In our last posting, we showcased our Retail “Thought Leaders” Panel as the highlight of this year’s edition of The New York Produce Show and Conference, which will be held in Manhattan, November 7 – 9, 2011.
This year’s show is a significantly richer event in terms of the workshops and seminars, and a part of this grew out of an unexpected but happy occurrence at last year’s event — it turned out, even without any marketing or promotion on our part, that people from all over the world were interested in seeing what the industry was doing in New York and what this event had to offer the world. We had people from Japan, Africa, the Middle East, and a European who visited recounted his experiences in a column for Pundit sister publication PRODUCE BUSINESS magazine. Frank van der Windt from the Van Rijn Group out of the Netherlands gave us this testimonial in his column, titled Full Service By Means Of Global Partnerships:
Not really sure what to expect, we have been positively surprised by the effectiveness of the show. Since The New York Produce Show and Conference was a relatively small-scale regional show… the focus of this show was totally on networking and making new contacts, turning this into a complete breath of fresh air. In our opinion, a focus as such made the New York Produce Show more effective and accessible than the bigger shows…
As a result of all this, and in homage to New York’s traditional role as a gateway to America, we have installed a one-day special event the day before the trade show dedicated to global trade of produce. Workshops run the gamut, from direct retail procurement to the role of shipping and logistics, and the whole event leads up into the Opening Night Cocktail Reception.
The program is terrific, the tie in with The New York Produce Show and Conference powerful, and the New York location — after all, it is the “capital of the world” — is perfect, but there are two really special components to this inaugural event.
First, we have had the extraordinary good fortune to secure Mary Anastasia O’Grady as our Keynote speaker. The Pundit never misses one of Mary’s “America’s” Monday columns in The Wall Street Journal and we are so excited that she will share her wisdom with us.
Here is a mini-bio on Mary:
Mary O’Grady is a member of the editorial board at The Wall Street Journal and writes editorial columns on Latin America, trade and international economics. She is also editor of "The Americas," a weekly column that appears every Monday and deals with politics, economics and business in Latin America and Canada.
Ms. O’Grady joined the paper in August 1995 and became a senior editorial page writer in December 1999. She was appointed an editorial board member in November 2005. She previously worked as an options strategist, first for Advest Inc. and then for Thomson McKinnon Securities in 1983. She moved to Merrill Lynch & Co. in 1984 as an options strategist and was also a product manager and a sales manager for Merrill Lynch Canada and Merrill Lynch International during her 10 years with the company.
In 2009 Ms. O’Grady received the Thomas Jefferson Award from The Association of Private Enterprise Education. Recipients of this award are selected because they represent the best that the free enterprise system produces. In 2005 Ms. O’Grady won the Bastiat Prize for Journalism awarded by the International Policy Network for her articles on the World Bank, the underground economy in Brazil and the bad economic advice the U.S. often gives to Latin American countries. The Bastiat Prize was developed to encourage and reward writers whose published works promote the institutions of a free society. In 1997 Ms. O’Grady won the Inter American Press Association’s Daily Gleaner Award for editorial commentary, and in 1999 she received an honorable mention in IAPA’s opinion award category.
Ms. O’Grady, who was born in Bryn Mawr, Pa., received a bachelor’s degree in English from Assumption College and an M.B.A. in financial management from Pace University.
Here is a link to Mary’s columns in The Wall Street Journal.
Insightful, informed, recognizing the subtext behind events, Mary gets to the heart of issues that others avoid or don’t see. She writes and speaks with a weightiness and wisdom that is a very rare treat indeed.
That she is brilliant and articulate is reason enough, but we specifically sought Mary as our first choice of speakers because she is someone who could help us in the industry by elevating the substance of this symposium beyond the prudential concerns of daily produce trading. Anyone who attends will leave with a new level of understanding of Latin America, and if you are any good in business, within that insight is bound to be great opportunity.
We are honored by Mary’s presence in another way as well. She read the piece we wrote regarding my father’s diagnosis of pancreatic cancer, and following both the strict conflict-of-interest policies of The Wall Street Journal and the generous proclivities of her own heart, Mary asked that in lieu of a fee, funds be donated toward the fight to cure pancreatic cancer.
We, in turn, have decided to turn the entire Global Trade Symposium into a benefit for research to cure pancreatic cancer, and so 100% of the proceeds from this event will be donated toward this cause. So you can do well for yourself by attending this event, networking and educating yourself to advance your business in import and export.
You can also do good for the world by being part of this event and thus part of the effort to rid the world of the scourge of pancreatic cancer.
You can register for the Global Trade Symposium or any part of The New York Produce Show and Conference right here.
If you are interested in being a sponsor and supporting the Global Trade Symposium or any part of The New York Produce Show and Conference, click here.
A few exhibiting opportunities also remain so if you have an interest please click here.
Hotel rooms at the Hilton New York are available here.
Travel discounts can be found here.
Looking forward to seeing you in New York, where for a few days on November, the capital of the world becomes the capital of the produce industry.
Alan Krueger is the Bendheim Professor of Economics at Princeton University, having done his undergraduate work at Cornell’s famed School of Industrial and Labor Relations. He went on to get his PhD in economics at Harvard and is well known as a labor economist.
Now President Obama, focusing on jobs, has selected him to chair the White House Council of Economic Advisers.
It is rare that a nominee to the Council of Economic Advisers has any particular interaction with the food industry, but this selection has turned more than a few heads in the foodservice sector as Professor Krueger is famous as a result of a deeply flawed paper he wrote with Professor David Card now with U.C. Berkeley.
The paper, titled Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania, published in the American Economic Review, was wildly controversial because it was counterintuitive and it countervened the conventional economic understanding of demand curves.
One would assume that when you raise the price of something – say strawberries or labor — demand for the thing would go down. In contrast, if you reduce the cost of something — say grapes or labor — the demand for that item will go up. Professors Kruger and Card, however, compared labor use at fast food restaurants in New Jersey — which had just raised the minimum wage — to eastern Pennsylvania — which had not — and the professors claimed exactly the opposite. The emphasis is added:
On April 1, 1992 New Jersey's minimum wage increased from $4.25 to $5.05 per hour. To evaluate the impact of the law, we surveyed 410 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum wage remained fixed at $4.25 per hour) yield simple estimates of the effect of the higher minimum wage. Our empirical findings challenge the prediction that a rise in the minimum reduces employment. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 13 percent.
It is hard to overstate what an extraordinary finding this was. Nobel Prize winning economist Milton Friedman once wrote a book expressing a classical economic principle and titled it, There’s No Such Thing as a Free Lunch but here, Professors Krueger and Card claim to have found the proverbial free lunch. After all, if the cost of labor could be increased while simultaneously increasing the demand for labor, why stop with a 13% increase in employment? We could raise the minimum wage more and eliminate unemployment!
The claim was so divergent from classical economic theory, business experience and, dare we say it, common sense, that one would have expected two rigorous academics to double check their methodology before publishing.
Perhaps ideology got the professors excited or maybe they saw in such an audacious claim a ticket to fame and fortune; whatever the motivation, the professors published and, very quickly, were shown to have made a serious mistake.
The research the professors did was based on a telephone survey of the managers and assistant managers of fast food restaurants. But, of course survey responses may or may not reflect what actually happens, and in this case, the actual payroll records told a different story than what the telephone surveys indicated.
The Employment Policies Institute issued a study titled The Crippling Flaws in the New Jersey Fast Food Study. which summarized its findings in three points:
The New Jersey fast food study has been re-estimated using payroll records rather than the badly flawed telephone surveys used in the original study. The results, compiled by independent economists, are not surprising: there was significant job loss stemming from New Jersey’s decision to increase the state’s minimum wage in 1992.
Since the release of the first edition of this report (April 1995), additional problems have been identified in the Card-Krueger data set — particularly in their attempts to measure price fluctuations as a response to increases in labor costs.
The data base used in the New Jersey fast food study is so bad that no credible conclusions can be drawn from the report.
David Neumark, a Professor of Economics at UC Irvine and a research associate at the National Bureau of Economic Research, and William Wascher, senior associate director, division of research and statistics for the Board of Governors of the Federal Reserve System, published, a piece — also in the American Economic Review — titled The Effect of New Jersey’s Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records and its findings were quite different, once again we add the emphasis:
We re-evaluate the evidence from Card and Krueger's (1994) New Jersey-Pennsylvania minimum wage experiment, using new data based on actual payroll records from 230 Burger King, KFC, Wendy's, and Roy Rogers restaurants in New Jersey and Pennsylvania. We compare results using these payroll data to those using CK's data, which were collected by telephone surveys. We have two findings to report.
First, the data collected by CK appear to indicate greater employment variation over the eight-month period between their surveys than do the payroll data. For example, in the full sample the standard deviation of employment change in CK's data is three times as large as that in the payroll data. Second, estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK. For comparable sets of restaurants, differences-in-differences estimates using CK's data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an employment increase of 17.6 percent relative to the Pennsylvania control group, an elasticity of 0.93. In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group. This decrease is statistically significant at the five-percent level and implies an elasticity of employment with respect to the minimum wage of -0.24.
Krueger’s work was so uninformed because he never consulted with anyone who actually knew anything about the business. Had he done so, the following problems in his methodology would have become instantly evident:
1) Managers or assistant managers in fast food restaurants are typically on the floor, often actively helping customers or cooking. The notion that they are able to somehow give accurate payroll statistics over the phone is a fantasy.
2) The question that was asked about employment, which simply was how many full time and how many part timers are there, is not the right question. Very often firms can reduce payroll by cutting hours, not the number of staff. The relevant question in a fast food restaurant is how many hours are being worked over a set period.
3) The full time/part time distinction is not always clear and there was no definition given. The data cannot be consistent.
4) Cash payment per hour may go up and employers compensate by, for example, reducing the number of hours worked or by requiring employees to launder their own uniforms, etc. The study was not comprehensive enough.
5) The study was too narrow. The issue of whether fast food chains hired more or fewer people is not important. What if these chains did hire more people because their capital-intensive facilities and limited menus enabled them to compete more effectively with Mom & Pop coffee shops that thus went out of business? One would expect an increase in the minimum wage to lead to more use of self-serve gas stations as opposed to full serve gas stations, so studying one specialized sector just doesn’t tell us very much.
6) Many reductions in labor use could occur over long periods as restaurants get redesigned and automation becomes more cost effective.
The President’s appointment of Professor Krueger is a very bad sign. The man in this job is exactly the man who has to tell the President that his actions, on health care, taxes, the environment and various regulatory issues, will increase the cost of employment and thus reduce the number of jobs created.
Unfortunately Kruger has both shown a willingness to believe the implausible and a willingness to issue a pronouncement without really talking to the people who know.
That the restaurant industry can speak first hand is saying that this appointment will not reassure business leaders and not encourage job creation.
Costco should get an award. It is not going to accept free money from the government in a situation where it doesn’t think it will do any good.
It made an announcement covered in the online “Wheels” column of The New York Times — Citing a Lack of Usage, Costco Removes Electric Vehicle Chargers:
Costco, the membership warehouse-club chain, was an early leader in offering electric-vehicle charging to its customers, setting an example followed by other retailers, including Best Buy and Walgreen. By 2006, Costco had installed 90 chargers at 64 stores, mostly in California but also some in Arizona, New York and Georgia. Even after General Motors crushed its EV1 battery cars, the Costco chargers stayed in place.
Yet just as plug-in cars like the Nissan Leaf and Chevrolet Volt enter the market, Costco is reversing course and pulling its chargers out of the ground, explaining that customers do not use them.
“We were early supporters of electric cars, going back as far as 15 years. But nobody ever uses them,” said Dennis Hoover, the general manager for Costco in northern California, in a telephone interview. “At our Folsom store, the manager said he hadn’t seen anybody using the E.V. charging in a full year. At our store in Vacaville, where we had six chargers, one person plugged in once a week.”
Mr. Hoover said that E.V. charging was “very inefficient and not productive” for the retailer. “The bottom line is that there are a lot of other ways to be green,” he said. “We have five million members in the region, and just a handful of people are using these devices.”
Whether it makes sense for Costco to offer free vehicle charging is really a marketing decision; with more electric vehicles on the road, the demand may increase. Whether the presence of vehicle charging stations leads consumers to shop at one store over another is something retailers will be studying for a long time.
Our own take is that shopping is mostly a fairly local experience, and consumers don’t spend that much time in a store. Most electric vehicles are not going to be used to the max of their range. They don’t need to “top-off” with 20 minutes of power. It is nice to get free electricity from Costco, but it is not necessary.
If retailers want to “go green” by facilitating plug-in electric vehicles, the logical place to do it is with staff parking. Employees are at the store for much longer than consumers and could actually recharge their cars. Because a commute is predictable and a major consideration when purchasing a car, the availability of electric chargers for employees might encourage the purchase of electric plug-in vehicles as the employee would not need a vehicle with at least a round-trip capacity, and the availability of free electric from Costco or another retailer would mean that fuel would cost the employee nothing.
The current chargers are actually out of date but, contrary to common opinion, it turns out that California is so flush with money it can afford to pay to upgrade them at no cost to Costco. The article explains:
The Costco outlets are also outdated by current standards, but a state-supported program stands ready to upgrade them at no cost to Costco.
That was one impetus for a $2.3 million program supported by the California Energy Commission and overseen by the charging companies Clipper Creek and EV Connect, which would have 600 to 650 so-called legacy E.V. chargers upgraded. According to Will Barrett, a Clipper Creek program manager, 30 new chargers have been installed since the program began operations in July. Mr. Barrett said that Costco decided not to participate in the state program last March.
Mr. Hoover said the company was aware of the state-funded upgrade program, but did not see a compelling reason to take advantage of it.
“Why should we have anybody spend money on a program that nobody’s thought through?” he said.
Imagine that… an entity that is not going to just spend money because the government will pay the bill. If such an attitude catches on, the US might even get its Triple A credit rating back.
Our piece Attack On Hawaii’s Genetically Modified Papayas Sparks Debate About Science, Organics And Freedom To Choose brought a word from a GMO skeptic:
Bob Sanderson has often been a valuable contributor to the Pundit, including pieces such as these:
Pundit’s Mailbag — Does A 1,200-item Audit Necessarily Result In More Safety Than A 40-item Audit?
Pundit Mailbag — Honor ‘Green’ Attempts
Pundit’s Mailbag — The Acceptance Of Risk
Pundit’s Mailbag — Sprout Lessons Echo Food Safety Dilemma
Pundit’s Mailbag — More On Manure
Pundit’s Mailbag — The Tyranny Of Economics And The Goals Of Fairtrade
Pundit’s Mailbag — Can Irradiation Follow The Path Of Pasteurization?
Pundit’s Mailbag — A Look At Organic Versus Conventional Yields
Pundit’s Mailbag — Irradiation, Pasteurization and Labeling
Pundit’s Mailbag — Pesticides And Cancer
Pundit’s Mailbag — Food Prices And Free Markets
Pundit’s Mailbag — Organics And Manure
Testing Sprout Seeds
We always appreciate Bob’s insight, but in this case we think he mischaracterized our response.
Although many in the industry in Hawaii are speculating that the destruction of the papaya fields was the work of anti-GMO activists, we were actually hesitant to endorse this scenario, as we explained:
We are, however, somewhat skeptical that opposition to GMOs is what motivated this destruction. It is possible, but we suspect that the anti-GMO forces would have been proud of their work and claimed “credit” for it. We suspect it is either personal or financial in motivation. Maybe they hope to drive these farmers out and buy or lease the land cheap themselves?
We found the distinction being claimed for Hawaiian GMO papaya as being unconvincing. If one opposes GMOs because they can do terrible things, how could the survival of the papaya industry in Hawaii override those concerns? And why shouldn’t farmers be able to use GMOs to produce high yields or to provide cheaper food or food equipped with certain nutrients? Are these causes somehow less virtuous that sustaining papaya farming in Hawaii?
One thing we do agree with Bob Sanderson on is his point that technology is morally neutral. At different times, in different places, for different purposes, it can be deployed for good or for evil. Our job is to tilt the balance for good.
Many thanks to Bob Sanderson for his always intriguing input.
The Pundit was recently asked his opinion on an important development at Wal-Mart by a well respected industry veteran:
Richard is a respected consultant having worked at A&P and Fleming, and served as Supervalu’s Director of Transportation, Director of the St. Joseph’s University Center for Food Marketing and was the CEO at Brooks Provisions, among many other food industry activities, so we are flattered to be asked our opinion on this issue.
Interestingly enough, we have been weighing in on this in another capacity for some time. In addition to our work in the produce industry, we manage to keep the Jr. Pundits in sneakers by doing a little consulting for big consulting companies such as McKinsey & Co. and Bain & Co., as well as investment bankers, hedge fund managers, private equity groups etc.
Last year the fund that owns most of IFCO was contemplating a secondary offering, mostly in Europe, and so the Pundit hotline lit up with investment funds wanting to know the prospects for the RPC industry. We identified many great advantages to RPCs and many trends in favor of RPCs including the sustainability trend that Richard Kochersperger mentions.
We earned our seemingly outrageous fees that week, though, as we also cautioned that our analysis of what was going on at Wal-Mart led inevitably to the idea that Wal-Mart would deemphasize or eliminate RPCs.
We happen to think this is a mistake on the part of Wal-Mart. Leaving aside all issues of efficiency and sustainability, we believe that demanding produce in a container that was not used by most wound up getting Wal-Mart better produce than it paid for. After all, a rejection by Wal-Mart was a very serious matter, leaving a shipper with product not easy to sell elsewhere.
Yet it seemed to us inevitable that Wal-Mart would move away from RPCs. What our writing on Wal-Mart has shown is a journey in which Wal-Mart has moved away from the sophisticated consideration of many variables in procurement to a single-minded focus on price.
This is the key reason why Wal-Mart abandoned its dedicated distribution center procurement model, in which individual vendors were given 52-week responsibility for securing supplies and multiple responsibilities involved in vendor-managed replenishment.
Wal-Mart wanted to get the lowest price, and the way to do that, at least in the short term, was to avoid constraining its supply chain. By not demanding special capabilities such as the ability to supply year-round, Wal-Mart could open the bidding to more suppliers and get a cheaper price.
Of course, the logic here leads to an abandonment of all non-standard requirements. Just as it doesn’t want to constrain the Wal-Mart supply chain to avoid vendors who can’t supply 52-weeks a year, Wal-Mart also doesn’t want to constrain its product supply to only that packed to its specific requirements.
Wal-Mart wants everyone to bid for its business and it wants the special offers if someone is stuck with a warehouse of packed product. Anything that constrains the supply chain is out, and anything that broadens it is in.
Wal-Mart’s commitment to sustainability has always been of a certain type. It endorsed sustainability for PR reasons and it tried to abandon conventional definitions of sustainability that included social, environmental and economic components. Instead it is focusing solely on those attributes of sustainability that could save Wal-Mart money.
So the moment Wal-Mart executives decided that RPCs were costing Wal-Mart money by constraining its supply chain, the days of RPCs at Wal-Mart were numbered.
Our piece Del Monte Fresh Stands Up To FDA’s Bullying Tactics brought this word of support from Guatemala:
We certainly appreciate the support as our epidemiologist friends have been calling with much the opposite sentiment.
And we don’t want to say that epidemiology is not a valid way of identifying the source of foodborne illness.
In the 1996 incident, The New England Journal of Medicine ran a piece titled, An Outbreak in 1996 of Cyclosporiasis Associated with Imported Raspberries, which concluded:
This large outbreak of cyclosporiasis in North America in 1996 was associated with the consumption of Guatemalan raspberries. The outbreak illustrates the need to consider that a local cluster of foodborne illness may be part of a widespread outbreak and to pursue investigations of the source of the implicated vehicle.
Just as it is preferable if we can convict a criminal based on an eyewitness at the crime scene, fingerprints on the gun and DNA scattered throughout the crime scene, so it is certainly preferable if we can have genetic evidence tying a foodborne illness to a particular point of production.
Sometimes, though, criminals do get convicted based on circumstantial evidence, and so, sometimes, foodborne illness has be traced back that way as well.
In the Del Monte case, the government epidemiologists say they have a case, but Del Monte has an epidemiologist who says otherwise.
To us, though, the public policy issue doesn’t depend on the accuracy or not of the FDA’s epidemiology. The issue is whether the use of Import Alerts to ban shipments into the US from particular companies is a sensible strategy to deal with food safety concerns.
We have no problem saying that if any producer hurts a consumer, it should be liable for any damage it has caused. But banning people from business — people who are not known to have done anything wrong — is not appropriate.
In fact, we don’t use this standard in any other part of life. Think about when an airline crashes. We may check the airline to make sure it has appropriate standards for procurement, hiring, maintenance and training, and certainly all crashes are investigated in the hope of determining the cause and helping all airlines avoid crashes. But when the Air France Flight 447 disappeared over the Atlantic, Air France wasn’t banned from flying until “corrective action” was taken. Airbus wasn’t banned from selling planes until “corrective action” was taken.
We would say that as a matter of public policy, we can establish whatever standards we wish to ensure safer food, recognizing that the science is imperfect and there often is a trade-off between cost and food safety.
These standards can call for buffer zones, traps, water testing, etc. We can require audits testifying to the maintenance of certain standards, etc.
Once, however, a producer has met those standards and therefore no corrective action is required to meet those standards, deciding to put a grower out of business is pointless. If you have five farms right next to each other and all are meeting the same standards, the fact that one, by dint of bad luck had an episodic food safety incident doesn’t prove that next season’s production from that farm is more dangerous than production from the other four farms.
There are plenty of food safety problems. We have buyers who waive their own standards, there are shippers that don’t do what they say they do, and there are others that just can’t or won’t keep up with what today’s technology and buyer and governmental standards require.
This is all the more reason why the FDA should assume that episodic food safety incidents will occur and focus instead on high standards of preventive action.
An airline with rigorous procurement, hiring, training and maintenance standards is an exemplary airline — even if it has an airplane crash. To drive it out of business so that people have to fly on lesser airlines makes no sense.
Equally a cantaloupe farm that meets world class standards is world class. To close that particular farm and leave people to eat cantaloupes grown on lesser farms does not contribute to public safety.
Many thanks to Clark MacDonald for weighing in on this important issue.