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Is Wal-Mart’s Local Produce Initiative A Public Relations Stunt?

Jim Prevor’s Perishable Pundit, October 21, 2010

The New York Times ran a piece titled, Wal-Mart to Buy More Local Produce, which detailed some new Wal-Mart goals:

In the United States, Wal-Mart plans to double the percentage of locally grown produce it sells to 9 percent. Wal-Mart defines local produce as that grown and sold in the same state.

Still, the program is far less ambitious than in some other countries — in Canada, for instance, Wal-Mart expects to buy 30 percent of its produce locally by the end of 2013, and, when local produce is available, increase that to 100 percent.

“Our food business in Canada is brand new, so there’s a lot they can do,” said Andrea Thomas, senior vice president of sustainability, at a news conference. She said the program allowed each country to set its own specific goals.

In emerging markets, Wal-Mart has pledged to sell $1 billion of food from small and medium farmers (which it defines as farmers with fewer than 20 hectares, about 50 acres). It will also provide training for the farmers and their laborers on how to choose crops that are in demand and on the proper application of water and pesticides.

Both in the United States and globally, Wal-Mart will invest more than $1 billion to improve its supply chain for perishable food. For example, if trucks, trains and distribution centers could help farmers in Minnesota get crops to Wal-Mart more quickly, the result would be less spoiled food, a longer shelf life and presumably more profit for the farmers and for Wal-Mart.

Wal-Mart said it planned to reduce food waste in emerging-market stores by 15 percent and in other stores by 10 percent.

There are a lot of goals being conflated here and for the most part it is difficult to know if it means much at all.

Since Wal-Mart defines local as “in state,” there can be massive changes in its local percentages by virtue of changes in its store distribution. The more stores Wal-Mart opens in California, the more “local” it gets, without changing anything about its procurement model.

We are not sure what it means to say that Canada will be 100% local “when local produce is available” — certainly it can’t mean that in the summer, when Canada is in peak production, it will be 100% local — unless Wal-Mart is planning on skipping bananas, citrus, mangos, papaya, pineapple, etc. It also appears that, although in the US, Wal-Mart is defining local as “in state,” in Canada, the whole country is local. Which is odd as, after all, Canada spans a continent.

In developing countries, Wal-Mart is pledging to buy from physically small farms — less than 50 acres. But whatever virtues it sees in this policy, it doesn’t seem to apply to developed countries.

Then there is a reference to “improve its supply chain for perishable food,” with the inference that this will make it easier for farmers to go to market, though it is hard to know what this could possibly mean. Wal-Mart already builds distribution centers wherever it has stores that need distributing to. It costs money every time a box goes through these centers. It seems unlikely Wal-Mart will build, as the Times article states, “trucks, trains and distribution centers,” so produce can be handled a second time.

In fact, all this sounds like a marketing gimmick:

  1. The definition of “local” as “in-state” is pure marketing. Yes, consumer surveys for many years indicate consumers like to root for the home team so there are good reasons to promote this — but it is self-evidently of no import to the environment, flavor or anything else that one may hope to achieve. In fact, it can be counter-productive as it can lead to procuring hundreds of miles away — in-state — as opposed to two steps away across the state border.
  2. Movements like local are often expressions of nationalism. So in the UK, they will wax poetic for local but if you propose imports from France right across the English Channel, they rise in opposition. Canadians also express their independence and nationalism through supporting Canadian farmers. This is the privilege of the citizens of a country. Supplying these preferences is marketing. Wal-Mart is smart to do so. But, just as clearly, for Ontario to avoid New York state produce so it can buy British Columbian produce is not achieving any goal other than marketing.
  3. A billion dollars is a lot of money — but Wal-Mart is a very big company. When Wal-Mart announces it is going to spend a billion dollars on buying from small farms, we suspect that it is already doing it, and that it is more a matter of identifying this than doing it. Perhaps, Wal-Mart will switch the receiver from a vendor so it can directly receive and get credit, perhaps paying the vendor a fee for organizing the effort. Global procurement is, to a large extent, just a way for Wal-Mart to “get credit” by having its name listed as the exporter or importer for product it was already buying. This gives Wal-Mart political power.
  4. The idea mentioned in the article of Wal-Mart building facilities, buying trucks and trains in Minnesota so as to facilitate local produce, is somewhat bizarre. If Wal-Mart wants something — virtually anything — it just has to give out a purchase order and it will happen. It is hard to imagine why Wal-Mart would want to get involved in this micro stuff. Once again, the billion dollar limit makes us see it as a PR stunt, not a serious procurement approach.

The article also revealed Wal-Mart’s plans for the Sustainability Index:

As Wal-Mart is doing with consumer products, it will begin asking agricultural producers questions about water, fertilizer and chemical use. The eventual goal is to include that information in a sustainability index.

Customers would see sustainability ratings, so they could decide whether to choose one avocado over another based on how efficiently it was grown and shipped. Wal-Mart could use index information when it decided from whom to buy.

It is hard to imagine how this would work. First, generally Wal-Mart sells only one offering of each fresh produce item — so it is not likely that all of the sudden, Wal-Mart will offer consumers Hass avocados from five farmers, with each one given an “efficiency” rating so that the consumer can choose.

If there is any choosing to do, it is the Wal-Mart procurement team that will do it, which means they will use the Sustainability Index as a standard to eliminate vendors.

The problem is that “efficiency” is meaningless without context. Imagine one processing operation near an oil field that is flaring off its natural gas because there are no pipelines or liquefaction facilities to get that gas to market. As a result, the natural gas is provided for free and the plant spends very little to use that free gas efficiently. An identical plant, located in a place where natural gas is expensive, spends a lot to reduce its usage of natural gas.

Under Wal-Mart’s plan, processor A will get a low rating and will spend millions to reduce its use so it can get a better score and retain the Wal-Mart business. But this expenditure is, literally, a total waste of money. It is exactly the same thing as burning currency. It doesn’t improve the environment; it doesn’t reduce costs; it accomplishes absolutely nothing.

When Wal-Mart first announced it was surveying producers, we saw this coming and dealt with it here and here.

We also have recently dealt with the Stewardship Index as potentially facilitating this kind of waste as we mentioned here.

In general, the price of goods over time reflects the efficiency with which the goods are produced. If that price has been artificially reduced through public subsidy, say a decision in Venezuela to artificially keep oil prices down, then responding to such a subsidy may be good for the world. But any index that simply notes the “efficiency” with which something is produced will lead to a world poorer than it had to be.

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