Will A New Tesco CEO Care To Keep Funding Losses At Fresh & Easy?
Although we have written extensively about Tesco’s journey
to America as
Fresh & Easy, we haven’t written much lately. Mostly because there was no
point in beating a dead horse.
Covering Tesco’s announcements had gotten plain silly.
After years of Tesco executives explaining that its losses on Fresh & Easy were
all a function of its building a massive infrastructure and that losses would
disappear quickly as volume increased, much attention was paid to its sales and
earnings for its
fiscal year ending February 27, 2010.
The shocker was this: Whereas in fiscal year 2008/2009
Fresh & Easy reported sales of only $305 million, sales jumped to $544 million
in 2009/2010. That is a big jump in volume, and if the problem was that the
losses were caused by the maintenance of a system able to handle larger volumes,
we would have expected losses to shrink dramatically, maybe even turn into the
black. Yet, what actually happened was that losses increased. In 2008/2009
losses were $208 million, yet with the higher volume losses went up, not down,
by $45 million to $253 million.
When asked how he felt about these losses, Tesco’s CEO Sir
Terry Leahy proclaimed himself to be “delighted” — leaving us to wonder what
adjective he would have employed had they actually made money!
Well, it turns out that we won’t have Sir Terry Leahy to
kick around anymore. Tesco
announced that Sir Terry had decided he would be leaving Tesco and Tesco
announced that he would be replaced by
Philip Clarke, who heads up Tesco’s European and Asian operations.
In March of 2011, when Sir Terry will step down, he will
be only 55 years old and a very wealthy man. We are told he wishes to devote his
attention to private investing in areas of “green energy” and “sustainability”
and we, of course, wish him well. He is widely recognized as having done a
masterful job of transforming Tesco into a global giant, poised on the verge of
overtaking Carrefour as the number-two retailer in the world. Sir Terry led
expansion efforts overseas and moves into non-food and financial services.
The one stunning failure of his tenure must be counted as
his inability to establish a profitable operation in North America. Indeed the
unexpected retirement was unexpected in no small part because Fresh & Easy was
seen as
unfinished business and the assumption, among many analysts, was that Sir
Terry would wait to leave triumphantly when his biggest gamble — Fresh & Easy —
had started to pay off.
Of course, there is always the possibility that he has
despaired of that day ever coming.
Which leads to what may prove to be the most significant
impact of Sir Terry’s departure: The appointment of a new CEO less emotionally
invested in Fresh & Easy.
It is notable that
Tim Mason, who heads up the US business and is the son-in-law of Sir Terry’s
mentor, Lord MacLaurin, a former Tesco Chairman, was not selected. He did get
broadened responsibility as Deputy CEO and will also handle group branding,
values and climate change.
It is unclear how Tesco allocates Tim Mason’s compensation
but, these additional responsibilities will help Fresh & Easy if it means they
have to pay less of his compensation. Because his division — Fresh & Easy — lost
$253 million dollars last year, an increase of $45 million from the year before,
Mr. Mason did not earn all the incentive pay he could have received and so had to
struggle by on just £4,530, or a bit over $6 million dollars in compensation
last year.
Sir Terry Leahy said that the losses in Fresh & Easy have peaked. So, presumably, that means the losses will be less than $253 million this year. We will see.
But, quite crucially, Fresh & Easy now becomes someone
else’s project. If before Philip Clarke takes over in nine months, a clear path to profitability is not obvious for Fresh & Easy then radical surgery, such as reformatting to follow our suggestion, and redo the stores in the style of either Trader Joe’s or Aldi or a joint venture with an American retailer or, yes, closing down the division becomes much more likely.
In all likelihood, Philip Clarke’s compensation will be
tied to profitability and the stock price. If Fresh & Easy comes to seem like a
quarter-billion-dollar-a-year liability for as far as the eye can see — both
profitability and stock price will respond positively to getting the losses off
the books.
Fresh & Easy was Sir Terry’s baby, and parents are not
always rational where their children are concerned. Philip Clarke will be more
steely-eyed and the word will probably go out: Fix it, sell it or close it. He
takes over in March of 2011. The countdown begins now. 
Wal-Mart’s ASDA To Acquire The UK’s Netto Stores: Will They Bring The Small-Store Concept To America?
We’ve written a great deal about
Tesco’s Fresh & Easy and
Wal-Mart, and we’ve written about Wal-Mart’s small store effort, Marketside,
both
here and
here.
With Fresh & Easy hemorrhaging money and Marketside a bust
— with expansion having been stopped -- the big chains need a new vision for a
small-store option.
Wal-Mart has done what big companies typically do best: it
just bought such an option.
Its British subsidiary ASDA has
announced that it is acquiring the British division of Netto, a small store
chain — each unit is about 8,000 square feet — that is strong in Denmark and
other European markets but an also-ran in the tough UK discounter market to Aldi
and Lidl.
ASDA had missed the boat when Tesco had moved into small
stores in the UK so, in a sense, the acquisition is just part of an effort to
play catch-up. The stores will be managed differently than now… ASDA intends to
almost double staff in each unit and the units will be rebranded under the ASDA
name.
ASDA is paying what to American sensibilities sounds like
the astonishingly high price of £4m or about $6 million per store.
This is testimony to how difficult it is to get locations
in the UK. In fact, one should always take with a grain of salt the claims of
how brilliant the British retail executives are compared to their American
counterparts. In truth, they are protected against competition by British
restrictions on building new stores. Since Wal-Mart bought ASDA, they
desperately wanted to open more supercenters but that is an almost impossible
thing to do on any scale in Britain. By controlling the supply of retail square
footage available, Britain makes its retail executives look like geniuses.
So, in effect, Wal-Mart paid a lot of “key” money just to
get the locations.
If it can operate these small stores profitably, it will
probably try to bring them to America. The vision, however, is likely to be
different than Tesco’s was in opening Fresh & Easy.
Wal-Mart would have two options:
One idea would be to look in America for areas that are
also constrained when it comes to retail space — these are typically the most
urbanized areas. Manhattan, the Loop in Chicago, Downtown San Francisco. This is
where the market is in America for small box stores.
It is also where Wal-Mart has no square footage at all.
If this acquisition pans out, Wal-Mart could use this
small store format to change that situation.
The second option would be to use the “new Netto” as
Wal-Mart’s answer to Aldi As we mentioned in our piece
Wal-Mart Swaps Strategy For Tactics. Wal-Mart is on the verge of losing a
precious asset — its reputation for having consistently the lowest prices. Up to
this moment Wal-Mart has not had an answer.
If the “new Netto” works, Wal-Mart has its answer and will
go on a store opening whirl. Aldi currently has about a thousand stores in the
US, it is easy to imagine Wal-Mart opening five times that number.
What is not clear is to what degree the new small store
ASDA concept will be price competitive with Aldi and Lidl, if they can beat them
in the UK, and make a decent profit doing it, they will be looking for small
store locations.
We would recommend they open one in the parking lot of
every Supercenter. Of course, if the new
CEO sours on Fresh & Esay — Tesco may have many locations for sale! 
Limited Scope Of Recent Recalls Is Testament To Industry
Leadership
In the midst of the outbreaks of the past six weeks, the
industry has hard evidence of how truly brilliant has been its leadership. Just
a few of the industry leaders were recognized by the Pundit as Single Step Award
recipeints after the Spinach crisis:
Single Step Award Winner — Dave Corsi Of Wegmans Food Markets
Single Step Award Winner — Tim York of Markon
Single Step Award Winner — Mike O’Brien Of Schnuck Markets
Single Step Award Winner — Joe Pezzini of Ocean Mist Farms
Single Step Award Winner – Eric Schwartz Of Dole Vegetables
Single Step Award Winner – Bruce Taylor Of Taylor Farms
Single Step Award Winner — Tanios Viviani Of Fresh Express
In addition, many of the executives of our associations
stepped up to the task. Some of the most notable, in alphabetical order:
Scott Horsfall, CEO California Leafy Greens Marketing Agreement
Tom Nassif, President and CEO Western Growers Association
Bryan Silbermann, President Produce Marketing Association
Tom Stenzel, President and CEO United Fresh Produce Association
Plus all the leaders that created and joined the Leafy
Greens Agreements in both California and Arizona:
California Members:
Abbate Farms, Merced
Agro Jal Farms Inc, Santa Maria
Amazing Coachella Inc/DBA Peter Rabbit Farms, Coachella
Amigo Farms Inc, Yuma
Andrew Smith Co, Spreckels
Anthony Costa and Sons, Soledad
Apio Inc, Guadalupe
Babé Farms Inc, Santa Maria
Badlands / El Don, Brawley
Baloian Packing Co Inc, Fresno
Beachside Produce LLC, Guadalupe
Bengard Ranch Inc, Salinas
Big E Produce, Lompoc
Blanton Produce Co, Salinas
Boggiatto
Produce Inc, Salinas
Bonipak
Produce Co, Santa Maria
Boskovich Farms, Oxnard
C and E Farms Inc, Salinas
Cal
Cel Marketing Inc, Oxnard
Channel Islands Farm, Inc, Oxnard
Chieftain Harvesting Inc, Salinas
Church
Bros LLC, Salinas
Classic Salads LLC, Salinas
Coastline
/ Sunridge Farms Inc, Salinas
Crystal
Organic/Grimmway Farms, Bakersfield
D'Arrigo Bros. Co. of CA, Salinas
Deardorff
Family Farms, Oxnard
Diamond
Produce Co, Salinas
Direct Advantage LLC, Santa Maria
Dole Fresh Vegetables, Salinas
Double D Farms, Coalinga
Duda Farm Fresh Foods Inc-Cal, Salinas
Dynasty Farms Inc, Salinas
Earthbound
Farm, San Juan Bautista
Epic Roots, Salinas
Ernie Strahm & Sons, Inc - Holtville
Faurot Ranch LLC, Watsonville
Field Fresh Farms, Watsonville
Fisher Ranch Corportation, Blythe
Fresh Choice Marketing Inc, Oxnard
Fresh Express Inc, Salinas
Fresh Kist, Nipomo
Fresh Origins LLC, San Marcos
Frisco Farms LLC, Spreckels
George Amaral Ranches Inc, Gonzales
Gold
Coast Packing Co, Santa Maria
Greengate Fresh LLLP, Salinas
Growers Express LLC, Salinas
Home Grown Organic Farms, Porterville
Ippolito International, Salinas
Jayleaf
LLC , Hollister
Joe Heger Farms LLC, El Centro
John S Tamagni and Sons, Inc, Spreckels
Kawaguchi Farms, Arroyo Grande
Keber Distributing, Thermal
Kenter
Canyon Farms, Sun Valley
Lakeside Organic Gardens LLC, Watsonville
Mann Packing Co Inc, Salinas
Metz
Fresh LLC, King City
Misionero Vegetables, Salinas
Muranaka Farms, Moorpark
Nava Enterprise Inc, Oxnard
New Star Fresh Foods LLC |
organicgirl, Salinas
North Country Produce, Paso Robles
Ocean
Mist Farms, Castroville
Pablo's Produce, Oxnard
Pacific Coast Produce, Santa Maria
Pacific Fresh Produce Inc, Oxnard
Pacific International Marketing, Salinas
Pacific Marketing Co, Salinas
Pacific Pride Marketing LLC, Oxnard
Pajaro Valley Fresh Fruit And Veg Dist, Watsonville
Pismo
Oceano Vegetable Exch, Oceano
Premium Valley Produce, Inc, Scottsdale
Pride of San Juan, San Juan Bautista
Pure
Pacific Organics, Salinas
Purepak Inc / Pacific Ridge Farms LLC, Oxnard
Ratto Bros Inc, Modesto
Ready Pac Produce Inc, Duarte
Reliable Produce Sourcing LLC, Santa Maria
River
Ranch Fresh Food LLC, Salinas
Royal Rose LLC / European Vegetable Specialties, Salinas
Salad
Savoy Corp, Salinas
San Cristobal Distributing Inc, Oxnard
San
Miguel Produce, Oxnard
Santa Barbara Farms Packing, Lompoc
Scarborough
Farms Inc, Oxnard
Seaboard Produce/Variety Marketing, Oxnard
Silva Farms, Gonzales
Steinbeck Country Produce, Spreckels
Sun Terra Produce Traders Inc, Newport Beach
Sunamerica Produce, Salinas
Sunfresh USA Inc, Santa Paula
Sunsation Farms Inc, Monterey
Talley Farms Inc, Arroyo Grande
Tanimura
And Antle Fresh Foods, Inc, Salinas
Taylor Farms, Salinas
The
Nunes Co Inc, Salinas
The
Salad Farm LLC, Salinas
True
Leaf Farms, Salinas
Vessey
And Company Inc, Holtville
Watsonville Produce Inc, Moss Landing
William Consalo and Sons, Bakersfield
Arizona Members:
Amigo Farms Inc.
Andrew Smith Co.
Bengard Ranch
Bonipak Produce Co.
Capurro Farms
Church Brothers LLC.
D'Arrigo Brothers Company of California
Dole Fresh Vegetables
Duda Farm Fresh Foods
Everkrisp Vegetables, Inc.
Five Crowns Marketing
Growers Express LLC
Ippolito International, LP
Kleen Harvest
Mann Packing Co. Inc.
Metz Fresh, LLC
Mills Family Farms
Misionero (Griffin Produce Co)
Natural Selection Foods LLC.
New Star Foods, LLC
Nunes Co. Inc.
Ocean Mist Farms
Organic Girl
Pacific International Marketing
Pure Pacific Organics LLC
Rousseau Farming Co.
Salyer American Fresh Foods
Steinbeck Country Produce
Sundridge Farms Inc.
Tanimura & Antle
Taylor Farms California, Inc.
True Leaf Farms LLC.
The truth is there is little about the Freshway Foods
Romaine recall that was different from what happened at Natural Selection Foods
that led to the great
spinach crisis of 2006.
The big difference is that the FDA has responded
differently.
That is not an accident.
Although some of the credit goes to the FDA in that they
were looking to avoid a repeat of those industry-wide catastrophes they created
with their “recommendations not to consume,” a big chunk of the credit goes to
the produce industry leadership recognizing that the key issue was that FDA had
no faith in the trade.
The
California Leafy Greens Marketing Agreement, the sister agreement in
Arizona, the launch of the
Center For Produce Safety and, yes, even the controversial
Produce Traceability Initiative are best seen as a massive, almost
four-year-long effort to build up the confidence of regulatory bodies,
especially the FDA.
The relatively moderate reaction of the FDA, confining its
request for recalls to the companies involved, is testimony to incredibly
visionary leadership that planned and executed a brilliant plan.
Applause is more than merited. Food Safety Article Now In French
The Pundit’s food safety piece for The New Atlantis,
a Washington, D.C.-based journal focused on technology and society, is titled
How to Improve Food Safety: Aggrandizing the FDA Only Distracts from Real
Solutions. The piece is worth reading as it approaches food safety from a
different direction than is typical.
Much of what passes for food safety proposals are answers
to a political question — how can a Congressman or a Senator show that he or she
is acting on food safety — not an actual scientific response to the problem.
So most legislative proposals are little more than
gestures — such as a plan to give the FDA mandatory recall authority — although
there are no known incidences of people who died because a company refused an
FDA request to recall. Or perhaps a decision to send government inspectors into
currently uninspected plants, although government inspectors are, by law, in all
meat plants and that hasn’t stopped pathogens from appearing in beef.
In contrast, our piece attempts to look at the issue
through the prism of law and incentives. We think of strong government as a
government that can actually achieve the goals it sets, rather than a government
that does a lot of things poorly.
The piece has been getting a lot of pick-up, and we
were especially proud that we were asked for permission to translate the
rather lengthy piece in its entirety into French. You can find it on Le Blog
d’Albert Amgar, which is published under the auspices of the French
magazine, Process Alimentaire.
They wrote a kind introduction that translates as
follows:
Here is an article
which helps to better understand how food safety in the United States works
and how it will evolve. Taking into account its importance, as much for the
subjects addressed as for its length, this article is split into three
installments, in order to better read in the format of this blog.
The article is titled
“How to Improve Food Safety. Aggrandizing the FDA Only Distracts from Real
Solutions” or Comment améliorer la sécurité des aliments ? Donner plus de
moyens à la FDA détourne seulement des vraies solutions by Jim Prevor. This
article appeared in The New Atlantis, A Journal of Technology & Society, May
21, 2010. I want to particularly thank Jim for the trust he has conferred on
me to distribute this article, which is full of common sense, in French.
Jim Prevor is the
founder and editor in chief of Produce Business Magazine and writes
frequently on the subject food safety and other questions in the
PerishablePundit.com, a recommended site. He is winner of the Timothy White
Award for Editorial Integrity.
Click here for a complete biography of Jim Prevor.
As the intro mentions, they
ran the piece as a three-part series, and each part links to the next. So
our French-speaking readers can read the complete piece, titled
Comment
améliorer la sécurité des aliments aux Etats-Unis? Donner plus de moyens à
la FDA détourne seulement des vraies solutions.
Merci beaucoup to Albert Amgar and Process Alimentaire
for thinking the piece important enough to translate for the Francophone
world. Pundit Nominated For Business And Financial Journalism
Award
We have been honored more than a few times for the work
we’ve done, including winning the
Jesse. H. Neal award and
The Timothy White Award for Editorial Integrity.
Now we’ve been nominated for an award in a broader playing
field. We just received word that several pieces we wrote for the online version
of The Weekly Standard, a Washington, DC-based political magazine, have
been nominated for a Gerald Loeb Award. Presented by the UCLA Anderson School of
Management, the Loeb Award honors journalists who “make significant
contributions to the understanding business, finance and the economy.”
Who was Gerald Loeb?
Gerald Loeb was a highly
successful financier and founding partner of E.F. Hutton who made it his mission
to educate individuals about finance, investments and economics. He first rose
to prominence during the Great Depression, when skittish investors turned to his
now-classic book, “The Battle for Investment Survival,” in which he outlined his
buy-and-sell strategies.
Throughout his 40-year career
on Wall Street, Loeb continued to offer his sometimes-contrarian wisdom through
his books and regular columns in publications such as Barron’s. Loeb hoped to
perpetuate quality reporting and writing for individual investors by leaving as
his legacy the Gerald Loeb Awards for Distinguished Business and Financial
Journalism
This is one of those awards you don’t dare hope to
actually win. The nomination is sweet enough. The competitors in our category
include a team of nine people from The Economist, David Pogue from The
New York Times, and a world authority on auditors and auditing.
We do a lot of writing for publications other than those
in the industry. Partly this is to keep ourselves sharp and make sure we can
compete with the best out there. Partly, it is so those who read our pieces in
the industry will know that it’s the “First String” playing.
Walt Disney used to say that people — as they walked
around Disneyland — should always remember that this all started with a mouse.
So when we are nominated or win something big, like this Loeb award, we accept
it in honor of the industry because whatever we do, whatever we write, wherever
it one day takes us, it all started with great-grandpa Jacob Prevor on the old Wallabout Produce Market in Brooklyn selling some fruit.
You Can Be There As History Is Unveiled: The Center For Produce Safety Reveals Its Research Results.
Fresh Express had put together a fabulous presentation of
the research results of research conducted with Fresh Express money under the
auspices of
Michael T. Osterholm, an esteemed academic and public health professional
who, when he isn’t saving the world from influenza, manages to help Fresh
Express continuously improve its food safety program.
We found the results fascinating and profiled them in
this piece:
Fast-Tracked Food Safety Research Findings Presented At Fresh Express
Now the baton has been passed to the Center for Produce
Safety, whose launch we profiled with this piece:
Center For Produce Safety Established: An Act Of Faith In The Future
The Center for Produce Safety has evolved in ways the
founders barely had the right to hope for. In addition to raising money and
funding its own research, it has become the “go-to organization” when any facet
of the industry wants to conduct rigorous research on any aspect of food safety.
It has the infrastructure set up so that it can quickly
and efficiently get out requests for proposals, evaluate what it gets back and
get the research rolling, monitoring it along the way and bringing it to a
successful conclusion.
This means that more and better research is being done on
food safety because, in the absence of the Center for Produce Safety, it would
be so daunting for organizations to come up with the infrastructure to make good
research happen.
There were obviously many people and organizations behind this, but special kudos must be paid to PMA. This was not the kind of project that could quickly pay off. It required a kind of visionary leadership that saw beyond the current budget cycle. It also required an association with a business model that produced lots of surplus to invest for the industry. Bryan Silbermann, President at PMA, deserves a lot of credit for this vision. As do a lot of directors over the last few years who have sustained the vision.
Of course, opportunity met preparation as PMA’s chairman
at the time of the CPS founding was Bruce Taylor, Chairman and CEO of Taylor
Farms, and he and Taylor Farms provided important financial support and industry
heft toward making the CPS a success. Bonnie Fernandez-Fenaroli, executive director, who
we profiled in this piece,
Bonnie Fernandez Takes Helm Of Center for Produce Safety, has ingenuously
stood astride the academic and industry worlds — transversing the intrigue that
is every major university with the industry and associations, which all have
their own needs. Particularly balancing academia’s need for peer review and
reproducible experiments with the industry’s desire for quickly useable
information is a continuing challenge.
She has been helped in this task by the good services of
Tim York, President of Markon Cooperative and Chairman of the Center for Produce Safety, who we have heard from, among other places, in these pieces:
A Call For An Industrywide Sustainability And Social Responsibility Initiative
Markon Looks To Produce Specialist ProPacific Fresh To Increase Service
Tim York Takes Leadership Role In Food Safety Crisis
Single Step Award Winner — Tim York of Markon
Obviously, other organizations, such as WGA, UC
Davis—where the Center is located, governmental agencies and many companies and
individuals have all worked hard to help build an institution that allows us to
better understand how food safety really works.
And, now, like a tree coming into bloom or a fruit
suddenly bursting into ripeness, the Center for Produce Safety is ready to
showcase the results of some of its research:
The Center for Produce
Safety's (CPS) inaugural Produce Research Symposium is being supported by a
broad range of sponsors, reflecting the broad value that the symposium is
expected to bring to the produce industry when it convenes next month. This
unique event presenting results of CPS-funded research projects and their
real-world applications will be held Wednesday, June 23 at the Mondavi Center
for the Performing Arts on the campus of the University of California, Davis.
Sponsors making this event
possible include platinum sponsor Produce Marketing Association (PMA), gold
sponsors iGPS and Taylor Farms, and silver sponsors Castellini Group of
Companies, Chiquita Brands International/Fresh Express, C.H. Robinson Worldwide
Inc., Ecolab, Florida Agricultural Experiment Station at the University of
Florida - IFAS, Florida Fruit & Vegetable Association, The Giumarra Companies,
Microsoft Dynamics and UC Davis College of Agricultural and Environmental
Sciences.
"The diversity of the
industry leaders who have chosen to sponsor this event reflects the value that
the CPS offers by bringing various pools of knowledge together for the purpose
of addressing a common goal," said CPS Executive Director Bonnie Fernandez-Fenaroli.
"We can't thank our sponsors enough for their support in helping bring this
vital event to our industry.
The immediate applicability
of the research is woven throughout the day's sessions which include diverse
discussion panels. "The opportunity to have researchers, private companies and
government representatives all sitting down to discuss the latest research
specific to the produce industry is something we couldn't pass up," said Bill
Schuler, Castellini president & CEO, and chairman of PMA's Board of Directors.
"Our responsibility in the food safety arena is not only to do the best we can
within our company, but also to contribute to continuous improvement in our
industry at large. Supporting the CPS and this symposium reflects our commitment
in this area."
It will be a grand event, with breakfast, lunch and an
evening reception held at the stunning Mondavi Center at UC Davis. But the core
is the opportunity to hear researchers present their findings.
Time is running out and places are limited.
Pre-registration was due to expire on the 11th, but we’ve gotten
special permission to keep registration open through Monday, June 14, 2010.
So call (530) 757-5777 or register
here.
The Pundit is sorry to say he can’t make it. We agreed
many months ago to give a speech on the evening of the 23rd to the
Santa Barbara Committee on Foreign Relations and on the 24th to
the famed
Chanel City Club, also in Santa Barbara. That means we will be counting on
Pundit readers to share their best take aways from the Center for Produce Safety
event.
We are even going to give away a $100 American Express
gift card to the most incisive take on the CPS research presentations.
If you can be there, go. You may be able to tell your
grandchildren that you were present the moment a solution to food safety issues
crystallized.
Pundit’s Mailbag — No Matter What Growers, Shippers Or
Retailers Do About Food Safety, ‘You Will Be Sued’
Our piece,
Freshway’s Traceability System Worked Like A Charm: FDA And Buyers Don’t Care,
brought a note from a grower:
This all goes back to
the lawyers. I heard a lawyer speaking at a traceability conference and he said
he doesn’t care what systems we have in place… they are suing us all.
I asked what about if
the product is from Mexico and he said, and I quote: “We wouldn’t waste our time
suing Mexico but if any of that product touched an American company you will be
sued.”
My question to him was
how do we do a better job to protect ourselves and his answer was buy more
liability insurance.
So no matter what the
grower, shipper or retailer does and how innocent you are, you will be sued.
Lawyers are one of the top 3 problems in America today.
— Tom O’Brien
President
C&D Fruit and Vegetable
Bradenton, Florida
Wonder what Tom thinks the other top two problems are.
Shakespeare did write, “The
first thing we do, let’s kill all the lawyers,” though as Mrs. Pundit is a
member of the Bar in good standing in three states, we better point out that the
problem is not, in fact, the lawyers; the problem is the legal system.
We have written some about the state of our legal system
in our piece titled,
How To Think About Supreme Court Nominees.
When it comes to issues of liability, though, the problem
is that the legal system has come to be the method our society uses to
compensate people who become the “collateral damage” of societal trade-offs.
If you remember the litigation Ford underwent years ago
related to the fact that the Pinto’s gas tank sometimes exploded upon impact,
you see the point.
In making cars, as in making food, there are trade-offs
between different desirable traits. So in designing an economy car such as the
Pinto, Ford’s engineers were electing to value economy — of weight, of fuel
usage, etc. — over safety. Society sets some minimal standards, but beyond
that, Ford could certainly decide that it was willing to accept a more dangerous
car — i.e., one whose gas tank was more likely to explode — rather than make the
car heavier or more expensive.
When Ford was sued — and lost — its executives basically asked its outside legal advisors for what standard Ford ought to follow to avoid such lawsuits. The answer was that Ford had two options: It could buy more
insurance or it could view losing occasional lawsuits as a cost of doing
business.
Tom’s point that it doesn’t matter whether someone in the
food chain does a good or bad job is certainly true. They will still be held
liable.
It is called a strict liability standard and, in food, it
means that if food gets someone sick, the liability is automatic.
In contrast, slips and falls in a parking lot are
typically negligence-based. So if there was a snowstorm and someone slips and
breaks his leg, the parking lot owner can defend himself by proving that he had
the lot quickly and properly plowed, that it was well lit, that salt or sand was
quickly and properly applied, etc.
In food the function this strict liability serves is this:
Our knowledge of food safety is that it is a continuum. At each step on the
continuum — more straps, bigger buffers, more frequent water testing, etc. —
the risk is reduced. Cost, however, is increased. There is no such thing as a
“correct” point on the continuum.
Society comes to accept some trade-off between enhanced
food safety and reasonably priced food. The problem, however, is that this trade
off, though good for society as a whole, leaves some people to get sick.
The legal system built around strict liability is a way of
ensuring that those who are the “collateral damage” of society’s need for
reasonably priced food can get compensated.
Of course, it is a highly inefficient way. Lawyers on both
sides must be paid, the judicial system utilized, enormous amounts spent on
insurance, etc., etc. It also creates some perverse incentives as the incentive
to invest in better food safety is reduced when doing so will not provide any
defense in court.
We dealt with many of these issues in our piece written
for The New Atlantis proposing a new food safety plan:
How To Improve Food Safety — Aggrandizing the FDA Only Distracts From Real
Solutions.
We don’t think it helps food safety and don’t think it
morally acceptable to hold producers equally liable if they are diligent at food
safety or laugh it off, so our proposal included a shift in the liability
standard. This shift in the liability standard would mean that producers would
“get credit” for their efforts and so that trade buyers would think twice before
going for price over an enhanced safety regimen.
We thank Tom O’Brien and
C&D Fruit and Vegetable for helping us think through this important subject. 
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