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The Perishable Pundit Visits South Africa
Dispatch IX: Wrong Ways To Reduce Food Prices

The Cape Times of Wednesday, September 6, 2006, reports that in South Africa a quarterly review of food prices presented before the national assembly’s agricultural affairs committee by the National Agricultural Marketing Council (NAMC) found that:

Rural people still pay more for food than those in urban areas, although most of South Africa’s food products are produced in the farmlands.

The NAMC executive officer Ronald Ramabulana pointed out that there was now “…a general acceptance within the council that the government needs to intervene and regulate food pricing, instead of leaving the issue in the hands of the market, which in essence means only four retailers in the country.”

The chairman of the NAMC, Mohammad Karaan, who I met at the allFRESH Conference, complained that the council’s work was hindered because the Council did not have “statutory powers” to take measures to “protect consumers.”

I really have come to love this country; so many good people are involved in such a noble task of attempting to transition the country to a new day.

But it is talk like this that makes me despair for the nation. Because it is action based on this world view that will take a world-class food exporter and bring mass starvation to the country.

Is it ignorance or demagoguery? That is the question. Four thoughts come to mind:

  1. The fact that food is grown in rural areas tells us nothing, literally nothing, about what the price of food should be in rural areas. The great insight of Federal Express was the realization that the cheapest way to distribute packages between two cities 500 miles apart could be to ship the package to a hub in Memphis, Tennessee — 1,000 miles away — and then ship it another 1,000 miles to its destination. Logistics and transportation, packaging and marketing, the allocation of product to different geographic areas, all these and more factor into the setting of a price.
  2. The regulation of food prices can only lead to shortages, black markets and other issues. This is because you can’t replace the judgment of actors in the food industry with the wishes of government officials. If you try, you assure that production, distribution and/or marketing will be constrained, resources will be reallocated to where they can get better returns and the next thing you know, there will be three-hour lines outside stores waiting for bread. The government here has a friendly feeling toward the Cubans. I’ve been there and seen people reduced to a life of queuing for a potato. I was with Kevin Moffitt of the Pear Bureau and watched adults in wide-eyed wonder as he showed them a pear for the first time. My advice to South Africa: don’t go there. It is the path to ruin.
  3. I’ve toured a number of retailers and gave workshops for several of them. I was quite impressed with these companies. These are decent operators struggling with difficult environments. First, although there may be only four western-style supermarket chains, there are loads of other venues for buying food, including a substantial “informal” sector that sells a lot of inexpensive food right on the street. Second, the four supermarkets seem pretty competitive. Four is not one. Third, there would be little difficulty in opening stores to compete if these four did act in secret consort to raise prices. I was shocked at how “anti-retailer” some of the comments at allFRESH were by certain speakers. These supermarket chains are businesses doing a service selling things to people and buying things from producers. The NAMC should send them a thank you note, not attack them.
  4. The NAMC needs to look at the barriers to entry in the retail market and work on those. If the members want competition, they should go to sleep every night asking how can we make the opportunity we offer so compelling that both domestic and foreign investors will want to open competitive retail outlets in the Republic of South Africa. How do I make our offer compelling to Wal-Mart, Costco, Tesco, Carrefour and new domestic concepts?

Here are some ways to start:

  1. The crime situation here is horrid, and it is not taken seriously by government. There was recently a news report that the equivalent of our “Brinks” armored-car division had to take a big hit to earnings because of robbery. It is an insult to decent poor people to say that armed robbery is caused by poverty. They need a larger, more professional police force, a quicker and more responsive judiciary and, most of all, a zero tolerance policy for even petty crime. This is the single biggest obstacle to economic growth in South Africa.
  2. Labor laws have to be relaxed so that people and organizations that take gambles on new ventures are not stuck with people on payroll if they have to scale back. Right now, nobody wants to open a big store and hire 1,000 people because if it turns out they only need 500, getting rid of the excess is difficult and expensive.
  3. Minimum wages at retail are absurd for a country with this kind of unemployment. By eliminating them, retailers would both create more jobs and reduce food prices.
  4. Assurance against expropriation. There is a big movement to get white business owners to transfer shares to the majority black population. Right now, foreign investors who own 100% of their local operations are basically exempt. There is a movement within the ruling African National Congress to change that. There are two aspects to this issue if they want to attract foreign investment: First, many foreign investors choose to enter a market through joint ventures with local players. They need to be assured that they won’t have to give away or sell shareholdings to players they don’t feel are contributors. Second, if a foreign entity wants to open a wholly owned subsidiary, they need super-constitutional-level protections against being forced to participate in any scheme to make them sell or give away shares.

The demographics in this market would probably work well for Wal-Mart, but after two weeks of due diligence, I couldn’t in good faith urge Wal-Mart to open stores here. If the shared-ownership movement comes to existence, the most likely course of events is that after the government finishes forcing local businesses to share ownership, the people will still be poor. Then the foreign investor exemption will be attacked, and Wal-Mart will be pressured to find a "partner" it does not wish to have.

If the NAMC really wants to reduce food prices for the people, it should focus on changing governmental policies that make Wal-Mart, Costco and Tesco hold back on entering the market.

Packinghouse Visits And Dinner Conversations

When I’m back in the US, I’ll write up a lot more about the specific experiences I’ve had in South Africa, especially my visits with many retailers, wholesale markets, exporters and packers. But as I prepare to leave, I wanted to mention two US brands I had occasion to visit yesterday.

Went to visit a citrus packinghouse here in South Africa to watch Sunkist fruit being packed for shipment to the Far East. It was an impressive presentation, as they used a selection process that pushed the quality of the fruit far past the Category 1 classification that is generally required for export fruit.

As befits a country with high unemployment, the packinghouse was much more labor-intensive than what I am used to seeing in the States or Europe, but it packed a great package. And the Sunkist brand was proudly labeled on the fruit and on the box. It was clearly identified as South African fruit, thus showing how reputable Sunkist is when many others use detachable stickers to identify country of origin in order to facilitate the black market in China. But these guys are 200% above board.

Also met with some great guys from Dole in South Africa. The Dole company down here is a subsidiary of Dole Europe and principally functions as a supply arm for the European company, though they also ship product to Asia, the Middle East and North America.

During dinner, we talked a lot about business while I had my Springbok carpaccio, but as the night grew late and the wine flowed, we also talked about South Africa and America. They tried to help me understand the secrets of Africa, and I tried to help them understand America. I left understanding much more, hoping I had taught them a little, and certain I had made new friendships that I would treasure for many years to come.

Quicksand Of Unproven Assumptions

The 10th International Congress on Obesity, being held in Sydney, Australia, has drawn 2,000 academics and health professionals but has fallen into public-policy wishful-thinking, instead of actual science-based behavior. They have gathered many “experts” around the world in urging as the headline in the Cape Times says in a “Call for global ban on junk food advertising to protect children from obesity”.

Well as a father of two, and a guy with his own personal battles against excess baggage, I bow to no one in my desire to prevent childhood obesity. But you expect a bunch of academics to actually have some evidence to support the actions they urge on the world. Instead, what we are getting is people like Gerard Hastings of Scotland’s University of Stirling saying things like this:

“No one can deny there is a link between food marketing and children getting fatter.”

When academics start saying things such as “no one can deny”, that is a code word that means “I have no actual evidence to support this crucial point, so I will assume consensus.”

It is building a massive edifice of public policy proposals on the quicksand of unproven assumptions.

So let the Pundit be the first to raise his hand and say, yes, I deny that link.

Available data indicates that children don’t consume any more calories than they did 30 years ago. What has changed is a massive drop in activity levels. Put another way, if you want your kids not be obese, banning them from watching Coo-Coo for Cocoa Puffs commercials will not be half as effective as throwing them out of the house with a soccer ball.

Besides, this point of view simply misunderstands the nature of advertising. Most advertising is not designed to make people hungry, not even to get them to want a Twinkie instead of a steak, but just to get them to choose a Twinkie over a Ding-Dong over a Devil Dog.

The casualness with which these people urge laws restricting the freedom to market and communicate is simply mind-boggling.

Words of Appreciation

With this entry, the Pundit prepares to jet back to the States with a brief stop in London, and as he climbs on the plane it is with the sweet satisfaction that we have concluded the fifth week of publication.

We visited distant Africa and gained new insight and new friends while maintaining a growing readership back home. We have successfully ignited the industry on numerous debates: Character licensing and childhood obesity, the nature of leadership, the future of agricultural marketing co-ops and the very nature of retail departmental organization, among others.

We’ve also been picked up by countless newspapers and magazines, including the Parenting Columnist for the Washington Post, and a piece from the Associated Press that has run in hundreds of media outlets.

Through these five weeks, we have developed a unique blend as the industry’s only true daily format to give immediacy with the position as the trade’s only interactive forum to discuss pertinent issues. We have opened horizons to allow our readers to benefit from thinking outside the box of specific disciplines and found meaning for our trade in disparate events.

We have shared sadness, found humor in the mundane of our lives and challenged the very way we think, and we pledge to do much more.

Thank you so much for sharing your day with us. Please remain engaged, and keep the communication flowing. It is the collective wisdom of the people in the business that is the wellspring of our success.

Have a nice weekend and I’ll write from London.

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