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Pundit’s Mailbag — Got Produce? Objection To Mandatory Component

Jim Prevor’s Perishable Pundit, July 23, 2009

Our coverage of the proposal for a Generic Produce Promotion Board has been extensive, and much has been in the form of a critique of the proposal and how it has been presented to the industry.

We don’t believe the support is there right now to pass such a program but many people, such as Mike O’ Brien from Schnucks, whose letter we published here, are passionate about the idea. We thought we would attempt to lay out a procedure by which advocates for such a program would be more likely to prevail. We titled the piece, Got Produce? Ten Steps To Creating New Dialog On Generic Promotion.

Those who oppose such plans, though, were having none of it. Here is a letter from a retailer explaining this point of view:

Great, let’s layer on another cost and disguise it as “for the greater good”.

Just one more thing that business owners would be required to deal with and pay for.

I detest the idea of mandatory anything, especially when it comes to funding something as immeasurable as a generic marketing plan. Save the mandatory for those things that can really harm someone.

For those that are passionate about the plan and want to expedite it to fruition … voluntary is a nice term!

— Dick McKellogg
Director, Produce Merchandising
Lowe’s Foods Stores, Inc.
Winston-Salem, North Carolina

Dick is a thoughtful guy. He has weighed in before on issues such as the possibility of a merger between PMA and United. We used his letter in a piece titled Pundit’s Mailbag — Finding The Right Answers For Possible PMA And United Merger.

We confess that we share his concern as to the casualness with which some have proposed such a mandatory program. We think the hurdle should be set very high.

We’ve spoken to constitutional scholars who tell us that they think the whole concept is an unconstitutional delegation of the power of Congress to tax. In litigation that reached the Supreme Court, 4 out of the 9 Justices held that such mandatory programs abridge the “freedom of speech” by compelling people to pay for messages they may find repugnant.

So, though the current Court ruling allows for such mandatory vehicles, it was a very close vote and may be decided differently in the future.

From an economic point of view, the argument for mandatory assessments is that they resolve the “free rider problem”. Basically, the idea is that there are certain things that everyone would like to do, that could be profitable for everyone — however, if done on a voluntary basis, there is a tremendous incentive to not chip in because one can get all the benefits of the activity without paying the cost.

Typically, more and more people will realize this, refuse to pay the cost and then the activity won’t be done at all.

Advertising and promotion falls into this category: If spending a percent or two of sales will increase demand, raise prices and so everyone will profit, a voluntary effort will give the benefit of the program to many who don’t pay in. Perversely, these “free riders” will be more profitable than those who do contribute. In the end, the voluntary effort will likely be disbanded or be very small.

So, if there was industry consensus, if virtually the whole industry was persuaded that this was a profitable idea, then doing it through a mandatory vehicle is a reasonable way to bind ourselves to each other and avoid the free-rider problem.

The problem, of course, is that there is no such consensus.

In fact, the efforts being conducted are not designed to build consensus. At PMA’s Foodservice Conference, for example, PMA was kind enough to set up a National Fruit & Vegetable Research & Promotion Board Town Hall” sessions to discuss the generic promotion program. These “town hall” events are really panel discussions and, as we’ve written before, not really the most effective way to hold anyone’s feet to the fire and get answers.

The odd thing about this program, however, is that the moderator of the session is none other than Mark Munger.

Now Mark, Vice President of Marketing at Andrew Williamson Fresh Produce, was also the chairman of the Produce for Better Health Foundation, while the generic plan was being developed. Mark has been one of the plan’s primary advocates traveling to association meetings to advocate on behalf of the plan.

Now we know Mark and, as we wrote here, we like Mark and we are sure he will try and be fair. Inherently, however, his advocacy role is in direct conflict with a moderating role.

It is like saying we are going to have a panel discussion on whether we should have health care reform and Barack Obama will be our neutral moderator. It makes people feel that the fix is in.

This is really a shame because people either ignore what they perceive to be a biased process or they throw up their defenses. It means that the opportunity to persuade is lost.

Dick McKellogg’s letter speaks to the fact that to even consider going to USDA and asking them to hold a vote is a very serious matter. In America, we typically believe in freedom and voluntary action. To override such beliefs we need substantial consensus.

This means we need a credible and fair program to educate and persuade. This process simply isn’t up to the task.

Many thanks to Dick McKellogg and Lowe’s for helping us think through such an important issue.

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