coastal regions of California?

A: Monterey County has always been at the cutting edge of implementing anything involving safety. Eric Lauritzen, Monterey County Agriculture Commissioner, has been working with growers to address pesticide spraying concerns for years. The issue of how to deal with urban growth sprawl bordering up against farmland is challenging.

We have buffer zones with any urban areas. The zones between residential and farming are not mandated by county or state law. Eric Lauritzen worked out voluntary agreements with growers to have 500-foot buffers where no spraying goes on. Once we are within that boundary, the spraying stops. And if a school is in the vicinity, there is absolutely no spraying during school hours. This is a local policy in Monterey County.

Q: So other counties aren’t following such codes?

A: There are counties it doesn’t apply to. All counties have different policies. Monterey County is so unique, not only in California, but probably across the U.S. We had restrictions to be a certain distance away from housing whether ground or aerial application starting five years ago. If any new housing development is relatively close to farm ground, the county has set limitations, a certain number of feet from the nearest fence we just don’t spray. It’s either an equipment area to store pipes, or set far enough away so there are no drift issues.

Q: With residential expansion creeping so close to farmlands, is it really possible to have full control over the drift factor?

A: We live in a coastal region, where we get afternoon winds, and we may get breezes in the morning. When spraying, there are many factors to consider, and we must be careful what time of day, and how the wind will float. We do aerial spraying at the crack of dawn. That’s when air is the deadest. There have been instances where people have sprayed fields, and inversion layers have been known to come back up and move.

There are times where the farmer should not do any spraying at all. We look at every possible scenario. You could have a house with a lettuce field right over the fence.

Q: Do you anticipate new regulations to be enacted?

A: We are dealing with four measures on the ballet, Tuesday, June 5, 2007, related to what urban growth is doing to Monterey County. Tree huggers don’t want any pesticide spraying. Then there are people on the other extreme. I’m an environmental farmer, or the new term biodynamic farmer. We don’t spray just to spray. We’d rather err on the safe side than be irresponsible. It’s a delicate balance. We kill what’s affecting the crop to make sure it doesn’t get damaged by mildew or bacteria. Broccoli will be handled differently than lettuce, than strawberries.

We will see more regulations come in. That’s fine. I welcome them. They won’t be stricter than what we have already. As suburbs push close to farmland and urban areas expand, all these counties will have to be responsible. Kudos to our ag commissioner for being a leader in this area, working with growers hand in hand to avoid problems. Now we are just starting to see the issue of spraying in residential areas being examined in other parts of the state.

Now the state is mandating restrictions, and counties in California are screaming and yelling about it because it is taking away from farmable acreage.

Q: Is there a sizeable impact to farmers on the amount of land they lose?

A: The farmer is losing a little bit of acreage, but there are instances where food safety regulations could overlap with the pesticide zoning. With new food safety guidelines being mandated, we also have restrictions on land use for food safety. It’s almost playing into those rules.

Q: Do you feel the media has portrayed the issues with pesticide drift accurately and fairly? Do consumer perceptions fit with reality?

A: The Associated Press article I read in the Pundit about children’s increased exposure to pesticides made some strong and valid points. However, Eric (Lauritzen) and I believe it was one-sided and in parts misleading because it distorted some facts in the way the information was juxtaposed.

Q: Could you provide some examples?

A: Eric brought up some instances. In the AP article it reports… “As suburbs push close to farmland, the rate of pesticide poisoning among children nationwide has risen in recent years, according to a 2006 study in the Journal of the American Medial Association. The study found that 40 percent of all children sickened by pesticides at school were victims of drift — pesticide carried on the breeze…”

This gives the impression that all 40 percent of children’s sicknesses were agriculture-related, which is not a true statement. There are instances where sprays were applied by the school district. I’m aware of employees spraying around the fence perimeter of schools, where the pesticides drifted into the playgrounds.

Q: What are your biggest agricultural concerns related to pesticide spraying?

A: Right now the light brown apple moth is terrorizing us here and causing chaos. It doesn’t necessarily affect vegetables, but it does tremendous damage to strawberries, and when it gets into crops like stone fruit, citrus and tomatoes, it can destroy multi-billion dollar industries. (Monterey Herald article here).

The nursery industry is getting hit hard, and fruit suppliers are scared to death. Back in the 70’s, during the med fly crisis in the states, they did aerial spraying over everything. How do you control this? Do you think Mexico has a buffer?

The battle between farmers and those who don’t worry about farmers is not something that will go away. John references a big ballot referendum in Monterey County. It is a complicated referendum. What makes the issue so demanding is that being in favor of agriculture can’t mean opposing building.

Farmers need housing for their workers; they need to be able to build packing and processing facilities.

Many who claim to be in favor of farming actually favor policies that would drive farmers out of business. Much like the housing the Wall Street Journal article we referenced here mentions, these “advocates” don’t want real farms, they just want empty land.

For Pundit readers eligible to vote, here is how the Monterey County Farm Bureau urges you to vote.

The big difference between Monterey and elsewhere is that at least in Monterey, there is an organized agricultural community to try and educate voters when issues such as this arise. That won’t be true in many places.

Many thanks to John Baillie for sharing his experience on these issues with the industry.




Pundit’s Mailbag — Robinson-Patman
Attorney Weighs In On Ocean Spray

We’ve written quite a bit in regard to the dispute between Jim and Theresa Nolan and The Nolan Network with Ocean Spray. The coverage began with an article in Pundit sister publication, PRODUCE BUSINESS, entitled Special Report: Ocean Spray Sued By Longtime Associates. This was followed by our first piece in the Pundit, which we called Ocean Spray Trial Will Shed Light On Business Practices.

Next we asked Will Retailers Wait For A Trial To Act On Ocean Spray Controversy? We then published Ocean Spray Case Delves Into Robinson-Patman and PACA Violations, in which we both reviewed the deposition of the Costco buyer who dealt with Ocean Spray and analyzed the possibility that the USDA ought to investigate the situation as, if the allegations raised in the complaint are true, it appears that growers for the co-op could have paid less than they were entitled to.

Now we have a letter from an attorney who sees no evidence in that deposition from Costco’s employee that Ocean Spray was responding to a competitive offer and who points out the general difficulty of Robinson-Patman litigation:

I am a Robinson-Patman Act lawyer and am currently suing Wal-Mart, Sam’s Club division and others under the RPA, and have brought numerous suits against various mfrs, wholesalers and retailers under the RPA from 1970 to the present. I have learned from this experience that the major retailers are purchasing their goods below the mfrs’ direct costs, so that the mfrs are actually losing money when dealing with the major retailers in most instances. They watch themselves being driven out of business and claim they don’t know what to do about it.

They charge substantially higher prices to smaller competitors to try to make up the losses, but the lower the price to the major retailers (and the higher the price to their competitors), the more they drive their only profitable business (i.e., the smaller distributors, wholesalers, jobbers and retailers) out of business, leaving them with a higher percentage of their business being unprofitable.

On their books, they conveniently forget to allocate “housekeeping” or “administrative” costs to their direct costs. For example, when giving a million dollars in free goods away to a major retailer as a “new store allowance”, or “store expansion allowance” or as an “advertising allowance” or some other type of fee or allowance, they conveniently do not allocate the allowance to past, current or future sales, so the huge allowances are not considered part of any cost of sales and even though they are calculated through the dollar amount of sales, they do not wind up in “cost of sales”. This allows the mfr to pretend they are making a profit on sales to the major retailers when in fact they are losing money.

Getting back to the Ocean Spray matter, the deposition does not seem to provide any support for the claim that Costco was meeting competition when it gave the lower price.

An important point to remember for anyone who feels aggrieved by apparent violations of the RPA: DO NOT WAIT FOR AN ABSOLUTELY CLEAR CUT VIOLATION OF THE RPA. WITH THE VARIOUS DEFENSES AVAILABLE TO THE MFRS AND MAJOR RETAILERS (such as “meeting competition”, “like grade and quality”, “cost justification”, or receiving consideration from the major retailer of equivalent value to the discriminatory part of the price), TO ENFORCE YOUR RIGHTS YOU HAVE TO SUE WHEN YOU HAVE A TRIABLE ISSUE OF FACT (rather than a clear-cut, undisputable claim for violation of the RPA).

There are no clear-cut cases, even when you find documents in discovery which prove your case completely. The other side will come up with testimony, other documents, experts and whatever to offset the proof that they are clearly violating the law.

You have to go into a RPA case knowing that the defendants can create issues of fact to cover up their long-term illegal and continuing efforts to give discriminatory (below-cost) prices to the major retailers and put themselves (i.e., the mfrs) out of business in the process. This is the way things now work in the US since the FTC has stopped enforcing the RPA.

The major retailers deal with mfrs (or at least mfrs who do not have the strongest trademarks) until they soak up whatever assets they can from the mfr, put them out of business, and seek other mfrs to financially rape. The mfrs with the strongest trademarks are able to some extent to withstand the demands to sell below direct cost by refusing to sell at direct cost and much of the time the major retailers (wanting the hot trade-marked products) will agree to pay more to get the product, but attempt to nickel and dime the strong mfrs anyway with “deductions” and demands for various allowances, to reduce the major retailers costs.

So, as long as we do not have a federal, state or city governmental agency or official trying to stop violations of the FTC, the enforcement of the FTC is left up to the victims, who should bring actions at least when they are so close to being put out of business that they no longer care if the mfr drops them as a customer (and refuses to deal with them).

Another point for a victimized retailer or jobber to remember: you don’t have to sue the mfr. you can sue the major retailer instead, but with certain limitations: (i) if you are not buying directly from the same source (i.e., the mfr), you would not have a claim under 2(a), 2(f) for discriminatory prices from the same seller; (ii) instead, you would have a 2(d)/2(e) claim for not getting the same allowances; and a 2(a)/2(f) claim for injunctive relief against the major retailer for knowingly inducing or receiving the illegal prices. [Note: 2(a) is a claim only against the seller; and 2(f) is the corresponding claim only against the buyer/major retailer.]

Finally, I’m trying to create a governmental agency in NYC which I call the New York City Attorney General through a ballot initiative to be presented to the voters in NYC. The NYC Attorney General would, at public expense, enforce the rights of small businesses, citizens, other residents, homeowners and employees against the illegal practices of major corporations, overzealous prosecutors, and even governmental agencies no longer acting on behalf of voters, but devoting their energies to making the major corporations far richer through stealing from the public.

Some sources: for a copy of the RPA see http://newrules.org/retail/robinson.html; for discussion of the ballot initiative in NYC see www.nyc911initiative.org/ and www.ny911truth.org/ and www.townattorneygeneral.com

What we need is a new sheriff in town, and the next best thing, I believe, is a “town attorney general” or “city attorney general” or “county attorney general”, to enforce the legal rights of citizens at governmental expense.

Carl E. Person
Attorney at Law
New York, New York

Mr. Person is actually a well known gadfly who tried to get on the ballot to run for New York State Attorney General and who has strongly-held views opposing Wal-Mart and large retailers in general.

Yet, he is not an expert in produce, and most of his arguments don’t really apply to fresh produce or this case.

For example, H.E. Butt is not the largest supermarket chain, and although Costco is larger than Sam’s Club, it is smaller than Wal-Mart of which Sam’s is a division.

Our own assessment is that large retailers, unable to be as flexible as smaller buyers, consistently pay more for fresh produce than do smaller buyers.

Besides, this situation doesn’t play out as one in which retailers seem to be compelling Ocean Spray to do anything — this is a case in which the implication is that Ocean Spray, for its own reasons, elected to make “below published price” offers to certain customers and prospects .

The shame of this situation is that it is playing out as a legal matter, when it is really a matter of ethics and good business practices:

  1. Did Ocean Spray publish prices yet not honor those published prices uniformly and thus deceive its most loyal and trusting customers into believing that they could buy with the assurance than nobody was paying less?
  2. Did Ocean Spray expect its employees and agents to lie and engage in deception to cover up this preferential pricing?
  3. Did Ocean Spray use its influence with other companies to harm the Nolans and their business interests?
  4. When C&S raised the issue of BJs getting charged higher prices than Costco, did Ocean Spray advise C&S to resolve the matter by falsely claiming that it had received cranberries of low quality?
  5. Did Ocean Spray always treat its own growers fairly — both in terms of allocating the “high price” sales to most retailers and the “low price” sales to H.E. Butt and Costco along with making sure that any false “low quality” claims didn’t impact any grower’s individual returns?

We wonder why Ocean Spray has let the situation get this far. They may be under the mistaken impression that if they win the lawsuit, the issues will go away.

We doubt it.

Maybe Ocean Spray can afford better attorneys and might get some bias from its hometown judicial system, but C&S didn’t need a legal judgment to demand recompense and neither will Wal-Mart, Safeway, Kroger or Supervalu.

The smartest thing for Ocean Spray to do right now would be to settle fast with the Nolans, then go hat in hand to all the retailers and settle with them. Ocean Spray needs to double check its grower payments and make it up to any grower who was cheated.

The questions here are really not technical issues of law. They are questions of right and wrong and Ocean Spray owes the industry an explanation.

If they don’t get this behind them, next time they announce a price — is there one retailer in American who will pay it?

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