What happens when retailing gets so concentrated that vendors don’t feel they can say no? Take a look at the U.K. and you get the picture. The news is filled with headlines, such as Tesco, Asda Hit by Allegations That They Threatened Suppliers:
Tesco lashed out at the Competition Commission after details of a new line of inquiry in the watchdog’s investigation of the industry were leaked to the media at the weekend.
The commission is understood to have issued documents demanding access to millions of emails sent by Tesco and its rival Asda to suppliers in the run-up to the summer price war between it and other supermarket groups. The watchdog is looking for evidence that they threatened suppliers into granting them deep discounts that they could then use to undercut rivals.
Tesco said: “It is extraordinary to see the Competition Commission putting these prejudicial allegations into the media in this way. The allegation that threatening and aggressive emails have been sent has not been mentioned to us, despite numerous conversations with the Competition Commission on this matter.” The commission made the so-called Section 109 demands, essentially subpoenas, for the emails after being tipped off by a supplier.
Asda said it has “absolutely nothing to hide”. An Asda spokeswoman said the company, owned by Wal-Mart, the world’s largest retailer, was “fully cooperating” with the commission. She added: “We take our responsibilities as a major partner of a number of our suppliers very seriously. They are as important to us as we are to them. We absolutely observe the code of conduct.”
Specifically, the watchdog is understood to be seeking clarification as to whether Tesco and Asda used threatening language to convince suppliers to grant better terms on goods or face elimination of their relationships with the giant retailers.
The Competition Commission opened its inquiry into whether the supermarket sector’s top four companies — Tesco, Asda, J Sainsbury and Morrison’s — abused their dominant positions in the market in May. It is understood that the shift in focus to the summer price war, which contributed to a sharp decrease in inflation, represents a new direction in the investigation.
Previous inquires have failed to find wrongdoing by the supermarket giants. But the use of threats against suppliers could give ammunition to the commission, which expects to publish preliminary findings next month.
In fact, other sources have been more specific:
Competition watchdogs are considering sending staff into Tesco and Asda offices to hunt for evidence that the supermarkets have been abusing their suppliers…
…the commission uncovered evidence of buyers using threatening language to demand cash payments from suppliers to finance the supermarket price wars. The new investigation could delay the initial findings of the watchdog’s inquiry into the way the big grocers operate, which are due late next month…
Allegations of supermarkets abusing their suppliers to extract ever lower prices have been rife for years and a code of conduct setting out how supermarkets should treat suppliers was set up in 2000. Suppliers have insisted it is ineffective, but the competition authorities have repeatedly failed to find real evidence of bullying or unfair behaviour. Suppliers’ lobby groups insist suppliers are too frightened to come forward with hard facts for fear of being blacklisted. In the current inquiry the commission has offered confidentiality to suppliers to encourage them to make complaints….
…representatives of Tesco and Asda are said to have demanded “retrospective rebates” and warned suppliers they would have their goods taken off the shelves if they failed to comply. The emails, understood to relate to fresh food suppliers, were sent as the retailers plotted to cut prices by more than £500m.
The problem with the nature of this inquiry is that buyers don’t actually have to use “threatening language” to intimidate suppliers. There would have to be a search through tens of millions of e-mails to identify which buyers are indiscreet.
If, by chance, the commission does discover some threatening buyer, the chain that employed him will immediately disavow his threats, point out that management never told anyone to say any such thing and fire the buyer for incompetence.
Which would be reasonable as a more competent buyer accomplishes the same thing by simply asking for help.
The threat is implicit.
What can be done about this is unclear. For vendors, the real solution is to appeal directly to the consumer. If a consumer demands a particular brand, then the retailer needs the vendor, thus making the vendor not as vulnerable.
It is also true that consolidation on the vendor side makes it much harder for a large chain to “do without” a particular supplier. So consolidation on the supply end, whether through merger, acquisition, co-op or the use of few marketing agents, is another possible strategy.
The real reason the commission hasn’t gotten much from its inquiries is that in the U.K., many vendors — especially fresh foods vendors — are almost outsourced supply partners. Most only sell to one chain. So, implicitly, the retailer has to let them make a living or the vendors will close up.
The demands for rebates and whatnot are not dissimilar to the relationship between a U.S. chain and a regular supplier. When the buyer asks the vendor to lose money this week because he needs help on an ad or other problem — the implicit promise — the buyer is assuming the vendor can make it up in the future when the chain is not in the current situation.
The U.K. vendors are actually in a stronger position because it is much less likely they will be “fired” than a U.S. vendor.
Though vendors can battle buyers who want them to work for nothing by branding and consolidation, it is very difficult for an individual farmer to stand up to unreasonable demands. Some would say that this is the way of the world and those independent growers have to change to survive.
Others would argue that we have a societal interest in defending the domain of the yeoman farmer, and we should change the legal rules to prevent family farmers from being put in such difficult circumstances.
Protecting the family or independent farmer certainly has won our hearts, but the low prices big retailers manage to wring out of producers appeal to our pocketbooks.
They are so big on Fairtrade in the U.K., one wonders if they shouldn’t start domestically.
Life remains precarious in Peru as the nation transitions from searching for survivors to attempting reconstruction.
It is difficult to say what the exact situation is for the produce trade. No reliable crop estimates exist as everyone has been focused on the immediate problems.
Even if the crop still remains, there are problems with packing houses, roads and port facilities that may make exporting the produce problematic.
Peru’s government has responded with an initiative to accelerate the auction of a concession to operate a key port very important to the agricultural industry:
Peru’s government said it will speed up an auction of a concession to operate the southern port of Pisco after it was damaged last week by the country’s worst earthquake in more than 30 years.
The Aug. 15 quake, which killed at least 510 and left 80,000 homeless on the south coast, damaged 30 percent of the port, David Lemor, director of the state agency for promoting private investment, Proinversion, told reporters in Lima. Pisco ships liquid natural gas, metals and agricultural produce.
Peru, Latin America’s seventh-largest economy, is counting on $1 billion in investments in its 12 ports to boost exports by a third to $25 billion this year and to double exports within five years. The government last year auctioned a pier concession at Lima’s port of Callao to Dubai-based DP World.
“We’re going to place priority on projects in the Pisco area, such as the port, a highway to the highlands and a gas duct,” Lemor said. “It’s important that the port is competitive so that exporters have lower costs.”
The effects of the quake will slow Peru’s economic growth to about 7.6 percent this year from earlier forecasts of 8 percent, President Alan Garcia said. Half of the country’s population of 27 million lives on $1 a day.
The Peruvian government began a 300 million sole ($95 million) reconstruction program today that aims to employ 8,000 townspeople to rebuild roads, houses, churches and hospitals destroyed by the 8.0 quake, Garcia said.
“Pisco has enormous potential for agro-industry and needs a commercial port and airport,” Garcia told reporters there. “We’re going to make the area better than it was before.”
Peru is the world’s largest exporter of asparagus and paprika, most of which is grown along the south coast.
The World Bank today pledged $400,000 to help finance reconstruction, while Ecuador and Italy sent planes carrying clothing, medicine, food and bottled water. Donor nations and relief agencies have pledged a total of $40 million.
Peru has suffered three destructive earthquakes in the last decade. Last week’s quake was the world’s most powerful since a magnitude-8.1 temblor struck off the Solomon Islands in April, triggering a tsunami that killed 54 people. The U.S. Geological Survey said last week’s quake carried about as much energy as about 790 nuclear bombs.
The government of Peru has also appealed to the international community, specifically the Food and Agriculture Organization (FAO) for technical help to review damage to the agricultural infrastructure:
The FAO prepares mission to assess situation in the regions most affected by the earthquake in the Central Coast of Peru
Luis Castello, Representante
Lima, Peru, 16 of August.The Peruvian government, through the Ministry of Agriculture, requested the technical assitance of the FAO, to assess the damage caused to the agricultural infrastructure and means of subsistence of the rural populations of Ica, Pisco and Chincha, affected yesterday by the 7,9-degrees earthquake that shook the country. According to the figures of the Institute of Civil Defense, died and hurt hundreds are registered until the moment of; the earthquake destroyed houses, hotels, buildings and health centers, not including damages in rural areas.
The FAO emergency aid aims at assessing the situation of the infrastructure and the local agricultural capacity; identifying actions to restore the local food production and to reduce the dependency on food aid. The Ica Region has a population of 687,300 inhabitants, with an area of 243,453 hectares, a poverty rate of 23,8% and its main economic activities are agriculture and mining. Icais the second cotton producer in Peru, the first grape producer and sixth producer of yellow maize at national level. Fruit trees, cereals, olive tree and tunas are also cultivated in the area. Icais the first iron producer of the country.
The FAO mission is coordinated with the United Nations Emergency Team –UNETE- and with the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), in face of the occurrence of natural disasters or humanitarian urgencies. In addition we have installed the UN Web site to offer information on the emergency: http://www.onu.org.pe/publico/infocus/
In the days, weeks and months to come, the situation will be clarified and the industry prospects will become more clear. Right now there is a humanitarian crisis and one that will require continuing attention. The situation brought forth this thoughtful appeal to the trade from Bruce McEvoy of Seald Sweet, one of the trade’s most respected personages:
AN APPEAL TO THE INDUSTRY
What is the extent of our social responsibility as an industry?
Last weekend I was dining with friends and someone asked where the delicious asparagus came from. I proudly stated my knowledge, Peru, and there was an immediate silence in the room.
Instant reflections of what we had seen over the past few days could not be ignored. Images of crushed adobe cottages in the region of Ica; a church collapsing on its congregation during prayer in Pisco; a complete breakdown of the infrastructure with parts of the Pan American highway no longer in place. The devastating power of an earthquake brought terror to farming villages 160 miles south of Lima; farm communities that grow and ship asparagus, sweet onions and now citrus to the United States.
While humanitarian aid is flowing in from around the world, when the headlines fade in a few weeks those who will suffer the most are the farm workers and their families who have lost their homes and are now displaced. Similar to the conditions created after the 2004 Florida hurricanes, these critical workers within the global produce industry deserve not only our compassion but also our financial support.
Seald Sweet launched a fundraising effort following the hurricanes in 2004 and soon recognized the generosity within our industry, but we also recognized that one company does not have the capabilities to mobilize the industry’s resources for relief efforts. Is this perhaps a role for United Fresh and the PMA where they can provide the industry with the disaster facts, publish the message and provide a registered foundation for the collection, oversight and distribution of relief funds?
It may be inappropriate for me to speculate on the charter of those associations, particularly their foundations, but I’m trying to stimulate your thinking; I’m searching for ideas! Many of our retail partners, produce companies and suppliers to the industry have foundations that can make contributions to disaster relief efforts. As we learned from our Florida experience, many retailers were willing to join with the suppliers to conduct fundraising promotion features that also involved the consumer. The desire to help others in distress is part of our culture we just need to find a mechanism to make it happen.
I’m open to your suggestions and no idea is off the radar screen. I don’t expect that a solution will be simple but it deserves our attention. In Peru we’ve witnessed another natural disaster and this time it is not only a neighbor but a neighbor who is part of our industry. We need to try our best to support them as produce colleagues!
Again, what is the extent of our social responsibility?
— E. Bruce McEvoy,
Seald Sweet LLC
Vero Beach, Florida
It is only natural that when a crisis arises, we will not only want to help but, specifically, want to help the people we feel closest to — in this case, the people in our trade or industry.
We spoke to Priscilla Lleras, the director of the Peruvian Asparagus Importers Association, and she indicated an immediate need for water, canned goods, blankets and tents delivered to Miami. This aid would go through the association to the produce workers most affected by this earthquake. If your organization is in a position to aid this effort, please send a note here so we can pass it on to the Peruvians.
Ms. Lleras explained that there are many private aid efforts being run by companies to help their shippers and others connected with the asparagus or sweet onion business. But there are no 501(c)3 charitable funds focused on helping the produce industry or its employees.
To Bruce’s point, this creates a limitation. One can donate to CARE or other broad-based charitable efforts but these funds won’t go to the produce workers specifically. Beyond that, one has to create a private aid effort.
Unfortunately it is not an easy problem to solve.
As always, in charity, collecting the money is the easy part. Spending it effectively is the hard part.
Neither PMA nor United are well equipped to ensure the “oversight and distribution of relief funds” in an earthquake-ravaged area of Peru. They would either have to give the money to a charity such as CARE or give it to a produce association in Peru whose own competency to run a charitable effort is unknown.
In addition, laws concerning charitable donations generally restrict giving money to non-charitable organizations such as produce associations.
Perhaps a relief organization could be persuaded to open a special effort just for produce people if there was the likelihood of substantial donations to support it.
Or perhaps, we have sort of stumbled upon a reasonable approach. Those with direct interests in an area struck by crisis provide special aid to their “friends and family” and the rest of us donate to general relief and reconstruction, hopeful that rebuilding hospitals and the like will help everyone, including the produce people.
That may be the best we can do, but it is quite unsatisfying. Bruce has touched a nerve in identifying the generosity of our industry and our people; it would be nice if we could find a way to tap that more usefully. Like Bruce, we are open to suggestions.
Many thanks to Bruce for reminding us of Seald Sweet’s efforts after the 2004 hurricanes and for raising the saliency of this issue.
There’s a really great video on Country-Of-Origin labeling … as they conduct the debate in New Zealand. Green Member of Parliament Sue Kedgley is trying to get a COOL bill passed for perishables, while the counterpoint is by Brenda Cutress of The New Zealand Food and Grocery Council. Here is how a TV moderator by the name of John Campbell introduces the piece:
“You’ll always be a kiwi, if you love our Wattie’s sauce.”
That’s what the ad said, and Wattie’s tomato sauce is one of those products we see as “ours”.
Like L & P and the buzzy bee — part of our cultural identity.
But the sauce in this bottle is made in Australia.
Yes, New Zealand’s favourite sauce is an Aussie import, so too is this Charlie’s orange juice.
New Zealand grows delicious peaches, apricots and apples, but … Watties have sourced the fruit in these cans from China.
This peanut butter, the fruit squirtz, and the go fruity, China, once again.
And more exotic still, this Wattie’s asparagus… all the way from Peru.
We saw Chinese apricots before, these apricots are from South Africa.
And we’re not sure where this bacon and ham is from; it might be from New Zealand, but almost half our pig meat is imported.
We asked Watties, for one, why they’re importing fruit like apples.
They reminded us the vast majority of the fruit and veggies they use are still from New Zealand.
They also said seasonality is an issue.
Fair enough too, but for canned apples?
New Zealand exports 300,000 tons of apples a year. Aren’t there enough to can local ones during season rather than importing them from China?
Watties wouldn’t be interviewed for this programme.
At least Watties tells you where they’re importing from, good for them.
Many food importers don’t.
This Gregg’s garlic powder is typical, packed in New Zealand, from imported ingredients, it says.
It does say imported, but from where?
Should we be told?
Green MP Sue Kedgley says “yes”, and is trying to get a mandatory country-of-origin labeling bill through Parliament.
The New Zealand food and grocery council says, “No”, and Brenda Cutress is beside Sue Kedgley in our Wellington studio.
A bit of an odd choice of guests as the MP wants COOL for perishables and the other lady represents food processors, so they have no problem agreeing to COOL for produce and meat.
A bit shocking, though, in light of the food safety issues from China, that Ms. Cutress from the New Zealand Food and Grocery Council can be so sanguine about food safety, relying on a bunch of “certificates” from countries around the world.
Watch the video here.
The broad produce industry, understandably, focused on citrus when California had a freeze. The August 2007 issue of Sunset magazine, though, has offered a reminder that the freeze also hit California’s nascent mango crop:
California farmers started experimenting with mangos as early as the 1880s, but without much success; too much of the state was too cold for the fruit to ripen properly. And, then, in the early 1980s, one Howard P. Marguleas had an inspiration.
Marguleas was chairman of Sun World International, a grower and breeder of citrus, grapes, and stone fruits. On a visit to Israel, he saw mango orchards west of the Dead Sea. It struck him that the hot, dry climate was similar to California’s Coachella Valley, which runs from Palm Springs southeast to the Salton Sea.
Everyone told him mangos couldn’t be grown in California, but Marguleas persisted. He brought in an Israeli consultant, ordered trees from Florida, and in 1984 planted the first 10-acre block at C.M.&S. Ranch in the Coachella Valley crossroads town of Oasis. Here he tested more than 50 mango varieties before settling on a variety named Keitt. Although developed in Florida, Keitt thrived in the desert, producing fruit whose orange flesh is very sweet and fiber-free, with rich, concentrated flavor.
C.M.&S. is an unlikely site today, a jungle of 20-foot-tall mango trees rising from the sands, guarded by a chain-link-and-razor-wire fence. (The security measures are needed because thieves sometimes attempt to break in at night to steal fruit and dig up rows of trees.)
If you were wondering how, in light of industry problems with labor, they can get the mangos harvested in the desert heat, they have an ”incentive program” in place:
On a visit during last summer’s harvest, the temperature had risen to 100° by midmorning. But, said Linden Anderson, who is in charge of Marguleas’s mango plantings these days, “This is mild. Last month we had four days over 120°, and 10 years ago it got up to 130°.” When it gets more than 118°, he added, young leaves are damaged and weak trees die.
Mangos must be harvested firm and ripened off the tree, like pears; plumpness is a better indicator than skin color for choosing a good Keitt, said Anderson. Harvesting mangos is tough, sweaty work — climbing ladders, plucking fruit into heavy canvas sacks, and releasing the contents into plastic bins — but the workers relish the fringe benefits: They can eat or keep fruits that are too ripe to ship. Said Ted Johnson, who manages all of Marguelas’s farms, “There’s never a labor shortage for mango harvest.”
The freeze was the latest of many obstacles to California mango production, but the plan is to rebuild:
Sweet as their fruit is, mangos have not had an easy time of it in the California desert. Mango growers have suffered financial ups and downs. There’s the thievery problem, and development pressure too, as golf courses and condominiums spread down the Coachella Valley. Competition from imported mangos is increasing: Just this spring, the Department of Agriculture started allowing India’s celebrated Alphonso mangoes to be imported, and varieties from Thailand will be arriving soon.
All these challenges paled before the meteorological nightmare that occurred this past January. In the worst freeze to strike the California desert since 1937, temperatures plunged to prolonged durations of 26°. The cold proved even more dangerous than heat for the mango trees. Groves were blackened, with many trees killed and the remaining ones badly damaged. Production this year may collapse to 250,000 pounds, just 6 percent of the 4,000,000 pounds anticipated before the freeze.
Yet if there is one thing that California mango producers possess in abundance, it is faith. Marguleas shows no inclination of halting his mango dream, said Anderson: “Howard’s the eternal optimist.” More mango trees are growing in the Coachella Valley than ever before, and, Anderson added, “We’re planning on replanting the damaged or killed trees. It’ll take several years to recover, but we’re not going away.”
Howard Marguleas has long been an innovator in the field. If you look at the whole field of proprietary produce, you see giants like Syngenta drawing inspiration from work Howard was doing decades ago.
The freeze is a mighty blow, but Howard has known the taste of bitter challenges and has always lived to fight another day. Not many men can say that much.
There was never a question that Howard would leave his mark on the produce industry, but who knew he would make a jungle spring where a desert stood?