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Perishable Pundit
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Produce Business

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Protectionist Stance
Could Do Harm To Trade

Sometimes timing just doesn’t work out. One of the most serious problems facing the industry is an outbreak of protectionism that is threatening to block fresh produce exports.

The US has never honored its NAFTA commitment to allow Mexican trucks and drivers to make cross-border deliveries to US destinations but, at least, the US had appeased the Mexicans by running a teeny pilot program of only 103 trucks and 26 Mexican trucking companies with the goal purportedly being to compare the safety records of Mexican trucks with their US counterparts.

President Obama signed into law, without comment, a bill that blocked all funds from the program. The Mexicans quite rightly went ballistic, as this made clear the US had no intention, ever, of honoring its commitments and letting the Mexican truckers in.

Mexico had already won a unanimous ruling from a board set up under NAFTA to resolve disputes, so it was fully authorized to impose retaliatory tariffs against the US. Having been slapped in the face, it just imposed $2.4 billion worth, including tariffs on almonds (20% tariff), apricots (20%), cherries (20%), Christmas trees (20%), onions (10%), pears (20%), peas (20%), potatoes (20%) and strawberries (20%), among others.

According to the Associated Press, grapes are being treated even more severely:

The only item facing a 45 percent tax is fresh grapes. Some 55 other products will be taxed at 20 percent, and the remaining 33 items at 10 to 15 percent.

This is very bad and could really hurt the domestic industry as Mexico is a substantial market..

Just a few days before this crisis we receive a letter from the California Kiwifruit Commission calling on the President to run a “buy American” campaign on California Kiwifruit:

California Kiwifruit Farmers Seek President Obama’s Help

In today’s unsettling economic times and billion dollar “bail-out” and “buy-out” plans, California’s kiwifruit farmers have a much simpler request for President Obama. Today, in a letter sent to President Obama the California Kiwifruit Commission called on the President to “show his support and exercise strong leadership by asking American consumers and retailers to buy only California-grown kiwifruit.”

“We are asking President Obama to urge American consumers and retailers to buy California-grown kiwifruit,” says T.A. Heckel, a California kiwifruit grower from Fresno County and chairman of the California Kiwifruit Commission. “California kiwifruit farmers are facing tremendous threats due to imports from Italy and other countries. Now, more than ever, we need Americans to choose domestically grown-kiwifruit or we could be forced to lay people off and even go out of business.”

California farmers produced nearly 6 million seven-pound tray equivalents during the 2008 harvest season, which is a normal sized crop, but is well below peak production levels in the early 1990s when the industry produced twice that amount. Over the years, California kiwifruit production has declined and imports have taken over much of the retail shelf space. This year, close to 30 percent of the crop still remains to be sold — a very high number for this late in the season. The Kiwifruit Commission is hopeful that during these tough economic times that retailer buyers and American consumers will understand how important their purchasing choices are in supporting local communities and that they will choose California-grown kiwifruit.

In the letter to the President the Kiwifruit Commission states, “It is important that Americans take action to support the economy by purchasing locally produced goods whenever possible. The reality is that the strength of our national economy is directly connected to the successes of the local community farmers and businesses, and to that end we request that you strongly support the purchase of American goods by consumers.”

“We all know that times are tough for many Americans, and what we are asking is American consumers and retailers to make sure the kiwifruit they purchase are grown in California,” said Chris Zanobini, manager of the California Kiwifruit Commission. “We are going so far as to communicate through the media and other means that consumers ask their retailers for California- grown kiwifruit.”

Zanobini was recently hired to oversee programs of the California Kiwifruit Commission and the group is looking at innovative ways to build sales. For the time being, however, the California kiwifruit industry must rely on the support and goodwill of the buying community to help them move this year’s crop.

“It seems to continue to be a struggle to get California retailers to keep our product on the shelves when they are inundated with imported fruit during the California kiwifruit season, said Heckel. “However, given the economic times, Americans need to stop sending our money oversees and keep it in our local economy. Our hope in contacting President Obama is that he can make people understand how a decision as seemingly insignificant as purchasing kiwifruit grown by California farmers will be a significant step in turning our country’s economic situation around — one California-grown kiwifruit at a time!”

When the release was issued, many thought is was a funny and attention-getting PR stunt, but the events of the week made it come across as downright dangerous.

Certainly we could bring up the Smoot-Hawley Tariff Act, which many economists believe helped deepen the Great Depression and spread it to Europe. Richard Hofstadter, an incisive historian, said that the tariff act constituted “a virtual declaration of economic war on the rest of the world.” Within two years, 25 countries had retaliated and U.S. foreign trade literally collapsed.

In 1929 America had exported $5.24 billion in goods; the total was just $1.6 billion in 1932. Although the Gross Domestic Product dropped during this time, both imports and exports dropped far more.

We understand the California kiwifruit growers are having a tough time. Many people are having a tough time, but if our policies are “beggar thy neighbor” — if our strategy to enrich ourselves is to impoverish others — we can’t possibly turn the economy around.

Even if somehow nobody retaliated and just accepted the President telling everyone to boycott Italian kiwifruit, are we so callous that we don’t care about the Italian kiwifruit growers and US importers? And if Italy has fewer dollars, how are they going to buy Boeing planes and Microsoft software?

Of course, the minute the President decides to tell Americans to “buy American,” leaders of countries all over the world will tell their consumers to do the same — and you can bet they will listen more closely in China than consumers will in the US.

American exports would collapse and whatever gain the California kiwifruit growers would realize would be paid for 10 times over when US apple exports collapse, US grape exports collapse, US citrus exports collapse, etc.

Blaming Italy seems particularly odd. Typically these types of complaints are made against developing countries that have enormous advantages on wage rates, etc. Italy is a relatively high-cost country in the world economy. Why can’t American growers compete effectively?

If the California kiwifruit growers have some specific complaint about dumping or unfair subsidies, they should bring those complaints to the WTO — not ask for an international trade war to be started on their behalf.

Besides all this blaming consumers and retailers is a distraction. Per capita consumption of kiwifruit in the US lags many international markets. If US consumption was brought up to international levels, the Californians simply wouldn’t have enough kiwifruit.

We wish nothing but good for our American kiwifruit producers, but this approach will hurt the produce industry when everyone retaliates, hurt the country when the trade war grows beyond produce and hurt the prospects for economic recovery all around the world. There has to be a better way.

You can read the letter sent to President Obama here. It is a clever publicity baiting letter and we hope you will read it in that vein, not as a guide to US trade policy!




Pundit’s Plan For Solving
The Banking Crisis

You may have caught on TV or on the Internet a spoof that ran on Saturday Night Live making fun of the government’s flailing around in an attempt to find an approach that would solve the banking crisis.

The comedic clip portrays Secretary of the Treasury Timothy Geithner unveiling a new plan to set aside $420 Billion. This time the money won’t go for more bailouts… no, instead, the $420 billion will “go to the first individual who comes up with a workable plan to solve the banking crisis.”

You can watch the clip here:

Well, we couldn’t let a challenge like that go to waste, so we wrote up the solution. The Weekly Standard, a high-powered political magazine based in DC, picked up our bait:

How to Detoxify the Banks
The Bush and Obama administrations have shared an unwillingness to see any of the major banks go under, hence the problem we have in solving the current banking and financial crisis. Though both presidents pointed to an alleged systemic risk to the economy owing to the size of the big banks, it is probably also true that any administration would be sensitive to the enormous weight these institutions carry as symbols of American prosperity, influence, and power. A collapse of Citigroup, for example, would be seen by many as an economic equivalent to the collapse of the World Trade Center.

At the same time, there is no great constituency in America for nationalizing banks in America, and there is obvious risk that, if nationalized, such banks would be run for political purposes. Other proposals — to launch new banks, for example — are not serious responses to the scale of the problem.

Happily, there is actually wide consensus on what needs to happen, and the solution is simple. In fact, Hank Paulson almost had it right. Since there is no stomach for seeing giant banks fail, the need is to separate the toxic waste, or the damaged assets these banks carry on their books, from the good assets. This was the idea behind the original Paulson plan, the Troubled Asset Relief Program or TARP.

The Paulson plan foundered on this unavoidable fact: If the Treasury bought damaged assets from the banks at fair market value, the banks would be revealed as insolvent; if the Treasury overpaid for the assets, so as to make the banks solvent, the shareholders would unfairly benefit.

To avoid this Gordian Knot solve the problem because nobody could be certain that the amount invested was sufficient. It also was a solution that had its limits. As bank stock prices swooned, the Treasury would acquire a majority stake becoming the owner of the banks, if it put in enough cash to make the institution solvent.

Indeed, in the latest bailout for Citigroup, Treasury Secretary Tim Geithner overpaid for common stock. The main reason he did so? To keep the U.S. Treasury from becoming the majority owner.

The stock market tumbled when Geithner unveiled the Obama bank bailout, to no small extent because the plan was exceedingly vague. Undoubtedly this is because it has come up against the same problem as the Paulson Plan there is no way to price the toxic assets in a way that saves the banks and avoids bailouts for their shareholders.

The way to cut the Gordian Knot is to leave the toxic assets where they are and focus instead on setting up a mechanism to purchase the good assets. To be more precise, leave the financial assets where they are and buy the operating assets.

You can read the rest here.




Word Of Gratitude

Just a few words to say THANK YOU to so many who sent a kind word in response to Ken Whitacre’s generous piece about our receipt of The Timothy White Award for Editorial Integrity.

A special thanks to Tom Stenzel, President and CEO of United Fresh Produce Association, who made a surprise trip to New York to join in the festivities and to Bryan Silbermann, President of PMA, who was tied up at PMA’s Produce Solutions Conference but sent a kind note expressing his wish to be with us in New York.

The award was wonderful, but the outpouring of sentiment, so many stories of things people had learned from our work over the years… that was a prize in and of itself.

Much appreciation to all. Thank you.




Pundit’s Mailbag — Audit Disconnect

We have dealt lately with issues related to food safety auditing. In a piece about the AIB Audit of the Peanut Corporation of America, titled Lessons From The Peanut Salmonella Outbreak: Audit System Broken, we challenged the statement of the President of AIB telling Andrew Martin of The New York Times, “It would mean that we didn’t see it on the day we were there.” AIB’s President was speaking about the Peanut Corporation’s superior rating, which obviously must have been based on something other than food safety.

More broadly, we have been trying to be useful to our country by thinking of relationships between different kinds of audit-like bodies, particularly noting a relationship between food safety auditors, mortgage appraisers and those who rate Wall Street paper. We wrote a piece on this subject, and it was published in the Star Tribune, the big newspaper in Minneapolis/St. Paul, under the title, Who’s Guarding Our Commerce. As a result of some of this work, we received an important letter:

As you would expect, we (PrimusLabs.com) have been reading your recent comments on auditing closely.

We have a long-standing policy of trying to avoid commenting on our competitors so what I am about to offer applies to PrimusLabs.com and our efforts in the area of auditing.

Of course, there are examples of operations that simply audit so poorly that it is a simple exercise to describe the operation as unacceptable. But use of an audit, as simply a means providing yes or no with regards to the acceptability of an operation, is ignoring what most audits should accomplish in nearly all cases, identifying potential hazards.

Perhaps a more consistent expectation for an audit is that it provides an independent view of an operation, which if conducted properly identifies activities or lack of activities that increase the risk associated with certain potentially hazardous operations.

If we can agree on this, then the value delivered during virtually every audit exists in the auditees’ implementation of the corrective measures. The most consistent value provided by an audit should be reducing the potential or probability for an undesirable event. The use of an audit to provide a simple yes or no leaves a lot of value on the table.

So we are looking at three functions:

1. The auditor is identifying an action or lack of action that raises concern,

2. The auditee is acting on the observation,

3. And the buyer establishes a means of confirming that the supplier has implemented acceptable corrective measures.

The last step is referred to by many as completing the circle, an area that needs considerable work in the GAP (Good Agricultural Practices) but has reached considerable maturity in processing operations.

 

Despite the inherent conflict in payment (auditee paying for the audit), Primus’ auditors routinely deliver negative news to auditees (see accompanying chart here). On occasion that message is a failed score, but I think that the greater value is providing the service identified above.

At PrimusLabs.com we have set what we consider a reasonable goal and that is: to assist making a process “safer”. A claim to assist in making an operation “safe” would be an overstatement. This is data which is limited to facility audits (GMP) and does not include GAP.

— Robert F. Stovicek, PhD.
President
Primus Group
Santa Maria, California

 

We appreciate Bob’s letter very much, as we think it reveals a schism between what auditors provide and what the world looks to auditors to provide.

This is certainly no knock on Bob or Primus. We once ran a piece that detailed all the things that Primus offered — free of charge — to local growers who were looking to enhance their food safety practices. We were utterly amazed at how much Primus made available.

We have had many discussions with top people at Primus for many years; they are, without a doubt, serious in their work and serious about enhancing food safety.

Yet the disconnect between what Bob proposes an audit do and the way in which audits are actually used simply screams out.

As a matter of indisputable fact, Bob is correct. An audit’s prime contribution to food safety is its identification of problem areas. Yet, though true, we would also submit that this truth is not as relevant as it seems.

People can do self-audits or hire outsiders to audit and gain lots of useful information about areas for improvement. We can’t imagine anyone objecting to this idea and most would urge companies to do this, frequently, so as to identify problem areas and begin improvement programs.

The issue really comes to the use that companies make in publicizing audits and auditors. A simple Google search results in hundreds of references by companies to having a Primus Audit. Some say they have a Superior rating; some give a specific number saying that they scored 89% or some other number.

Now, clearly, one doesn’t publish this affiliation with Primus — or AIB or any other auditor — to publicize that one has a lot of problems and the problems have been identified by an audit. The implication clearly being given is that having an audit means that the company passed the audit in some form and thus people can deal with the company in total confidence.

Now, as Bob’s letter points out, this may not be true. But that marketing is done in this way is obvious and clear. So auditing organizations have to take responsibility for how they allow their name to be used.

In effect, auditing has become confused with certification and the auditing organizations have been lax at insisting the organizations differentiate. Here at the Pundit, almost every day, someone sends us a piece that points out they are audited by Primus, NSF Davis Fresh, AIB, SCS, etc.

Now we have considered these claims almost useless because these organizations audit and certify so many things that we don’t know from the claims if the companies are audited on pesticides, allergens, food safety or what. We also know that there is a range of scores and that, in many cases, there is no set pass or fail.

Yet it seems to us that Bob’s three-point test, could, at best, only work for the largest players of the industry. Wal-Mart, for instance, could insist a company gets a Primus Audit for food safety, get the results, insist an action plan is set up and then insist on a re-audit that shows the problems have been rectified.

But this is not what the produce industry wants or needs. What it needs is a quick way for a wholesaler on Hunts Point to make sure it is selling product that meets all modern food safety standards.

This is why the California Leafy Greens Marketing Agreement has been so well received. If a wholesaler wants to sell product meeting modern standards, all he has to do is make sure his suppliers are certified by the CLGMA, because CLGMA has a set of metrics, a designated inspector group and the group keeps coming back to inspect you until you meet the metrics.

We would suggest that all food safety auditors have in their contracts that there are three things they do, and these three things allow publicity on different levels:

1) An auditor can be hired for internal purposes to identify strengths and weaknesses. This cannot be promoted at all. It is a service that does not include publicity rights.

2) An auditor can be hired to identify strengths and weaknesses with the ultimate goal of achieving a certification. The expectation is the initial audit will show weaknesses, these will be corrected, a re-audit done and certification obtained. This program would allow one to publicize this fact — Brand X Food Safety Certification Applied For.

3) Finally one can obtain a certification, meet all the rules (audited X times a year, surprise audits, 100% score required, etc) and promote that one has the relevant certification.

Just as men are from Mars and women from Venus, it turns out that auditors such as Primus think they are delivering a very different product than what the wholesaler in Buffalo thinks he is buying when he buys audited product.

We suspect that the auditors, such as Bob, know better. But the wholesaler more represents what the industry needs — a reliable way to know, not that a company has someone listing its problems, but that it has been checked out and is state-of-the-art on food safety. If our existing audit infrastructure doesn’t deliver that, we need to change it so that it will.

Many thanks to Robert F. Stovicek of Primus Group for helping us wrestle with this most important topic.




Perishable Thoughts — Why Teaching Is So Agonizing

We just finished a lap teaching — first at Cornell University, then Michigan State and, finally at UC Davis. Sometimes we were working with undergrads, sometimes grad students, occasionally faculty and sometimes executives from industry.

So when Scott Danner, Chief Operating Officer of Liberty Fruit Co., Inc. and our most prolific contributor to Perishable Thoughts, sent this one along, we just couldn’t resist.

“Great spirits have always encountered violent opposition from mediocre minds. The mediocre mind is incapable of understanding the man who refuses to bow blindly to conventional prejudices and chooses instead to express his opinions courageously and honestly.”

Letter to Morris Raphael Cohen, Professor Emeritus of Philosophy at the College of the City of New York, defending the appointment of Bertrand Russell to a teaching position

The New York Times
By Albert Einstein
March 19th, 1940

We have been fortunate to establish our relationships with the above-mentioned schools many years ago with minds none would consider mediocre. We have learned more from people such as Ed McLaughlin at Cornell, Jack Allen at Michigan State and Roberta Cook at UC Davis than we have ever taught.

Yet it does strike us that this quote speaks to the reason why teaching, done correctly, is so agonizing. It is easy enough, more a clerk’s job that a teacher’s, to present the conventional wisdom on any subject.

To sit staring at that most frightful of things — a blank word document — and to carry the burden of not just telling students what the clerk would say but rather, in horrifying solitude, thinking originally about the subject, finding connections others have not seen, pointing to weaknesses in arguments that others have not realized and seeking a synthesis between the known and unknown, the suspected and the barely dreamt of, there is little but agony.

To go before students and try to give them one little flash of brilliance, one light that will pierce the fog in which we have no choice but to live… To hand each student one burning ember, not a fire, not even a flame, but one ember that if properly tended and fanned will create the great burning light that will illuminate a life… This is the burden a teacher has each time the teacher stands before a class.

The difficulty is so great, the responsibility so weighty, it is why we finish a lecture drained as if all we had we gave and there is just nothing left. This is why great teachers deserve so much respect. The gift they give us and our children is beyond our capacity to measure.

Funny enough, teaching is not always appreciated and I think this is what Einstein was speaking of. Yes, if one parrots the conventional wisdom in a clever way, then one will not press for too much thought, and thinking is very hard work. Happy at having avoided it, one will be praised by colleagues, administrators and students alike.

Challenge people to think, make them doubt what they know and the trouble starts.

Interestingly enough we find that undergraduates are the ones most certain of what they know. It is the adult learners, perhaps having lived long enough to see first hand how much they were once certain of that turned out not to be so, that are most open to new ideas. Or maybe it is a consequence of being in business, where failure to change can equal bankruptcy. Whatever the cause, it is a wonderful human characteristic, this capacity to not merely learn, but to grow in one’s openness to learning.

We sort of make a specialty of trying to express opinions courageously and honestly; we’ve had more than our share of Einstein’s, independent thinkers in the industry who have gone to bat for us time and time again when others wanted us to hew to the party line. For that we are exceedingly grateful.

The quote can be viewed here:

Einstein on Peace (Google Books snippet) (PDF attached)
By Albert Einstein, Otto Nathan, Heinz Norden
Schocken Books, 1968
704 pages, Pg. 310

Einstein Lived Here: Essays for the Layman (Google Books snippet)
By Abraham Pais
Clarendon Press, 1994
282 pages, Pg. 219

Wisdom for the Soul: Five Millennia of Prescriptions for Spiritual Healing (Google Books)
By Larry Chang
Gnosophia Publishers, 2006
817 pages, Pg. 153

The quote can be purchased here

Einstein on Peace(Amazon)
By Albert Einstein, Otto Nathan, Heinz Norden
Schocken Books, 1968
704 pages, Pg. 310

[ Einstein — By Philipp Frank, George Rosen, Shuichi Kusaka]

“When Bertrand Russell, the English Mathematician and philosopher, because of his critical attitude toward traditional views on marriage and religion, was prevented from being appointed as professor of philosophy at the College of the City of New York, Einstein backed him. He felt that it was harmful for the development of science when attacks of personal and political opponents could prevent the appointment of a scientifically outstanding professor.”

 

[ Wikipedia]

Albert Einstein, along with Albert Schweitzer and Bertrand Russell, lobbied to stop nuclear testing and future bombs. Days before his death, Einstein signed the Russell-Einstein Manifesto, which led to the Pugwash Conferences on Science and World Affairs.

 

[ Wikipedia]

Morris Raphael Cohen (July 25, 1880 — January 28, 1947) was a Jewish philosopher, lawyer and legal scholar who united pragmatism with logical positivism and linguistic analysis. He was father to Felix S. Cohen.

Cohen was born in Minsk, Belarus (then Russian empire), but moved with his family to New York, at the age of 12. He was educated at the City College of New York and Harvard University, where he studied under Josiah Royce, William James, and Hugo Münsterberg; obtaining a PhD from Harvard in 1906.

He was Professor of Philosophy at CCNY from 1912-38. He also taught Law at City College and the University of Chicago 1938-41, gave courses at the New School for Social Research, and lectured in Philosophy and Law at Columbia, Cornell, Harvard, Stanford, Yale, and other universities.

Cohen was legendary as a professor for his wit, encyclopedic knowledge, and his ability to demolish philosophical systems. “He could and did tear things apart in the most devastating and entertaining way; but … he had a positive message of his own,” Robert Hutchins. Cohen helped give CCNY in the 1930s its reputation as the “proletarian Harvard”, perhaps more than any other faculty member. The Cohen Library at CCNY is named in his honor.

[ Wikipedia]

Bertrand Russell: After the Second World War, Russell taught at the University of Chicago, later moving on to Los Angeles to lecture at the University of California, Los Angeles. He was appointed professor at the City College of New York in 1940, but after a public outcry, the appointment was annulled by a court judgment: his opinions (especially those relating to sexual morality, detailed in Marriage and Morals ten years earlier) made him “morally unfit” to teach at the college. The protest was started by the mother of a student who would not have been eligible for his graduate-level course in mathematical logic. Many intellectuals, led by John Dewey, protested his treatment. Dewey and Horace M. Kallen edited a collection of articles on the CCNY affair in The Bertrand Russell Case. He soon joined the Barnes Foundation, lecturing to a varied audience on the history of philosophy; these lectures formed the basis of A History of Western Philosophy. His relationship with the eccentric Albert C. Barnes soon soured, and he returned to Britain in 1944 to rejoin the faculty of Trinity College.

Many thanks to Scott Danner and Liberty Fruit Co., Inc., for sending along this thought-provoking quote.

****

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