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A Closer Look At
Global Food Prices

Food prices have become a global issue. The Daily Mail in the UK ran a piece entitled, Soaring prices ‘put £750 a year on average family shopping bill’:

Soaring food prices have put £750 a year on the average family shopping bill, it was claimed today.

In more bad news for struggling householders, the staggering hikes are likely to continue as it was revealed the amounts charged by producers has risen at its fastest rate for 17 years.

The cost of goods leaving food and other factories increased by 5 per cent in December compared with the same month in 2006, official figures showed yesterday.

The increases will inevitably be passed on by suppliers and retailers in the form of higher prices of household staples….

Although the British Retail Consortium objected to that characterization of the market, it was being echoed here in the US as in a piece in the Toledo Blade:

The falling value of the U.S. dollar is contributing to a rise in food prices, particularly with imported foods such as fruit from Spain. A gallon of whole milk that sold for $2.78 in January 2000 costs around $3.95 today.

Eggs were 97 cents at the dawn of the new millennium. Now they’re $2.49 a dozen.

Fresh whole chicken prices jumped from $1.05 to $1.49 a pound in the same time frame.

“A lot of that is attributed to the declining dollar,” said P.J. DiNuzzo, president of DiNuzzo Investment Advisors Inc. in Beaver, Pa. “The weaker currency is having an effect all across the board, all the way to food prices.”

The falling U.S. dollar isn’t the only culprit. The rush for biofuels and record-setting oil prices also appear to be having a ripple effect on food prices.

According to the Consumer Price Index, the price of food on average has gone up 5.4 percent between November 2006 and November 2007, the latest figures available. The cost of dairy and related products has soared 14 percent, while the cost of meat and fish has gone up 4.1 percent, and the cost of bread has risen 8.1 percent.

The Toledo Blade was quick to blame the decline in the dollar but that wouldn’t account for a worldwide phenomenon, and what is a problem in America or Great Britain can easily be a catastrophe in developing countries such as Bangledesh, where The Daily Star ran a piece entitled, Self reliance for food security:

WITH empty shelves in Caracas, food riots in West Bengal, Mexico, Morocco, Mauritania, Senegal and Yemen, warnings of hunger in Jamaica, Nepal, the Philippines and sub-Saharan Africa, soaring prices of basic foods all around the globe have brought into light a looming global food crisis. In the recent past, Argentines boycotted tomatoes when the vegetable became more expensive than meat; and in Italy, shoppers organized a one-day boycott of pasta to protest rising prices; the Russian government, hoping to ease tensions, announced a price freeze for milk, bread and other foods.

In this backdrop, Bangladesh is passing through a desperate time, when the devastating cyclone Sidr in November, on the heel of two successive floods, caused widespread damage to standing rice crops and winter vegetables and wreaked havoc on the government’s demand and supply mechanism.

Nearly every region of the world has recently experienced drastic food price inflation. Retail prices are up 18% in China, 17% in Sri Lanka and 10% or more throughout Latin America and Russia. Zimbabwe tops the chart with a more than 25% increase. Double-digit price hikes for almost every basic foodstuff have driven that inflation over the past year.

Dairy products are as much as 200% more expensive since last year in some countries. Maize prices hit a 10-year high in February 2007, while wheat is up 50%, rice up 16% and poultry nearly 10%.

The price of any commodity rises only when its supply dwindles or becomes uncertain, and that is exactly what happened with rice, wheat and a number food and milk products. Prices on the global commodity markets have been in turmoil as a series of poor harvests — especially in Australia — which have led to lower supplies of wheat.

This has been combined with surging demand from India and China. The combination of falling supply and rising demand has led to soaring grain prices, which, in turn, increased the cost of meat and dairy products as farmers seek to recoup the money they have had to pay for feed that is more expensive.

On the demand side, one of the key issues is bio-fuels. Since virtually all the crops we currently grow for food can also be converted into fuel, either in ethanol distilleries or in bio-diesel refineries, high oil prices will open a vast new market for farm products. Those buying commodities for fuel producers are competing directly with food processors for supplies of wheat, corn, soybean, sugarcane, and other key crops.

Thus, the price of oil is setting the price of food simply because, if the fuel value of a commodity exceeds its value as food, it will be converted into fuel.

The scale of the change is mind boggling. The Indian government says it wants to plant 140,000 sq km acres of bio-fuel crops, and Brazil as much as 1.2m sq km acres. South Africa is being touted as the future Middle East of bio-fuels, with as much as 4m sq km acres of land ready to be converted to crops for fuel.

Indonesia has said it intends to overtake Malaysia and increase its palm oil production, from 64,000 sq km acres now to 260,000 sq km acres in 2025, for energy.

A year or two ago, almost all the land where maize is now being grown to make ethanol in the US was being farmed for human or animal food. As of today, since America exports most of the world’s maize, its conversion to fuel is rsulting in food scarcity with price hike. The competition for grain between the world’s 800 million motorists, who want to maintain their mobility, and its two billion poorest people, who are simply trying to survive, is emerging as an epic issue.

Demand for grain is increasing with the world population, and more is diverted to feed cattle as the population of upwardly mobile meat-eaters grows. The boom in emerging markets such as China and India has meant increasing wealth. As a result, in China the population is now consuming expensive food such as beef in greater quantities than ever before — consumption of dairy products there has doubled over the past five years.

According to an Australian report on food demand in 12 Asian countries — representing more than half the world’s population — upto 2020, beef consumption will increase by 50%, pork 30%, chicken meat 40% and dairy 55%.

It requires about two kilograms of feed to produce one kilogram of chicken, and the ratio is 4:1 for pork and 7:1 for beef. It is estimated that the additional demand for feed grain by 2020 will be 350 to 450 million tones — a 20 to 30% increase on present global production.

At the same time, on the supply side, reserves of cereals are severely depleted. World wheat stores declined 11 percent in 2007, to the lowest level since 1980. That corresponds to 12 weeks of the world’s total consumption — much less than the average of 18 weeks consumption in storage during the period 2000-2005.

In seven of the past eight years the world has actually grown less grain than it consumed. To crown it all, global warming has decreased crop yields in some crucial places.

The knock-on is being felt across the world. In rich nations, soaring food price means a few more pence for breakfast cereal in the short term, and a slightly higher cost for toys, clothes and other China-made goods. However, for the world’s poorest communities, the rises have a potentially devastating effect. In the present food crisis, Bangladesh had to ask for half a million tones of food aid — a severe blow to our pride that we had been trying to wean-off international assistance.

The price of cooking oil — of which it imports 1.2m tones a year — has almost tripled in the past two years because it is now valued as an alternative to diesel oil. More worryingly, our main staple of rice is hard to buy at any price because India, Vietnam and Ukraine have recently cut exports.

Among the losers from higher food prices are big importers. Japan, Mexico and Saudi Arabia will have to spend more to buy their food, which they can easily afford. More worryingly, some of the poorest places in Asia (Bangladesh and Nepal), Africa (Benin and Niger) and other developing countries as a whole will spend over $50 billion to import cereals this year, 10% more than last year, which will have lasting impacts on their future development.

As Gary Becker, a Nobel laureate in economics, points out, if food prices rise by one-third, they will reduce living standards in rich countries by about 3%, but by over 20% in very poor ones.

In our context, back to back floods and a cyclone have heavily damaged our crops, and the ensuing food scarcity and mad rush out of panic to hoard grains at household level have further deepened the imbalance between demand and supply.

Presently, we have reasonable inflow of grains especially rice, but the reserved stock, because it was bought at higher prices with a hope of selling in the future for better return, is failing to bring down the price.

It is not a short-term menace, and is forecasted to continue and spread in 2008, remaining a key global issue. Until that time, to ensure our survival, all of our steps need to be highly calculative, with our vision extended to the future. Against this backdrop, aid in the form of cash will worsen the situation. Increased flow of cash will increase purchasing power without effective rise in supply. The demand for food will rise, and further increase the price due to shortfall in supply.

On short-term basis, aid in the form of food grain will raise supply, alleviate scarcity, lower prices, and enhance accessibility. However, the main emphasis should be on the production side, on input factors for food production with improved technologies and knowledge, and appropriate incentive to producers.

Again, food aid should not be prolonged, because it will act as a disincentive to the poor farmers. There will come a time when aid will be unable to feed us, unless we learn to feed ourselves.

Why food prices change is a frequently asked questioned, and the answer is always the same — because of supply and demand. Why supply and demand fluctuate is so complicated that it is difficult to ascertain the truth until long after the situation is said and done.

For the moment, the forces that have been noted as putting pressure on global food prices are two-fold: On the supply side, there is the drive to produce plant-based energy, especially ethanol, which is utilizing land and other resources, such as skilled farmers, tractors, etc., that otherwise could be devoted to food production. On the demand side, you have greater prosperity in developing countries, especially China and India, leading to higher per capita calorie consumption and richer, more western-style diets.

One has to be careful about leaping to conclusions on these things. A lot of times the “problem” is defined by our assessment of what is irregular or different. So, perhaps, suburban sprawl and the political pressure it brings to restrict pesticides and other agricultural by-products or a hesitancy to use high-yielding GMOs might actually account for more of a problem than the mentioned “causes” but are seen as “normal” and so not considered.

Of course, whatever the cause, what this article doesn’t recognize is that those price pressures are the only thing that is likely to make the self reliance called for in the title even a possibility.

There is now quite a bit of evidence that — whatever the motivation of the givers — international aid in the form of food has long term negative consequences for developing countries.

The problem is that free imported food makes it difficult or impossible for domestic growers in these countries to compete — and so free food aid depresses domestic production.

The author’s proposal:

On short-term basis, aid in the form of food grain will raise supply, alleviate scarcity, lower prices, and enhance accessibility. However, the main emphasis should be on the production side, on input factors for food production with improved technologies and knowledge, and appropriate incentive to producers.

This basically is saying we need free food now because otherwise people will go hungry, but we should invest in production so in the future we won’t need it. That seems reasonable but actually is a recipe for disaster.

Remember that today is yesterday’s future, and accepting free food to drive down prices means that those who invested in the past will not be able to earn adequate returns today. It also establishes a precedent, and investors will not believe that in five years others won’t still be calling for accepting “temporary” free food.

Obviously if people are starving, we have to deliver the food but the crucial policy discipline is to make sure producers can sell their crops at highly profitable levels. It is this discipline that will automatically lead to increased production.

Western governments and institutions that want to help poor countries need to focus on making sure farming is a profitable endeavor.

That is the right policy long term, but short term there can be plenty of suffering.

The Bangladesh article contains a quote from University of Chicago Professor Gary Becker that is a haunting reminder of the way things play out in the world:

As Gary Becker, a Nobel laureate in economics, points out, if food prices rise by one-third, they will reduce living standards in rich countries by about 3%, but by over 20% in very poor ones.

When the Titanic sank, there were many acts of Edwardian chivalry and so 9 men died for every woman. In fact a far higher percentage of men traveling first class died than women traveling third class; still 60% of those traveling first class on that ill-fated voyage survived, while only 25% of those traveling steerage did.

A reminder that life is perilous near the waterline — as food prices rise, this is something we need to be cognizant of.

Altered States: How Price/Branding
Affect Pleasure Centers

An interesting study done by researchers at the California Institute of Technology and Stanford University, entitled Marketing Actions Can Modulate Neural Representations Of Experienced Pleasantness, may hold some interesting implications for marketers:

Despite the importance and pervasiveness of marketing, almost nothing is known about the neural mechanisms through which it affects decisions made by individuals. We propose that marketing actions, such as changes in the price of a product, can affect neural representations of experienced pleasantness. We tested this hypothesis by scanning human subjects using functional MRI while they tasted wines that, contrary to reality, they believed to be different and sold at different prices.

Our results show that increasing the price of a wine increases subjective reports of flavor pleasantness as well as blood-oxygen-level-dependent activity in medial orbitofrontal cortex, an area that is widely thought to encode for experienced pleasantness during experiential tasks. The paper provides evidence for the ability of marketing actions to modulate neural correlates of experienced pleasantness and for the mechanisms through which the effect operates.

In other words, the researchers found that people experienced greater pleasure when drinking a wine they thought to be expensive rather than a wine they thought was cheap.

It is not really surprising that consumer perception could be altered in this way, what is intriguing, though, is that these researches actually found an increase in “…blood-oxygen-level-dependent activity in medial orbitofrontal cortex, an area that is widely thought to encode for experienced pleasantness during experiential tasks.”

In other words, it is not just that the subjects said they enjoyed the more expensive wine more than the cheap one — they actually did on a physical level.

The authors theorize that a “taste expectation” leads to increased activity in this area of the brain.

We read the study as a massive defense of branding:

Our results have implications for several disciplines. First, the EP (experienced pleasantness) signal plays a central role in neuroeconomics, because it serves as a teaching signal that guides future behavior. Unfortunately, very little is known about the factors that affect the neural computation of this signal. A natural starting hypothesis is the economic view, which states that EP depends only on the sensory properties of the item being consumed (i.e., its molecular properties) and the state of the consumer.

Our results suggest that the brain might compute EP in a much more sophisticated manner that involves integrating the actual sensory properties of the substance being consumed with the expectations about how good it should be. It is important to emphasize that it might be adaptive for the brain to do this. To make good decisions in the future, the brain needs to carry out good measurements of the quality of current experiences. In a world of noisy measurements, the use of prior knowledge about the quality of an experience provides additional valuable information….

We take this as claiming that effective branding, which pre-conditions someone to expect a more pleasant culinary experience, can not only change customer expectations, but, in doing say, actually change the customer experience.

In a sense marketing and branding activities, themselves, become value added.

Obviously many more studies need to be done, and it will be fascinating to see if the same holds true in other areas of pleasure — does one enjoy a Four Seasons resort more because some pleasure center in the brain uses expectations to start the body relaxing? Does Itzhak Perlman please in part because we expect him to?

It is nothing new in marketing to know that your reputation can be sullied by discounting. This study is suggesting something else.

Perhaps consumers, for example, really do experience organic produce as tasting better. This study provides an explanation of why the higher priced organic product — though indistinguishable in a blind taste test — might actually deliver a superior eating experience.

It also suggests that discounting a product may not only reduce consumer expectations as to the quality of the product, but actually reduce the satisfaction of the eating experience.

This fascinating study is filled with implications for not only biology but economics, psychology, business and marketing.

(Graphic provided by California Institute of Technology and Stanford University)

The arrow represents the time when the study participants started actually drinking. The top line is what happens in one of the pleasure centers in the bran when the study participants are told that the wine costs $90 per bottle and the bottom line is the same wine but with study participants told that the wine cost only $10 a bottle.

Traceability Committee
Cuts To The Chase For Workable Standards

Our piece, Traceability Group Meets Tuesday, highlighted the first meeting of the joint industry task force on traceability. Now the three associations driving the effort — CPMA, PMA and United Fresh — have issued a joint statement:

Produce Traceability Initiative Steering Committee’s first meeting begins laying groundwork for industry-wide standards program

The steering committee of the Produce Traceability Initiative, an industry-led effort to adopt traceability throughout the produce supply chain, met for the first time Jan. 9 in Atlanta to develop an action plan for establishing industry traceability best practices and goals for their adoption and accountability.

The initiative was launched in October 2007 by Produce Marketing Association (PMA), Canadian Produce Marketing Association (CPMA), and United Fresh Produce Association (United Fresh). It is guided by a steering committee of more than 30 companies with balanced representation from the buying and selling community, including participants from all segments of the supply chain.

During its first meeting, chaired by Food Lion LLC Chief Operating Officer Cathy Green and facilitated by Perishables Group Executive Vice President Steve Lutz, the committee addressed a broad range of traceability issues facing the produce industry today. Overall, the group concluded that systematic and consistent application of common standards across the supply chain is needed to enhance chain-wide traceability, building the next critical step beyond many of the excellent internal traceability systems that exist within many different companies.

“It’s clear from the committee’s discussions that now is the time to move aggressively to adopt a consistent industry-wide approach to traceability. The industry can no longer afford to do business the way we have in the past,” Green said. “Everyone will need to make some investments — big and small companies, buyers and sellers — and while we recognize there are significant challenges of traceability, there is broad support from the industry and a deep commitment to act.”

The committee reached agreement on four key elements for implementing industry-wide traceability standards.

First, the group confirmed past industry support that the GS1 produce traceability standard developed by the international standards organization GS1 (formerly known as EAN-UCC) is the most efficient worldwide approach to achieve system-wide (i.e., both internal and external) traceability, and should be widely adopted as the produce industry standard.

“GS1 standards are researched and tested, and are the most widely used internationally,” Green said.

Second, it was agreed that a formal industry timeline for adoption of standards is needed. Steering committee participants agreed to begin evaluating what might be required to implement GS1 standards within their own operations, and will report back at the next committee meeting on recommended implementation timelines.

Third, the committee agreed to discuss ways in which companies could best show their support and commitment to adoption.

“Implementation is sure to begin gaining momentum across the industry when both buying and selling companies start signaling their support for the business process changes that will be necessary,” Green said. “When buyers state their commitment for traceability standards, and suppliers begin to make similar commitments, then things will really change.”

Fourth, the group agreed that traceability standards should be adopted at the case level initially, as the backbone of supply chain traceability. However, the committee encourages companies to move toward item-level coding as feasible, as many produce products are now packaged for the consumer, thereby offering a viable option for providing traceability to the item level.

The steering committee will meet next in February or March to form subcommittees that will address specific elements, such as setting timelines for adoption.

In addition, all three associations will post on their websites the committee’s minutes as well as presentations and other guides and resources being used as part of this initiative, for their members’ access and input.

“Traceability is a critical issue to the produce industry,” Green said. “We want to make sure that all members of the three associations are engaged in this important process, so we’ll be seeking their input and direction relative to implementation decisions for produce traceability.”

So grab the tablets; the industry leadership went up the mountain and came back with four “key elements” for the trade. Let us look at the elements and what they really mean.

1. The standard will be GS1.

Agreement on this means that this is not going to be an initiative looking to develop a new standard. This is crucial as development of a new standard would have probably entailed a decade of work. Now it can happen with some speed.

2. A timeline is required.

This means they actually want this to happen. So a date certain will be set.

3. They are going to discuss how companies can show support.

This is an acknowledgement that the whole thing will be worthless if this is perceived as something the associations think their members “should” do. The only thing that will make it real is if buyers require suppliers to move into compliance along with the aforementioned timeline and leading suppliers acknowledge they will. Then traceability will be an industry standard and almost everyone will fall into place.

4. Although the Steering Committee encourages item-level coding — for now the initiative is a case-level one.

Although some items, such as those in clamshells and bags, can be item-coded relatively easily, others are problematic. The committee decided to put first things first and focus on solving the problem at the case level. Other problems will be left for another day.

One gets the sense that despite these issues having percolated for some time, committee members really needed to go back to their organizations to get a sense for what kind of timeline might be feasible and what kinds of commitments their organizations were prepared to make.

The whole effort is a rare opportunity to solve an important industry problem in the most efficient manner possible. Everyone should seize the chance.

The industry owes a vote of thanks to those working so hard on this steering committee. Their work is not yet done, but the start is an auspicious one.

Importer Of Recalled Basil
Sheds More Light On
FDA Handling

Our piece, Fresh Basil Recall Brings Additional Concerns About FDA’s Safety Procedures, brought attention from around the world, including from authorities such as Marion Nestle at New York University.

We asked Pundit Investigator and Special Projects Editor Mira Slott to follow up with with Alberto Martinez of Top Line Specialty Produce to find out how things have proceeded with the FDA since the recall:

Q: What has occurred since we last spoke?

A: I thought everything was nice and calm. Turns out the next 10 consecutive basil shipments from that grower with the problem had to be tested and no one told me anything. This grower is on watch by the FDA and any shipments coming from this grower are to be tested. If it takes the FDA six months to get those 10 consecutive shipments, that’s how long the grower would be on the list.

Q: What is your responsibility as the importer?

A: There is the grower in Mexico or wherever product is coming from and the importer Top Line. The customs broker takes care of all the paper work, submits the required information to the government, and follows up with them so we don’t have to worry about it. The broker files the paperwork, product is inspected and gets released. The broker charges us a fee. I deal directly with the growers. To the government, we are the responsible party. We are the company with all the liability; FDA is not talking about punishing the grower or broker. I’m the importer of record.

FDA claims they were supposed to test those shipments. They wanted as an absolute minimum to test at least the three shipments we received after the problem. I already sold those. FDA said those shipments were not released. But the customs broker said they were released by FDA, and the broker received the electronic release with the paper documentation showing they were released.

I’m trying to go down to the broker in the next day or two to personally get a hold of those papers. If this gets any bigger, I need those papers to cover myself. Weren’t those shipments supposed to get tested at the border? Those shipments came in almost two weeks ago. Something is not right here.

The shipment December 4 came across the border for FDA testing and we only received notice by phone from FDA that it was potentially contaminated 15 days later. They never mentioned anything about testing other shipments.

Now 40 days later, we still don’t have anything in writing proving what they said. They said I’m entitled to get a copy. The excuse from the FDA compliance officer is that the holidays came up and he took time off. Now he’s trying to catch up.

Q: Did the compliance officer reveal any more information by phone? Did FDA do further testing on that Dec. 4 shipment? Did they confirm the basil was contaminated, following the verbal message it was potentially contaminated?

A: The report is supposed to show the results were positive. He said they conducted another test to confirm or deny the initial results.

I just found out [January 10] by phone, the following 10 shipments after the one on December 4 were supposed to be tested as well. I’m just learning this. FDA was supposed to take out samples for testing.

Q: To clarify the timeline based on our previous interview: On Dec. 6, you received written notification dated Dec. 5 from FDA that said the following:

“Surveillance Sample(s) collected from this shipment will be tested for the presence of pathogenic microorganisms. Preliminary analytical results may be available within 4 to 9 days following the date of the sample collection. FDA will attempt to provide the importer with preliminary analytical results as soon as they are available. Should a sample be determined to contain a pathogenic microorganism and is violative, the importer will be responsible to initiate a recall of the product.”

You heard back from the FDA by phone some 12 days later that the testing showed potential contamination, but you have yet to receive any confirmation in writing of this finding, or of any further testing or results.

At the same time, you never received any verbal or written communication of any further testing required on other basil shipments from this grower, until January 10 by phone. In addition, you never received instructions from FDA to hold and not to sell any more basil shipments from this grower until the FDA completed its testing and gave the OK?

A: FDA said the customs broker should have known. The grower wasn’t aware of that. The broker wasn’t aware. Everyone is just pointing fingers. The broker said nobody notified them; they didn’t receive any official notification in writing, no notification of any kind.

The people in Mexico are disturbed by this. When something like this happens they destroy the fields. The grower with the problem has been talking to the people on the Mexican side and they haven’t been notified.

Now we are told there will be a fine, as much as three times the value of the shipments. FDA is going to fine Top Line because we sold product and weren’t supposed to. How would I know? I didn’t receive any paper notification about not selling product, or that they were going to test the following 10 shipments and don’t sell product until then. That’s what they said on the phone to me [January 10]. I get calls from all different offices and people at FDA.

The FDA compliance office told me about these possible fines. Sometimes USDA puts red tape labeled ‘don’t use’ on pallets or boxes. I’ve seen that before. He said the FDA doesn’t do that. How does someone know not to sell?

I’ve been waiting now 40 days for FDA test results from the original shipment problem and have talked to six different people. The testing we did all came back negative.

Now that the FDA is not in a holiday mood, I get a call from the compliance officer that a truck with a shipment from this grower crossed the border, and they were not able to get samples for testing, and they need the truck back. How did they allow that truck to go across to San Diego?

Q: This truck had a basil shipment from the grower with the problem?

A: This truck would count as part of the 10 shipments, after several shipments that came across and were distributed, that according to FDA we weren’t supposed to sell. FDA wanted to test 10 consecutive shipments. We haven’t done 10 consecutive shipments since the original problem.

Q: When we spoke on December 20, you said you stopped buying basil from that grower and switched to another grower. So why was there another basil shipment from this grower after the New Year?

A: The reason why that truck had basil is because the grower conducted its own tests and all results were negative. The grower went to a lab in the capital city of Baja, California, collected samples from product still in the field related to the shipment that had the problem, and the results came back negative. The grower thought it was OK to ship. I wasn’t provided with any paperwork from FDA proving positive results, so we figured, give it another try. We stopped shipments for the holidays. We thought the problem was over. Our own testing did test negative and we thought that shipment was OK. That’s the shipment on that truck that went to San Diego.

FDA got a hold of the customs broker, let him know the truck left the border and they weren’t able to get samples for testing.

That truck with the basil in it left on Monday, January 7. The truck came across the border on its way to Los Angeles and made it to north San Diego. We got a call from FDA that they had to grab a sample and the truck took off. The truck turned around from San Diego. The truck driver went back to the border. The FDA took the samples for testing and put the product on hold for sale until they got results back.

The truck driver came to our warehouse the next day with the basil and I got the call from FDA. [Thursday January 10]. Now I have 7,000 pounds of basil in my warehouse going bad because I’m waiting for the test results of this shipment. It’s already four days old now. It will be garbage when the results come back.

The grower isn’t shipping any more basil right now. We continue to buy from that grower for different herbs, where there are no problems, but not basil.

Q: Why are you still buying any product from that grower?

A. What we did was transition over to another grower in a different area. This is the other farm we split the business with. After the incident, our other grower alerted us he was certified by Primus Labs and faxed us the certification. This is the only grower I know growing these herbs and basil with certification from Primus Labs.

He had heard about the basil recall problem. He read your article in the Pundit that pointed out all the issues. He mentioned he was certified from Primus and they do lab tests every month as well as being GAP certified. Now this is our main supplier. We are now relying on him for our basil.

Q: Why not procure your entire product from the Primus-certified grower? Are there supply or cost issues preventing you from doing so?

A: This is all new to me. Now I know this one farm has been getting all these types of certification, different national certifications from the Mexican government, international ones from Primus, and Good Agricultural Practices to at least meet the requirements to go to Canada. This will make us completely rearrange our procurement for next season. I have an entire year to work a program. I’m going to this grower to grow the other herbs we need and more of the basil, until the other growers get their act together.

The reason why the other growers aren’t getting these certifications is that no one is requesting it. There is an investment issue. It costs money to put in brand new packing facilities and upgrade operations. I’ve seen growers with the worst conditions. Getting the certifications definitely brings the costs up, but not necessarily to me.

We get the product on open price. I’ve been working with them so long and they know I’m fair with my returns. But it will impact them on their bottom line. On this side, with big retailers not requesting these tougher standards, growers are at a disadvantage with other guys selling without the certifications and becoming more profitable.

Thanks to this problem, a lot of people are thinking twice where they’re getting their product. Let’s support growers with certifications, reward the growers doing all these investments to make product safer.

Q: Aren’t there many growers that have certifications from companies such as Primus Labs?

A: It’s quite unusual with fresh herbs to find growers with these kinds of certifications. It’s very common on other items, tomatoes, bell peppers, just not herbs.

That is the direction this will take. Retailers definitely need to demand better practices from growers or suppliers. One of the reasons why this grower was inspired to do this Primus certification is that he exports a lot to Canada. Canada is ahead of us; they do require certain certification at retail. In the U.S., no one demands this. The Canadian retailers do. There are also much stricter standards in Europe, and the UK.

It is good for our customers to know we have product from a certified farm. That’s the message we want to send to the marketplace. We’re taking actions to make sure everything is safe.

Q: How would you assess the damage to your reputation and business since the recall?

A: I told the officer in the compliance office that as a result of this, our reputation has been damaged. When the press release went out for the recall, we had the Los Angeles County Health Department showing up in our warehouse like I was a criminal, demanding the list of distributors the basil went out to. I explained it went out 15 days ago and it was in the trash.

I gave him the list with customer information and phone numbers. He started calling all our customers telling them, ‘Don’t buy basil from Top Line because it’s contaminated.’ This is wrong. We are now buying our basil from a grower certified with Primus. We continue to get hassled and investigated. These LA County health people are here looking at every little thing. They were just doing an inspection while I’ve been on the phone with you now and I didn’t even realize it. I’m told there is a light out in one of the coolers and I need to fix it.

Q: Where do you go from here? Do you have a better understanding of FDA protocol or different procedures to follow in order to avoid some of this heartache in the future?

A: I need to know the rules and the protocol system so I can go back to someone when there is a problem. When USDA sees a bug, it sends samples overnight to a lab in Washington D.C. They get results electronically. USDA never lets product leave the airport till they get the results. USDA is doing what they’re supposed to do efficiently. They tell you they found a bug, they overnight it, they determine if there is a problem and keep you informed throughout the process.

FDA protocol is new to me. This is the first time something like this has happened in 14 years of my business. According to the customs broker dealing with these issues for many years, product is supposed to be tested on the border. For any grower that gets on a watch list, every shipment has to be held at the border and FDA is to notify the importer. I assume product has to be tested at the border. When FDA is calling me and asking for product to be tested after the fact, it means they’re not testing at the border.

I learned from talking to my broker that on weekends the FDA doesn’t work on the border. They don’t have staff on the weekends. The border is open but no one is working. According to my broker, there is a door with a window and they slip the importation paperwork through the opening, and someone’s behind the door but they don’t see anyone’s face. The paper comes back a few minutes later. It’s hilarious but at the same time scary because this is food coming into the states.

During the week, various FDA people are walking the docks and inspecting what’s coming in. On weekends, there is only one guy behind the door to receive paperwork and sign off on it. The following day the customs broker goes to an FDA officer, says these are the shipments that came through on the weekend and they get automatically released.

Q: Was the truck that got across the border without the FDA collecting its samples going through on the weekend?

A: The truck got away during the week when there was a full staff. In some ways, that’s even worse. At the end of the line, we’re the ones getting hurt. If the FDA said, don’t sell, I wouldn’t sell. I’m holding the basil in question here in our coolers. It’s not like we have two or three week shelf life. The FDA has to have a process that’s a little faster than this.

It’s been tough these past two weeks. We thought this was over, and here we go again with these shipments. This truck got all the way to north San Diego. What if they weren’t able to get a hold of the truck? Product the FDA thought could be contaminated would have been distributed.

We’re trying to repair some of the damage. If retailers start demanding they are only dealing with companies that have good certifications, it will be better for everyone.

When you talk to Alberto Martinez, you feel he is a victim, in fact twice a victim.

On the one hand, he is a victim of the FDA. In a joint statement, PMA and United Fresh called for mandatory regulation by the FDA. Yet, stories such as Alberto tells us make us question the readiness of the FDA to handle regulation of these perishable products.

  • Why doesn’t he have all the test results from six weeks ago?
  • Why doesn’t the FDA communicate via e-mail and thus put things in writing?
  • How widespread is the staffing problem on weekends?
  • Why is it that people have to guess at their responsibilities?
  • How is it possible that product that is supposed to be held at the border for testing is let into the country?
  • What efforts are being made to speed testing and the delivery of test results so that product loss is minimized?

It seems like our industry representatives in Washington need to have a sit down with the FDA and develop a set of procedures: one contact person, all communication in writing, acceptable time frames for receiving test results, a “Your Rights and Responsibilities” pamphlet for industry members. This is just not right.

We also see Alberto as a victim of his customers. How is it possible that over a year after the spinach outbreak of the fall of 2006, none of Alberto’s domestic customers were demanding any certifications? And on herbs — an item identified by the FDA as high risk.

Alberto basically functions as a marketing agent for the growers in Mexico. He needs to be able to go to those growers and tell them that there will be no market for their product if they don’t get certified.

Even Alberto’s references to Primus is rather vague. Primuslabs.com has many different programs — everything from Field Audit/GAP to Pesticide Certified to Microbiological Environmental testing. They audit for some buyers’ initiatives, such as Publix, Sysco and CH Robinson. They do organic and BRC. To say a grower is Primus Certified is not enough — maybe they are Primus Certified on pesticides only?

The question is to what standard an entity is certified.

At the various trade associations and seminars, people are always standing up and saying food safety is their Number One priority.

Yet the real life business experience of Alberto Martinez tells us another story — that lots and lots of industry buyers don’t insist on product meeting tough standards.

As long as that is the case, the next outbreak is just a matter of time.

We thank Alberto Martinez and Top Line Specialty Produce for so frankly sharing their experience in dealing with this difficult situation. It really will help the whole trade.

Pundit’s Mailbag —
Avian Flu
Webinar Planned

Many thanks to Heather Holland at the Canadian Produce Marketing Association. She read our piece, Avian Flu Reminder, and realized that we had overlooked an upcoming industry resource:

I noticed that in the Pundit of January 15, 2008, you had mentioned that Avian Flu is still claiming victims, and is still an important issue. I thought that perhaps you would be interested in the upcoming Emergency and Pandemic Planning Webinar on January 29th, 2008.

The webinar will be an opportunity for industry to learn about current government initiatives, border protocols, useful tools and techniques for emergency and pandemic preparedness and planning. The presenter panel includes:

  • Patti Miller, Acting Executive Director, Agriculture and Agri-food Canada

  • Lorna Christie, Senior VP of Industry Products and Services, Produce Marketing Association

  • Susan Hague, National Manager, Emergency Preparedness, Operations Branch, Canada Border Services Agency

  • Heather Holland, Senior Technical Manager, Food Safety and Government Relations, Canadian Produce Marketing Association

I have attached a document for your information in case you are interested. Please feel free to contact me directly if you have any questions.

— Heather Holland
Senior Technical Manager
Food Safety and Government Relations
Canadian Produce Marketing Association

You can read the document describing the program right here.

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