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Perishable Pundit
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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Will A New Tesco CEO Care To Keep Funding Losses At Fresh & Easy?

Although we have written extensively about Tesco’s journey to America as Fresh & Easy, we haven’t written much lately. Mostly because there was no point in beating a dead horse.

Covering Tesco’s announcements had gotten plain silly. After years of Tesco executives explaining that its losses on Fresh & Easy were all a function of its building a massive infrastructure and that losses would disappear quickly as volume increased, much attention was paid to its sales and earnings for its fiscal year ending February 27, 2010.

The shocker was this: Whereas in fiscal year 2008/2009 Fresh & Easy reported sales of only $305 million, sales jumped to $544 million in 2009/2010. That is a big jump in volume, and if the problem was that the losses were caused by the maintenance of a system able to handle larger volumes, we would have expected losses to shrink dramatically, maybe even turn into the black. Yet, what actually happened was that losses increased. In 2008/2009 losses were $208 million, yet with the higher volume losses went up, not down, by $45 million to $253 million.

When asked how he felt about these losses, Tesco’s CEO Sir Terry Leahy proclaimed himself to be “delighted” — leaving us to wonder what adjective he would have employed had they actually made money!

Well, it turns out that we won’t have Sir Terry Leahy to kick around anymore. Tesco announced that Sir Terry had decided he would be leaving Tesco and Tesco announced that he would be replaced by Philip Clarke, who heads up Tesco’s European and Asian operations.

In March of 2011, when Sir Terry will step down, he will be only 55 years old and a very wealthy man. We are told he wishes to devote his attention to private investing in areas of “green energy” and “sustainability” and we, of course, wish him well. He is widely recognized as having done a masterful job of transforming Tesco into a global giant, poised on the verge of overtaking Carrefour as the number-two retailer in the world. Sir Terry led expansion efforts overseas and moves into non-food and financial services.

The one stunning failure of his tenure must be counted as his inability to establish a profitable operation in North America. Indeed the unexpected retirement was unexpected in no small part because Fresh & Easy was seen as unfinished business and the assumption, among many analysts, was that Sir Terry would wait to leave triumphantly when his biggest gamble — Fresh & Easy — had started to pay off.

Of course, there is always the possibility that he has despaired of that day ever coming.

Which leads to what may prove to be the most significant impact of Sir Terry’s departure: The appointment of a new CEO less emotionally invested in Fresh & Easy.

It is notable that Tim Mason, who heads up the US business and is the son-in-law of Sir Terry’s mentor, Lord MacLaurin, a former Tesco Chairman, was not selected. He did get broadened responsibility as Deputy CEO and will also handle group branding, values and climate change.

It is unclear how Tesco allocates Tim Mason’s compensation but, these additional responsibilities will help Fresh & Easy if it means they have to pay less of his compensation. Because his division — Fresh & Easy — lost $253 million dollars last year, an increase of $45 million from the year before, Mr. Mason did not earn all the incentive pay he could have received and so had to struggle by on just £4,530, or a bit over $6 million dollars in compensation last year.

Sir Terry Leahy said that the losses in Fresh & Easy have peaked. So, presumably, that means the losses will be less than $253 million this year. We will see.

But, quite crucially, Fresh & Easy now becomes someone else’s project. If before Philip Clarke takes over in nine months, a clear path to profitability is not obvious for Fresh & Easy then radical surgery, such as reformatting to follow our suggestion, and redo the stores in the style of either Trader Joe’s or Aldi or a joint venture with an American retailer or, yes, closing down the division becomes much more likely.

In all likelihood, Philip Clarke’s compensation will be tied to profitability and the stock price. If Fresh & Easy comes to seem like a quarter-billion-dollar-a-year liability for as far as the eye can see — both profitability and stock price will respond positively to getting the losses off the books.

Fresh & Easy was Sir Terry’s baby, and parents are not always rational where their children are concerned. Philip Clarke will be more steely-eyed and the word will probably go out: Fix it, sell it or close it. He takes over in March of 2011. The countdown begins now.




Wal-Mart’s ASDA To Acquire The UK’s Netto Stores: Will They Bring The Small-Store Concept To America?

We’ve written a great deal about Tesco’s Fresh & Easy and Wal-Mart, and we’ve written about Wal-Mart’s small store effort, Marketside, both here and here.

With Fresh & Easy hemorrhaging money and Marketside a bust — with expansion having been stopped — the big chains need a new vision for a small-store option.

Wal-Mart has done what big companies typically do best: it just bought such an option.

Its British subsidiary ASDA has announced that it is acquiring the British division of Netto, a small store chain — each unit is about 8,000 square feet — that is strong in Denmark and other European markets but an also-ran in the tough UK discounter market to Aldi and Lidl.

ASDA had missed the boat when Tesco had moved into small stores in the UK so, in a sense, the acquisition is just part of an effort to play catch-up. The stores will be managed differently than now… ASDA intends to almost double staff in each unit and the units will be rebranded under the ASDA name.

ASDA is paying what to American sensibilities sounds like the astonishingly high price of £4m or about $6 million per store.

This is testimony to how difficult it is to get locations in the UK. In fact, one should always take with a grain of salt the claims of how brilliant the British retail executives are compared to their American counterparts. In truth, they are protected against competition by British restrictions on building new stores. Since Wal-Mart bought ASDA, they desperately wanted to open more supercenters but that is an almost impossible thing to do on any scale in Britain. By controlling the supply of retail square footage available, Britain makes its retail executives look like geniuses.

So, in effect, Wal-Mart paid a lot of “key” money just to get the locations.

If it can operate these small stores profitably, it will probably try to bring them to America. The vision, however, is likely to be different than Tesco’s was in opening Fresh & Easy.

Wal-Mart would have two options:

One idea would be to look in America for areas that are also constrained when it comes to retail space — these are typically the most urbanized areas. Manhattan, the Loop in Chicago, Downtown San Francisco. This is where the market is in America for small box stores.

It is also where Wal-Mart has no square footage at all.

If this acquisition pans out, Wal-Mart could use this small store format to change that situation.

The second option would be to use the “new Netto” as Wal-Mart’s answer to Aldi As we mentioned in our piece Wal-Mart Swaps Strategy For Tactics. Wal-Mart is on the verge of losing a precious asset — its reputation for having consistently the lowest prices. Up to this moment Wal-Mart has not had an answer.

If the “new Netto” works, Wal-Mart has its answer and will go on a store opening whirl. Aldi currently has about a thousand stores in the US, it is easy to imagine Wal-Mart opening five times that number.

What is not clear is to what degree the new small store ASDA concept will be price competitive with Aldi and Lidl, if they can beat them in the UK, and make a decent profit doing it, they will be looking for small store locations.

We would recommend they open one in the parking lot of every Supercenter. Of course, if the new CEO sours on Fresh & Esay — Tesco may have many locations for sale!




Limited Scope Of Recent Recalls Is Testament To Industry Leadership

In the midst of the outbreaks of the past six weeks, the industry has hard evidence of how truly brilliant has been its leadership. Just a few of the industry leaders were recognized by the Pundit as Single Step Award recipeints after the Spinach crisis:

Single Step Award Winner — Dave Corsi Of Wegmans Food Markets

Single Step Award Winner — Tim York of Markon

Single Step Award Winner — Mike O’Brien Of Schnuck Markets

Single Step Award Winner — Joe Pezzini of Ocean Mist Farms

Single Step Award Winner — Eric Schwartz Of Dole Vegetables

Single Step Award Winner — Bruce Taylor Of Taylor Farms

Single Step Award Winner — Tanios Viviani Of Fresh Express

In addition, many of the executives of our associations stepped up to the task. Some of the most notable, in alphabetical order:

Scott Horsfall, CEO California Leafy Greens Marketing Agreement

Tom Nassif, President and CEO Western Growers Association

Bryan Silbermann, President Produce Marketing Association

Tom Stenzel, President and CEO United Fresh Produce Association

Plus all the leaders that created and joined the Leafy Greens Agreements in both California and Arizona:

California Members:

Abbate Farms, Merced
Agro Jal Farms Inc, Santa Maria
Amazing Coachella Inc/DBA Peter Rabbit Farms, Coachella
Amigo Farms Inc, Yuma
Andrew Smith Co, Spreckels
Anthony Costa and Sons, Soledad
Apio Inc, Guadalupe
Babé Farms Inc, Santa Maria
Badlands / El Don, Brawley
Baloian Packing Co Inc, Fresno
Beachside Produce LLC, Guadalupe
Bengard Ranch Inc, Salinas
Big E Produce, Lompoc
Blanton Produce Co, Salinas
Boggiatto Produce Inc, Salinas
Bonipak Produce Co, Santa Maria
Boskovich Farms, Oxnard
C and E Farms Inc, Salinas
Cal Cel Marketing Inc, Oxnard
Channel Islands Farm, Inc, Oxnard
Chieftain Harvesting Inc, Salinas
Church Bros LLC, Salinas
Classic Salads LLC, Salinas
Coastline / Sunridge Farms Inc, Salinas
Crystal Organic/Grimmway Farms, Bakersfield
D’Arrigo Bros. Co. of CA, Salinas
Deardorff Family Farms, Oxnard
Diamond Produce Co, Salinas
Direct Advantage LLC, Santa Maria
Dole Fresh Vegetables, Salinas
Double D Farms, Coalinga
Duda Farm Fresh Foods Inc-Cal, Salinas
Dynasty Farms Inc, Salinas
Earthbound Farm, San Juan Bautista
Epic Roots, Salinas
Ernie Strahm & Sons, Inc — Holtville
Faurot Ranch LLC, Watsonville
Field Fresh Farms, Watsonville
Fisher Ranch Corportation, Blythe
Fresh Choice Marketing Inc, Oxnard
Fresh Express Inc, Salinas
Fresh Kist, Nipomo
Fresh Origins LLC, San Marcos
Frisco Farms LLC, Spreckels
George Amaral Ranches Inc, Gonzales
Gold Coast Packing Co, Santa Maria
Greengate Fresh LLLP, Salinas
Growers Express LLC, Salinas
Home Grown Organic Farms, Porterville
Ippolito International, Salinas
Jayleaf LLC , Hollister
Joe Heger Farms LLC, El Centro
John S Tamagni and Sons, Inc, Spreckels
Kawaguchi Farms, Arroyo Grande
Keber Distributing, Thermal
Kenter Canyon Farms, Sun Valley
Lakeside Organic Gardens LLC, Watsonville
Mann Packing Co Inc, Salinas
Metz Fresh LLC, King City
Misionero Vegetables, Salinas
Muranaka Farms, Moorpark
Nava Enterprise Inc, Oxnard
New Star Fresh Foods LLC |
organicgirl, Salinas
North Country Produce, Paso Robles
Ocean Mist Farms, Castroville
Pablo’s Produce, Oxnard
Pacific Coast Produce, Santa Maria
Pacific Fresh Produce Inc, Oxnard
Pacific International Marketing, Salinas
Pacific Marketing Co, Salinas
Pacific Pride Marketing LLC, Oxnard
Pajaro Valley Fresh Fruit And Veg Dist, Watsonville
Pismo Oceano Vegetable Exch, Oceano
Premium Valley Produce, Inc, Scottsdale
Pride of San Juan, San Juan Bautista
Pure Pacific Organics, Salinas
Purepak Inc / Pacific Ridge Farms LLC, Oxnard
Ratto Bros Inc, Modesto
Ready Pac Produce Inc, Duarte
Reliable Produce Sourcing LLC, Santa Maria
River Ranch Fresh Food LLC, Salinas
Royal Rose LLC / European Vegetable Specialties, Salinas
Salad Savoy Corp, Salinas
San Cristobal Distributing Inc, Oxnard
San Miguel Produce, Oxnard
Santa Barbara Farms Packing, Lompoc
Scarborough Farms Inc, Oxnard
Seaboard Produce/Variety Marketing, Oxnard
Silva Farms, Gonzales
Steinbeck Country Produce, Spreckels
Sun Terra Produce Traders Inc, Newport Beach
Sunamerica Produce, Salinas
Sunfresh USA Inc, Santa Paula
Sunsation Farms Inc, Monterey
Talley Farms Inc, Arroyo Grande
Tanimura And Antle Fresh Foods, Inc, Salinas
Taylor Farms, Salinas
The Nunes Co Inc, Salinas
The Salad Farm LLC, Salinas
True Leaf Farms, Salinas
Vessey And Company Inc, Holtville
Watsonville Produce Inc, Moss Landing
William Consalo and Sons, Bakersfield

Arizona Members:

Amigo Farms Inc.
Andrew Smith Co.
Bengard Ranch
Bonipak Produce Co.
Capurro Farms
Church Brothers LLC.
D’Arrigo Brothers Company of California
Dole Fresh Vegetables
Duda Farm Fresh Foods
Everkrisp Vegetables, Inc.
Five Crowns Marketing
Growers Express LLC
Ippolito International, LP
Kleen Harvest
Mann Packing Co. Inc.
Metz Fresh, LLC
Mills Family Farms
Misionero (Griffin Produce Co)
Natural Selection Foods LLC.
New Star Foods, LLC
Nunes Co. Inc.
Ocean Mist Farms
Organic Girl
Pacific International Marketing
Pure Pacific Organics LLC
Rousseau Farming Co.
Salyer American Fresh Foods
Steinbeck Country Produce
Sundridge Farms Inc.
Tanimura & Antle
Taylor Farms California, Inc.
True Leaf Farms LLC.

The truth is there is little about the Freshway Foods Romaine recall that was different from what happened at Natural Selection Foods that led to the great spinach crisis of 2006.

The big difference is that the FDA has responded differently.

That is not an accident.

Although some of the credit goes to the FDA in that they were looking to avoid a repeat of those industry-wide catastrophes they created with their “recommendations not to consume,” a big chunk of the credit goes to the produce industry leadership recognizing that the key issue was that FDA had no faith in the trade.

The California Leafy Greens Marketing Agreement, the sister agreement in Arizona, the launch of the Center For Produce Safety and, yes, even the controversial Produce Traceability Initiative are best seen as a massive, almost four-year-long effort to build up the confidence of regulatory bodies, especially the FDA.

The relatively moderate reaction of the FDA, confining its request for recalls to the companies involved, is testimony to incredibly visionary leadership that planned and executed a brilliant plan.

Applause is more than merited.




Food Safety Article Now In French

The Pundit’s food safety piece for The New Atlantis, a Washington, D.C.-based journal focused on technology and society, is titled How to Improve Food Safety: Aggrandizing the FDA Only Distracts from Real Solutions. The piece is worth reading as it approaches food safety from a different direction than is typical.

Much of what passes for food safety proposals are answers to a political question — how can a Congressman or a Senator show that he or she is acting on food safety — not an actual scientific response to the problem.

So most legislative proposals are little more than gestures — such as a plan to give the FDA mandatory recall authority — although there are no known incidences of people who died because a company refused an FDA request to recall. Or perhaps a decision to send government inspectors into currently uninspected plants, although government inspectors are, by law, in all meat plants and that hasn’t stopped pathogens from appearing in beef.

In contrast, our piece attempts to look at the issue through the prism of law and incentives. We think of strong government as a government that can actually achieve the goals it sets, rather than a government that does a lot of things poorly.

The piece has been getting a lot of pick-up, and we were especially proud that we were asked for permission to translate the rather lengthy piece in its entirety into French. You can find it on Le Blog d’Albert Amgar, which is published under the auspices of the French magazine, Process Alimentaire.

They wrote a kind introduction that translates as follows:

Here is an article which helps to better understand how food safety in the United States works and how it will evolve. Taking into account its importance, as much for the subjects addressed as for its length, this article is split into three installments, in order to better read in the format of this blog.

The article is titled “How to Improve Food Safety. Aggrandizing the FDA Only Distracts from Real Solutions” or Comment améliorer la sécurité des aliments ? Donner plus de moyens à la FDA détourne seulement des vraies solutions by Jim Prevor. This article appeared in The New Atlantis, A Journal of Technology & Society, May 21, 2010. I want to particularly thank Jim for the trust he has conferred on me to distribute this article, which is full of common sense, in French.

Jim Prevor is the founder and editor in chief of Produce Business Magazine and writes frequently on the subject food safety and other questions in the PerishablePundit.com, a recommended site. He is winner of the Timothy White Award for Editorial Integrity. Click here for a complete biography of Jim Prevor.

As the intro mentions, they ran the piece as a three-part series, and each part links to the next. So our French-speaking readers can read the complete piece, titled Comment améliorer la sécurité des aliments aux Etats-Unis? Donner plus de moyens à la FDA détourne seulement des vraies solutions.

Merci beaucoup to Albert Amgar and Process Alimentaire for thinking the piece important enough to translate for the Francophone world.




Pundit Nominated For Business And Financial Journalism Award

We have been honored more than a few times for the work we’ve done, including winning the Jesse. H. Neal award and The Timothy White Award for Editorial Integrity.

Now we’ve been nominated for an award in a broader playing field. We just received word that several pieces we wrote for the online version of The Weekly Standard, a Washington, DC-based political magazine, have been nominated for a Gerald Loeb Award. Presented by the UCLA Anderson School of Management, the Loeb Award honors journalists who “make significant contributions to the understanding business, finance and the economy.”

Who was Gerald Loeb?

Gerald Loeb was a highly successful financier and founding partner of E.F. Hutton who made it his mission to educate individuals about finance, investments and economics. He first rose to prominence during the Great Depression, when skittish investors turned to his now-classic book, “The Battle for Investment Survival,” in which he outlined his buy-and-sell strategies.

Throughout his 40-year career on Wall Street, Loeb continued to offer his sometimes-contrarian wisdom through his books and regular columns in publications such as Barron’s. Loeb hoped to perpetuate quality reporting and writing for individual investors by leaving as his legacy the Gerald Loeb Awards for Distinguished Business and Financial Journalism

This is one of those awards you don’t dare hope to actually win. The nomination is sweet enough. The competitors in our category include a team of nine people from The Economist, David Pogue from The New York Times, and a world authority on auditors and auditing.

We do a lot of writing for publications other than those in the industry. Partly this is to keep ourselves sharp and make sure we can compete with the best out there. Partly, it is so those who read our pieces in the industry will know that it’s the “First String” playing.

Walt Disney used to say that people — as they walked around Disneyland — should always remember that this all started with a mouse. So when we are nominated or win something big, like this Loeb award, we accept it in honor of the industry because whatever we do, whatever we write, wherever it one day takes us, it all started with great-grandpa Jacob Prevor on the old Wallabout Produce Market in Brooklyn selling some fruit.




You Can Be There As History Is Unveiled: The Center For Produce Safety Reveals Its Research Results

Fresh Express had put together a fabulous presentation of the research results of research conducted with Fresh Express money under the auspices of Michael T. Osterholm, an esteemed academic and public health professional who, when he isn’t saving the world from influenza, manages to help Fresh Express continuously improve its food safety program.

We found the results fascinating and profiled them in this piece:

Fast-Tracked Food Safety Research Findings Presented At Fresh Express

Now the baton has been passed to the Center for Produce Safety, whose launch we profiled with this piece:

Center For Produce Safety Established: An Act Of Faith In The Future

The Center for Produce Safety has evolved in ways the founders barely had the right to hope for. In addition to raising money and funding its own research, it has become the “go-to organization” when any facet of the industry wants to conduct rigorous research on any aspect of food safety.

It has the infrastructure set up so that it can quickly and efficiently get out requests for proposals, evaluate what it gets back and get the research rolling, monitoring it along the way and bringing it to a successful conclusion.

This means that more and better research is being done on food safety because, in the absence of the Center for Produce Safety, it would be so daunting for organizations to come up with the infrastructure to make good research happen.

There were obviously many people and organizations behind this, but special kudos must be paid to PMA. This was not the kind of project that could quickly pay off. It required a kind of visionary leadership that saw beyond the current budget cycle. It also required an association with a business model that produced lots of surplus to invest for the industry. Bryan Silbermann, President at PMA, deserves a lot of credit for this vision. As do a lot of directors over the last few years who have sustained the vision.

Of course, opportunity met preparation as PMA’s chairman at the time of the CPS founding was Bruce Taylor, Chairman and CEO of Taylor Farms, and he and Taylor Farms provided important financial support and industry heft toward making the CPS a success. Bonnie Fernandez-Fenaroli, executive director, who we profiled in this piece, Bonnie Fernandez Takes Helm Of Center for Produce Safety, has ingenuously stood astride the academic and industry worlds — transversing the intrigue that is every major university with the industry and associations, which all have their own needs. Particularly balancing academia’s need for peer review and reproducible experiments with the industry’s desire for quickly useable information is a continuing challenge.

She has been helped in this task by the good services of Tim York, President of Markon Cooperative and Chairman of the Center for Produce Safety, who we have heard from, among other places, in these pieces:

A Call For An Industrywide Sustainability And Social Responsibility Initiative

Markon Looks To Produce Specialist ProPacific Fresh To Increase Service

Tim York Takes Leadership Role In Food Safety Crisis

Single Step Award Winner — Tim York of Markon

Obviously, other organizations, such as WGA, UC Davis — where the Center is located, governmental agencies and many companies and individuals have all worked hard to help build an institution that allows us to better understand how food safety really works.

And, now, like a tree coming into bloom or a fruit suddenly bursting into ripeness, the Center for Produce Safety is ready to showcase the results of some of its research:

The Center for Produce Safety’s (CPS) inaugural Produce Research Symposium is being supported by a broad range of sponsors, reflecting the broad value that the symposium is expected to bring to the produce industry when it convenes next month. This unique event presenting results of CPS-funded research projects and their real-world applications will be held Wednesday, June 23 at the Mondavi Center for the Performing Arts on the campus of the University of California, Davis.

Sponsors making this event possible include platinum sponsor Produce Marketing Association (PMA), gold sponsors iGPS and Taylor Farms, and silver sponsors Castellini Group of Companies, Chiquita Brands International/Fresh Express, C.H. Robinson Worldwide Inc., Ecolab, Florida Agricultural Experiment Station at the University of Florida — IFAS, Florida Fruit & Vegetable Association, The Giumarra Companies, Microsoft Dynamics and UC Davis College of Agricultural and Environmental Sciences.

"The diversity of the industry leaders who have chosen to sponsor this event reflects the value that the CPS offers by bringing various pools of knowledge together for the purpose of addressing a common goal," said CPS Executive Director Bonnie Fernandez-Fenaroli. "We can’t thank our sponsors enough for their support in helping bring this vital event to our industry.

The immediate applicability of the research is woven throughout the day’s sessions which include diverse discussion panels. "The opportunity to have researchers, private companies and government representatives all sitting down to discuss the latest research specific to the produce industry is something we couldn’t pass up," said Bill Schuler, Castellini president & CEO, and chairman of PMA’s Board of Directors. "Our responsibility in the food safety arena is not only to do the best we can within our company, but also to contribute to continuous improvement in our industry at large. Supporting the CPS and this symposium reflects our commitment in this area."

It will be a grand event, with breakfast, lunch and an evening reception held at the stunning Mondavi Center at UC Davis. But the core is the opportunity to hear researchers present their findings.

Time is running out and places are limited. Pre-registration was due to expire on the 11th, but we’ve gotten special permission to keep registration open through Monday, June 14, 2010.

So call (530) 757-5777 or register here.

The Pundit is sorry to say he can’t make it. We agreed many months ago to give a speech on the evening of the 23rd to the Santa Barbara Committee on Foreign Relations and on the 24th to the famed Chanel City Club, also in Santa Barbara. That means we will be counting on Pundit readers to share their best take aways from the Center for Produce Safety event.

We are even going to give away a $100 American Express gift card to the most incisive take on the CPS research presentations.

If you can be there, go. You may be able to tell your grandchildren that you were present the moment a solution to food safety issues crystallized.




Pundit’s Mailbag — No Matter What Growers, Shippers Or Retailers Do About Food Safety, ‘You Will Be Sued’

Our piece, Freshway’s Traceability System Worked Like A Charm: FDA And Buyers Don’t Care, brought a note from a grower:

This all goes back to the lawyers. I heard a lawyer speaking at a traceability conference and he said he doesn’t care what systems we have in place… they are suing us all.

I asked what about if the product is from Mexico and he said, and I quote: “We wouldn’t waste our time suing Mexico but if any of that product touched an American company you will be sued.”

My question to him was how do we do a better job to protect ourselves and his answer was buy more liability insurance.

So no matter what the grower, shipper or retailer does and how innocent you are, you will be sued. Lawyers are one of the top 3 problems in America today.

— Tom O’Brien
President
C&D Fruit and Vegetable
Bradenton, Florida

Wonder what Tom thinks the other top two problems are.

Shakespeare did write, “The first thing we do, let’s kill all the lawyers,” though as Mrs. Pundit is a member of the Bar in good standing in three states, we better point out that the problem is not, in fact, the lawyers; the problem is the legal system.

We have written some about the state of our legal system in our piece titled, How To Think About Supreme Court Nominees.

When it comes to issues of liability, though, the problem is that the legal system has come to be the method our society uses to compensate people who become the “collateral damage” of societal trade-offs.

If you remember the litigation Ford underwent years ago related to the fact that the Pinto’s gas tank sometimes exploded upon impact, you see the point.

In making cars, as in making food, there are trade-offs between different desirable traits. So in designing an economy car such as the Pinto, Ford’s engineers were electing to value economy — of weight, of fuel usage, etc. — over safety. Society sets some minimal standards, but beyond that, Ford could certainly decide that it was willing to accept a more dangerous car — i.e., one whose gas tank was more likely to explode — rather than make the car heavier or more expensive.

When Ford was sued — and lost — its executives basically asked its outside legal advisors for what standard Ford ought to follow to avoid such lawsuits. The answer was that Ford had two options: It could buy more insurance or it could view losing occasional lawsuits as a cost of doing business.

Tom’s point that it doesn’t matter whether someone in the food chain does a good or bad job is certainly true. They will still be held liable.

It is called a strict liability standard and, in food, it means that if food gets someone sick, the liability is automatic.

In contrast, slips and falls in a parking lot are typically negligence-based. So if there was a snowstorm and someone slips and breaks his leg, the parking lot owner can defend himself by proving that he had the lot quickly and properly plowed, that it was well lit, that salt or sand was quickly and properly applied, etc.

In food the function this strict liability serves is this: Our knowledge of food safety is that it is a continuum. At each step on the continuum — more straps, bigger buffers, more frequent water testing, etc. — the risk is reduced. Cost, however, is increased. There is no such thing as a “correct” point on the continuum.

Society comes to accept some trade-off between enhanced food safety and reasonably priced food. The problem, however, is that this trade off, though good for society as a whole, leaves some people to get sick.

The legal system built around strict liability is a way of ensuring that those who are the “collateral damage” of society’s need for reasonably priced food can get compensated.

Of course, it is a highly inefficient way. Lawyers on both sides must be paid, the judicial system utilized, enormous amounts spent on insurance, etc., etc. It also creates some perverse incentives as the incentive to invest in better food safety is reduced when doing so will not provide any defense in court.

We dealt with many of these issues in our piece written for The New Atlantis proposing a new food safety plan: How To Improve Food Safety — Aggrandizing the FDA Only Distracts From Real Solutions.

We don’t think it helps food safety and don’t think it morally acceptable to hold producers equally liable if they are diligent at food safety or laugh it off, so our proposal included a shift in the liability standard. This shift in the liability standard would mean that producers would “get credit” for their efforts and so that trade buyers would think twice before going for price over an enhanced safety regimen.

We thank Tom O’Brien and C&D Fruit and Vegetable for helping us think through this important subject.

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