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Perishable Pundit
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a

Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Why Do Ready-Meal Programs Fail?

Our piece — Questions For Fresh & Easy And Marketside: Are Americans Really Ready For “Ready Meals”? — brought a contribution from one of America’s most respected authorities on retailing fresh foods:

Good stuff, as always, about ready-to-eat meals. I might offer this:

The discussion of ready-to-eat meals, in a retail environment, is not particularly new. Two formats come to mind: Boston Chicken (now Boston Market) and EatZi’s.

I remember the industry getting all excited about these formats and making countless trips to see them. Funny thing about them… Boston Chicken went broke. They ultimately “morphed” into Boston Market, which is doing ok, but not setting the world on fire. As for Eatzi’s, I really remember all the “noise” that surrounded this format. How many are on the street today? Let’s see… that would be… ONE! And that format actually did the entire concept right! So why aren’t there hundreds? Perhaps thousands? A few things come to mind:

  1. Fixed expenses are such that it is difficult to provide the type of quality necessary for a customer to make the store a destination, and at the same time, provide the economic proposition necessary to make it a value proposition.
  2. The concept strikes me as being “stuck in the middle” between QSR’s (quick-service restaurants) and full-service restaurants. And being in the middle is never a good place to be.
  3. The American market has evolved in a totally different social order than the UK. Yet both Wal-Mart and Tesco are convinced that the Europeans (particularly western Europeans) know more about food than US food executives.

Now Ukrop’s and Wegmans have done some great work in the HMR area, but they are small and regionalized chains. Even HEB Central Market can’t provide a compelling ROI to have that great chain roll out 50 — 100 of them, and HEB executes this format better than anyone.

Then, there is the whole small-store format craze. I ask this question: How well are other companies doing? (Think Bloom, Sweetbay and the like.) Again, food executives get all excited about these formats, but how well are they doing? There is one small format doing great, and that is Aldi! Don’t recall seeing a lot of HMR choices there…

One last observation: There are 2 examples of successful companies executing take-home meals: KFC and Papa Murphy’s. Both provide a simple menu. Both provide a product that an average customer can’t easily replicate by cooking at home. And both can control fixed expenses to allow a good profit margin, and yet still provide a value.

We are fortunate to have countless examples, both good and bad, that provide some insights into this whole issue. All we have to do is look…

Yes, we suspect that many a deli director has been fired because the chain needed a fall guy after the CEO’s push for HMR backfired. Typically the CEO went to a “Meal Solutions” conference or, worse yet, on a trip to London and came back, as they say, enthused.

Yet as our letter-writer indicates, it is not clear why. Fresh & Easy did not bring ready meals to these shores. Tesco has no unique technology.

Tesco wasn’t even the first British chain to try these in America. Marks & Spencer tried that 20 years ago when it acquired Kings in New Jersey.

Plus America’s food giants have long been trying to crack the nut. Look at this from The New York Times in 1987:

…entrepreneurship is not a new concept at General Foods. Three years ago, anxious to get into a new area of the food business — the preparation of fresh refrigerated take-out meals of about 400 calories — the company assembled a venture group and turned over to it the complete development and marketing of the product.

The Culinova Group, a subsidiary of General Foods, was put together by Richard G. Powers, a 14-year veteran of General Foods who selected the members of the team.

“It was an unusual approach for General Foods to take,” Mr. Powers said at Culinova’s Hawthorne headquarters recently. “Very original. General Foods set us up in our own quarters away from the corporate headquarters and gave us free rein in running our own business. They wanted to see if, by giving us autonomy, away from the distractions of a large corporation, we could implement the strategic plan and set a new food-category course in the area of fresh food that would reposition the company for the future.”

“It was such an exciting concept that I didn’t have any difficulties in recruiting multidimensional managers for our team,” he said. “Yves Coleon, our director of marketing, has returned from his own business enterprise to General Foods to work at Culinova — bringing more than 13 years of marketing experience to his position — and Dr. Nabil A. El-Hag is vice president of technical research and operation for the new group. Dr. El-Hag is another General Foods veteran and works on both the scientific and financial sides.”

The Culinova staff — 20 from management and 25 working in the kitchens — is described by Mr. Powers as a tight group. “This is a small, intimate building and more interaction is possible,” he said. “ All of us share the same proprietary feelings that this is our company and we want it to succeed.”

The feeling, Mr. Powers said, is evidenced by such entrepreneurial behavior as management coming in early and leaving late. “We don’t work the usual corporate hours, we’re thinkers and doers, not watchers, and when we’re working out a problem, we don’t stop because it’s 5 o’clock.”

The entrepreneurial spirit, along with what Mr. Powers would only say was a substantial monetary commitment from General Foods, enabled the Culinova Group to get its products to market in record time.

“It took us nine months,” Mr. Powers said proudly, adding that he believed the development of the product was speeded up because there were no barriers set up between members of the group. “All of us wore a lot of hats; we had to, we’re a lean organization in which everyone has to play more than one role.”

According to Dr. El-Hag, Culinova products — fresh, nutritionally sound meals — are prepared daily by the culinary staff and reflect years of research and development in new methods of food preparation and preservation.

“Culinova meals are never frozen and no chemical preservatives of any kind are used,” Dr. El-Hag remarked during a tour of Culinova kitchens, where workers wearing gloves, face masks and shower caps staff the small food-assembly line. “The ingredients are of the finest quality,” Dr. El-Hag said. “Every dish is prepared from scratch using recipes developed by our chefs in our kitchens, and the finished products are delivered in our own refrigerated trucks to select supermarkets twice a week.”

Dr. El-Hag, who held a series of management posts with General Foods for 11 years before he became a founder of Culinova, said: “We are pioneers and everyone in the industry is watching us. We are on the threshold of becoming a major business by the early 90’s.”

What makes Culinova different from its competitors in the fast-growing fresh-meal business, he said, is that Culinova meals feature sophisticated fare — such as sole with saffron sauce, filet mignon Madagascar, and scrod with chablis sauce.

And they have a longer shelf life, Dr. El-Hag said. “They’re sealed by a special process. They keep their freshness for 21 days.”

The typical Culinova customer, according to Mr. Coleon, the marketing director, is just as likely to be a family in which neither the husband or wife work, as it is likely to be a family in which husband and wife both work.

“Both family types represent large markets for us,” Mr. Coleon said. “The two-income, affluent, busy professional couple is well-known to marketers. Much has been said and written about the spending habits and tastes of this group.” What is perhaps less-known, he said, is that the empty nesters — those families who no longer have children living at home — or those who have opted for retirement, also make up a large market for quality take-out food.

The company is “competing with everybody else who sells take-out foods,” he said. “The Chinese restaurant, the pizza parlor, the trendy gourmet shop. But we’re counting on the public’s passion for freshness and flavor in convenient food to pull ahead of the pack.”

The public can expect more products from more companies to fulfill its hunger for ready-to-eat meals. According to a recent survey made by the Lieberman Research Company of Manhattan for the supermarket industry’s trade group — the Food Marketing Institute in Washington — and the Campbell Soup Company, Americans spend $62.4 billion a year on fast foods. The survey also indicated that supermarkets could increase their yearly revenues by catering to the growing numbers of customers who eat 40 percent of their meals outside the home.

Takeout sales in supermarkets are expected to increase by 18 percent a year, compared with a 6 percent yearly growth for all food products, the survey said.

“In June, we introduced our line in 16 supermarkets,” said Mr. Coleon, “including 11 Food Emporiums and two Associated Stores on Manhattan’s East Side, with its large concentration of urban residents, plus an outlet in the World Trade Center; and two Westchester markets — Food Emporiums in Port Chester and Eastchester.”

The results, Mr. Coleon said, were “far above our initial expectations.” He added: “Repeat business is, after all, the proof of the pudding and repeat business is strong also — acceptance of our menu selections ran 80 percent, which is very good.”

At prices ranging from $3.29 for a special pasta salad to $6.99 for the filet-mignon meal, the Culinova Group executives said that the meals offered good value. “We’re priced far lower than comparable dishes in restaurants and not very far apart from what it would cost a home cook to try to duplicate some of our recipes in the home kitchen,” Mr. Coleon said.

Future growth for Culinova calls for expanding supermarket sales and establishing regional operation centers nationwide. “We expect to have our products in other supermarkets shortly, and regional operations in select areas across the United States will be set up in the next five years,” Mr. Powers said. When asked if the people in the Culinova Group were uneasy about the General Foods corporate restructuring plan, which analysts say jeopardizes the jobs of many of the 2,000 General Foods employees at the White Plains headquarters, Mr. Powers replied: “No. We’re already doing what Phillip Morris recommends. We’re decentralized. Management is close to business, which makes us responsive to the demands of the market and quick enough to move off the dime. I guess you could call us a group of corporate entrepreneurs.”

In truth, we were questioning the viability of Tesco’s prepared food offering since before the first Fresh & Easy store opened. Here is what we wrote:

Prepared foods have a history of failing in America. General Foods tried Culinova, Kraft had Chillery, Nestle freshNes and a hundred more.

Some upscale retailers, such as Wegmans, Whole Foods or HEB’s Central Market, do a great job with prepared foods but they have a particular clientele and a particular price point..

Most prepared foods operations fail for a simple reason: Sales are too slow to support the production and frequent delivery of a diverse range of prepared foods offerings.

The choice then becomes continuing to offer a broad range and having unacceptable shrink or cutting the range, which makes the whole offer less appealing and tends to decrease sales while the distribution cost is close to fixed.

So why did Tesco build its concept around this offering… and why has Wal-Mart chosen to also walk down this path?

In the same piece about prepared foods and Fresh & Easy we wrote this:

Tesco has a big disadvantage as it enters the U.S. market: Its executives speak English.

That may sound counter-intuitive but have no doubt — it is good to have a customer just like yourself, it is OK to understand that your customer is totally different than you, but the worst possible situation is to think you are similar to your customer, yet your customer turns out to be very different.

The British are trying this because they know it is successful back home so they think it has to be somewhat successful in the US if done properly. Wal-Mart may be trying this because its executives are afraid Tesco may know something Wal-Mart does not.

Of course, everyone at retail wants to believe there’s a future for ready-made meals because ready meals would be a possible solution to the long-term secular trend of consumers spending more of their food dollars at foodservice.

Yet changing consumer habits is very difficult. Warren Buffett himself has marveled at how a company his Berkshire Hathaway conglomerate owns, See’s Candy, a very successful candy company in California, can’t seem to sell candy in Manhattan — this despite many efforts over many years by very intelligent, very knowledgeable, well-financed people.

There is nothing wrong with trying again. The packaging technology is more advanced and, at Marketside, by focusing on Southwest food and having the product made locally, they may overcome a lot of the logistical issues that have bedeviled these efforts in the past.

Still consumers have to want the product. And there are fundamental problems. If a consumer wants to do a dedicated weekly shop, buying these ready meals to consume seven days later is problematic. Ready meals are more expensive than frozen. Restaurant take-out has advantages in reliability, quality and convenience.

Our correspondent makes the interesting point that deep fried chicken and pizza are both difficult for consumers to make on their own and he gives examples where chains have found success.

Marketside has a pizza program and a rotisserie, but we didn’t see fried chicken. Fresh & Easy sells no hot food at all. Tesco made a big point of all the consumer research it did before launching its Fresh & Easy concept. Maybe, though, market research of what consumers actually buy provides a more useful guide to consumer wants and needs than any amount of interviewing.

Both Fresh & Easy and Marketside emphasize a kind of hip, healthy food aesthetic, presumably because that is what consumers say they want. Purchasing behavior, though, may be telling us something else. Is it possible that what both of these chains really need is a deep fryer?




Irradiation Kickstart

We have conducted extensive discussion of irradiation, including a piece entitled, FDA’s Irradiation Ruling Puts FDA On The Spot, which was prompted by the FDA’s decision to approve irradiation for spinach and iceberg lettuce.

Our recent piece, Disputed Link To Aunt Mid’s Cut Lettuce Reveals Need For Industry Firms To Have Easy Access To Top Epidemiologists, made us think about irradiation once more. Because this outbreak is allegedly linked to foodservice and institutional packages of fresh-cut lettuce, some of it was consumed in hospitals and nursing homes and thus by high-risk populations.

One of the ideas we put forward after the FDA approval for the use of irradiation on spinach and iceberg lettuce was this:

One suspects that those consumers with impaired immune systems, such as those with AIDS or many cancer patients, would be a ready market. There should also be a ready foodservice market at certain hospitals, retirement homes and similar facilities.

This still makes sense to us. And regardless of whether Aunt Mid’s was fairly implicated or not, the industry should be looking to have an option to offer high-risk populations so that they too can enjoy fresh produce.

In order to speed things up, we thought we would attempt to better understand irradiation and the options to irradiate right now, so we asked Pundit Investigator and Special Projects Editor Mira Slott to speak with the association that pushed this petition before the FDA, as well as representatives of the two main technology choices:

Dr. Jeffrey Barach
Vice President and Center Director
Grocery Manufacturers Association
(GMA), Washington, D.C.

Q: What is your role at GMA, and as it relates to food irradiation efforts?

A: As a food scientist, my role has been quite varied over 18 years — running the lab, helping to define scientific policy and as a spokesperson for food industry.

Back in 1999, we put together a food irradiation coalition at the National Food Processors Association, predecessor to GMA. I wrote the petition for irradiation of meats, fruits and vegetables, juices and bakery products. Then FDA published notice of the received petition in January 2000.

Q: Why did it take so long for FDA to approve this technology for food safety of spinach and lettuce? And what is holding up the process for expanding approval to other produce commodities, deli meats and ready to eat foods?

A: The process of review by FDA has taken almost eight years. FDA had lots of questions. When FDA reviews a food additive petition, it moves very slowly through the regulatory process. Approval of hamburger irradiation took five years.

The petition covers all types of foods. We were most interested in some type of approval for commodities at high risk of food borne pathogens. After the spinach E. coli outbreak, we saw an urgency to separate out spinach and leafy greens in a partial petition.

Q: But FDA narrowed approval to spinach and just iceberg lettuce, not other leafy greens like Romaine.

A: We did ask for more than they gave us. They were comfortable with data they generated for spinach and iceberg lettuce, which they categorized as high priority. A lot was based on consumption. Prior to the spinach crisis, we were most interested in deli meats. FDA can’t look at groups of commodities and make sweeping rules on irradiation; it looks at each individual product and how it reacts to this technology, conducting a thorough review of the adverse affects. The results of those studies led to the approval for spinach and iceberg lettuce.

There were scientific questions that came up; there was new information continually being released and FDA needed to examine it all.

Q: What were the key concerns FDA targeted in its review?

A: Furans have been an issue. We do know irradiation of certain food products will generate furans. The food products FDA approved don’t generate furans. Products like apple juice are the standard test case to show production of furans.

Q: I’m told pasteurization of products like apple juice is a major cause.

A: Yes, both when product is pasteurized and irradiated. It may be that there are pasteurized products that do have furans already, but FDA didn’t want more furans added to these products during irradiation.

Q: Are furans dangerous? What is the concern?

A: When we look at ready-to-eat meat, furans are a rodent carcinogen, but have not been shown to be carcinogenic in humans. What we need is good toxicology research done.

And we want to know its significance in the diet.

Q: What is the science behind the increase in furans? Some have speculated it is related to the heat process during pasteurization. It is my understanding, however, that no irradiation process heats the product. Is this right?

A: Heat is not the link. Irradiation is not a heat-generating process. None of the technologies — gamma (CO60), x-ray or e-beam — involves heat to accomplish irradiation ionization. This is a “cold” pasteurization process.

Furans can be generated in cold and hot processing. It’s the composition of product being irradiated. Not heat. For example, in apple juice, it could be the Vitamin C and sugar combination. It’s the chemical reaction and different pathways chemicals can be produced.

Q: What other issues did FDA consider? Was there any politics involved in holding back approval?

A: FDA studied the impact of irradiation on different compounds, vitamins and nutrients, and the inactivation of micro organisms at various levels. This delay in approval is not politics-related. FDA is interested in the safety and nutritional aspects of irradiated products.

Just as with heating or any other processing, radiation will reduce vitamins by a certain amount. This is not new information. What is that contribution of the food in the overall diet, in the context of requirements for certain vitamins or nutrients? FDA’s conclusion may be that a reduction to a certain degree in nutrients of these irradiated items doesn’t affect the whole diet.

Q: If irradiation could abate a deadly spinach E. coli crisis or eliminate a crippling and widespread salmonella outbreak, doesn’t a loss of some product nutrients pale in comparison?

A: One issue we’d like to promote should be a risk/benefit analysis that looks at all the benefits of irradiation versus the loss of vitamins or nutrients. A good analysis would calculate the potential risk to human health by not irradiating foods. FDA would say that’s not their job. We can’t comment on whether more people would be alive or not, but we’d like to see that kind of analysis as part of the overall evaluation of irradiation.

Q: When the product is irradiated to get rid of E. coli, salmonella or other dangerous pathogens, are all bacterium eliminated? Could there be negative long-term affect if a person’s diet included a large percentage of irradiated products?

A: This is not a sterile product that is produced after irradiation. There are still normal bacteria that exist, but the food borne pathogens have been eliminated. I’ve never seen any studies that show any dangerous cumulative effect of humans eating irradiated food products. There is no credible data suggesting this is an issue, nothing from FDA, no scientific data that has been peer-reviewed to demonstrate any issue whatsoever. FDA took an exhaustive look at the impact of irradiation. We’ve not seen any evidence pointing to irradiation compromising future resistance to pathogens.

Q: There is some concern that irradiation of product could create a false sense of safety and lead to a reduction in other food safety practices.

A: The use of irradiation doesn’t promote relaxing of good agricultural practices. We’ve argued strongly that this technology cannot serve as a substitute industry adherence to good agricultural and sanitary practices that are essential to maintaining a safe food supply. GMA has been an outspoken advocate for making these GAPs mandatory, and FDA’s ruling in no way alters that position. This argument that some people take is hard for me to understand. Consumers aren’t going to want old, spoiled food or product that contains contaminated material; they’re going to want the same quality product with the benefit of irradiation.

There will continue to be volume washing and other food safety practices through the processing plant, and a small amount of this standard product will be pulled off and irradiated. I see several reasons why irradiated produce will be a niche product. First of all, there is the capacity issue. The capacity is just not there to irradiate all the lettuce and spinach out there at this time. Distribution to get product to an irradiation facility and eventually to consumers hasn’t been worked out. There are logistical questions on how that will be done.

The other issue is consumer acceptance. Irradiated food is a function of supply and demand. At this point there will be very limited supply. Success will depend on individual companies and product characteristics. As companies start producing commercially, they will learn to do irradiation better. The first products may not be as good. Conditions with packaging and mixtures to get optimum product will need to be tested. The food industry is real good at making product better and more attractive.

Q: You bring up the issue of packaging. Is packaging still a big issue?

A: When you irradiate product in contact with the package itself, FDA needs to examine whether there is migration of any chemicals that come out of the packaging on to food. FDA has a list of approved packages already. There may be packages in the produce industry that need to be approved. Very simple polyethylene bags are no problem.

A general FDA approval list of 30 different packaging materials can be found in the Code of Federal Regulations. People can go to FDA and do a food contact notification. This is a straight-forward procedure. If someone wants to use a package that is not on the list, it is not an insurmountable problem, but it could slow things down.

Q: Are retailers expressing renewed interest in selling irradiated product now that this new ruling has gone into affect?

A: The ruling is so new that we haven’t seen retailer interest yet, but this just happened so we need to give it time. Use of irradiation for disinfestations is quite a growing business, anywhere from 8 million to 11 million pounds of irradiated produce, allowing items like mangos and papayas to enter our borders without harmful insects. There is also a tremendous market for irradiated spices, probably 10 times that much.

Q: But the dose levels approved for spinach and iceberg are much higher.

A: Yes, but it’s the same process. We’re going to see approval of up to 4 kilogray, although the actual doses will be half or less than that. The reason FDA goes to 4 kilogray is to have latitude with the size and type of product. In practice, the doses for spinach and iceberg to protect against E. coli and salmonella will be lower.

Q: What is GMA’s role moving forward?

A: To support our members interested in irradiation technology, consumer outreach and working on a policy paper on food irradiation. We will continue to work with FDA on approvals of more food products. Our next target will be ready-to-eat meats. We’re going to be very active in this area.

Harlan Clemmons
President, COO,
Sadex Corporation,
Sioux City, Iowa

Q: With the FDA rule in place, what are the logistical hurdles to getting spinach and iceberg lettuce irradiated in the start-up phases, before companies would be in a position to build inline systems? How many food irradiation facilities are there in the U.S.?

A: With the exception of spices, there are really only a few irradiation facilities that treat food products. We use the electron-beam (e-beam) method, and then there is Food Technology Service (FTSI) that has an irradiation facility in Mulberry, Florida, that uses gamma radiation produced by Cobalt-60. They irradiate ground beef down there. There are other gamma facilities that treat spices throughout the country. Texas A&M University has a facility, The National Center for Electron Beam Food Research.

Sadex is a fully refrigerated, high-volume commercial irradiation facility. We have the capabilities to expand capacity in order to accommodate companies that want to pursue irradiation of spinach and iceberg lettuce. From the time product enters our facility to the time it leaves, we ensure food integrity by maintaining proper refrigeration temperatures so fresh doesn’t freeze and frozen doesn’t thaw.

Q: What products do you irradiate? What experience have you had with fruits and vegetables?

A: We’ve done extensive work on ground beef, both fresh and frozen. We’ve also been doing a lot of work on leafy greens. We’ve tested mushrooms, cantaloupe, tomatoes, asparagus, and we’ve run bell peppers. These are all test situations because none of this has been approved. Our testing has involved extensive work on bagged salads. This FDA ruling is specific to spinach and iceberg. It doesn’t apply to Romaine or other varieties out there. But we’ve done work with various types of lettuce and spinach.

Q: Let’s go back to practical obstacles for produce companies. Is it realistic to implement at this point?

A: In regards to logistics and volumes, it is going to be a phase-in curve, no matter what companies decide to do, there’s going to be a time lag. Consumers will be offered irradiated and non-irradiated product, and demand will determine the outcome. We’ll see produce irradiated through Sadex, but if the volume is going to increase substantially, we’ll need to build a facility in Salinas and additional facilities in different places throughout the country.

We see opportunities for companies to get on board. In line facilities are possible but at this juncture I’m not sure it’s necessarily the best way to go. Does a company want to put capital out to build a facility not knowing how much volume it will do initially? As it gears up, inline facilities make sense over time. Currently companies will want to contract facilities to irradiate these products.

A company like Sadex has to make an assessment of key locations, work with industry on where to build facilities. I’m the first to admit it won’t be just Sadex. There is so much volume, whether in the meat or produce industry.

Q: What is the difference between electron beams and gamma rays? Would one method work better for produce? What are the advantages and disadvantages of the different irradiation options?

A: With e-beam we take common electricity used in a household, boil electrons off and then we fire that shot of electrons through a beam and pass them into an accelerator and ride off radio frequency. We scan those electron beams that people associate with a laser across those products rapidly as they move on the conveyer system, with no gaps, like painting across product in quick mode. We’re scanning across 48 inches, 300 electron pulses a second.

It’s a very fast-moving electron beam, speeded up it creates an ionizing radiation affect, but at a different wave length than Cobalt-60, which is a radioactive isotope. Basically e-beams are like a T.V. and microwave put together but we scan at different frequency, which upsets DNA. There is nothing radioactive floating around.

With Cobalt-60 as well as electron beam you’re dealing with a wave frequency on the light pattern. In the case of Cobalt-60, you’re dealing with high wave frequency and getting tremendous penetration; that’s why it can treat a whole pallet at a time.

Q: The FDA ruling permits up to 4 kilograys for food safety. How does this affect the process? Up till now, hasn’t the dose been limited to a maximum of 1 kilogray for disinfestations?

A: In the case of produce, a low dose is typically 1 to 2 kilogray. In all honesty, I wouldn’t know why you’d want to run a dose at 4 kilogray. At 1 kilogray, you’re going to get 99.99 percent reduction in E. coli in most cases, although it will vary with commodities. You’re going to get a very big reduction by using a dose between 1 and 2 kilogray.

Q: You say gamma rays can penetrate whole pallets. What are the limitations with electron beams in terms of penetrating produce packaging configurations? How long does the process take?

A: We’re just feeding boxes off of the pallet on to a conveyer, irradiating those boxes, re-palletizing and putting them back on the truck. We can complete the process in one to two hours. When we do a truckload of frozen ground beef at 1.8 kilogray, we typically can process in 1.5 to 2 hours at most. That truckload typically carries between 30,000 and 40,000 pounds of product.

I don’t know what a produce trailer weighs. Everything is based off bulk density. What we need to do is find the ideal depth and thickness of product to get the maximum volume through our system. We would work with produce companies to determine the ratio based on how irradiation penetrates product. Whether gamma, electron or x-ray, when it hits product you get spin-off electrons or properties — you have the dose on the product, and build up of the dose and then it tapers off where you don’t get any. We overlay the dose with two accelerators. It depends on the thickness of the bags, and how bags are stacked.

Q: Will produce companies need to make many changes in packing or production procedures to accommodate and maximize the electron beam method?

A: With ground beef the ideal thickness of product is 3.5 to 3.7 inches. Ground beef has different density than produce. Because of the bulk density, produce bags can be stacked on top of each other. You want the box 20 inches by 24 inches. The height of that box depends on product, what works for spinach may be different than iceberg because all is based on bulk density. Some works well, some doesn’t. You have bags of produce that are 6 ounces and others that are 2 pounds, some bags are packed in boxes standing upright and that works very well. Say 6 to 8 bags are stacked on top of each other — that may require some reconfiguration.

We determine the minimum and maximum dose of product so we don’t exceed maximums. We determine logarithmic kill. If product is too thick, we can’t get dose in the middle. If too many packages are in the box, we have to remove packages. If packages are too thin too much dose goes in the middle. We have to work with companies on how product is packaged. Packages are already in the box when we irradiate. We throw product on the conveyor belt, run it through, restack, and it’s gone.

I don’t think companies will have to redo all packaging, but packages have to be put in the right orientation in the boxes. Testing has indicated that on certain types of produce we are able to treat a box of product 24" (L) x 20" (W) x 20" (H), which happens to be 8 small retail bags lying flat, stacked on top of each other. The amount of moisture in a bag can affect your delivery.

Q: Are there FDA packaging procedures a produce company must follow during the irradiation process?

A: There is an extreme urgency with getting packaging approval. All packaging is approved for red meats. There is limited produce packaging approved for irradiation.

Packaging materials are assessed for the contact surface, taking a look at what might migrate from packaging to product. The government has looked at packaging materials for ground beef and determined all packaging is safe for irradiation. In the produce industry, it is only for disinfestations. There has to be a move to get special produce packaging material approved for irradiation. In many cases this is a purely technical issue as the same products used to create produce packaging have been approved for irradiation with other products. In a few specialized areas, new tests may be required.

Q: What other factors should be taken into consideration when companies are deciding irradiation strategies?

A: There are pros and cons to both methods. There are companies that prefer electricity to gamma isotopes, and vice versa. There is so much opportunity and business in the produce industry; it’s going to take a phasing in, like pasteurization of milk. FDA is suggesting irradiation as an intervention method. I think some day it will be common practice.

I do believe that the produce industry is a lot different than the meat industry. People can choose to cook meat. Fresh produce is usually eaten raw and the only true kill step is irradiation. I think ultimately the consumer will embrace irradiation because they want safe product.

As irradiation starts being implemented in the produce industry, there will be growing pains. The produce industry will have to embrace both technologies to some degree. For now, our location in the Midwest is advantageous, as well as our refrigeration capabilities. And maybe speed issues, depending on the process used at the gamma facilities. With electron beam, I believe we can produce higher volumes.

Q: You say the gamma method can irradiate whole pallets at once. Isn’t that more efficient and faster than doing individual produce boxes?

A: Gamma rays allow you to treat whole pallets at a time and the process does have great penetrating power. At the gamma facility, they take a forklift to set pallets in these racks. I don’t know how many pallets these racks hold. Then they close the chamber, they raise the cobalt rods or pencils to expose the product to the irradiation, then lower back down, and take pallets out of the racks. It can involve rotating pallets during the process to get full penetration.

Say you have 24 pallets on a truck. Hypothetically, if the racks can hold six pallets, and you do the process four times that takes time. Gamma works very well on highly dense items like spices. It’s more efficient on medical devices. Most medical devices are irradiated, and those facilities use both Cobalt-60 and electron beam technologies. Food Technology Service does frozen products extremely effectively. They had good success with irradiated strawberries sold to select retailers back in the 1990s. I’m sure they can transition to new fresh produce demands.

A third source is x-ray, which takes electrons and turns them into photons with no mass.

Electrons would shadow a bone; build up of dose in that area. Chicken with bone in product produces a shadowing effect. The problem with x-ray is that with 100 electrons you get 7 to 10 photons, which is very inefficient. You get fabulous penetration of the pallet, but you have to pass it close to the product. The window where photons come out of has to have product close to that source. Hawaii Pride was an old Surebeam facility. It built an x-ray facility to get rid of infestation of fruit flies. With the x-ray method, photons go everywhere. You can do papayas… it passes through the pit. For disinfestations it has been approved at an extremely low dose, 1 kilogray or less. Now with this new regulation, FDA has approved up to 4 kilogray for pathogen reduction and shelf life extension.

Q: Is shelf-life extension significant?

A: With irradiation, you can extend product 2 to 3 times its shelf life and reduce food spoilage and bacteria. Product still spoils but not as quickly. In our tests, non-irradiated cantaloupe lasted 1 to 1.5 weeks, irradiated cantaloupe remained fresh as it started 8 weeks later. Mushrooms spoil in 4 or 5 days in the refrigerator. We’ve had irradiated mushrooms 2.5 weeks later like when we bought them. In poultry, non-irradiated chicken breast lasted 7 to 10 days, irradiated 21 days. These are all internal studies.

Q: One concern about irradiation is that it will be viewed as a quick fix and companies will relax their resolve for implementing good agricultural practices, stringent food safety standards and preventive measures.

A: That argument resonated in the meat industry when irradiation was proposed. The concern was that cows with cow manure on them would pass through the irradiation facility. My integrity in the business is resolute. If a trailer’s refrigeration wasn’t right, or product came to me that I felt had been distressed or compromised, I would reject it before it came through the door. We are not here to fix someone’s mistake; we’re here to be another safety net, a value-added step in the process.

We had a lot of media coverage when we had product inoculated with E. coli 0157, treated it with irradiation and I ate it, and then verified it was safe at a lab.

Q: When you irradiate, does it affect the product quality in any way — taste, texture, flavor profile or nutritional values? I imagine commodities react differently. Are you familiar with research done by Dr. Anuradha Prakash, Professor and Program Director, Food Science at Chapman University? We ran a piece in the Perishable Pundit about her tomato irradiation research, and while it was promising, she did say it impacted the quality to some degree.

A: They did work on cut and diced tomatoes. We’ve actually run whole tomatoes — both larger varieties as well as smaller grape tomatoes. I could tell no difference between irradiated and non-irradiated product in texture, quality, or taste, same as all the produce we’ve irradiated. I don’t want to be biased because I want to make sure quality is there. I don’t want someone to run some kind of product at a dose level where the product sensory perception, taste, color or smell is not appealing to consumers.

We’ve done a lot of internal work, some work for a produce company. They came back to us to go to another round of testing because they indicated the initial results were good.

I heard a company testifying at a congressional hearing that irradiation left a burnt taste. I didn’t notice that in any of our work.

Q: Don’t quality results relate in part to the dose levels used, as well as various product characteristics? Are some commodities more susceptible to problems than others?

A: We’ve done extensive testing between 1 and 2.5 killogray levels and we’ve noticed no difference in product quality. I know this FDA ruling for spinach and iceberg lettuce is approved for 4 killogray. When we’ve done dose mapping, as we add dose to product… yes at some point there are changes that take place.

Q: How do you determine what dose to use? If you use between 1 and 2.5 kilogray levels, is that sufficient from a food safety perspective? Are some pathogens easier to kill than others?

A: Each pathogen has a D-value that correlates to a logarithmic reduction. The D-value in ground beef is not necessarily the same in spinach or lettuce. It depends on many variables such as moisture content. If a water molecule is not as tightly bound, it’s easier to get spin-off electron kill factor. E. coli is easier to kill than salmonella. However, in produce, it doesn’t seem the D-values are as far apart.

Thus a dose of 1 to 2 kilogray would reduce the pathogens to a sufficient food safety level. It is totally dependent on what a company determines is a safe level for their food safety program.

We have a very large DNA structure as a human being; it would take a very, very low dose to kill us, and as soon as we received the irradiation dose. We are looking at putting notches in the DNA pattern of E. coli, salmonellas, lysteria, and camtylobacter — a problem more on the poultry side.

What complicates things more is each processing plant has its own nuances with different pathogens it is dealing with. For example, a company has six food processing plants, and each has its own internal issues with certain pathogens. One facility may be dealing with lysteria and E. coli and using certain intervention methods to knock those pathogens down. At a slaughter plant, for example, they bring in cattle, they have intervention, maybe steaming the carcass or doing a chemical rinse.

Similarly with fresh-cut processing plants, what problems and solutions are prevalent in one plant or location may not be in another; some may be climate-related, or agricultural related. Each facility has to look at its own issues, have a microbiologist know those particular problems, and they run their own internal tests. They provide product to us that may or may not be inoculated with pathogens they want tests on. We run tests and send those to labs, they come up with their own D-values, which may not be the actual D-values.

It also depends if product is fresh or frozen. A plant may know they have three logs of pathogens in their plant. They try to achieve a total 4-log reduction. In the beef industry, a facility may do a steam or chemical wash and then apply irradiation, or modified packaging; they want to achieve at least one log beyond what they have in that plant.

Some of these organisms live on the surface, but once inside the product, it can’t wash off. Some of these pathogens may get pulled into the nutrient system inside the plant or hide in the pores of leaves.

Say a plant has a damaged stem or broken leaf — that pathogen will seek to go into that stem, and you can’t wash it away. Irradiation penetrates throughout product; it’s an internal treatment. If you have E. coli on the surface of a steak and you grill it, you kill the pathogen, but if it was needled to be tenderized, that E. coli inside the meat won’t die when you grill it.

Q: Do you always irradiate at the final packaging stage? For bulk produce, isn’t there inevitably a risk of contamination further down the supply chain? Food safety concerns have raised speculation that most produce in supermarkets will end up packaged. Growing interest in irradiation seems to bolster that vision.

A: I would prefer we treat the final package. From my standpoint, it has to be the final package otherwise it runs the risk of cross-contaminated later on. All ground beef is in its final package. So far, all produce we test is in final package.

Q: Why hasn’t food irradiation become more widespread?

A: A big thing in the irradiation business is the individual’s understanding and knowledge. There have always been concerns with labeling. I’m not a proponent of or against labeling. As I sit here and look at this, the knowledgeable consumer, who understands what the labeling means, knows they are buying a safe quality product, wholesome and nutrients aren’t significantly affected. The other side of the coin is that for consumers who don’t understand what the irradiation symbol means; they think the product is radioactive. I was interviewed by the New York Times recently and asked about labeling and they only used the fear part of the quote.

When I was at one of the hearings last spring on meat safety, I listened to these anti-irradiation people, and some points were good and they were very well spoken. At the same time, I shook my head because much of what they said was distorted or not factual.

Q: Food and Water Watch has been vocal against irradiation of food. They raise questions of radioactive waste and proliferation of furans. What are they talking about here?

A: Anti-irradiation consumer groups create unwarranted fear. When the Food and Water Watch people talk about radioactive waste with Cobalt 60, it is deceptive. When the rods or pencils get depleted, you have to dispose of radioactive waste, but this Cobalt 60 does have a half-life and becomes dramatically diminished over time. This is only an issue because of consumer misperceptions and misinformation. Food and Water Watch has a book out called Zapped! Irradiation and the Death of Food I refer to a book by the Agriculture Research Service. It’s one of the best books on irradiation and puts a lot of these questions to the test: Food Irradiation Research and Technology.

In relation to furans… furan is a carcinogenic property in certain animal tests, though its effect in humans has not been established. When the petition for irradiation of ready-to-eat foods was first proposed, there was research done on various products, notably on apple juice and orange juice where it showed prevalence of furans was high when the food was irradiated. It turns out furans are prevalent in those products to begin with because of the process when pasteurizing.

The results were deceptive. One thing that really surprises me about this group Food and Water Watch is that they are selective in their concerns. One of the highest prevalence of furans is in baby food because of heat pasteurization, not in all but in certain types. Another product that is a high carrier of furans is coffee; depending on how fast you drink it, the furans steam off. But with baby food, the baby doesn’t have that option. My problem with the concern about furans is that furans are prevalent. Why are we feeding them to babies if they’re so dangerous?

Q: Food and Water Watch also expresses concern about irradiation depleting nutritional content.

A: As far as nutritional value, you lose some with cooking food. Surebeam (read about the company here) had commissioned a study in 2002 that looked at the nutritional value in terms of vitamins, and in comparison there was no difference in treated or untreated product with meat. For some reason, irradiation does appear to affect carbohydrates to a minor degree. I don’t know why.

The government finally recommended that irradiation was an intervention step. They recommended companies use irradiation, but didn’t say they have to do it. By issuing the ruling, they said this works, taking into account three or four decades of research behind irradiation, after reviewing and looking at it, they’ve determined irradiation is safe and a company should at least consider it as an intervention method. View it like pasteurization of milk — now it is common practice. Drinking un-pasteurized milk is seen as risky.

Q: Irradiation of beef, though, hasn’t really taken off in this way. Wegmans was progressive in putting out irradiated beef, but it appears to remain a niche market. If it was such a success, wouldn’t other supermarket chains have pounced on it?

A: We irradiate the ground beef for Wegmans here. The Wegmans brand is irradiated and Wegmans has considered irradiating all the ground beef they sell. I know they’re very much interested in irradiated product. We have talked about irradiation of produce.

Q: With food safety issues reaching a fever pitch, has the FDA ruling for irradiation of spinach and iceberg generated serious inquiries from retailers and produce companies?

A: Yes, other retailers besides Wegmans are showing interest. The companies I’ve talked to are so concerned with outbreaks and recalls some have taken their store label off their products. They want to be assured products put out for their consumers are safe. I can’t say they’ll make that move to irradiation.

Richard Hunter
President/CEO,
Food Technology Service,
Mulberry, Florida

Q: Harlan Clemmons of Sadex Corporation referenced your company as one of the only other food irradiation facilities in the country. He pointed out that while Sadex focuses on electron beam technology, Food Technology Service utilizes gamma irradiation methods…

A: People tend to think of meat, vegetables and fruits when talking about food irradiation. There also is a plant that belongs to SteriGenics in Tustin, California. I understand the facility does garlic irradiation there.

Our primary foods we irradiate are ground beef for E. coli prevention. And we do phytosanitary irradiation of fruits that are going to warm weather states to make sure they are free of infestation. Guavas and Bonitos, a type of sweet potato… those are the two major produce items. Over the last couple years we’ve done some testing for fruits and vegetables.

Q: What have you learned?

A: We’ve performed the irradiation but we don’t do the shelf life studies that other companies do at their own facilities. We’re doing the irradiation doses but not the analysis. There have been people looking at this process for quite some time. We try to maintain good contacts in the food industry in general. On a periodic basis, we talk to people in that line of work, and interest has increased since this FDA approval for spinach and iceberg lettuce.

Q: What can you tell us about the irradiation methods?

A: Basically the differences in irradiation methods are in industrial application, but none in terms of how it is regulated. There are three ways to irradiate food. With electron beam, a linear acceleration produces streams of electrons that have high energy.

The second approach is x-ray, which converts electrons to photons. And the third way is to capture energy emitted by radioactive materials. We use Cobalt 60. The actual form is gamma rays. Each has advantages and disadvantages. It becomes a business decision on which process you choose. All are approved for irradiation. A lot of the big irradiation is medical, and from an industrial perspective, both are used.

Q: Is one method more preferable for produce?

A: Electron beam doesn’t penetrate as well, about 1.5 inches, so typically two electron beams are used, one going up and one going down. The packaging has to be fairly thin to get penetration, basically individual bags at a time, or if product is light, a box at a time depending on the thickness. Expect no more than 4 inches thick. Gamma rays are highly penetrating; we do pallets and find it is more efficient and not as damaging to product from a handling perspective.

X-ray ideally is the best of both electron beam and gamma ray technology because it generates on site through electrical means and penetrates as well as gamma rays. But the issue is that conversion efficiency is only about 4 percent. It takes an enormous amount of energy relatively speaking. All will give good results depending on the product.

Q: Is there a problem with radioactive waste from Cobalt 60?

A: Waste stream management is not a problem, but it is difficult to explain to people. Cobalt 60 is a metal, a cousin of nickel. The normal version is non-radioactive Cobalt 59.

The gamma process is used in about 50 locations for medical devices and it’s safe. It’s impossible for it to cause something to become radioactive. There is simply not enough energy to cause product to become radioactive.

There also is virtually no waste. In actuality it is preventing a waste from being created.

Canada produces about 80 percent of world cobalt. The metal rod from Cobalt 59 is used as a control rod in nuclear power plants that dampen energy flow, and to shut down if need be. Normally, those are stainless steel and become radioactive and need to be disposed off and replaced.

After a couple of years, they can remove the rod and instead of having anything as waste, it can be used as Cobalt 60. In essence, you don’t have waste. You have usable byproduct for medical treatments to attack cancer, and for irradiation of medical devices and food products. It’s a byproduct we use for irradiation. That is a source we can use economically for 25 years.

Cobalt-60 loses ½ of its strength every 5-plus years. We send it back to the manufacturer, and inside that sealed source there are little pellets of Cobalt-60. In order to space energy out, there are hot slugs and cold slugs. The cold slugs are in the source already 25 years, first as hot slugs. The cold slugs are isolated from the environment for 50 years. At that point, they are virtually non-radioactive, low minimum waste as opposed to using the stainless steel rods.

The problem is that people hear the words radioactive waste and become alarmed. When someone can define a problem incorrectly with two words, then my 40 sentences to clarify and get the facts out is a losing proposition.

Q: When you irradiate produce utilizing Cobalt 60 technology, does it heat the product in any way?

A: Irradiation technology is not a heat intensive process. The gamma rays don’t heat like a microwave. The process doesn’t heat product in any way. The Cobalt 60 is giving off heat, but hanging over water that is chilled to shield it. Also, air is being drawn through the room. For 30 to 40 minutes the product will be at ambient temperature. We’ve never had a problem. It doesn’t make any impact on the produce quality at all.

Q: Do you have refrigerated systems to keep fresh produce cold throughout the time it remains in your facility?

A: We do have refrigeration if we need it. We have the ability to hold product cold before and after it is irradiated. Our preference is to get product in and out quickly. The whole way our process works is that product is segregated with a physical barrier on both sides of the irradiation procedure. Holding product in refrigeration for extended periods of time is not typically the way we operate. We take the pallets in, they are fork lifted into carriers, where the whole pallet is irradiated all at once, the carriers automatically turn the pallets if needed, and then they are on their way.

Q: Do you envision significant inroads for food irradiation down the line?

A: I think it will happen eventually. It’s a kill step that in most cases the fresh produce industry doesn’t have. With ground beef you have cooking as a kill step but leafy greens and other vegetables and fruits are often eaten raw. Irradiation is both safe and wholesome, but it’s going to take more research and testing. A food company wants a commercially viable product. Food science is a broad undertaking.

Q: Didn’t your company have success with marketing irradiated strawberries many years ago.

A: I wasn’t here at the time, but yes that is the case. Strawberries still have that 1 kilogray maximum for any fresh food to extend shelf life. But food safety benefits are going to require a bit more than that. I don’t feel comfortable calling it food safety at the lower doses. It takes at least 1 to 1.5 to get the 4 or 5 log reduction. That’s what I’d like to see. You can get pretty close to that range with 1 kilogray.

In lettuce and spinach, FDA is now allowing up to a maximum of 4 kilograys. Up until now, you could have irradiated spinach up to 1 kilogray and could get disinfestations, but in good conscience, I couldn’t say these lower levels will produce food safety benefits. I just don’t know.

Q: Do you anticipate doing any irradiation of spinach or iceberg?

A: Nothing official on leafy products as of yet. We do 12 million to 15 million pounds of ground beef a year. And a substantial amount of fruits for disinfestations. As far as plans for leafy vegetables, we’ll have to work with produce companies. They don’t want to take something to market until they know the benefits.

Q: Do you think anti-irradiation groups will hamper the process?

A: There are many food technologies that these vociferous consumer groups could have issue with, but they target irradiation. We do spices. If they are not eating irradiated spices, then they are eating spices treated with poisonous gas, methylbromide. It’s just like irradiation in that there is no residual. You need to do something to get rid of infestation in spices.

There are a lot of claims about irradiation that aren’t valid. If concerns are being expressed about furans, for example, it’s important to know that furans occur in many foods and in processing at very low levels. I trust FDA to go through the studies.

FDA doesn’t approve use of technologies unless it is comfortable with the science. FDA’s job is to insure food safety. With all the food outbreaks and recalls, there’s never been a recall of irradiated beef.

Q: Is there a chance the irradiation process could kill off “good” bacteria as well as the bad bacteria? In other words, are you playing with nature’s circle of life, where certain bacteria are needed to ward off other problems?

A: My view is that anything living on your food, whether a pathogen or spoilage organism is bad. I wouldn’t view any bacteria on food as good bacteria.

In essence you have a lot more spoilage than pathogens on food. The magic in irradiation is in logarithmic reductions. If you start out with 1,000 organisms, bacteria divide dependent on temperature and species of bacteria. That’s why you have to be so careful about keeping product at the right temperature. Say at the end of the day, those 1,000 organisms have doubled to 2,000, and the next day to 4,000.

Starting with those 1,000 organisms, if you have a 4 log reduction, take the decimal and move it four places to the left, now you have .1 instead of 1,000. Instead of 1,000 doubling to 2,000, it takes so much longer for organisms to multiply to a dangerous level. Eventually you have the same spoilage indicators, but you’re slowing down the spoilage process significantly.

Q: What about the immune system resistance argument? In the same way that overuse of antibiotics could weaken their effect; could people’s immune systems be compromised over time if their diet was primarily irradiated foods? It’s like those parents who create ultra sanitized, germ-free home environments for their toddlers with high-tech ionizing machines that eliminate airborne dust and bacteria, and then the first day of kindergarten the child gets really sick…

A: I find the immune system argument funny. People turn one of the good attributes of irradiation into something negative. In reality food borne illness is especially dangerous for people with compromised immune systems, older people and the very young, or people sick with cancer. That’s why food irradiation is so wonderful from a public health standpoint.

Do you lose the immune function over time? I can think of no concept or mechanism where that would happen. With vaccines or penicillin, the problem is not that people are resistant, it’s the organism. You could just argue survival of the fittest, do nothing and whoever isn’t killed off becomes stronger. With that kind of philosophy, you might as well take down the signs for restaurant employees to wash their hands in the restrooms!

We thank Dr. Jeffrey Barach, Harlan Clemmons and Richard Hunter as well as their respective organizations for helping the industry to better understand this important issue. The interviews bring up a few points to think about.

The opposition to irradiation is divided into three parts:

First, we have the silly folks. These are fear mongers who would have people believe they will become radioactive or glow in the dark from eating irradiated food.

More seriously we have people who point to characteristics of irradiation that may be true, without being significant. It is possible that irradiation may reduce nutrient levels in some cases. Our problem in America, though, is obesity, not nutrition deficiency — some minor loss of a vitamin or reduction in amount of carbohydrate simply has no public health significance.

There are also thoughtful people who hesitate on irradiation for understandable reasons: they may fear that production practices will get sloppy if there is a known “kill-step” at the end. They get concerned that if we eat irradiated food, in time we may come to be a race only capable of eating irradiated food.

These are rational concerns, but the fear of sloppy practices speaks to a need for controls in addition to irradiation and the fear of an irradiated world — though unproven — even if true seems premature when so few products are irradiated. Certainly the FDA’s slow pace of approving irradiation reveals an abundance of caution, and by focusing irradiation on high-risk products, especially those consumed raw, it seems like the risk/benefit ratio is strongly in favor of irradiation.

Besides, at this point, we are just talking about providing an option, and the advantages are clear. When the pundit Poppa was diagnosed with leukemia and underwent a stem-cell transplant at the M.D. Anderson Cancer Center in Houston, he was banned from consuming any fresh fruit or vegetable — so everything he ate was cooked so as to avoid all pathogens. Surely allowing him and similar patients the option of an irradiated salad could do no harm and would add significantly to the stock of public pleasure.

The technical decision of which process to use is something to be evaluated. In addition to the two sources mentioned above, we understand that Omaha Beef, a mail order company that has long irradiated all its ground beef, is now testing the feasibility of bringing it in-house with the use of modified x-ray machines.

We are also told that the choice between gamma rays and electron beam irradiation may be academic. The Department of Homeland Security seems unlikely to approve a massive proliferation of gamma ray-based facilities so, while either will work for us right now utilizing existing facilities, new produce-specific or in-line facilities are likely to be electron beam irradiation unless this x-ray test at Omaha Beef pans out.

Nobody is going to irradiate the full range of any popular brand of fresh-cuts without a lot more testing and more proof of retail and consumer acceptance.

Yet we think that Sysco, US Foodservice, Pro*Act and Markon Cooperative could serve a useful purpose here by approaching fresh-cut vendors and letting them know that they would carry an irradiated line and would promote it heavily for use in hospitals, long-term care, senior citizen facilities and other venues where people with impaired immune systems may congregate.

We have to start somewhere, and offering our must vulnerable citizens an opportunity to eat fresh spinach and iceberg lettuce without their taking unnecessary health risk is a great place to start.




Making It Easier To Order
California Leafy Greens

The California Leafy Green Product Handler Marketing Agreement has added some PR teeth to its procedures.

Since its start as an industry response to the 2006 Spinach Crisis, the Marketing Agreement has maintained a website page where one could check the current status of handlers to see if they were certified members, members pending certification or had been recently decertified.

This was fine in theory but placed a heavy burden on buyers to check the website every single time they were going to place an order for any of the fourteen products covered by the Marketing Agreement:

• Arugula

• Butter Lettuce

• Chard

• Escarole

• Iceberg lettuce

• Red Leaf Lettuce

• Spinach

• Baby Leaf Lettuce

• Cabbage

• Endive

• Green Leaf Lettuce

• Kale

• Romaine Lettuce

• Spring Mix

This mechanism made it easy for orders to keep flowing to decertified suppliers as buyers who weren’t checking the web site every day may not have noticed.

Now, however, the CLGMA has set up a mechanism that enables buyers to sign up for an e-mail update whenever there is a decertification action or other important information. It turns buying only from CLGMA members into a relatively easy thing to do as opposed to a job that needs to be constantly repeated. If you are a leafy greens buyer, click here to sign up for a free subscription to this service.

And some applause for the staff and board of CLGMA for going the extra mile to make this system work.




Pundit’s Mailbag — Food Safety Regulations In Mexico

During the Salmonella Saintpaul situation, we spoke with many growers in Mexico. Shortly after that outbreak, Fresh Express held its Food Safety Conference and we wrote a piece on a presentation there. We entitled the piece, Filth Flies And Cultural Research, and we included these paragraphs:

It is easy for us to write a speech about a food safety culture in which the end game is that a farmer with flies in the field tells everyone about it so that research can be conducted, and you want the farmer to decline to harvest until both safety is confirmed and product quality isn’t sullied by a disproportionate numbers of flies.

Yet it seems both unrealistic and unfair to simply say that the farmer should be courageous and take a hit for all of us and die some kind of economic Samurai death as he falls on the sword of food safety and product quality.

Supporting a particular culture is about doing real things that make it both likely and possible for people to behave a certain way.

Now we’ve received a letter from Mexico reacting to the point we were making:

Re: Farmers falling on the Samurai sword of food safety…You make so much sense sometimes it scares me!

Thank you for thinking long and hard about food safety issues, and for sharing your insights.

It is very difficult down here “on the farm,” and I wish the media (and FDA) understood a little more about what a farmer faces when they whip the consuming public into a frenzy.

I am in charge of the food safety program for a mid-sized company in Mexico, and find myself trying to inform as many people as I can, from field workers and company owners to Mexican officials, of many of the insights I gain from reading your column.

Here in Mexico we are now facing government-regulated food safety programs, starting soon with basil, and with tomatoes in the pipeline.

I have mixed feelings, but overall perhaps it will help bring smaller, non-corporate producers into the loop, which is a good thing overall for Mexican agriculture (I just personally don‘t like government regulations).

And there is no guarantee that all the good efforts and money spent will not be wasted by a single infected well or individual who has the power to bring an entire multinational industry to its knees.

No wonder there is an exodus of good farmers from farming. The risks, which were always high, are becoming enormous.

— Janning Kennedy
Consultant
Sueño Tropical
Pescadero
Cabo San Lucas
Mexico

Many who advocate regulation make the mistake of thinking that because a law is passed or a rule made, the problem is solved. We’ve shown how problematic this attitude is with pieces such as this one, showing how regulation didn’t ensure good conditions at the 7th Street Market in Los Angeles, and or this one, showing how the inspector and loads of regulation didn’t prevent a massive rat infestation at the KFC/Taco Bell in New York. We also discussed this issue from a more theoretical perspective in a piece we entitled, All In Favor Of Regulation Say Aye:

It is a weakness of democratic politics that people are prone to believe that passing a law against something will accomplish something. So just as it was once believed that the Kellogg-Briand Pact, also known as the Pact of Paris, would end all war, people believe that a law banning unsafe produce will end foodborne illness outbreaks.

The Kellogg-Briand Pact was a treaty — still binding in fact — “providing for the renunciation of war as an instrument of national policy.” Alas, this 1928 agreement signed by Germany, Italy, Japan, the UK, the USA, France, Russia, Poland and many other countries, did not prevent World War II or any of the wars since.

In Mexico, we have to suspect that regulation will be doubly problematic. In theory it could really help. The problem in Mexico is a bifurcated industry with some world-class producers and some horrible producers. Yet we have real doubts:

First, applying truly rigorous food safety standards to the many small producers who are growing for local sale is tantamount to demanding they go out of business. So it seems unlikely that any rigorous food safety program will really be enforced.

Second, one has to be very concerned about corruption. Many years ago, we used to buy watermelons in Mexico to ship to Finland and, at that time, it was necessary for us to get a Generalized System of Preferences certificate — basically a certification that the produce had been grown in Mexico and that Mexico, as a developing country, qualified for a tariff break. Well, try as they might many a producer simply could not get those certificates, whereas others seemed to have blank ones in their desk drawer. We never knew for sure why this was, but we had our suspicions.

The more regulations there are the more opportunities for corruption.

Ms. Kennedy’s point that the FDA’s practice of punishing every farmer when there is a problem with an unidentified source is well taken. If this continues, it will reduce the willingness of honorable men to engage in this occupation and that will reduce supply and raise food costs for us all.

We are honored by Ms. Kennedy’s kind words and thank her for bringing us the opportunity to discuss such an important subject.




Perishable Thoughts —
Stock-Market Fundamentals

With the fluctuations in the stock market, one could do much worse than to pull out what every investor should have: A dog-eared copy of Security Analysis Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions). Here is what Warren Buffet had to say about the book:

It is rare that the founder of a discipline does not find his work eclipsed in rather short order by successors. But for over forty years after publication of the book [”Security Analysis”] that brought structure and logic to a disorderly and confused activity, it is difficult to think of possible candidates for even the runner-up position in the field of security analysis.

The book was written by Benjamin Graham and David Dodd. But the book that Buffett reserves his highest praise for is The Intelligent Investor by Benjamin Graham, which Buffett declared to be “the best book about investing ever written.” Buffett’s admiration for Graham is so substantial he named his son, Howard Graham Buffett after his teacher. Both books are filled with intriguing quotes, but we thought this one was a good one to look at today:

“The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances. He should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored.”

Benjamin Graham
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)

You can see the text here.

Warren Buffett frequently repeats an allegory taught to him by Benjamin Graham that tells the story of Mr. Market. The idea is that every single business day, Mr. Market knocks on the door and offers a price for one’s shares of stock. He will buy or sell. Sometimes his offer strikes one as fair, other times excessive and other times ridiculously low. But one is free to accept his offer, reject his offer or ignore the man. He still comes back the next day with another offer.

The point of the story is that things — including shares of stock that represent a proportional ownership in a business — have an intrinsic value. Mr. Market can be irrational but that doesn’t change the value of the underlying business. So if the market is irrational on the low side, one can choose to load up and buy shares; if the market is irrational on the high side, one can elect to sell — or one can do what Buffett mostly does — just hold onto shares in good companies and not worry about the gyrations of the market.

In one version of this parable that Warren Buffett has repeated, it is suggested that one consider oneself the owner of candy store with an irrational partner. One day the city is digging up the street and so there is no business. The partner gets depressed and offers to sell his shares for a song or buy yours for the same pittance. A week later a bus filled with school children breaks down in front of the candy store and business booms. The irrational partner offers to buy or sell at a very high price. Once again, one can take advantage of the irrational partner’s depression, take advantage of his mania or ignore him all together.

Although there is an academic disagreement over whether Graham & Dodd’s approach makes sense or whether, as Modern Portfolio Theory proclaims, it is impossible for investors to outwit the market and so investors such as Warren Buffett are simply Triple Sigma Events — incidences that defy probability — we have both come to appreciate the truth of Graham & Dodd and its irrelevance to most people most of the time.

The kind of fundamental analysis Graham & Dodd propose and that Warren Buffett endorses is the only sensible kind of investing. Technical analysis and things such as this are mysticism.

The problem is that the prerequisite for Graham & Dodd is having money one doesn’t need. In other words, the only way people can “neither be concerned by sizable declines nor become excited by sizable advances,” as Graham urges, is if this is money set aside for some future generation.

We have all been trained by recent experience to “buy on dips,” but statistics are a funny thing and even if we know that “one day” this Graham & Dodd value will be recognized and a share price will rebound, we certainly have no way of knowing if that will be in time for the next tuition payment or to pay for a daughter’s wedding or quickly enough to pay for one’s retirement.

One of the things that has happened is that many people have come to believe they should be able to make a living off their investments. We think this is a fairly new phenomenon. Yes there were always “coupon clippers” who lived off the interest of their bonds, but these were either people of enormous means who generated substantial incomes from large portfolios or modest-living pensioners making due on a pension and fixed income.

Today there are plenty of twenty-somethings who set out to make a living day-trading. Because these people have inadequate capital to make a living, they try to use leverage. Margin debt is the most obvious. Many, though, trade various options and, if they write these instruments, unless they carefully hedge every position they may be, in effect, using leverage.

This is significant because our Intelligent Investor quote becomes irrelevant if one is on margin. Now one cannot be indifferent to the stock price. If it drops, the broker will sell you out and leave you with no stock and, quite possibly, no money.

One reason the stock market is a risky place today is even if one is not using leverage, one can’t be sure that the companies one is buying are not.

We read here that the mighty, AAA-rated General Electric has about $90 billion in commercial paper outstanding. Commercial paper is short-term debt issued by companies.

Yet General Electric has no business that requires it to raise a lot of short-term debt. It did so because that was the cheapest source of funds. In effect, what General Electric was doing was borrowing short and lending long by, say, buying aircraft to lease to airlines for 30 years.

Doing this, though, put General Electric at the mercy of the markets. All that had to happen was for investors to say that, “No, we don’t want your paper. Please give us back our money.” All the sudden, GE could find itself without liquidity and thus unable to pay its debts.

Now the solution is obvious and makes us think that the secular case for stocks may be weak for some time to come.

General Electric needs to raise equity. Now it did that by selling $3 billion in Preferred Stock to Warren Buffett’s Berkshire Hathaway and raised another $15 billion in common stock sales. It also stopped buying back shares and cut its dividend by 10%.

One could suggest that General Electric could avoid delay, do a rights issue with its shareholders and raise $100 billion to get out of the commercial paper market all together. The obvious objection is this would cause hardship for current shareholders who would either have to come up with more money or be diluted out of their holdings.

There is, however, another issue that speaks more to the future. If GE needs to deleverage — and here we use GE as an example as it will be true of almost all companies — the company will provide a significantly lower return on equity than it has in the recent past.

Right now trailing twelve-month earnings for GE are running at $2.15 a share. The company has a stock market capitalization of a bit over $200 billion and shares closed Tuesday night at $20.85. If the shareholders pitched in $100 billion, thus getting GE out of the commercial paper market, the company’s earnings would barely improve since GE was probably paying only very low interest on this commercial paper. So the company would have the same earnings but much more equity. If it sells preferred to Buffett and pays a 10% dividend, as it did, its cash flow will go down since it was not paying 10% interest on commercial paper.

So we have three big factors that will restrain stock markets: First, companies need to deleverage so every time stocks pop up and things look a bit brighter, they will try to sell stock. Second, a big prop under the market has been company buy-backs. Firms that need to deleverage won’t buy back stock. Many, such as GE, paid much higher prices to buy back stock over the past several years than they just sold stock for this week. This will sour boards on buy-backs for a time. Third, the newly recapitalized companies will not put the new capital to work at very profitable ventures but will, instead, replace very inexpensive debt.

Of course, the stability brought about by this recapitalization will allow Graham & Dodd to work again. If we go back to our quote we see the main points:

“Investor” — This is neither a ”get-rich-quick” scheme nor a substitute for having a job or income.

“Portfolio of sound stocks” — Use fundamental analysis to determine you own quality companies.

“Expect their prices to fluctuate” — Remember Mr. Market is there to serve you. You own a piece of a business… if you believe that business is sound and management is both wise and honest, then the wild fluctuations in market price tell you more about markets than your investment.

The key is to put oneself in a position so that the gyrations of the market don’t matter. Then one can invest by identifying opportunities and waiting for the world to see them as well.

*****

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