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Perishable Pundit
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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Got Produce? Ten Steps To Creating
New Dialog On Generic Promotion

After months of studying not only the proposal for a generic marketing board for fresh produce but also the mechanics of how the “dialog” is being conducted by the advocates of the board, we realize the key problem:

The advocates rushed into “dialog” when what the industry really needed was debate.

There is no question that the advocates of the board are people of good will. Anyone who knows Elizabeth Pivonka, the President of the Produce for Better Health Foundation, knows that within her heart burns a white hot fire of passion to change the patterns of poor-eating that burden our nation. Her goal, clear and simple, is to bring better health to our people. It is entirely admirable.

Yet we have a process that just isn’t working.

The problem is that although the advocates speak truthfully when they say they are open to dialog, it is in the nature of the fact that the advocates hope to see a board established that they are limited in what type of input they can utilize.

There is no question that in the course of “dialog,” if the industry made clear it preferred a program that, say, focused solely on fresh product or that was better funded or that had a payment scheme which was fairer, the advocates of the board would gladly alter their specific proposal.

But this describes a limited dialog indeed. As long as one agrees with the basic premise of the advocates — that a national generic promotion program is desirable — they will incorporate all feedback into the specific plan.

The advocates are polite but if someone stands up at a meeting and says they oppose the proposal, there is really no mechanism to utilize that input in any way.

The advocates of the plan perceive that in the past when proposals were brought forth for a generic marketing board, they were quickly shot down and thus not given due consideration. They wanted to get a proposal out there so that it could be seriously considered.

Yet it is unclear how such a proposal could be “shot down” unless those who opposed it were very influential in the industry. Doing an end-run around such influential organizations hardly seems like a strategy likely to succeed. What was required was not an end-run around such influential skeptics on the idea of a generic promotion board but, rather, an effort to educate and persuade these skeptics.

Instead, the advocates have willfully decided to skip the precondition for a dialog, an industry debate of the utility of a generic promotion program, and focus in on program details. In fact, they have put forward such a fully formed proposal that nobody who was doubtful as to the efficacy of a generic promotion program could possibly be persuaded by a PowerPoint presentation almost wholly devoted to explaining the details of this program.

It is as if the advocates were told that proposals foundered in the past on program details rather than because many in the industry doubted they would see a return on investment.

At this point, PBH has the results of its study of industry attitudes. We already mentioned that PBH made the terrible mistake of not vetting the questionnaire and the process with opponents, so it lacks credibility. Yet, we suspect that even with its problems, the fact that we have been told nothing of the results indicates a less-than-overwhelming endorsement.

If so, PBH should really walk the program back and explain that in this recessionary environment, it is just not the time to have this dialog. They should withdraw the proposal as written.

Let us try, though, to imagine a process that could lead to the industry ultimately making the best possible decision:

1) There are many reasons to think that PBH is not the right organization to spearhead a drive for a mandatory assessment. Yes, its goal is to improve health by improving diets through an increase in produce consumption, so its leaders perceive anything that will increase produce consumption as in its bailiwick.

Yet we would argue that just as a local hospital, though dedicated to health, has no business using donations to lobby people to support President Obama’s health plan; so PBH, as a voluntary charity, simply shouldn’t lobby on an issue such as a mandatory assessment.

2) After these many months of discussion, if there are not 25 organizations willing to put up, say, $20,000 each to further this effort, then industry support is so weak, we need to postpone indefinitely. If we can get some support or if PBH insists on proceeding on its own, then we should proceed to develop further steps to educate ourselves on what the industry truly needs.

3) We should embark on an educational program at the conceptual level: Does generic marketing increase consumption? Does it do so for diverse product groups such as fruits and vegetables? How much money is required to change consumption? Does that investment have to be sustained? Are there alternatives such as commodity-specific generic promotion or branded promotion that are more effective? Would such a program increase profits as well as increase consumption? What industry segment would see profits increased?

4) It is important that this industry education initiative not be tarnished by politics. So we should reach out to those who support and those who oppose such a program and try to gain consensus not on the substance of the matter but on credible, neutral academics who might shepherd such an educational initiative. We have mentioned well known names such as Ed McLaughlin of Cornell University and Roberta Cook at UC Davis. It needs to be coordinated by people thought to be genuine truth-seekers.

This process may involve research, literature reviews, industry roundtables, presentations, publications, etc. The purpose is to develop and disseminate the best knowledge possible on the core subjects at hand.

5) When the educational process is done, we should have a series of debates: Rather than these one-sided presentations, we should encourage robust debate on each issue. The debates should be relevant to each constituency. In Salinas, we might debate whether row crop growers can profit from such an initiative due to the supply response. In Oregon, we can ask the same question adjusting for the lag of supply response on pear trees.

6) We can then ascertain whether the industry believes that, conceptually, this idea is desirable. If not, we end the process. If so, we proceed.

7) We can then use a blank-paper approach to begin building an actual proposal. Committees and subcommittees are formed. Questions are collected and discussed: Ought there to be a brand credit? A credit for paying into commodity-specific promotion groups? Each question is analyzed and debated; research may need to be conducted. Importantly, the discussions are open and transparent. Input is invited from anyone who would like to contribute.

8) The proposal is then circulated and an educational campaign is conducted.

9) A series of debates are held on the subject.

10) If industry support is overwhelming, we proceed down the USDA path to a vote.

The key problem is that the program currently proposed skipped the first seven steps in this outline and moved right to number eight.

Perhaps the advocates will look at this outline and moan: “It will take too long” or “It will be too hard” and such response is understandable. But politics, and that is what this is, is often hard. If you think about issues such as Women’s Suffrage, it took many years of hard work to change the opinions of people sufficiently to pass the 19th Amendment giving women the right to vote.

To persuade is difficult, but in a free society, persuasion is all we have. If the process of persuasion will take long, then we should begin soon. If it will be hard, then we must steel ourselves for the work. As the Romans said: Hoc opus, hic labor est.




Assortment Rationalization
And Private Label Margin

Recently The Wall Street Journal ran two pieces that, taken together, constitute a one-two punch against the way food retailing has been conducted for 20 years.

The first piece, Retailers Cut Back on Variety, Once the Spice of Marketing, puts it this way:

For years, supermarkets, drugstores and discount retailers packed their shelves with an ever-expanding array of products in different brands, sizes, colors, flavors, fragrances and prices.

Now, though, they believe less is more.

Pharmacy chain Walgreen Co. is cutting the types of superglues it carries to 11 from 25. Wal-Mart Stores Inc. has decided that 24 different tape measures is 20 too many. Kroger Co. has tested stripping out about 30% of its cereal varieties.

In the next year or so, these and a few of the other largest retailers are expected to slice the assortment of products in their stores by at least 15%, industry executives and analysts say.

Wal-Mart is approaching the matter analytically:

Before the recession, sales at Wal-Mart stores had begun to slow as the company saturated the nation with its “big box” outlets. Now, the chain has stopped opening so many new stores and sought fresh ways to increase sales inside those it has.

Wal-Mart analyzed sales data for all products and categories to find the optimal selection for each store. Research showed shoppers spent an average of 22 minutes in a Wal-Mart, but suggested that the wide product variety was curtailing the number of items they put in their shopping baskets, says John Fleming, chief merchandise officer.

The company decided to add variety and shelf space in the fastest-growing categories and to trim variety and space in slower ones. It has since increased the number and variety of flat-panel television sets it sells, and finds its share of sales has increased. A study by Sanford C. Bernstein analyst Ali Dibadj said shelf space devoted to cat food doubled in Wal-Mart’s new store setups, while men’s shaving cream increased 35% and trash bags and diapers grew by more than 20%.

But cutbacks outweigh increases. Space for toilet paper and mouthwash dropped by 44% and 39%, respectively, in the new store format, according to the Bernstein analyst, while sanitary napkins, household wipes and bar soap fell by at least 20%.

In microwaveable popcorn, where sales are in decline, Wal-Mart halved the number of brands and reduced the total variety by 25%. Its stores now carry two sizes of market-leader Orville Redenbacher’s plus a lesser-known brand and Wal-Mart’s store brand.

On Wall Street, one of the biggest jobs analysts have right now is predicting how Wal-Mart’s product rationalization strategy will affect individual companies that sell to Wal-Mart.

Two days after that article appeared, The Wall Street Journal published Frugal Shoppers Drive Grocers Back to Basics, which extolled the center store and private label, specifically seeing Kroger’s success as tied to these strategies:

The recession-driven shift to eating at home more often is giving new life to grocery stores’ most basic offerings, and upending a multiyear strategy of using coffee bars, fancy bakeries and exotic products to attract shoppers.

Kroger Co. on Tuesday posted a 13% rise in quarterly profit, fueled in part by higher sales of private-label goods. Store brands accounted for 35% of the Cincinnati-based chain’s item sales for the quarter, up three percentage points in the last two years.

The second-largest U.S. food seller after Wal-Mart Stores Inc. said sales at stores open at least 60 weeks climbed 3.1% from a year ago, excluding fuel. “We’re actually selling more items to many households than we were before,” said Chief Executive David Dillon.

Kroger, Stop & Shop, Publix and other big food chains tried for years to make themselves into a one-stop destination by revamping their store perimeters to include floral shops, prepared meals and other offerings. But the recession has refocused them on the staples sold in center aisles.

These chains are aggressively pushing private-label versions of canned vegetables, breakfast cereals and whole-wheat bread, draping center shelves with coupons and price comparisons, and bundling ingredients for homemade meals.

These middle aisles can generate as much as 70% of weekly profit for a given store, according to a study this month by Willard Bishop LLC, a Barrington, Illinois, supermarket consultant. But 10 years ago, before discounters began stealing business, these aisles accounted for 85% of profit, according to analysts.

The back-to-basics drive is helping grocery chains become among the best performing retailers. In addition to Kroger, the U.S. division of Belgium-based Delhaize Group last month reported quarterly sales rose 2%, while Ahold NV’s Stop & Shop posted a 3.1% rise.

In contrast, Whole Foods Market Inc., a grocery chain that emphasizes exotic and perimeter-store specialties, posted a 4% decline in sales at stores open at least a year in its fiscal second-quarter.

We are always a little skeptical when reporters ask store managers, who often don’t really know, what is “lucrative” or not, but the piece goes on to find a reason for Kroger’s powerhouse performance in center store and private label:

Mike Filzen, a Kroger supermarket manager in Bourbonnais, Illinois, said his store opened a sushi bar and a Starbucks outlet to attract customers. But he said they never became as vital to business as the mundane, middle aisles of his 78,000-square-foot store. Today, cooking staples like canned soups, pasta, packaged bread, ground coffee and breakfast cereals are proving more lucrative. “That’s where the money is made,” he said.

Unit sales for many center-store items rose 0.6% to 2.6% this April from a year ago, even as overall food sales declined 3.1%, according to market researcher Nielsen Co. Sales of home-pantry items such as frozen and dry vegetables, grains, pasta, baking mixes and flour inched up, reversing years of declines.

“There is a resurgence in the center store,” Mr. Dillon, the Kroger CEO, said in an interview. The recession is proving a “big opportunity” for Kroger and other grocers to recoup center-store sales lost to Wal-Mart, Costco Wholesale Corp. and other discounters, he said.

The grocery chain posted profit of $435.1 million for the quarter ended May 23, up from $386 million a year ago. Revenue declined to $22.8 billion, compared with $23.1 billion a year ago, on a 41% drop in gasoline prices at its outlets. Excluding fuel, total sales rose 3.9%.

In part, the stores’ recognition of the increasing popularity of private-label goods is fueling the share gains, Mr. Dillon said. Consumers are increasing their shopping trips to Kroger as a result of the lower-cost private label products, he added.

Store brands are popping up on more consumers’ pantry shelves. Reagan Gandy, 45 years old, of Tampa, Florida, said she recently switched to buying the private-label shortbread cookies sold by Publix Super Markets Inc. The savings are about $1.80 per package. “If there are things you can switch on, what’s your downside?” Ms. Gandy asked.

Between 2003 and 2007, grocers’ share of sales for staples slipped 3% as rivals siphoned away about $7 billion a year, according to Information Resources Inc., a market research firm. Supermarkets countered by expanding and embellishing the outer edges of their stores with high-margin offerings like florists and sushi bars.

Obviously changes in consumer buying habits related to the recession will lead to changes in assortment, but there are some issues these two insightful articles leave dangling.

It has long been known that assortment is excessive in some areas. One of the pieces catches Target’s CEO pointing out the problem:

Target Chief Executive Gregg Steinhafel says even he is baffled by Target’s array of shampoo choices. “I have found myself standing in front of the Pantene display, trying to figure out if I need the product for dry hair with frizz or dry hair with split ends,” said Mr. Steinhafel, a thick-haired 54-year-old.

A typical Target store has 88 kinds of Pantene shampoo, conditioner and styling products.

The big problem is not actually too much assortment but rather too many spin offs of brand names that are not appreciably different.

For many stores, though, handling this array of products is highly profitable. They get slotting fees, free product, promotional money, etc., and that is why it is there.

Wal-Mart’s attempts to rationalize assortment based on real analysis is a positive thing. Eleven years ago, we wrote a column for Food Distribution Magazine that analyzed a study done at HE Butt. They did nothing but remerchandise the salad dressing aisle without regard to the size of the case shipped to the store. That simple change let them contract the shelf by four feet. H.E. Butt then gave that excess space to a Direct Store Delivery Distributor who filled it up with specialty foods. The comeuppance: Salad dressing sales stayed the same in less space and consumers were happy over the added assortment of specialty foods, which also generated extra profits for the store. You can read the piece here.

Still and all, conventional supermarkets may manage to increase some center-store sales as demand for economical product increases — although the articles don’t actually show that Wal-Mart or club stores have lost market share on these items… they may be up even more.

But the margins on dry grocery are so small that it is hard to see how a focus on these products can really compensate for any loss in perishables.

In fact, we bet if you broke down the numbers, you would see that any substantial increase in center-store profits is being driven by frozen foods rather than dry grocery.

We also note that reducing assortment may make sense if you have 88 barely distinguishable types of Pantene shampoo, but that type of direct product duplication is significantly less in the fresh food areas. Eliminating lots of different chili peppers may look like eliminating duplication, but to a Hispanic shopper you may be eliminating her product preference and shooing the customer away.

The whole issue of private label in produce is also problematic. It is a trend slowly growing for years, we highlighted it in this cover story in Pundit sister publication, PRODUCE BUSINESS, back in 2007. You can read it here.

Sometimes, as part of an overall store branding strategy, a produce component makes sense — though we suspect the first food safety issue and retailers will be ruing the day they put their name on the product.

Usually, however, private label produce doesn’t make sense. In produce, there are no large marketing budgets to “save” by going to private label. So the cost is very close. Except, that is, when producers allow themselves to get caught in the marginal cost trap. Here they assume they have spare capacity and, thinking they can price a private label customer at the marginal cost of operating the plant, they offer a great deal.

It is usually a catastrophe. First, these producers put supermarkets with private label product into competition with supermarkets that buy the same product that is branded. The producers’ own customers who pay the prices covering all costs in effect are subsidizing the private-label customers who get the advantage of that spare capacity. Not surprisingly, the private label products gain market share, so what was a good deal because it was “free money” coming in for that last unused 10% of capacity now suddenly accounts for 20% or 30% of business. Second, some of the existing branded retail customers catch on that their competitors are buying for less, so they demand a reduction in price or they, too, will go private label.

It is almost always a mess for the producer, and if one is going to sell private label product, the thin marketing budgets in produce mean buyers should always be charged at least what the branded product goes for. Often they should pay more because of the added expense of maintaining multiple packaging inventories and changing films on the production line.

Now, of course, the customer is always right, and if retailers want private label then producers need to offer it — but they should not offer it at reduced margins, unless there are real savings and there almost never are in produce — unless the product quality is being reduced.

We would also suggest that a little more innovative thinking could help both buyers and sellers deal with this private label issue.

Many produce labels have a consumer constituency and retailers would be foolish to throw that away. Yet there is often corporate pressure to present a private label and marketing pressure to differentiate from other stores. One solution is co-branding between retailers and top producers.

Neiman Marcus uses this technique to great effect. One doesn’t just go to Neiman Marcus and buy the same Brioni suit one can get at many high-end retailers; one goes to Neiman Marcus to buy a suit that is branded “Brioni for Neiman Marcus.” It is a win-win. The designer maintains the visibility of its name, and the retailer gets to offer its clients something perceived to be exclusive.

We’ve been hearing that corporate executives at retail are getting sore at produce directors around the country. Corporate is pushing private label to increase margin, which is actually possible on consumer packaged goods, but produce doesn’t have those thick margins to thin down, so if a retailer is going to do private label in produce it really has to be part of a grander marketing strategy.

Otherwise they ought to stick to the branded product.




In Defense Of
Cosmetically Challenged Produce

Back in November Sainsbury’s, the UK supermarket chain, pulled its planned line of “Halloween produce,” because EU standards prevented the sale of such items to consumers and launched a campaign to change the regulations:

SAINSBURY’S LOBBIES AGAINST
‘BONKERS’ EU FRUIT AND VEGETABLE REGULATIONS

• Sainsbury’s pulls new veg range from sale as managers are threatened with criminal record

• Supermarket ‘Save our Ugly Fruit and Veg’ campaign could slash fruit and veg prices by up to 40%

Today Sainsbury’s launches its ‘Save our Ugly Fruit and Veg’ campaign in a bid to force the EU to relax its strict specifications on selling cheaper fresh produce.

The retailer has written to the EU Agriculture Commissioner Mariann Fischer Boel and Secretary of State for Environment, Food & Rural Affairs Hilary Benn expressing its concerns over ‘bonkers’ regulations and has launched an online poll for customers to join forces in the fight for ‘wonky’ fruit and veg.

And in a further move, this week Sainsbury’s had planned to launch the first of a series of illegal, misshapen fruit and vegetables, branded as a ‘Halloween’ range, which would have been up to 40% cheaper than the standard alternatives in store. The law-breaking vegetables consisted of ‘Witches fingers — carrots with more than one finger, ‘Zombies brains’ — undersized cauliflowers, and ‘Ogres toenails’ — bendy cucumbers amongst others.

However, in a last minute change of fortune, Sainsbury’s decided to pull them from sale as it became apparent that store managers could receive an individual criminal record for breaking EU law if the items were sold in their stores.

Examples of the ridiculous EU regulations which prevented the Halloween veg range being launched are:

• It is illegal to sell a cauliflower if it is anything less than 11cm in diameter

• It is also illegal to sell carrots that are forked (with more than one root)

• An onion must be at least two-thirds covered with skin for it to be acceptable

These, along with other defects, means that up to 20% of British farmers’ onion production goes to waste as soon as it comes out of the ground.

NFU Horticulture board chairman Richard Hirst said: “Farmers and growers work extremely hard to produce quality food but nature does not always comply with a perfectly rounded apple and poker straight carrot. People should be given the chance to buy odd-shaped fruit and veg as they taste just as good.”

Sue Henderson, Brand Integrity and Sustainability Manager at Sainsbury’s, says: “We have been struggling to fit a square peg in a round hole for too long now when it comes to conforming to the more controversial elements of the EU regulations. We’re not allowed to use up to 20% of what’s produced in this country and in the current credit crunch climate, we cannot continue to waste this much food before it even leaves the farms. Buying wonky veg would have saved cash-strapped Britons up to nearly 40% on some items such as carrots. It not only saves money, it also reduces waste and supports our British farmers. We strongly believe that now is the right time to challenge the impact these regulations have on our customer’s choice.”

Founder of parenting website Netmums.com Siobhan Freegard says: “We are 100% behind Sainsbury’s — fruit and vegetables are created by the wonder of nature, not manufactured in factories to minute specifications and generally they end up chopped, diced or sliced into meals anyway. We want our children to know about and enjoy the wonky, often amusing shapes that nature presents us with. Our children come in all sorts of shapes and sizes, and we are quite happy to have our veg come that way too… it’s natural! We also find this obsession with perfection causes children to become over fussy and ready to toss aside fruit that is perfectly good but not waxwork-style perfect to look at.”

Examples of % waste created by current EU regulations:

• Onions — up to 20%

• Carrots — up to 15%

Well Sainsbury’s efforts, as well as those of others, including the organic community, have paid off. Effective July 1, 2009, the old rules have been abolished, as The Times of London put it: Long live knobbly carrots: Ban on ugly fruit and vegetables is scrapped:

Ugly fruit and vegetables that have grown just as nature intended will be back on supermarket shelves from today — and could be up to 40 per cent cheaper than their perfectly formed cousins.

In a triumph for curvy cucumbers, knobbly carrots and wizened cherries, the European Commission has abolished 20-year-old rules that discriminated against imperfect fresh produce.

In all, 36 types of fruit and vegetables can now be sold whatever their shape, size, lack of sheen or gnarled skin. Even garlic heads with cloves missing will make it on to the shelves and a string of onions no longer has to have 16 bulbs.

The question of whether grade standards, which typically are strictly cosmetic, are encouraging the industry to focus on the right things and whether grade standards serve as a consumer-protection device by ensuring quality or as a volume-reduction device for industry has long been debated. With the sustainability movement focusing on avoiding waste and the sour economy increasing focus on making wholesome but inexpensive food available, this move in Europe may presage even bigger changes both in Europe and in the US.

We thought it worth understanding the situation better, so we asked Pundit Investigator and Special Projects Editor Mira Slott to find out more by speaking with two representatives of the pan-European produce trade association:

 

Philippe Binard
Secretary General
Freshfel Europe
Brussels, Belgium

 

Frederic Rosseneu
Secretariat
Freshfel Europe
Brussels, Belgium

 

Q: What is the significance of the European Commission’s new policy on quality standards for fruits and vegetables? (Marketing Standards for Fruits & Vegetables). With rules effective as of July 1, what does the industry need to know?

A: Binard: We’re not sure we understand what the EU Commission is doing. There are a number of problems we identified. Before the change in the EU rules, 36 products were subjected to detailed specification marketing standards. Most were very similar to those of the UNEC (United Nations Economic Commission for Europe). The new EU rules eliminate obligatory detailed standards for most products.

A: Rosseneu: The old EU standards were a version of UNEC standards to harmonize trade. The reference to UNEC standards is still in the current legislation. The big difference is the UNEC standards are voluntary and the EU standards are mandatory, so we are obliged to comply with them.

Trade partners and private entities can use the UNEC standards as a reference. UNEC standards are still valid, and most retailers will have stricter standards. However, with the EC’s removal of specific marketing standards for most products, their mandatory character is eliminated and not binding anymore. [Editor’s note: see description of fresh quality standards here]

A: Binard: The old EU rules set up a common language — what is Class 1, what is Class 2, etc., so there was no real concern to market access. The EU, in an administrative simplification, pushed to get rid of marketing standards. It made the proposal last December to withdraw 26 products from the detailed specification. The only 10 remaining are the larger commodities — apples, pears, bananas, citrus, tomatoes, peaches, nectarines, etc. For the other ones, the EU is repealing the compulsory rules and basically leaving it to the trade or sector to decide what could be put on the market. This action is more ideological than pragmatic. It collected a lot of criticisms in member states and the sector. The move is more politically motivated than really demanded by the sector.

Q: Political in what way?

A: Binard: This is a populist approach. The Commission wanted to demonstrate it was allowing more and cheaper fruit in the market. In crisis, it was using the argument that it was important to relax standards and open availability. Despite the huge lack of support for the EU proposal from the sector and various countries, the new rule has become legislation. July 1 was the kickoff date.

A: Rosseneu: Of course there are regulations that are too burdensome or really heavy, and maybe some are obsolete. But throwing away most EU obligatory detailed marketing standards is not the best way to deal with so-called red tape. With quality, sizing and grading provisions, everyone was talking the same language and expectations.

Today, with the new EU rules, you just have a little sentence that product should be ripe, a very subjective matter, while in the old standards you had either minimum sizes to insure no unripe fruit or minimum sugar levels for taste, etc. The new ruling creates uncertainty and gives no assurance of quality. The ruling might compromise the quality of fruit for sale in the market. We wouldn’t like consumers biting into unripe fruit with low sugar content. From a compliance standpoint, the new standard is so basic, as long as the product is not rotten, it passes!

Q: How do governmental proceedings work when implementing a rule such as this? Wouldn’t strong opposition from the fruit and vegetable sector and member states carry weight in the final legislation?

A: Rosseneu: The majority of the sector was against the EC proposal and expressed its disapproval in a string of press releases. A vote also was taken by the 27 member states of the EU, represented by agricultural commissions. Ministries of agriculture from the various member states participated, with the number of votes weighted by country. The votes were 107 in favor, 216 against and 22 abstentions. The majority was against it, but it was not a qualified majority. It would have needed a qualified majority to at least block the proposal. [Editor’s note: see minutes of standing committee that took the vote here].

A: Binard: In regard to the decision-making process, the EC did not conduct an impact assessment. To act according to the general interest and principal of better regulation, it should always conduct an analysis of the consequences of the measure. And that has not been done. We think this is a big mistake.

Q: What could such an analysis potentially reveal?

A: Binard: The new EU rule doesn’t consider the principle of a good functioning single market. There are 27 countries… product in Spain could travel freely to Germany, and the rule of acceptance was the same in France and the U.K.

The removal of mandatory detailed standards for most products is leaving quite a lot of interpretation to the rules in different countries. You could have some of the countries that will accept product and others that won’t. This could be a major problem; hopefully product on the market will be of good quality and it won’t be a problem, but of course this is unknown.

Q: How does this impact U.S. exporters?

A: Rosseneu: U.S. suppliers to the EU would have to comply with the new rules. From a quality standpoint, not much changes because most U.S. products have higher quality standards already exceeding the old more stringent EU standards. It might be that some retailers that only asked for compliance on the 36 product standards mandated in the old EU rules will now broaden the scope of products it examines for compliance.

For import procedures, it might become more burdensome for U.S. exporters, depending on the country. While all countries need to comply to the new EU rules, each member state is free to determine how to implement those rules. The UK seems the best place to go because it only wants you to provide certification for the 10 products that still require the official EU detailed marketing standards.

A bunch of other countries said all products need to be certified for the very basic standard. If you go to Belgium, the country requires notification for 36 products, but in the Netherlands you have to certify all products. We would have liked to see the rules carried out in a uniform way, with the same procedures for imports across member states.

A: Binard: So the first issue is the unscientific decision-making process at the EU level, and the second is the loss of common interpretation about quality among countries. The third concern is that the elimination of detailed rules could also lead to retailers drawing up their own specifications.

Q: Don’t they do that anyway? I thought retailers required varying quality specifications and product standards based on their particular business strategies. Frederic, you point out that many retailers demand stricter standards of their suppliers than the common marketing specifications…

A: Binard: That is true to a certain extent, but what constituted quality and how those attributes were defined, Class 1, Class 2, etc., were all undisputed.

Proliferation of private specifications is a fear we have. We won’t say it will necessarily occur. The differentiation in standards could create all kinds of problems and confusion, such as what labeling is used on the box.

Q: To clarify, EU’s detailed marketing standards now only affect 10 products. What is required of all other products?

A: Binard: What is happening is to compensate for the withdrawal of 26 products from the detailed specifications; any fruits and vegetables to be placed on the market have to comply to a general marketing standard. This amounts to very basic provisions in terms of marking, having minimum quality in tact, and marketable quality, and a few tolerances of quality within one same consignment.

It means a number of products not controlled at all will have to demonstrate minimum quality and maturity requirements, and also marking of origin, which most are already doing.

Q: Why is that so bad? Shouldn’t all products at least meet a minimum standard?

A: Binard: The new rules will not simplify the process as intended, but rather increase administrative and financial burdens for the sector. We estimate new controls and paperwork will have to be introduced for up to 400 fruit and vegetables to verify that all products are sound, safe and of marketable quality.

A: Rosseneu: A further concern is that retailers will start their own little systems, and all transparency could be lost with no clear picture of the market anymore. There is a real risk of each retailer creating their own scheme.

The ruling also allows member states to permit the retail sale of product not complying with the remaining standards, as long as it is for private use and used for processing. Previously this option wasn’t available. Sainsbury’s could be capable of selling misshapen produce as long as it was clearly intended for personal use by the consumer and for processing.

Q: Do you anticipate retailers will capitalize on this provision and merchandise product this way?

A: Rosseneu: We don’t know if all retailers want to do this. We imagine hard discounters would, but we are not sure if the premium retailers would do this throughout the year. It might entail additional market pressure. Misshapen produce will be sold at very low prices. The UK and Germany, which are big consumer markets, as well as Cyprus and Denmark, are countries that have said yes you may do it, but we don’t know if retailers will actually proceed. But there has been interest from Sainsbury’s, which has been very active on that front, and we presume others will go there as well. A lot of countries had last minute legislation to make it happen.

Q: Is the main issue that consumers may mistake odd lots of produce meant for processing for fresh market consumption?

A: Rosseneu: Normally it should be quite straight-forward for home processing, so the lower quality is not as much the issue, but we’ll still have to see how it ends up in the stores and how it is presented to consumers. But labeling should be sufficient to have consumers aware these are not for fresh consumption. The concern is the additional volumes that will push down prices for all categories.

Q: From a trading/logistics standpoint, are there other financial issues?

A: Binard: On a compensation basis, it means all imported goods will have to be certified or demonstrate complying with these minimum standards, and therefore a document issued by an authority will have to be provided. First, a number of countries indicate that to issue a document, there will be a cost. There could be small exotic consignments attracting additional cost that we didn’t have in the past. Also, there is the concern of capacity of member states to issue documents in a timely manner. If suddenly they have to issue a great number of documents, maybe they won’t be equipped to do so.

Another problem we’ve identified: some of the countries could decide according to their experience, a product can enter the country without a certificate. In the new rules, it’s been foreseen that on the basis of risk-analysis, a country could make exceptions for particular products, say papaya. Take the Netherlands, which is importing a lot of product. It may decide, based on past records, that there are no problems with the imports of papaya. It could determine it won’t control papaya imports in the future and won’t issue this document or certificate.

Q: So, if the Netherlands wasn’t the product’s final destination, could the problem occur later on?

A: Binard: The product will circulate to other member states, and these states may say they have been experiencing a lot of problems with papayas, where a certificate is necessary. But the distributor/importer wouldn’t have that certificate. So the goods distributed in Rotterdam face no problem, but in Paris, the inspector says papaya is a problem and we need a certificate. And there is no control.

Overall, we see problems of cost, lack of harmonization, inconsistent reasoning for the list of products subject to marketing standards and other complex issues regarding labeling. What should traders put on the box? What information is necessary? These standards are not compulsory. It could create uncertainty in the provisions of the EU standard being selectively implemented.

These are reasons we have doubts. Will the new rules bring simplicity and clarity or create confusion on quality? It could be that people want to make soup and are content with unusual sizing or misshapen vegetables. Imperfect organic produce was unable to be put in the market. The Commission is defending and justifying its position on that basis.

Q: Won’t supply and demand issues weed out some of these problems?

A: Binard: We are concerned lower quality will find its way on the market. Even if some retailers are upholding higher standards, we have wholesalers distributing fruit to many channels with no incentive to produce quality.

Logically people who want the industry to work well, will have good quality, making sure they don’t have produce on the market in undesirable volume, which before was used for processing. The problem now is that more of that product will be found on the fresh market.

Q: You mentioned that no analysis was conducted before the rule went into affect, but will there be a study conducted to assess the impact over time?

A: Binard: Specifically for fruits and vegetables, the Commission has been working on an impact assessment that will be conducted in the next six months. We must watch this closely and provide our view. The impact assessment was launched in May on quality of agricultural products.

In the document, there’s an added section on marketing standards, which is contradictory. It is very strange for the Commission to say it has decided on major reform of fruit and vegetables standards last December, and in May open the debate on what can be gained from marketing standards.

These two debates remain open. There is no coordination within the same department. You have major reform for fruits and vegetables in December when launching in May a major debate on agricultural product. Then, you include a position of open debate on whether marketing standards are useful, extremely useful or not necessary at all. The same department is conducting two antagonistic policies. The Commission has taken a decision on something they want to learn more about.

Q: What can Freshfel do to influence actions moving forward?

A: Binard: We’ve identified a number of gaps and are trying to find practical solutions. We don’t challenge reform, which is necessary. We can’t live in static rule, but the decision taken was without a good understanding of the needs of the sector.

Q: How did EC hone the list of fruits and vegetables that would remain subject to the detailed marketing standards and those that would be repealed?

A: Binard: They’ve decided detailed marketing standards must be upheld for 10 commodities. It seems arbitrary. Did they just choose a round number? Why not 15? The Commission says the 10 commodities account for 75 percent of the trade of countries, which will be safeguarded with detailed standards.

It’s a little strange. It demonstrates the illogical handling of the issue. The Commission has been purely political and not practical or listening to the sector. All organizations of the sector have been unanimous that the move taken is wrong.

Q: Is there historical precedence for this ruling or is there something else going on here? Could you put this new regulation in context?

A: Binard: There has been a strong position by the Commission to be liberal, eliminate unnecessary rules, and simplify the process. Similar positions have been taken for cars, chemicals, and computers, based on a general tendency to simplify rules and fade out any unnecessary public authority intervention.

One of the practical examples the Commission took was the case of fruits and vegetables. The principle is there, but the implementation in our sector is not necessarily a good example of what could be done to improve functioning of the sector. We are looking at the specificity of applying the objective.

Q: Do you anticipate any noticeable impact in the near term. When will you know if your worst fears have been realized?

A: Binard: We’ll have to wait and see. There won’t be an earthquake of change. A lot of questions remain unanswered. Now that the rule is in place, what should everyone do, and what implication will it have on the market?

In terms of costs, it is up to 20 Euro per document or certificate. I imagine it will have different implications based on size of consignment. It could end up being quite an important amount of money, depending on how countries will apply it. Undesirable products could penetrate the fresh market, it could push prices down, and lower quality product could be offered to consumers at discounters or the corner shop, which could serve to undermine the overall image of the industry.

We need to have constant and tasty quality product on the market. The new rule could potentially challenge that.

A: Rosseneu: The EU Commission argues the new rule will cut out food waste. Rubbish food was going to animals. In the credit crunch, the EU said it can ensure people don’t give up on fruits and vegetables. It’s a populist measure and sounds good on the surface, until you dig deeper.

It certainly sounds like quite a mess.

We are not sure, though, that the mess is actually because cosmetically challenged product is being allowed for fresh market sale to consumers. That could have been accomplished by keeping all the old marketing standards and simply allowing an additional standard for any sound product.

The mess is because every country now is making its own rules, and requirements for paper work seem likely to increase. The whole issue is a logistical nightmare.

But it is easy for the industry to overreach. Yes, a few standards may have had something to do with ripeness but most — in Europe as in the US — have to do with cosmetics. If, in fact, Sainsbury’s wants to sell a cauliflower of less than 11 centimeters to consumers, it is not entirely clear why the full weight of the state needs to be arrayed against the idea.

Of course, it is not at all clear that consumers will want “witches’ fingers” carrots with multiple fingers or “ogres’ toenails” curved cucumbers — but if they do that really is not a problem that needs to be solved.

We remember when Ronald Reagan was President and he got caught in a controversy over whether kiwi growers should be allowed to restrict the sale into the fresh market of very small kiwifruit and misshapen kiwifruit such as kiwifruit fans. Despite his free-market principles, President Reagan decided not to draw the line in the kiwi patch and allowed the restriction.

But it was the growers pushing for the right to restrict volume. In Europe the industry was divided. The Times of London article we referenced above quotes another association:

In Britain the move will help all growers whether they follow organic or conventional production methods. Patrick Holden, the director of the Soil Association, which champions organic produce, was delighted. Three years ago his own organic carrots grown in the hills of West Wales were rejected by Sainsbury’s for being “too wonky”.

He said: “This will be a fantastic step, especially for organic growers. We are about inner quality, not outer appearance — that is our hallmark. Fresh, local and seasonal is better than a bland but cosmetically perfect piece of fruit or veg.”

The National Farmers’ Union said in a statement: “Farmers and growers work extremely hard to produce quality food but nature does not always comply with a perfectly rounded sprout and poker-straight carrot.

“It is good to hear that people will be given the chance to buy odd-shaped fruit and veg and see they taste just as good. It will help eliminate waste, which has to be good news for consumers and British growers.”

Actually, we are unaware of any shortages in the UK of fresh produce. If all this product was being held off the market for cosmetic reasons and now it will be offered to consumers, the impact of much more supply and a relatively fixed number of mouths to feed means that prices will likely fall substantially.

So the Soil Association may regret its own success at lobbying.

Be that as it may, the drive for local inevitably means embracing standards different than the cosmetically perfect product that high tech centralized packing lines can produce.

When UglyRipe tomatoes were being restricted, it was clear that the cosmetic standards developed for regular tomatoes didn’t make sense in an environment where we are having an explosion of local production, heirloom varieties, etc., and standards will have to change.

The Europeans, though, seem to have thrown out the baby with the bath water. Yes, there is no reason to prohibit the sale of produce based on what some judge to be cosmetic imperfections. However, there is enormous value added through common standards. That anyone in the world can order a trailer of Washington Extra Fancy Red Delicious Apples and know precisely what they are buying reduces costs to consumers all over the world. The EU would do well to recognize that it can both broaden consumer options and maintain efficient trading through standards.

The whole point of the EU is to have a common market. As Jean Luc Picard used to say, they ought to " Make It So.”

Many thanks to Philippe Binard and Frederic Rosseneu as well as to Freshfel Europe for helping to keep the trade informed on this important issue.




How To Prepare For
An FDA Inspection And Recall

We have written much about food safety, including coverage of the spinach crisis of 2006, the “Import Alert” on certain Honduran Cantaloupes, a botulism outbreak tied to consumer mishandling of some carrot juice, the Salmonella Saintpaul outbreak — thought initially to be related to tomatoes and then, seemingly to certain chili peppers — and, more recently, recalls related to pistachios and sprouts.

One thing that tied all these food safety issues together is the involvement of the Food & Drug Administration. What companies are obligated to do, when they ought to comply, what the powers of the FDA actually are, how companies can appeal or object… these are all common questions that we have addressed in various ways at various times over the years.

Fortunately, we received a letter written by three partners and an associate at one of the world’s largest and most geographically diverse law firms to help members of the industry better understand the FDA and the rights of individuals and companies when dealing with the FDA.

Be aware that these contributors speak for themselves and not their law firm. Also be aware that there are many sub-specialties in dealing with laws related to the FDA. For example, we ran a piece here that linked to a Food and Drug Law Journal article on the FDA and Import Alerts. The piece also included an interview with the lawyer who wrote the piece.

Note also that among the correspondents who have written this piece is one Harold Gordon. Harold is a well known litigator in New York legal circles; he is also the son of Myra Gordon, the Executive Administrative Director at the Hunts Point Market.

Harold, along with co-authors William J. Hine and Jennifer L. Del Medico, recently wrote a column for Pundit sister publication, PRODUCE BUSINESS, titled Beware Of Bribery Beyond Our Borders. It is an excellent primer on the U.S. Foreign Corrupt Practices Act and a reminder to US companies dealing abroad as to some activities that can get them in real trouble.

Recently we ran a piece, titled FDA’s Pistachio ‘Warning’: The Other Side Of The Story, which told the story of a woman who was shocked by the behavior of a local FDA agent and who decided to do what she felt was necessary rather than what she was told to do by the FDA agent. It is a fascinating story and raises all kinds of questions. The following letter provides some guidance on how to manage one’s interaction with the FDA:

Given the Pundit’s impressive recent coverage of the pistachio recall, we thought the industry might appreciate a primer on some basic steps produce and other food industry companies can take now to minimize the pain of a future recall:

Are You Ready To Recall?

Earlier this year, the nation’s second largest pistachio processor voluntarily recalled more than 2 million pounds of nuts because they may have been contaminated with salmonella. A widespread pistachio recall, which included dozens of additional companies, came on the heels of a highly publicized peanut recall. But it’s not just nuts. This year, certain brands of olives, sprouts, eggs, sun dried tomatoes, dried yellow potatoes and other products have also been voluntarily pulled from grocers’ shelves.

No company wants to be associated with a recall. But any produce company that is involved in the growing, processing, or wholesale or retail distribution of produce needs to think about how their organization would perform under intense media and regulatory scrutiny should their product become the next pistachio or peanut. Smart companies should be armed with a recall contingency plan that an expert has vetted and the company has tested.

Working with the FDA

The United States Food and Drug Administration (“FDA”) is responsible for the safety and purity of all food products with the exception of meat, poultry and eggs, which are regulated by the United States Department of Agriculture. FDA inspectors may inspect a business without warning so long as the time is reasonable and the inspectors present their credentials and written notice to the owner, operator or company employee in charge. Courts have said that weekend inspections outside of normal business hours are reasonable.

What is a “reasonable” time for an FDA inspection will undoubtedly turn upon the particular facts and circumstances and the urgency dictated by any alleged tainted product. Inspectors must be given access to records the FDA needs to determine, whether food is adulterated and presents a threat or serious adverse health consequence to humans or animals. Such records may include hardcopy or electronic documents. Generally, inspectors may not examine food recipes or financial, pricing, research or sales data, other than data regarding product shipment. Inspectors must also be allowed to copy records and take photographs and samples, but they must leave a receipt for any samples taken.

Companies should train employees on all shifts regarding the potential for unannounced inspections, which should include training on how to interact with inspectors, how to respond to record requests, and what to expect generally during the inspection. For example, an owner or employee may ask to see the inspectors’ credentials and identification, although it is not permissible to keep inspectors from entering while contacting an FDA office for confirmation. Management and employees should strike a cooperative approach to an FDA inspection, assisting FDA inspectors in gathering relevant books and records, as obstructing an inspection can give rise to criminal or civil penalties.

Neither management nor any employees need, however, to agree to a voluntary in depth interview by an FDA inspector unrelated to questions simply designed to find relevant records or samples. It would be advisable to contact counsel before agreeing to let FDA inspectors interview anyone. In addition, someone should be tasked with maintaining a record and copies of all documents taken during an inspection, questions asked or other steps taken by inspectors.

Should you refuse the FDA inspectors access to conduct their inspection, the inspectors may obtain an inspection warrant in order to conduct their investigation. If a firm has denied the FDA inspectors access in the past, the inspector may obtain a preemptive inspection warrant.

The FDA does not currently have the authority to force produce or food companies to recall food products. The FDA may, however, seek court authorization to seize and destroy adulterated or misbranded food products. FDA officials may also provide the public with information about food products they believe pose risks to public health. The FDA’s authority to order recalls may change, as Congress is currently considering legislation that would authorize the FDA to order mandatory food recalls.

The Recall Process

The FDA classifies recalls into three categories. Generally, the FDA tailors its involvement in a recall to the so-called recall class or category, and is most heavily involved in Class 1 recalls.

Class 1: Recalls of dangerous or defective products that predictably could cause serious health problems or death. Examples include food found to contain the botulinum toxin or food with undeclared allergens such as peanuts, dairy products, selfish and soy.

• Class 2: Recalls of products that might cause a temporary health problem or pose only a slight threat of a serious nature; for example, unapproved food additives.

• Class 3: Recalls of products that are unlikely to cause any adverse health reaction, but that violate FDA labeling or manufacturing laws, for example, a failure to label retail food in English.

For the most part, product recalls are voluntary, but the FDA may request a recall if a producer is not willing to remove the subject product from the market without the FDA’s written request. However, the FDA’s regulations state that it will only request a recall in “urgent situations.” The FDA considers a situation urgent where the producer has refused to take action and the FDA has determined that (1) the product distributed presents a risk of illness or injury or gross consumer deception; and (2) agency action is necessary to protect the public health and welfare. Should a company decline the FDA’s request for a recall, the FDA may take legal action against the producer.

Generally, from both a legal and public relations perspective, a voluntary recall is far more preferable than forcing the FDA to take action. When dealing with the FDA, and in particular in the context of a recall, cooperation is expected and may benefit the company in potential civil litigation that may follow a recall. Proof that a producer cooperated with the FDA or other responsible agencies may, for example, be used to overcome allegations that punitive damages are appropriate as the company acted “willfully and wantonly.” In other words, it is usually in the company’s best interest to show that it is acting to preserve consumer safety and to assist the FDA as this can provide helpful evidence to fight claims that might later be brought by consumers or others.

Reduce the probability of recall

No company wants their name connected with a recall. While you cannot eliminate the possibility of a recall, you can take steps to reduce the chances that your company will suffer the expense and negative publicity associated with a recall, or far worse, litigation related to a recall.

• Work with credible suppliers. Conduct appropriate due diligence on the companies that are supplying ingredients and hire an independent outside party to conduct supplier audits. Be sure to communicate to suppliers your specifications and food safety requirements for all incoming goods, not just ingredients, including raw materials and packaging materials. Make sure that all of these incoming goods are thoroughly inspected before being used.

• Develop and maintain quality management systems covering quality assurance and control.These systems will help prevent adulteration and substandard quality.

• If your company manufacturers, packs or stores food products, comply with the FDA’s current Good Manufacturing Practices.

• Develop a customer inquiry and complaint database to identify potential issues before they become problems.Train your customer service personnel to take uniform and detailed information from each complainant.

• Make sure your products are traceable. In addition to markings identifiable by the consumer, ensure that production, shipping and sales records contain batch/lot/serial numbers and shipping dates.

• Be proactive. If a story in the media suggests a problem with the type of food that you produce (even if it has not mentioned your company), assemble your recall team and review relevant internal records and manufacturing and storage procedures.

Develop and test a recall contingency plan

Be prepared for the worst. Time is a critical factor when facing a recall. The FDA’s guidelines encourage producers to develop a contingency plan for dealing with recalls prior to an issue arising. While this is not required by the FDA, having and following a recall plan can go a long way in preventing or reducing liability for your company in the event the worst happens.

For this reason, you may want to consider preparing a recall manual for your company and encouraging all employees to become familiar with the process. Consider including the following in your recall contingency plan:

• Prepare a statement of purpose that articulates the recall plan’s goals including: (1) protection of the customer; (2) removal of the offending product from commerce; (3) compliance with federal and state regulations; and (4) protection of the company’s assets.

• Identify recall team members. Make sure there is a representative from the following departments: production, distribution, consumer affairs, legal, regional sales, purchasing, marketing, public relations, accounting, and quality assurance. Several areas can be represented by one person. Should your company not have these various personnel positions, consider hiring third-party public relations specialists to handle the media and a law firm to help guide the process and advise on legal issues.

• Assign clear responsibilities to recall team members. For example, designate a team member as the individual responsible for communicating with regulatory agencies (which should be done with counsel) and another responsible for communicating with the press. Streamlining communications with interested parties will ensure that the firm’s message is consistent and clear. In addition, consider assigning recall members responsibility to gather information that the FDA will require once you notify them that you intend to undertake a recall.

• Establish a system for fact gathering about a defective product. The recall plan should include a list of questions, regardless of whether the complaint is internal or external, including: (1) product identification; (2) complaint source; (3) the complaint; (4) the reason for the complaint; (5) support for the complaint.

• Address the following areas: (1) suspension of production; (2) notification of distributors, wholesalers or end users; (3) collection of recalled product; and (4) disposal of recalled product.

• Keep a written log of all of your actions, including: (1) when the complaint was received; (2) when the recall team met; (3) when the initial risk was evaluated; (4) when testing was done; (5) when production or distribution was stopped; (6) when and how interested parties were notified. This information can be critical should legal action later be taken related to the recall.

• Consider conducting a “recall” dry run to test your plan. Determine how quickly your team can identify and segregate specific products and inform those who might be affected by distributing, selling or consuming the product. Document the results of your mock recall in writing.

A recall can be an incredibly expensive and damaging process for any produce or food industry company. But with careful advance planning guided by experienced professionals, your company can be ready to better navigate the process and limit the pain of recall.

Harold K. Gordon
Partner
Jones Day
New York, New York

William J. Hine
Partner
Jones Day
New York, New York

Sharyl A. Reisman
Partner
Jones Day
New York, New York

Jennifer L. Del Medico
Associate
Jones Day
New York, New York

We appreciate the time that these attorneys and Jones Day put into this letter in order to help the industry.

The letter is chock full of helpful information and filled with good advice. We would add just three points:

First, although courtesy and cooperation are important, these are not synonyms for capitulation. The FDA field offices are not staffed with the caliber of person at FDA headquarters. Just because someone with a badge shows up and tells you that you must recall, as the song says: “It ain’t necessarily so.”

There have been cases in which personnel from local FDA field offices walked in demanding a recall and companies that had retained top notch epidemiological talent to do an independent assessment of the epidemiology were able to elevate the situation to Washington, D.C. and get headquarters to understand that the field office was misinterpreting the epidemiology and no recall was required.

Part of a good recall plan is that each firm needs to know A) What epidemiologist are you going to call for an independent assessment of the facts — and remember you need someone with a reputation so the FDA will listen, and B) What law firm will you call, and, though your usual firm down the block may be fine for many purposes, you really need someone with the contacts and staff time to escalate the situation to FDA in Washington, D.C. if that is required.

Second, when testing your recall plan, make sure you do so under less-than-ideal conditions. For example, if you have a food safety director who is the key person at the crux of your plan, assume that she will be at her daughter’s wedding in Tahiti when this hits. Your CEO is surely going to have just boarded a flight to Sydney when the FDA shows up. Plans have to be tested by surprise with real life conditions. Planning your test recall so that nobody important is on vacation is unrealistic and guarantees you won’t be fully prepared.

Third, be wary of “solutions” that don’t really solve the problem. For example, many firms realize that their communication capabilities will be overrun as the media and customers inundate the switchboard after an announcement. Recognizing this, companies will decide to hire a telemarketing firm to receive calls. This may be more polite than a busy signal, but that telemarketing company will not be able to provide substantive answers to customers or the media. There are general answers such as regular web site updates, and there is the need to figure out a mechanism to triage calls so that specific responses can be provided by knowledgeable staff. Remember rumor fills a vacuum — if you don’t get accurate information out there, you can count on inaccurate information spreading like wildfire.

Many thanks to Harold K. Gordon, William J. Hine, Sharyl A. Reisman, Jennifer L. De Medico and Jones Day for helping executives in the industry prepare for dealings with the FDA.

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