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Pretending To Buy Local: Why Is Wal-Mart Ashamed Of Its Important Role In Bringing The Produce Of The Country And The World To Its Customers At A Reasonable Cost?

The Wall Street Journal ran a piece titled, ‘Local’ Grows on Wal-Mart, which tells precious little about what Wal-Mart is doing and an awful lot about how easily reporters get snowed when they don’t know much about the subject at hand:

Wal-Mart Stores Inc., which scours the globe seeking the lowest-cost suppliers, is finding it can save money by buying more fruits and vegetables grown closer to its stores.

Other food retailers, including Supervalu Inc. and Safeway Inc., also are racing to expand the amount of locally grown food they offer, as more Americans flock to farmers markets and gourmet grocers such as Whole Foods Market Inc. in search of fresher produce.

While some retailers, such as Wal-Mart and Kroger Co., say that buying locally yields savings, most of the chains say their main objective is to satisfy changing consumer preferences.

The lack of a federal standard or any consensus on what qualifies as "local" food leaves grocers a lot of leeway in their marketing. At most large retailers, fruits and vegetables harvested hundreds of miles away can be touted as locally grown.

Such loose definitions have sparked criticism from small farmers and organic-food advocates that the chains are merely adjusting their marketing to capitalize on the latest food trend, rather than making real changes in their procurement practices.

Wal-Mart, the largest grocer in the U.S., with more than $120 billion a year in food sales, encourages its managers to buy produce grown within 450 miles of its distribution centers, even if local peaches, for example, cost more than those produced across the country in California.

That's because the Bentonville, Ark., giant has determined that, in an era of high diesel prices, trimming the number of "food miles" produce travels cuts fuel costs. Buying locally also reduces produce spoilage, Wal-Mart says, though it won't quantify the savings.

This summer, Wal-Mart has lined up farmers to grow jalapeño peppers in 30 states, twice as many as last summer. A decade ago, almost all of the chain's hot peppers came from Florida, California and Mexico.

"We can get chili peppers from Florida all day long, but at the end of the day that is not necessarily the best model for us," says Darrin Robbins, Wal-Mart's senior manager for produce. "I'm going to pay a higher price in Ohio for peppers, but if I don't have to ship them halfway across the country to a store, it's a better deal."

The shift – and a related pledge Wal-Mart made last fall to double purchases of locally grown fruits and vegetables to 9% of its U.S. total for produce by 2015 — promises to create winners and losers in American farming, with growers in some regions gaining new business and others seeing reduced orders….

Where does one begin?

First, this is not the way produce pricing works. We used to export lots of apples, for example, and had the flexibility of buying in lots of growing areas. Many of these apples went to northern Europe. If one simply looked at the map, one might think it would work out a lot cheaper to ship New York State apples rather than Washington State apples. We did ship lots of New York State apples but mostly Macintosh or Empire varieties that they wanted in the UK and were not available in Washington State.

When it came to Red Delicious apples, it turned out that both apple shippers and buyers on the east coast knew what the freight rate was from Washington State. Prices for apples of comparable quality grown in New York rose — above Washington State prices — as buyers in New York City looked to pick up bargains. This is what markets do. So the notion that there are these massive disparities in prices between different growing regions and that people can pick off massive savings is mostly not the way it works.

Second, shorter transportation is not necessarily cheaper. The cheapest way to supply an east coast customer from the Midwest is often to ship a full trailer to California where there are lots of mixed loads loading. Then when shipping back to the East Coast load up a full trailer with multiple items, and send another full trailer back east. This is why Fedex was ingenious when it recognized at its start that the cheapest way to overnight a package from Boston to New York was to fly it through Memphis. The key is filling up the trucks which is hard to do when buying from small farms. If one is concerned with emissions, it is also worth noting that deliveries made in half empty trucks, double the emission per pound.

Third, vendors we speak to know nothing of instructions being given to Wal-Mart buyers to buy local even if it costs more. There certainly are some products that can be seen as categories of their own — say Vidalia onions or Southern peaches — that retailers, including Wal-Mart, may pay more for. It is also obviously true that Wal-Mart, as with all retailers, is mostly concerned with delivered costs, not FOB costs, but, Wal-Mart has a massive initiative to reduce procurement costs. The notion that it is running around the country looking to overpay to be “local” is so counter to what is actually happening at the company that it is mind-boggling such a thing gets written.

Fourth, the whole discussion is bizarre because what advocates care about when they talk about local – small scale, bio-diverse farms, family farms, within a few miles of a store, not a distribution center that is going to ship things long distances – has virtually nothing to do with any local buying Wal-Mart may actually do.

Fifth, undefined claims that local will grow to 9% of sales of US produce sales by 2015 have more to do with store distribution than produce procurement. Wal-Mart has been under-indexed in California, and every time it opens a store there, it improves its “local” numbers. It is completely meaningless and unverifiable.

Sixth, although it has efforts such as its Heritage Agriculture program, such programs account for significantly less than 1% of Wal-Mart’s produce procurement. It is more PR than procurement. It is the way a giant geo-political entity tries to appease regulators and advocacy groups.

Seventh, it will always be easy to find growers appreciative of business. But we caution those growers to not invest substantial money to service Wal-Mart without a Plan B. One option for a grower is to maintain a diverse business portfolio so that they can walk away from the Wal-Mart business the day Wal-Mart executives decide they need margin and want to get it from their friendly local grower. Alternatively, a grower can insist on a long term contract or agreement in writing with Wal-Mart that assures the local grower of sufficient time to amortize any investments being made. This year, Wal-Mart may want more Jalapeño suppliers, but it is highly likely that ultimately Wal-Mart will buy most of their jalapenos from those who will sell them cheapest. Growers need to be prepared.

Eighth, the idea that local means less spoilage depends on an awful lot of things... such as the local grower having the same advanced precooling and packing facilities that national shippers do. Some do have such facilities, but if they do, then they are not small-scale operations.

Proving that not only Wal-Mart wants good publicity, the article goes on to quote other retailers, including an unidentified spokesperson for Supervalu who makes a claim that can’t have anything to do with the subject at hand:

“Supervalu, which owns the Jewel-Osco, Albertsons and Lucky supermarket chains, estimates it now buys between 25% and 40% of its produce locally for its more than 1,100 stores across the country.”

Presumably that refers to where Supervalu’s procurement agent is or, perhaps, where the company they buy from is such as a terminal market wholesaler, but it can’t possibly refer to where the produce is grown. Bananas, tropical fruits, counter-seasonal imports from Chile, South Africa, the Caribbean, plus Mexican produce and California produce — how could it be possible for 40% of produce to be “locally grown”? Remember during large parts of the year, there is very little grown locally for chains such as Acme in Philadelphia — it is, in fact, impossible.

There is no reason not to celebrate good locally grown produce, but there is also no reason to be ashamed of a worldwide distribution network that brings peak-of-the-season produce from growers all over the country and around the world to the smallest towns in the US at a highly reasonable price.

In the end Wal-Mart, and any large retailer, can’t gain from pretending to be something it is not. That lack of sincerity and authenticity will leave a far worse taste in the mouths of consumers than will some produce shipped from the west coast.

Someone at Wal-Mart should reign in the PR team that is pushing for this kind of coverage and teach them about the virtues of what Wal-Mart actually does for the American consumer.

Costco’s Finished Product Testing May Do More To Satisfy Advocacy Groups Than To Minimize Food Safety Risks

Craig Wilson, Costco’s Vice President of Quality Assurance and Food Safety, is one of the most expert and committed food safety people in the world. We know Craig and have great respect for him. He does not, however, work in a vacuum.

Despite the way the issue has been portrayed in the press, Costco has required finished product testing before. In fact, back in 2007 we asked Eric Schwartz, then the President of Dole Fresh Vegetables, Inc., what he thought about Costco’s requirement to test spinach.

High level executives have to deal in a real-world environment that includes regulatory pressure, demands of advocacy groups and actual food safety concerns. It is in the navigation through all this that one finds the explanation for Costco’s decision to require finished product testing on produce and explains why the industry, especially the fresh-cut sector, sees ominous clouds ahead in terms of requirements for testing that will involve massive expenditures and little, if any, return in terms of food safety.

We’ve studied the issue of finished product testing for a long time. You can learn a great deal about it by taking a look at our interview with Mansour Samadpour, Founder, Principal of IEH Laboratories & Consulting Group, which we ran in the aftermath of the spinach crisis, and of the decision of Earthbound Farms to begin such testing.

Testing is not a bad thing, but the problem is that nobody is prepared to test, nor is Costco or anyone else prepared to require, enough testing to generate statistically significant results.

At PMA’s recent Foodservice Conference, Bob Whitaker, Chief Science Officer at PMA, laid out the issue succinctly. He explained that there were approximately four million spinach plants in one single acre of land. Each plant has from four to six leaves. That is about 20 million leaves per acre. The scientific issue is not whether one tests that land or not; the issue is what percentage of those leaves is one actually prepared to test. Due to the cost of testing and the low incidence of problems, testing is simply not done frequently enough to have any impact on food safety. Nothing Costco is doing is going to change that.

So if Costco is not going to make food safer, why would the company impose such a cost on its vendors, costs that always are ultimately paid by Costco’s own customers?

The common expression is that testing is useful for validation of food safety systems. That is said a lot but doesn’t really make much sense. If the testing is not statistically significant, it can’t validate anything.

So what drives this? Sometimes it is internal, especially pressure from the legal department. Following the spinach crisis, Costco withdrew from selling spinach. When it returned to selling spinach, we wrote a piece titled Costco Quandary — Should Pre-Washed Spinach Be Washed Again?.

The interesting thing here, of course, was that Costco’s decision to add a large starburst demanding that consumers wash the already pre-washed product was in direct contradiction to FDA recommendations. The FDA had analyzed the matter and determined not that washing couldn’t theoretically reduce food safety risk but that, practically, the risk of cross-contamination in the consumer’s sink, bowl, utensils, etc., were greater than the risk of imperfectly washed produce. In other words, consumers were likely to wash raw chicken in the sink, imperfectly sanitize it, then get pathogens on the spinach when it was washed in the sink.

To a legal department, though, not all pathogen contamination is created equal. Although surely the individuals would regret any illness, an illness that can be traced to consumer negligence or incompetence is a totally different matter from an illness that can be traced to a product sold by the retailer.

Now, though, the issue has gone beyond legal. Large corporations today not only have to look to sell products but also to operate in a world of advocacy groups.

Advocacy groups have begun to make it clear that just as they have pressured corporations on genetically engineered foods and bisphenol A, so will they soon begin pressuring corporations for finished product testing.

Here is a letter to shareholders of Kroger that dealt with a proxy item sponsored by a group called Catholic Healthcare West. It was a relatively innocuous proposal requiring Kroger to issue a report on “toxic chemicals” in products it sold. These proposals almost always lose, but they are a headache and they come back year after year.

One point is that retailers don’t need the headache. The other is that on an issue such as product testing for safe food, the proposals are so intuitive that consumers, who know very little about the subject, are likely to perceive supermarket opposition to mandated testing as lack of concern for food safety.

In the grand scheme of things, produce is a small part of sales, the added cost a tiny part of produce costs and so the stomach to fight is not likely to be there.

There are real issues with this. Money spent on testing that won’t make produce safer could have been spent to actually make it safer. Raising costs of basic foodstuffs hurts the poor most of all as they spend a higher percentage of their incomes on food. Testing can also create a careless corporate culture. US auto manufacturers were bedeviled for decades by the fact that line workers let things pass knowing that there was quality control step at the end that would pull flawed product. Because food safety outbreaks are fundamentally black swan events, months or years of negative testing can build an undeserved confidence in the completedness of a firm’s food safety program. This reduces the motivation to improve.

Positive findings in testing, so far, do not seem to be resulting in process improvements — one leaf of spinach is positive, the next is negative — and it doesn’t seem to indicate that any company or person has done something “wrong.”

One also wonders how the requirement for sophisticated testing will actually mesh with retail priorities to expand local and small scale sourcing.

The most likely outcome is that everyone will be forced to test so as to satisfy outside advocacy groups, but the amount of testing will be minimized to reduce costs. The end result will be lots of PR about testing, lots of money wasted, no improvement in food safety.

It is a compilation of outcomes such as this that helps to explain why our country is in trouble.

McDonald’s, Happy Meals, Obesity, Produce and the Nanny State

The announcement that McDonald’s would add fruit to its child-focused Happy Meals has brought lots of publicity. From The New York Post, which proclaimed It’s Mayor McFruit,to The New York Times, which celebrated that McDonald’s Trims Its Happy Meal,to the Los Angeles Times, which exclaimed that McDonald's to make Happy Meals more healthful, most media outlets greeted this as good news, even while noting that some critics felt the move didn’t go far enough. San Francisco has passed a law that will ban the inclusion of toys in meals that don’t meet its nutritional standards. Similar legislation has been proposed for New York City.

On the substance of the change, McDonald’s is being more effective than most at such efforts. Not only is McDonald’s adding 1.1 ounces of produce, typically apple slices, but it could also be carrots, mandarin orange slices and other fruits or vegetable items depending on the season and location, but McDonald’s also reduced the French fry serving from 2.4 ounces to 1.1 ounces — although kids can request to double up on either the fruit or the fries.

In total, this reduces the calories in a typical hamburger Happy Meal from 590 to 470.

If parents have their children drink water instead of 12 ounces of Coca-Cola, they can shave 120 more calories off the meal.

Of course, there is precious little evidence that this type of change will have any impact at all on the health of children or childhood obesity.

Teenagers — who don’t typically eat Happy Meals — are the most intense consumers of fast food, with around 17% of their total food coming from these sources.

So, overwhelmingly, children get their nutrition from places other than fast food, so minor changes in the fast food product assortment are unlikely to influence health outcomes very much.

And, of course, nobody has tested these changes to know what impact they will have on consumption. Cutting calories out of one order might lead to lower consumption, but it might not.

When Disney switched to a default to apple sauce and grapes and carrots, the Jr. Pundits gladly took the produce — and then asked for a large side of fries. Their calorie consumption actually increased. Disney, of course, got an additional ring — which may not have been an unintended side effect of the menu change.

Who is to say that the children won’t snack more when they get home or go to the beverage dispenser while at McDonald’s and get an extra Coke? Maybe the children will be hungry and order something from the McDonald’s Dollar Menu, say a 330-calorie hot fudge sundae.

It is also notable that McDonald’s did not add what is obviously missing from a Happy Meal — a vegetable. Many a parent would let their children eat the fries, if the kids would eat a cup of broccoli florets or some nice spinach as well.

We read this whole story more as a tale of sustainability in action at a high corporate level and as a cautionary tale as to why we are having trouble getting economic growth booming.

In one of the sustainability bibles, The Triple Bottom Line, the authors tell the story of how the charitable trust that owns most of Hershey’s was blocked from selling the company even though, legally, the trustees were free to do so. The moral of the story, and the case for sustainability, was that it is not enough to know one’s rights; a business today has to realize that various societal “stakeholders” can use the media and the government to cause businesses significant harm.

So instead of focusing on selling its customers what they want to buy — only 11% of consumers take the long-existing option to get apples instead of fries in a Happy Meal — the executives at McDonald’s are busy trying to position the company in a way that heads off laws and regulatory action and that avoids reputational harm.

The cost of this is not always obvious, but it is real. Wal-Mart has been struggling for years with declining same-store sales, in no small part because the company had to pivot from a merchandising organization focused solely on pleasing consumers to a geo-political entity, balancing consumer interests against corporate interests that can be affected by regulatory, legal and reputational issues.

Nobody can blame executives at McDonald’s and Wal-Mart for dealing with the real world. Indeed the whole restaurant industry is concerned about positioning itself on the side of the angels in the anti-obesity campaign.

This is what drove the National Restaurant Association and the International Foodservice Distributors Association to publicly announce an alliance with PMA to double usage of produce in foodservice. Although, to date, we have been most disappointed with NRA’s follow-through, and we’ve written about the matter here and here, we were thrilled to see NRA President, Dawn Sweeney, make an extensive investment of time to attend and present at PMA’s recent foodservice conference. So, perhaps, we have turned a corner and will see the NRA really start pressing this issue with its members. 

In any case, the fact that NRA felt the need to at least proclaim its involvement in this effort tells us a lot. After all, why would restaurant owners care if people like to eat produce or, instead, prefer pasta? The answer is they wouldn’t, unless they were concerned with what others — the media, the government, advocacy groups — were thinking about the restaurant industry.

Appropriately, the produce industry will celebrate McDonald’s move — McDonald’s will almost surely buy a lot more apples than they would have. So that is a real industry win. Clever marketers are already thinking of what else they can persuade McDonald’s to slip into the Happy Meal.

But the industry should also ask itself why consumer demand for its products is not sufficient to drive these kinds of menu revisions? Why is it necessary to have public pressure on McDonald’s to sell more produce? Why isn’t the consumer demanding the product?

When we read of efforts such as those of San Francisco and New York to ban toys in the children’s meals unless some arbitrary standard is met, we recoil a bit. Partly it is because we detest such nanny-state attempts to manipulate the citizenry. It is also because we think someone should actually study these things before doing them, and we know of zero evidence that such policies reduce obesity in children. The Jr. Pundits never had a problem ordering something to get a toy and then not eating the meal if they didn’t want it. So we have severe doubts that eliminating the toy will reduce the calories consumed by children.

But we also know that no food is bad or good, and if the children want some French Fries, even a full 2.4 ounces occasionally, that is not a problem.

Inevitably, it is the parents who have to step up and assume responsibility for the diets of their children. Anything that sends a message that the government or McDonald’s is going to take care of these issues, anything that encourages a parent to think he or she doesn’t have to be engaged, is likely to lead to more obese children, not less.

We are not the only ones with these concerns. Here is a funny little video that focuses on the new San Francisco law: 

How Will Your Employees Do On The Summer Food Safety Quiz?

The University of Nebraska is a wonderful source for food safety tips that consumers can use. We’ve featured its work before with pieces such as Top Ten Food Safety Myths Slideshow.

With summer here, Lisa Franzen-Castle, an Extension Nutrition Specialist, and Alice Henneman an Extension Educator, came up with a slide show quiz, titled, Test Your Summer Food Safety Savvy! This slideshow is based on an earlier work titled, What’s Your Summer Food Safety IQ, by Diane Van of USDA’s Food Safety and Inspection Service.

Useful for everyone and, perhaps, retailers might want to consider posting it on their own websites:

View more presentations from Alice Henneman.


A Different Approach

If we are serious about increasing citrus consumption, this is definitely the way to go:

However, the grape people have CÎROC and they also have Diddy!

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