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Perishable Pundit
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Produce Business

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American Food & Ag Exporter

Cheese Connoisseur



Got Produce? Generic-Promotion Expert Enters Debate With Some Shocking Analysis

As part of our extensive discussion of the proposed generic promotion program for produce, we have often called on the proponents to enlist qualified experts to review the costs and benefits of such a program.

Now they have announced that Taylor Farms was kind enough to donate some money so that the Produce for Better Health Foundation could ask Harvey Kaiser, a Professor at Cornell University who specializes in the economics of generic promotion, to answer some questions that have been raised about the commodity promotion board.

PBH summarized Professor Kaiser’s findings in three points, two of which we found somewhat shocking:

• The median average for these types of programs is a 10-fold return on investment to the producer, or whoever pays.

• The bulk of the cost would be borne by the consumer.

• While there would be a small increase in production due to enhanced consumer demand, the net result is a sustainable price increase due to the promotion program.

The question of who ultimately bares the cost is complex and it is entirely plausible that consumers might bare the costs of the program — although there is no guarantee and we question PBH’s ascribing such a definitive statement to the professor.

The shock, though, comes in the first and last point that PBH highlights from the Professor’s findings:

To say that the “median average return” for “these types of programs” is a “10-fold return” and the return will go to the “producer, or whoever pays” sounds very odd.

First, we are not aware of much research at all on “these types of programs” — that is to say multi-product in a multiplicity of formats such as fresh, frozen, canned and juice — so we wonder where this claim comes from. Second, we don’t see how the decision of where to collect the money, say at grower level or first-handler level, could possibly change who gets the benefit of the program. Third, how is it possible that the world is filled with programs promoting commodities and industries — California Iceberg Lettuce, Washington Apples, California Tree Fruit, PromoFlor, the Western Australian produce industry — and these producers are earning “10-fold return” and yet they keep refusing to fund the programs? Are producers really so dense?

This is all certainly problematic but the stunner is the claim that the program will cause only a “small increase in production” and, in fact, will result in a “sustainable price increase.” This is shocking because the whole justification for PBH’s involvement in this matter is that it will increase consumption. Since a substantial increase in consumption is impossible without a substantial increase in production, it seems highly unlikely that consumption will boom at the same time prices are supposed to be rising.

If this assessment is accurate, then PBH ought to just say: “So sorry, we made a mistake. This isn’t in our domain.”

The whole assessment by PBH of what Professor Kaiser believes is so odd that we were anxious to read the professor’s assessment ourselves.

Fortunately, PBH has made Professor Kaiser’s piece, titled Background Brief on Checkoff Programs, available. The brief consists of an introduction and nine questions, presumably posed by PBH, and the professor’s answers. We’ve added our own assessment underneath the professor’s responses. You can see it in blue.

Background Brief on Checkoff Programs
Harry M. Kaiserr
Cornell University
August 2009

Many agricultural commodities produced in the United States have collective marketing programs aimed at increasing overall market demand (both domestic and foreign) and enhancing producer revenues. These programs, which are sometimes referred to as “checkoff programs,” are funded through assessments on firms in the industry.

Currently, there are 17 federal programs and numerous state check-off programs in existence (over 50 in California alone). The budgets for these programs total about $1 billion annually in the agricultural sector. The assessments are usually mandatory for all firms after a majority of producers approve the checkoff in a referendum. The revenue raised by checkoff programs is invested in a variety of marketing (and sometimes research) activities, and varies by commodity. The main activity used by the majority of checkoff programs is generic media advertising. Popular examples of media campaigns include: Got milk?; Beef: It’s what’s for dinner; The incredible edible egg; Pork: the other white meat; Milk mustache; and the Dancing Raisins.

In an attempt to increase consumption of fruits and vegetables, the national fruit and vegetable industry is currently considering implementing a checkoff program for promotion and research. The proposed checkoff program would raise approximately $30 million through a 0.046% assessment collected from first handlers and importers, and would be used to promote fruit and vegetable consumption through marketing and educational programs.

The proposed fruit and vegetable checkoff has generated a lot of debate. It has also generated some important questions and issues. In this brief, I address some of the most important questions that have been raised by affected parties. As Director of the Cornell Commodity Promotion and Research Program, and Professor of Marketing, I have conducted independent research on generic advertising programs for over 23 years and have published 100’s of research articles on various dimensions of the economics of these programs. It is with this background and expertise that I bring to hopefully inform the debate.

Question: Who bears the burden of the cost of the program, growers, first-handlers or consumers?

Answer: Economists refer to this issue as the “incidence” of the assessment. Regardless of whether the grower or the first handler pays, who bears more of the incidence depends upon which group is most sensitive to price changes. The group that is the least sensitive to price changes will bear more of the burden. For most food products in the U.S., consumers tend to be very insensitive to price changes because food items typically compose a small percentage of their budget. First handlers and growers of fruit and vegetables are probably more sensitive to price changes than are consumers. So, in general, if the entire industry pays, regardless of where the assessment occurs, the incidence of the assessment will likely be spread across the industry, with most of the assessment borne by the consumer.

PUNDIT: As they say, the answers you get depend on the questions you ask, and here, Professor Kaiser addresses the incidence of cost when businesspeople are typically concerned with the incidence of risk. In a field such as produce, where margins are thin at every stage of the distribution chain, business executives hope and expect that all their investments will ultimately be covered by the consumer. But sometimes they are not.

The relevant question for many is who gets stuck with the bill if markets do not adjust to cover these expenses? Clearly, the answer is the guy who pays the expense. So, for example, if retailers, in pursuit of a “value” reputation, refuse to increase the FOB price they will pay for a given item, it is someone before the retailer in the supply chain who has to pay the bill.

Professor Kaiser is, of course, correct that input costs tend to be allocated to those who are least concerned with paying more, but there is no guarantee that one will be able to pass on costs of any type, and the incidence of risk thus remains with the one paying the bill. For many, this is a risk they would prefer not to take. Many first handlers would like to see the incidence of risk spread over various sectors of the supply chain rather than concentrated with them.

Question: Won’t first handlers simply force growers to pay the assessment?

Answer: Not likely for reasons alluded to above. First handlers will likely push much of the assessment forward to parties buying their produce. Consumers are not very sensitive to price changes, and if the full assessment, 0.046%, shows up in the form of a higher consumer price, there should be minimal negative impact on demand.

PUNDIT: There is a little confusion here, and it is probably caused by Professor Kaiser’s work being so heavily focused on dairy. In the produce industry, first handlers often handle produce on a commission basis. The contracts typically explicitly call for first handlers to deduct all expenses from grower returns. So these first handlers will bill back for USDA inspections, delivery costs, warehousing, and, most assuredly, for any fees or assessments.

Now, first handlers selling on a commission basis will also certainly try to get their growers a higher price that will compensate for any expenses. It is very common for a handler to ask his grower “What return do you need to come out?” If he knows the grower needs $5, the handler will certainly aim to achieve that, but, of course, markets are unforgiving and it is not always possible.

This whole issue is especially problematic because it leads to a division between voting authority and paying the bill. In most generic promotion efforts, the one who pays gets the vote. Under this system we have in produce, very often the first handler will get the vote but the grower will actually pay the bill: A kind of taxation without representation.

Question: Do these programs really increase consumption?

Answer: There have been hundreds of evaluation studies that have addressed this question, and the overwhelming conclusion is yes they do. Kaiser summarized the results of 21 studies that estimated “promotion elasticities” for a representative set of state and national generic promotion programs.

A promotion elasticity measures the percentage change in consumer demand given a 1% change in promotion expenditures. All of 21 studies found positive and statistically significant generic promotion elasticities. The median and average elasticities from these studies are 0.045 and 0.096, respectively, i.e., a 1% increase in generic promotion expenditures results in a 0.045% and 0.096% increase in demand for the commodity when holding all other demand determinants constant.

The spread in promotion elasticities in these 21 studies range from a low of 0.005 to a high of 0.428. While statistically different from zero, it is clear that the typical impact of these programs on commodity demand is quite small. Indeed, in the majority of these studies, demand factors such as price, income, and population demographics have been found to have a larger impact on demand than generic promotion. Generic promotion, however, is one the few demand factors that the industry can control.

The prime reason why these programs have small impacts on demand is that the level of generic promotion is quite small. All of the mandatory generic advertising checkoffs are smaller, in some cases much smaller, than 1% of the price received by producers. Hence, it is not surprising that generic advertising has a small, but positive impact on food demand.

PUNDIT: We’re not sure why the professor decided to omit footnotes, thus making going back to his full research difficult. What we can say is that several things about this point need much more exposition: First, it is not clear how one can measure an increase in demand to the third decimal place on a product with fixed supply. Second, the research does not seem to actually identify the impact of the promotion; instead, it seems to use promotion as a kind of residual.

So the researchers identify an increase in consumption, then deduct for things they know could influence consumption, say an increase in population and then whatever is left, they declare that to be due to the promotion. Yet this claim is unsupported. It is more a measure of our ignorance than a measure of the effectiveness of promotion.

Question: Does the increase in consumption due to generic promotion translate into increased profits for growers and first handlers?

Answer: This question gets at the heart of a potential paradox of checkoff programs known as “rent dissipation,” i.e., effective generic promotion results in a higher demand and market price, which eventually causes an increase in output by growers and first handlers, which causes market price to fall.

In theory, it is possible that the expanded output could result in growers and first handlers not being any better off even with effective promotions because of this effect. However, while theoretically possible, virtually all actual evaluation studies of existing industry-sponsored generic promotion programs show that this is not the case. For example, Kinnucan examined this issue for generic catfish advertising, and Kaiser has looked at this issue for numerous promotion programs for various commodities and these studies have shown only a small increase in output due to the price enhancement of promotion. The net result has been a sustainable price increase due to promotion programs.

PUNDIT: In our piece, Got Produce? The Rent-Dissipation Hypothesis And The Issue Of Cui Bono, we specifically looked at the generic catfish advertising and drew from it the conclusion that Professor Henry W. Kinnucan of Auburn University drew:

With few production alternatives existing for catfish ponds and equipment, asset fixity operates as a natural deterrent to entry or expansion, causing a relatively inelastic supply response at the farm level. Furthermore, demand for catfish at the wholesale level is only slightly elastic and is probably inelastic at the farm level. This combination of elasticities, coupled with the magnitude of the demand shift as represented by the advertising elasticity, results in sufficient rents from increased advertising to more than offset incremental costs over any reasonable time horizon. Thus, the notion that producers are no better off with the promotion program than without it is not supported by our analysis.

Our findings are generalizable only to the extent that other industries have characteristics similar to those of the catfish industry. Asset fixity, which accounts for the sluggish supply response for catfish, may exist in other industries, especially those involving perennials such as almonds, raisins, walnuts, oranges, etc. This may not be the case for vegetables and some row crops, where inputs are less specialized and production lags are shorter. Then, too, farm-raised catfish is a relatively new product; this increases the likelihood that consumers will respond to catfish advertising. Clearly, the rent-dissipation hypothesis needs to be tested over a wider range of commodities before we can be confident that cooperative advertising ventures can indeed generate sustainable benefits for producers in the face of uncontrolled supply response in competitive markets.

In other words, products that are difficult or expensive to increase production of tend to benefit from higher prices due to stimulated demand from generic promotion, whereas products for which production is easily and inexpensively increased do not realize higher prices due to the supply response.

We find Professor Kaiser’s explanation that actual evaluation studies of existing generic promotion efforts rarely show such an effect unpersuasive because the Professor does not account for the “establishment and survival bias” in this comparison.

Survival bias is often illustrated with mutual fund advertising. A quick glance at the ads in the business section of the local paper shows that virtually every mutual fund seems to have had exceptional performance — yet actively managed mutual funds underperform the indexes. What accounts for this discrepancy? It is called “survivor bias” — the mutual fund companies know consumers don’t like to invest in funds with losing track records, so they are constantly closing or merging out of existence poorly performing funds and leaving only the winners extant.

The consequence of this is that if you study all existing mutual funds, you will get a performance record far exceeding that of all mutual funds that ever existed.

In the same way, Professor Kaiser’s studies are all on programs that actually exist. But the very establishment of a program is a selective act. So, in the produce industry for example, Northwest pears, an expensive crop to plant with a long lead time, has a generic promotion program, and California avocadoes, once again an expensive crop to plant with a long lead time and one with real restrictions on availability of land and water, both have generic promotion programs. In contrast the California Iceberg Lettuce industry voted to end its program. Leafy greens, a row crop relatively easy and inexpensive to expand production, has only the small and voluntary Leafy Greens Council.

When Dr. Kaiser points to research on existing programs, he is looking at programs that passed through many stages of approval and maintenance and comparing them to a proposed program that has not gone through such a process. That is inherently an asymmetric comparison.

Think about this kind of comparison in your own company or organization. Five projects are proposed… as they go through the process, only one meets the Return on Investment criteria and is implemented and is highly successful. You cannot deduce anything about the four projects that didn’t make it from the one project that cleared the vetting process.

Equally we can’t deduce anything about the rent dissipation process on produce commodities that do not have a commodity promotion program from commodities that have gone through the process and chose to establish and sustain a commodity promotion program.

Question: Are these programs profitable for the participants that pay for them?

Answer: This is the bottom line and most important question that first handlers and growers should ask. Here, the evidence from evaluation studies is overwhelming that the benefits of these programs exceed the cost. Economists typically measure the benefits of these programs as the incremental net revenue resulting from the increase in demand and market price due to generic promotion, while the cost is generally measured as either the cost of the promotion, or total cost of the checkoff program.

Table 1 (below) lists 14 studies that have evaluated individual generic promotion programs for fruits and vegetables in the United States:

Table 1. Estimated Benefit-Cost Ratios for Fruits, Vegetables, and Other Generic Promotion Programs.

Author(s)

Commodity

Benefit/
Cost Ratio

Fruits and Vegetables

Alston et al.

California Table Grapes

44.9

Alston et al.

California Dried Plums

2.7

Erickson et al.

Pears

10.4

Carter et al.

California Strawberries

44.0

Carman and Craft

California Avocados

2.2

Capps et al.

Florida Orange Juice

4.5

Kaiser

Blueberries

8.8

Kaiser

Raisins

9.5

Ward

Watermelons

10.6

Richards and Patterson

Potatoes

6.5

Costo et al.

Videlia Onions

22.5

Ward and Forker

Washington Apples

7.0

Ferguson et al.

Papayas

21.1

Van Sickle and Evans

Tomatoes

29.1

Median — 10.0 Average — 16.0

Other Commodities

Crespi and Sexton (2005)

California Almonds

6.2

Schmit et al (1997)

California Eggs

6.9

Williams et al. (2004)

Florida Orange Juice

5.0

Kaiser (1997)

All Dairy Products

3.4

Ward (1996)

Beef

5.7

Davis et al (2000)

Pork

16.0

Kaiser and Schmit (1998)

Eggs

3.5

Murray et al. (2001)

Cotton

4.6

Kaiser (2005)

Walnuts

5.7

Ward (2008)

Honey

7.0

Williams (1999)

Soybeans

4.8

Median — 5.7 Average — 6.3

Of these 14 studies, the median average benefit-cost ratio (BCR) was 10.0, indicating the average benefits were ten times larger than the costs, and none of these studies had a BCR that was below 1.0. The average BCR was 16.0, indicating average benefits were 16.0 times larger than the costs. Also noted in Table 1 are other commodity promotion benefit-cost ratios, with a median average BCR of 5.7 and an average BCR of 6.3. Indeed, a more thorough perusal of the literature reveals very few studies that have measured a BCR that was less than 1.0 for any checkoff program.

This is actually quite interesting and tells us that academics in this field have chosen a biased measurement of success. Read the key line:

“Economists typically measure the benefits of these programs as the incremental net revenue resulting from the increase in demand and market price due to generic promotion, while the cost is generally measured as either the cost of the promotion, or total cost of the checkoff program.”

Note that Professor Kaiser is taking the increase in revenue and comparing that revenue increase to the cost of the promotion or of the checkoff. In other words, he is saying that economists in this field choose to ignore the cost of production!

More realistically, if we want to measure the profitability of a promotion or program, we should take the increase in revenue caused by increased demand or higher prices, deduct not only the cost of the promotion, but also deduct any costs involved in expanding production or purchasing more supplies and deduct the costs involved in selling these added items.

In other words, the proper “benefit” to look at is the additional net profit, not net revenue, realized by an entity and contrast that with the costs of the program.

There are two other troubling matters in the way Professor Kaiser defines profitability. First, he seems to be speaking of profitability for the industry as opposed to for the entity that is actually paying the assessment.

In an industry such as produce with many family farms, it is reasonably common to find a farmer with 500 acres who is not really looking to buy more land. If the industry becomes more profitable by increasing production and consumption, this farmer will be paying to allow other farmers to expand production. If prices remain fixed, but an additional expense is imposed, our family farmer’s profit will go down.

The second issue is that investments are typically measured against a cost of funds or hurdle rate. Lots of investments that would be profitable are not made because the profitability is less than some alternative investment or less than the cost of funds. Even accepting generic advertising is profitable, would product-specific generic advertising be more profitable than the proposed multi-product/multi-format (canned, frozen, fresh, 100% juice) generic promotion order?

Finally what is the time lag? Time is money. How long must one invest before one realizes a return?

Question: Why are the estimated benefit-cost ratios (BCRs) for these programs so large?

Answer: The reason estimated BCRs are so large for generic promotion programs is not because benefits are large in an absolute sense, but rather they are large relative to costs. Because the costs of these programs are so tiny in relation to industry revenue (almost always well under 1%), the upshot of this is it does not take much of an increase in demand or in price to produce a high BCR.

Kinnucan and Zheng presented an interesting illustration to highlight this point, using 11 federal programs encompassing over 80% of all checkoff program revenue. In their study, the authors calculated how much of a farm price increase would be necessary to yield a BCR equal to 1.0 (benefits = costs) for the 11 checkoff programs. The average increase in price to yield a BCR of 1.0 was a mere 0.94%. In other words, if the checkoff program increases price of the commodity by 0.94%, the program is breakeven in terms of costs and benefits. If the farm price increase due to generic promotion is 5%, Kinnucan and Zheng found an implied BCR of 8.2. To the extent that generic promotion could increase the farm price by 5%, which appears very plausible, the potential BCR for a $30 million fruit/vegetable campaign would be 8.2, delivering $246 million in returns to the producer.

Professor Kaiser is highly esteemed, yet we are perplexed at on what basis he determines that it is “very plausible” that a $30 million total budget — not a $30 million dollar campaign — could possibly increase produce prices by 5%. If this did happen, Professor Kaiser’s estimate of the benefit to the industry is wildly low.

The Produce Marketing Association had Battelle do an Economic Reach and impact of the Fresh Produce and floral industry study. It includes floral but excludes frozen and canned, and it came up with a sales number at the production source — that is before processing, marketing and distribution of over $33 billion dollars. So, using the PMA number, a 5% increase in price at the production level would be over $1.6 billion. PBH says an assessment rate of 0.046% will realize $30 million… that means that they are saying the industry size is $65 billion, which means a 5% increase in price would represent a $3.25 billion increase in value. These seem bizarrely outsized returns to expect from a $30 million-a-year investment.

Question: Would the proposed fruits and vegetables promotion and research checkoff program have as high of BCR as those listed in Table 1?

Answer: While it is impossible to predict with absolute certainty what the BCR for a future program would be, based on the past performance of generic promotion programs for individual fruits and vegetables, it is highly likely that the benefits of the future program would be substantially higher than the costs. Based on the median BCR from Table 1 of 10.0, this would mean that the $30 million per year investment in generic promotion of fruits and vegetables would return $300 million in additional net revenue to the producer.

One of the questions related to this whole enterprise is the degree to which experience with individual commodity promotion can be extrapolated to a national campaign covering many fruits and vegetables sold in many forms. Most efforts to increase sales are modest. Promote one snack fruit and one typically depresses the sales of other snack fruits. Many shopping lists just say “fruit” and so a great deal on pears can affect apple sales.

For a total industry program to be a success, the additional sales have to come from elsewhere in the store. So an increase in pear sales has to either lead consumers to spend more in the supermarket or that pear sale has to reduce, say, chocolate chip cookie consumption.

This whole area of study is known as Beggar-thy-Neighbor Advertising, and there is some indication in this UC Davis paper that the produce industry could benefit by closer cooperation between individual commodity promotion groups.

What there is not, however, is any real evidence that we can project the success of this much harder task — taking sales from chocolate chip cookies — based on the much easier task of getting someone to buy a pear rather than an apple.

Question: Would this mean that every fruit and vegetable commodity would receive the same BCR?

Answer: No. Indeed it is unlikely that a generic promotion program that promotes a broad category of fruits and vegetables would return benefits of the promotion equally among commodities. That is, if the promotional campaign for such a program was effective, then it is likely that some commodities would fare better than others.

Unfortunately, there have not been a lot of studies that have looked at this type of distributional question. One study by Schmit et al. examined the impact of generic milk advertising on whole, 1%, 2%, and skim milk products, as well as generic cheese advertising on American, processed, and other cheeses. The authors found that generic milk advertising had virtually identical positive effects on the demand for fluid milk products. However, while generic cheese advertising had a positive effect on processed cheese, it had a substantially larger positive impact on American cheese demand. So it is likely that the demand impacts from a generic fruit and vegetable promotion campaign will be different for some commodities.

And this difference in “demand impacts,” combined with a difference in “supply response,” is very problematic.

In the dairy industry, the milk can be used to make cheese, butter, various types of milk, and the “demand impacts” don’t matter because it all comes from the same cow.

In produce we face a real situation in which the supply response will be so different on different commodities that it is quite possible that, for years and years, leafy green growers could be subsidizing pear growers.

What if the industry segments that have high barriers to entry vote for this plan and the industry segments with low barriers to entry vote against –are we prepared to just shove this down their throats?

Question: Most checkoff programs have been commodity-specific. Would a promotion program with the broad category of all fruits and vegetables be as effective?

Answer: There have not been many examples of generic promotion programs that are as broad as the fruit and vegetable category combined. However, a recent study by Global Insight, Inc., evaluated the combined impact of all of the USDA’s Foreign Agricultural Service generic export promotion programs on U.S. exports. The results of this study found a BCR of about 5 for all programs combined. That is, a $1 investment in all generic export promotion returned $5 in export revenue.

We’re not really sure the relevance of this data. First of all the funds are provided by USDA specifically because they don’t believe that the producers would pay for the export promotion if USDA didn’t ante up. Nobody in the industry would object if USDA or HHS wanted to promote produce consumption for, say, reasons of public health. Second, the USDA programs are not mandatory. So the hurdle is much lower. It is a serious thing to compel a man to fund a program when he would prefer not to. Third, there is no basis to extrapolate from these export programs to domestic programs.

Finally, this “BCR” is a wacky number. We have to look at profit increases, not sales increases.

We certainly thank Professor Harry Kaiser for helping the industry think through such a crucial issue.




Dangers And Broader Implications
Of Wal-Mart’s Sustainability Index

Our piece, Wal-Mart Must Include Adequate Return On Capital In Its Sustainability “Index” Or It Will Do More Harm Than Good, brought both comments simple and sweet:

Great article…

— Rob Mumma
Vice President Sales and Marketing
Belair Produce, Inc.
Hanover, Maryland

And more explanatory:

Wonderfully written article with very thoughtful and thought-provoking responses to one of today’s hottest topics in agriculture. I applaud your articulation of the facts and circumstances surrounding sustainability for both the common good and corporate prosperity.

S. Garrett Patricio
Vice President of Operations, General Counsel
WESTSIDE PRODUCE
Firebaugh, California

As we detailed in our article, Wal-Mart’s sustainability initiative is extensive. So we focused in on one glaring problem: Wal-Mart’s decision to exclude the economic sphere from its proposed index.

Sustainability is typically considered to contain three spheres of responsibilities: The environmental, the social and the economic. We would go so far as to say that speaking of sustainability without all three of the spheres makes no sense.

After all, if you only care about the environment, there is no logical limit to what can be demanded. Why ever use a pesticide — synthetic or non-synthetic — if you only care about the environment?

Equally, if your only focus is social, there is no logical limit as to what people should be paid or how much time off they should get or how much philanthropy a company should give.

What makes sustainability make sense is the triad: Environmental, social and economic. Now, if someone proposes a change in growing practices or labor practices, the proposal gets balanced against all three legs of the triad, and the real world tension between these responsibilities allows for a reasonable solution.

The great danger of Wal-Mart’s approach to this sustainability index is that by excluding the economic sphere, it is encouraging companies to make investments that allow them to score better on the Wal-Mart index but that actively waste financial resources. This means the world is poorer and thus less able to deal with its problems.

Wal-Mart’s initiative is far broader than retail produce. We wanted to examine how it might interact with other industry initiatives in sustainability. To do so, we asked Pundit Investigator and Special Projects Editor Mira Slott to explore the topic more by speaking to an industry member active in sustainability and from the foodservice side of the business and thus more free to speak about Wal-Mart’s effort and its intersection with efforts active in the produce industry:

Tim York
President
Markon Group
Salinas, California

Q: You’ve shown tenacity in driving industry-wide coalitions, first with food safety, and more recently with sustainability. What will Wal-Mart’s sustainability initiative mean to the industry? How will its plan to develop a world-wide sustainability index have an effect on sustainability programs underway? Is it compatible or at odds with the Stewardship Index?

A: Wal-Mart has indicated their support for the Stewardship Index. We just had a meeting with the Coordinating Council. There were about 30 different companies participating to get updated on our project and further develop the metrics. It was almost a year ago, September, since our first meeting. This was the next face-to-face meeting. We tried to wrestle with the sticky issues, which always happens when you get multiple stakeholders.

Q: Did Wal-Mart participate and provide input based on its own strategic plan? How will Wal-Mart’s sustainability program impact produce suppliers? Are industry suppliers prepared to meet the new demands?

A: Wal-Mart was not there, but Wal-Mart is part of our Coordinating Council. We’re metrics-driven and they’re metrics-driven. Our processes are compatible.

My understanding of the way it will work is that Wal-Mart will give a sustainability number on a product, judged by a list of sustainability criteria. In a sense it parallels Hannaford Brothers’ system of grading from a nutrition standpoint; product receives a red, yellow, or green light based on its health and nutrition value.

Q: What you describe here is consumer-centric. Won’t consumers have difficulty ascertaining what that number means? What defines one product as more sustainable than another? Isn’t it highly subjective depending on what one values? Will the consumer accept Wal-Mart’s assessment?

A: You never want to bet against Wal-Mart. Wal-Mart is smart and has a lot of money.

If you encompass all the environmental and social aspects of sustainability, research PMA has done indicates labor issues are high on the list of importance for consumers.

Depending on how Wal-Mart assigns weighting to it, say you do terribly on labor issues, but do great on reducing greenhouse gases, it doesn’t speak to other concerns or priorities, but gets you a good score from Wal-Mart. I’m not sure what a single-digit represents, and how it will capture consumer interest. It may not speak to all consumers. It almost doesn’t seem transparent enough..

Q: In what ways?

A: If all I see is a number, I as a consumer don’t know what that means from an employee standpoint, from water use, packaging, soil-health preservation, pesticide minimization, community aspects, etc. All get rolled into one. If I have asthma, air quality is important to me. If I’m a Hispanic worker, immigration and labor are important, whereas for a fisherman, water quality is a big thing.

As a consumer, I don’t approach sustainability holistically but from my own set of interests. I’m not sure if a single number score is enough.

Q: When Wal-Mart unveiled its sustainability mantra via a global webinar, it emphasized the supplier’s integral role and the need to examine the complete lifecycle of the product, from its origins through the manufacturing process and distribution chain. Reaping environmental benefits coincided with dissecting processes and creating a more efficient and innovative business model to take costs and waste out of the system. Marketing sustainability to the consumer seemed to be just one aspect — an end product of a multifaceted business strategy…

A: Sustainability is not a consumer-driven issue for the most part, to a substantial extent this is because consumers don’t have the information available. Therefore, consumers tend to take a simplistic approach — local good, long-distance bad, small good, large bad.

Consumers are not heavily engaged in sustainability. It’s a college-campus phenomenon as well as a business phenomenon. The business approach could be — I don’t want to get nailed by the Immokalee workers for bad labor practices or get blamed because my supplier decided to dump waste into the river.

Q: Implementing sustainable measures to avoid a potential lawsuit or bad press implies little real commitment to sustainability, just a commitment to staying out of trouble. Is that an excessively pessimistic view of human nature or just the way it is?

A: Three key reasons are driving sustainability: One reason is from a defensive standpoint. With media today, if a company is dumping waste, it’s going to be posted on YouTube for the world to see again and again.

The second is taking costs out of the system. As consumers become engaged, the third benefit comes from companies willing to talk about what we want done as an industry.

Q: In your sustainability efforts, you emphasized the importance of creating a set of commonly defined, measurable metrics as a means for companies to set goals, monitor and verify progress for self-improvement. At the same time, you have voiced opposition to national standards. You’ve questioned the viability of making an absolute judgment or determination on what constitutes the right standard, when sustainability is comprised of many subjective variables. Isn’t Wal-Mart going that route with its sustainability ranking system?

A: Wal-Mart is making a determination of value in its metrics development, on where labor is weighted, where water use is weighted, etc.

Q: What is the significance of Wal-Mart’s strong sustainability mandate?

A: For me, it lays down the line in the sand. It challenges the rest of us to stay with them, moving as an industry into sustainability. The largest retailer is approaching sustainability with commitments and resources behind it.

Wal-Mart is taking on sustainability with science- and metrics-based measures. This will involve a lot of work getting suppliers educated, not just for Wal-Mart, but we all must do this for the industry.

Q: How is the Stewardship Index progressing? Are you working with Wal-Mart and other entities, namely ANSI, to insure compatibility?

A: Around the fall, we’re getting ready to pilot. We believe the whole idea of what we’re trying to do is create a common way of measuring. We’re not setting the standard that greenhouse gas needs to be below X amount. What we don’t want are different measurements for air quality, labor, etc. That certainly can inform the work that Wal-Mart is doing, and what the Leonardo Academy is doing. The industry’s worst nightmare is that Wal-Mart’s metrics and those of other buyers are not mutually compatible.

Wal-Mart could help to drive it, and help define what is sustainable or what isn’t. It’s a trite definition of what we’re looking for in this young journey of sustainability. It’s not that we’ve all arrived today, but that we’re at least making improvements. The idea of benchmarking and measuring is a common purpose.

Q: With all the different stakeholders working on the Stewardship Index, are you finding consensus in the formation of metrics? What areas pose the biggest challenges?

A: We have 15 different metrics that we’ve worked toward, and we have updates on about 11 of them that we’ve made progress on. Tools are already developed for how to measure greenhouse gases. Some of the difficult ones are the softer science, community, human resources, procurement and fair pricing. We won’t solve that in a day.

Those are the issues we’re trying to tackle.

Q: How do you best go about it?

A: We have very strong advocates and some proposals are non-negotiable, or non-starters for some. In reaching solutions, we need to ask, what are the things we can agree on? For example, we all agree on sanitation in the field, appropriate water use, and rest breaks for employees. With labor practices, there are common interests to build from.

We have lots in common with environmentalists — we want to preserve farmland, they want to preserve farmland. We want to reduce chemical usage to reduce costs while they want to reduce chemical usage for other reasons, but the end goal is the same.

Remember the role of the Natural Resources Defense Council (NRDC) in the Alar Scare? We have an NRDC representative on our Stewardship Index Council, which makes for strange bedfellows. Can’t we all get along? It’s too easy to fall back on what we do in politics, paint Republicans all bad or Democrats all bad when there are common goals in medical care, providing border access…We are looking to unite on issues important to all our interests.

Q: When will your pilot testing get underway? And are you looking for more industry participants? Are all key groups represented in the process now?

A: Our pilot programs are not ready yet, but we expect to get the pilots going before the end of the Salinas season. Over 200 companies have been involved in helping draft metrics, so we need to see how they apply in the real world. We’ve drafted metrics around water usage, so we want to find out if this is something we can truly measure or is there tweaking required. We would love to have more people involved. To date, it’s heavily West Coast-oriented. We welcome people throughout the country to become engaged in the process.

Tim’s motivation in this area has always been clear: he has watched the way the industry has dealt with food safety concerns and noted the multiple audits and how they have burdened the production base, and he has labored mightily to avoid seeing that process duplicated in the sphere of sustainability.

Since it is impossible to expect the whole world to agree on one standard for sustainability, Tim and others have focused on defining methods of measurement that will, hopefully, avoid multiple audits.

It is a laudable project and its intent is a terrific idea. We have some doubts about whether it will ever really work out in practice.

Even if the metrics are agreed to, this leaves open the question of who will audit and ascertain that things are done in accordance with these metrics.

An awful lot of the food safety audit duplication is not because the audit standards are so different; it is because companies trust one auditor over another.

We are hearing this right now with the Global Food Safety Initiative, which we talked about here. In theory, audits done by any of the participants should be equal, but many buyers are saying they just won’t accept anything but the auditor of their choice.

This seems almost to be human nature. We’ve done a few acquisitions in our day and, when we do them, we typically send in our accountant to look at the books. This is not because our accountant has different metrics than other CPAs, it is because we trust our guy to look after our interests. This will be a high burden to overcome.

We also think that such metrics are really compatible only with a particular segment of the industry that involves direct sales from a particular farm to a particular buyer. When the Pundit was selling imported melons, he had growers in at least a dozen countries, and each day selected from inventory and arrivals to best satisfy each customer. The only thing certain is that these dozens of growers would have had dozens of different numbers on any set of sustainability metrics.

Finally, we worry that the world will come to demand what can be measured rather than what is important.

The idea that Wal-Mart will “define what is sustainable and what isn’t” is actually quite horrifying. Who elected them?

Though Tim is kind and finds the upside in the Wal-Mart proposal, we see it as, at best, completely subjective.

To add up all the disparate info sustainability audits can provide — this company decreased carbon discharge by 5%, increased water usage by 10%, increased wages by 7%, decreased employee headcount by 2%, cut donations to the local hospital by 4%, increased female representation on its board of directors by two people, etc. — and think you can come up with a number that means something to everyone is a big stretch.

All this can possibly represent is the personal policy preferences of whoever writes the standards and who could possibly care about that?

To put a number on each item — a sustainability index of 6 — and pretend that this is meaningful to consumers borders on the bizarre.

Yes, along with Tim, we hope that if Wal-Mart does this they will use industry standard metrics so as to reduce costs but, really, why should Wal-Mart do this at all?

Many thanks to Tim York and the Markon Cooperative for fighting the good fight.




Deadlines Approaching For PMA Events/Contests/Award Nominations

PMA and the PMA Foundation for Industry Talent (PMA FIT) have recently been bombarding our in-box with deadlines and upcoming events. Thought we would run through a few of these upcoming events:

Reggie Griffin, Vice President Produce Procurement and Merchandising of The Kroger Company, has been kind enough to lend his support to The Tip Murphy Memorial Golf Tournament:

Join me for a game of golf in honor of our late colleague, Terrance “Tip” Murphy, at the Oasis Golf Club & Conference Center in Loveland, Ohio on Monday, September 28, 2009. Lunch will be served at 11 a.m. followed by a 1 p.m. shotgun start. We are registering individual golfers as well as foursomes. In addition, sponsorship opportunities are available.

This tournament gives us the opportunity to remember Tip in one of his favorite settings — the golf course. Tournament proceeds help to build the Tip Murphy Legacy Fund, which was created by Ready Pac, Chiquita, Paramount Citrus and Naturipe Farms to honor Tip’s life and his 15-year career in the produce industry. This fund supports the Tip Murphy Scholarship for Leadership Excellence, a scholarship program managed by the PMA Foundation for Industry Talent to aid industry professionals seeking to advance their leadership skills and better serve the industry.

To register for the event, sponsor, or make a donation, simply visit: Tip Murphy Memorial Golf Tournament. I’m looking forward to seeing you there!

Reggie Griffin
Vice President Produce Procurement and Merchandising
The Kroger Company

Though the Tip Murphy Fund is new, it has, it has already started to do good things — as we pointed out here — like providing scholarships to industry events.

We certainly hope that those who can attend will. It is a good cause and Tip was a friend of many in the industry, including this Pundit, as we discussed here, and we hope to see his name honored by a strong attendance.

Several industry members who would have attended have reached out and told us they can’t go because the date corresponds to the Jewish day of repentance, Yom Kippur. Although this is a golf tournament and not a major industry conference, hopefully next year, with more time to plan, the organizers will be able to schedule the event to allow more complete industry attendance.

In the meantime, the fact that some won’t be able to attend makes it all the more important that those who can attend, do so.

You can register for the event right here.

* * * * * *

When the Pundit had an opportunity to do a joint presentation with Steve Lutz, Executive Vice President at the Perishables Group, for the Produce Solutions Conference earlier this year, Kevin O’Connor was moderating. In a meeting before the event, Kevin asked us to differentiate ourselves from each other. We went into some technical explanation about the distinctions between quantitative and qualitative research. Steve, being quicker of wit, said that he thought his marathon time was better than the Pundit’s… a proposition, which, though surely true, has never actually been put to the test.

Mentioning Steve Lutz is especially apropos, as many years ago, when Steve was President of the Washington Apple Commission, the organization used to sponsor a 5K run at PMA’s (and United’s) annual convention. Now, the PMA Foundation for Industry Talent (PMA FIT) is reviving the idea as a way to both encourage healthy habits and raise a little money. They have scheduled a 5K run to be held October 2, 2009, in conjunction with the PMA convention.

Lots of people have already registered, including the following who have all participated with the Pundit in one way or another:

Gina Nucci, Mann Packing Company
Stephen Tursi, Seald Sweet International
Luke Sears, LGS Sales
Cindy Jewell, California Giant Berry Farms
Tim York, Markon Cooperative
Dave Corsi, Wegmans
Marty Craner, B & C Fresh Sales
Joe Pezzini, Ocean Mist Farms
Dan’l Mackey-Almy, DMA Solutions, Inc.
Doug Meyer, West Pak Avocado
Lisa McNeece, Grimmway Enterprises, Inc.

The race is such a good fit (pun definitely intended) for our industry and for PMA FIT, because it promotes a healthy lifestyle and supports the foundation’s efforts to attract, develop and retain talent for our industry. Certainly we can expect many of the Pack Family/PMA Career Pathways students to participate. And we would urge the classes of 40-under-Forty honorees from Pundit sister publication, PRODUCE BUSINESS, to also lace up their running shoes.

Produce is so aligned with fitness that this race is an inspired fundraiser for PMA FIT and has a decent shot at becoming an industry institution. The race takes place on Friday, October 2nd in Anaheim with a 6:30 a.m. warm up and a 7:00 a.m. race time.

The cost is only $25 if you register now. Everyone gets a free T-shirt and a goodie bag. Medals are given at all age categories up through and including the 70-plus ages.

You can get more info on the race here. You can register here.

* * * * * *

We’ve had the honor of serving as a Judge since the founding of The PMA Impact Award, and we’ve noticed a positive effect on the industry. The existence of the program has raised the consciousness of the role packaging plays in product success. Now it is time for people to get their entries in for this year’s competition:

Through its Impact Award program, PMA seeks to highlight innovative packaging ideas that positively impact produce sales — whether the goal is to catch a consumer’s eye on store shelves, protect a product in transit, extend shelf life or increase efficiencies and sustainability.

Impact Award nominees will vie for the title of exceptional produce or floral packaging innovator in their respective judging category. The six award categories include: food safety; functionality/technology; marketing design; marketing messaging/content; environment/sustainability; and supply chain efficiencies.

“Effective packaging should not only be innovative, it should make an impact,” said Ron McCormick, senior director, local and sustainable sourcing, Walmart Stores Inc. “The Impact Award is about giving recognition to companies who are leading the way with influential produce and floral packaging that demonstrates imagination and encourages others by example to take better advantage of their packaging options.”

A panel of judges that include packaging experts and product industry veterans has been selected to judge the award nominees:

• Leonard Batti, senior partner of MIXTEC Group;

• John Bernardo, founder and owner of Sustainable Innovations, LLC;

• Phil Lempert, founder and owner of The Supermarket Guru®;

• Jim Prevor, founder and editor-in-chief of PRODUCE BUSINESS, DELI BUSINESS and PERISHABLE PUNDIT;

• Paul Singh, Ph.D., professor Michigan State University’s School of Packaging; and

• Dr. Bob Whitaker, PMA’s chief science officer.

Impact Award nominations are due to PMA by Aug. 14. Companies sending in multiple entries must include a separate nomination form with each submission. All nominated packaged products must be currently commercially available.

You can find entry forms and instructions here.

Note that, unlike so many other competitions, There is no cost involved with your packaging submission and there is no limit on the number of entries. You can submit the same product in multiple categories if applicable or multiple products in the same category. There are 6 categories for submissions: Food Safety, Supply Chain Efficiencies, Functionality/Technology, Environment/Sustainability, Marketing Design and Marketing Messaging/Content

All the judges, including this Pundit, are looking forward to seeing your best work.

* * * * * *

We’ve highlighted here and here some of the previous winners of PMA’s Floral Marketer of the Year award.

Floral is a world unto itself, yet is also an integral part of the job of many of the most import retailers in the industry. This award gives the floral-specific executives a chance to shine:

Each year PMA also recognizes an individual who has had noteworthy impact on the supermarket floral retailing industry by bestowing its annual Floral Marketer of the Year award. Nominations are now being accepted for this year’s award, which also will be presented at PMA’s Fresh Summit this October.

We’re looking for an individual who has been at the forefront of floral industry trends and has made significant, positive contributions to entire supermarket floral-retailing industry,” said Cindy Hanauer, director of floral operations at Winn-Dixie Stores, Inc. and chair of PMA’s Floral Council. “Receiving the Floral Marketer of the Year award is a great honor, especially because nominations are made by fellow floral marketers.”

Floral Marketer of the Year nominations will be accepted through Aug. 21. Candidates must be PMA members, and nomination forms require descriptions and examples to support the nominee’s consideration for the award.

Lauree Lincoln of Big Y Foods (at right) after receiving her award with award presenter, Pat Bauer of Temkin International, Inc.

If you are in the floral industry and familiar with an outstanding executive, please consider submitting an online nomination here.

* * * * * *

Finally, PMA is doing its first Food Safety Symposium concurrent with the Texas Produce Association Convention down in Austin, Texas:

Food safety is as much about managing the unknown issues as it is about the known challenges. From grower to supplier to operator to retailer, food safety isn’t just an operational responsibility left in the hands of quality control employees — it’s an executive imperative. Not being prepared for the unknown isn’t just risky. It’s potentially inviting catastrophe — for you, your company and the whole industry.

It’s time for a new way of looking at food safety so we protect our businesses and profitability. Join PMA for its first Food Safety Symposium.

PMA has designed a program that will provide a mix of both strategic and practical information on food safety. This timely event will provide ways for you to:

• Better assess your company’s risk, identifying critical gaps in your operations.

• Learn new business models to better respond to industry and regulatory changes.

• Hear real-world examples of crisis situations that could expose your company to risk.

• Network and discuss your ideas and challenges with other executives.

• Develop strategies that you can put into action right away that will protect your company and lead to greater ROI.

The speakers are as follows:

Dr. Bob Whitaker
Chief Science Officer, PMA

Lorna Christie
Chief Operating Officer, PMA

Elliot Olsen
Partner, Prizker Olsen, P.A.

And registration is limited to 35 people.

This event is the first of these workshops; the second is scheduled for Rochester on October 14, 2009.

You can register here

* * * * * *

Ok… so the Delaware team has a lot of things going on. We urge everyone to participate in what they can. It helps us all learn and grow as individuals and it helps build a stronger industry.

Many thanks to the folks at PMA for all the work involved in producing projects such as these.




Pundit’s Mailbag — Wholesaler’s Struggle With PTI And Real Life Situations

Recently in Pundit sister publication, PRODUCE BUSINESS, Bryan Silbermann, President of the Produce Marketing Association (PMA), and the Pundit had an exchange on the issue of traceability and, specifically, the Produce Traceability Initiative (PTI). Whereas Bryan pointed out that “Traceability Is Fundamental,” we asked “Will Buyers Ante Up For PTI?” You can read the exchange here.

The piece brought this letter from a wholesaler in California:

I read your article, “Will Buyers Ante Up for PTI?” — and said to my pop, “This guy gets it,” so I am sending you this letter.

I’m 49, my pop is 76, my other partner is 63. They are old school… my father is a legend in the San Francisco Produce Terminal. I told them both a while back that this is the way to go, this is real: traceability, food safety, sustainability — if we do not get on this train in its infancy, we might get run over by it later.

Frankly, normally I would have little time for this kind of letter. But, I tweaked my back and am just answering phones for a couple of day’s…. and reading PRODUCE BUSINESS magazine cover to cover! I can truly say that over many issues, PRODUCE BUSINESS magazine has inspired me to take our company down this progressive road, along with the requests of some of our larger customers.

Officially, I am the Vice President of Galli Produce Inc., San Jose, California, incorporated in 1956. Unofficially, I’m also the self-proclaimed Food Safety Director!

In order to do business with many national restaurant chains and foodservice distributors, we have had to really take a look at who we buy from. Every grower we buy direct from, for example, Nunes and Boggiatto to name a couple, all have these Recall/Traceability procedures in place. As do our brokers as well.

We are a relatively small company, yet we conduct mock recalls and review each year to ensure our compliance with Good Manufacturing Practices.

I have developed Sanitation Standard Operating Procedures (SSOP) for every inch of our warehouse. It’s costly to say the least and hard to pass the costs on. Especially when the playing field is not level in regards to my competition, many of whom skip all these steps.

It used to be that in the summertime, Joe or Juan, the farmer who has 15 acres in Gilroy or wherever, would come to my dock with outstanding Roma’s or Cherry Tom’s. Maybe he wants $6 in a $10 market! It’s very difficult to pass that up and not put that extra $4 in our pocket or pass on the value to our customers simply because I know nothing about this grower and so can’t vouch for his food safety efforts!

My 76-year-old father and partner, who has 55 years of farming and wholesale experience, both look at me like I have two heads when I consider passing this up! That $4 covers a lot of sins such as what we throw away or lose in repacking. It can also be a powerful lure to attract customers who then also buy other items.

And if we do pass up the deal, the farmer is likely to just go down the street and my competition will gain the advantage. Not inconsequentially, if the product is going to be in commerce anyway, did our refusing to market it make the food supply any safer?

I know my competition is not passing it up! He is putting that $4 in his pocket or using it for a more attractive price on the price list he’s floating around to our customers.

What do I say when a customer calls and says “ Hey! Joe Blow’s Roma’s and Cherry Tom’s are $4 cheaper than yours — What’s up?”

I say well mine are inspected, I have transparency with my growers, I know what I am selling…… but many buyers just don’t care.

My point is it’s tough to tow the line on the wholesale level. If the buyers don’t value something, how can a supplier pay extra to provide it?

The problem I see with the Produce Traceability Initiative (PTI) is that it includes no mechanism to bring in these small buyers.

If you travel as much as I think you do, you realize that in Any Town USA, there is a restaurant on every corner. Chances are it’s not a chain either but a single- or family-owner.

Chain business is nice but single-owner or family restaurants are the bedrock of all wholesalers. These independents are probably struggling or at the very least feeling the pinch we all are.

And you know what else? Until they get bit by the “I got sick in your restaurant or cafe” pit bull, a Recall/Traceback Protocol in place by their wholesaler is not going to be a priority. Ever.

These independents want that Roma tomato from the 15-acre guy that’s $4 cheaper if they can, for sure.

What makes this even more real to me is that 45 years ago, my grandfather and father were that 15-acre guy!

They raised cabbage, radishes, green onion, red leaf, green leaf etc., in the Santa Clara Valley, never seeing any kind of inspector from the Food and Drug Administration (FDA) or California Department of Pesticide Regulation(DPR).

What has changed since then for that guy? Should it? The solution I think has to come from the wholesaler regardless of what the restaurant would like.

That being said, every day we have small one- or two-truck wholesalers and purveyors come to our dock and buy merchandise, haggle a bit, drink coffee etc. They back in with their rickety non-refrigerated trucks, vans and pick-ups. As I load them up, I have to wonder “hmm, wonder when the last time they washed this truck out with a 2% chlorine solution and documented it?” Like we do once a week as per Galli-SSOP #20.

I guess my point is how are these guys brought into an industry traceability initiative? PACA? Produce Associations? Half of them or more do not have membership in either one.

They function completely under the radar screen. A 100% solution seems unattainable, yet the whole industry will be vulnerable to its weakest link. I’m glad it’s not my job to bring compliance to this side of the industry because it would mean breaking someone’s toys.

PTI is also only an “after the fact” tool. Contamination can occur in many places from field to plate. PTI and plant sanitation go hand-in-hand. Who’s going to do the leg work on the ground to get everyone involved? And if everyone is not involved, how can wholesalers such as our own compete with those not spending the money and refusing the opportunities that we are?

— Jeff Pieracci
Galli Produce
San Jose, California

This letter strikes us as a particularly poignant and incisive window on an aspect of the industry often ignored in the councils that discuss industry affairs. We’ve run pieces such as Is Produce Traceability Initiative Worth The Investment, in which Gregory J. Fritz, President of Produce Packaging, Inc. in Cleveland, Ohio, pointed out the difficulty and expense of compliance. The piece brought a response from the associations, which we published under the title Pundit’s Mailbag — Joint Response To Produce Traceability Cost Concerns.

We’ve written a great deal about traceability, and while recognizing the value of PTI, we have always seen it as more a start than a solution. Jeff’s letter points to small wholesalers and independent restaurants as just two of the big holes PTI leaves open in the traceability web of the produce industry.

We’ve recognized this before. In our piece Is Produce Traceability InitiativeWorth The Investment? we ran a classic note from a brilliant wholesaler about “Ken in the red truck” buying down on a terminal market:

Putting in a system to trace product gets more difficult the further down we go in the distribution chain. Stand on the floor on a busy Terminal Market and try and imagine where the product goes after it is sold by the Wholesaler. A customer known as “Ken, the guy with Red truck,” pays cash for a pallet of tomatoes. He takes the tomatoes to his garage where the boxes sit on the floor next to cleaning supplies, motor oil, and who know what else.

He and his kids (2 of whom just used the toilet without washing their hands) dump the tomatoes on a dirty tarp to sort them for color. The green ones sit in the garage for a few days to color up during which time one or two rodents snack on tomatoes. When they finally ripen, Ken delivers the tomatoes to some of the finest restaurants in town for all of us to enjoy.

Somehow I don’t think that Ken or even a legitimate small wholesaler or purveyor is interested in investing in a traceability system. They will have to be dragged kicking and screaming to the table. The problem is that the system is only as good as its weakest link, and unless Ken is a part of the system it doesn’t work.

What Jeff’s letter adds is the day-to-day dynamic — the guy offering to sell tomatoes at a bargain price — that drives decisions in one direction or another.

We suspect that there will be no “solution” to the problem. Private action is unlikely to drive universal traceability, and federal regulations are likely to exempt the specific small-scale players that Jeff wrote about.

The most likely outcome: A bifurcation of the industry. Some companies will operate in a sort of small-scale unregulated sector, and large players will conform to world class standards. Companies such as Galli Produce will either have to choose segments or they will bifurcate themselves. Perhaps one company buys from the top vendors, maintains total transparency and sells to those buyers who value such efforts. A totally separate company takes advantage of transactional opportunities and sells to companies that have customers heavily focused on price.

It is not an entirely satisfactory solution, but it may be the one we get.

Many thanks to Jeff Pieracci and Galli Produce for sharing their perspective on this important matter.

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