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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur

Tesco Continues To Be Challenged

Tesco stock did well after its announcement of the slowest same-store sales numbers in its core UK market in 16 years. Why? Investors feared it could be even worse.

Due to an acquisition in Korea, total sales grew 11.7% — that is the good news. The home market was, however, a challenge:

… in the UK, the picture is not so rosy. Total sales grew by 5.9 per cent over the quarter, but the sector focused on like-for-likes sales, excluding fuel, which at 2 per cent represented Tesco’s worst performance for 16 years.

The underlying sales figure of 2 per cent is way behind the most recent figures posted by Asda — 6.9 per cent in the third quarter — and Sainsbury’s — 3.9 per cent in the first half. Aldi, the discounter, has also hurt Tesco this year.

Jonathan Pritchard, an Oriel Securities analyst, said: “They are hemorrhaging customers to Aldi and Asda. This has become a more sustained trend and it appears that momentum is with others at the moment.”

According to TNS Worldpanel data, huge swathes of Tesco customers, based on the value of sales and not volumes, are switching to its rivals.

Many emphasized that the recession was not really a valid explanation as Tesco’s competitors seemed to be outperforming:

Yesterday, the UK’s biggest supermarket said that third-quarter like-for-like sales, excluding petrol, rose by just 2pc.

The figure lagged its main competitors’ recent sales growth by some margin. Wm Morrison’s most recent like-for-like sales rose by 7.6pc, excluding petrol, while Sainsbury saw sales rise by 4.3pc. Third-quarter sales at Wal-mart-owned Asda rose by 6.9pc, using the same metric.

All of which make Tesco’s figure look distinctly sluggish.

Now Tesco tried to make a very convoluted case that things were better than they appeared:

…the company argued that its figures tell a different story. Although UK like-for-like sales growth is at its lowest level since 1993, Tesco said that the volume of goods it is selling has increased. The reason the headline sales figure is so low, Tesco argued, is that it has taken advantage of falling raw material costs and cut its prices heavily in order to help cash-strapped customers. And lower prices mean less money in the till. If you were to count the number of goods customers buy, then sales are rising, Tesco said.

However, the City in London — the UK equivalent of Wall Street — seemed skeptical, as this quote from the J.P. Morgan Food Retail team indicates:

No inflation number provided: “volume” growth questionable. After providing inflation data for most of the last two years, we note that management chose not to reveal this on the conference call when asked. Despite not providing an inflation number, management say that their 2% LFL was almost entirely volume (in contrast to the 4% in 2Q that was mainly inflation). However, we would treat the encouraging noises being made about “volume” with caution. We normally think of LFL volume growth as LFL value growth less inflation (ie., the change in price of identical items). However, Tesco’s management are saying that due to price and mix changes customers effectively were paying the same prices on their basket as last year and hence most of the 2% was “volume”.

If we define inflation that way then the industry generally probably has physical “volume” growth (a point Justin King made at Sainsbury’s interims) and Tesco is by no means outperforming. By definition “downtrading” is the act of customers substituting cheaper products for more expensive ones. Tesco is in fact suggesting the idea that “downtrading” is “deflation”.

Fresh & Easy in the US didn’t get much attention in the report. Tesco pointed out that as the earliest opened stores are now starting to be over a year old, they are starting to be included in the Same-Store-Sales figures — or what the British call Like-for-Like. Typically stores see a big boost in sales as they mature. Tesco made no claim to be outperforming US supermarkets in this regard.

The announcement confirmed that Fresh & Easy won’t meet the 200-store level it had said it would meet in February 2009. Instead it looks like they will have about 124 stores open instead. Other than making claims that can’t be defined such as that the performance of Fresh & Easy is “pleasing,” the report said little and so left people to analyze Tesco’s decision to slow down the planned growth of Fresh & Easy that we looked at here and here.

It is, of course, difficult to know what effect this will all play in the continued development of Fresh & Easy. On the one hand, problems in its core market may call for a pullback to focus on turning things around. On the other hand, poor results in the UK indicate that diversification outside the UK can be valuable.

One thing is for sure: Nothing in the announcement gives any credence to the idea that a recession in America is causing a slowdown in expansion in the United States. Tesco is an immensely wealthy company, and it is expected to spend up to £4 billion on capital expenditures in its fiscal 2009/10. It just sold a £2.4 billion Eurobond issue and has additional banking facilities, which remain undrawn. Its problem is not the ability to spend money; it is the ability to find ways to spend it that will produce adequate returns.

There is every indication that if Fresh & Easy were a winner, Tesco would use this time when other, weaker companies would be hesitant to invest to gain market share and drive out of business those financially weak players.

How bad are things at Fresh & Easy? Well, we have written before about Wild Rocket Foods, the British transplant that is the produce supplier for Fresh & Easy. We mentioned in Will Tesco Pay Wild Rocket’s Bills? that the company did not have a reasonable credit rating.

Now we are getting calls from people saying they were laid off at Wild Rocket. Now this may just be a function of low sales at Fresh & Easy, combined with the decision to slow down store openings. Quite probably Wild Rocket was staffed up for the volume Tesco had told it to expect; now that this clearly won’t happen for a long time, Wild Rocket executives may have decided to “right size” the organization.

However, there is some question as to whether Wild Rocket can properly operate on a “right-sized” basis. If by the end of February, Fresh & Easy will have 124 stores, that is roughly only the size of seven Wal-Mart Supercenters. It seems hard to imagine that it could produce efficiently a full range of fresh-cut produce to serve such a small store base — especially when issues of food safety and regulatory compliance are considered.

Which leads us to this possibility: There is a law called the Worker Adjustment and Retraining Notification Act (WARN). The rules are complex, but they basically require that an employer with 100 or more employees must provide 60-days’ advance notice to employees who will be laid off due to a plant closing or other mass layoff.

Many executives would consider this notice requirement is onerous — not only do the employees have to be paid and get benefits during this period but, because they are working, there is always the possibility of theft or sabotage.

What if the decision has been made to close down this fresh-cut operation and buy from outside vendors as long as volume doesn’t justify a separate production facility? In fact, now that Fresh & Easy is, as we discussed here, starting to buy in producers own packaging, what if it doesn’t need the Wild Rocket facility at all and wants to consolidate in its own distribution center?

Layoffs now could be part of a strategy to bring Wild Rocket to under 100 employees — not that hard to do as those who work less than 20 hours a week don’t count toward the limit. Then, after waiting a bit, if they close the whole facility, they would be exempt from WARN and would not have to provide the 60-day notice.

Do we see in activities at Wild Rocket an indication of what the future holds for Fresh & Easy and, thus, Tesco in America?

Will It Work?

This is the question many think about as they look at shrinking 401-K statements and read the daily headlines with both President Bush and President-elect Obama declaring their plans to stabilize the economy.

Well, Peter Schiff, who heads up Euro Pacific Capital, was remarkably prescient at predicting our current economic travails, even when he was being ridiculed. Just take a look at him on this video compilation:

Now, at this point, he says there is nothing President Bush or President-elect Obama could do to solve the problem. Anything that is done will just make the problem worse in the long run:

“…the economy is in terrible shape and everything the government is doing now and everything the government is likely to do when Obama takes over is going to make the situation worse…we got into this mess because we borrowed and spent too much money. The solution isn’t going into deeper debt to encourage Americans to spend even more money.”

Mr. Schiff makes the point that asset prices could suffer from deflation while consumer prices suffer from inflation:

“…unfortunately government policy can’t help, it only makes it worse… we don’t have money to bail out anybody, we are broke, we are borrowing the money from China, we are borrowing it from Saudi Arabia, we are running it off a printing press… the dollar is going to fall through the floor. Asset prices are still going to fall but consumer-good prices, prices that Americans pay when they go to the supermarket; they are going to go through the roof.”

See his explanation here:

Mr. Schiff also says that the “flight to safety” that is leading people to Treasury bonds is missing the big risk of inflation:

“I think when this bubble bursts, we are going to take out the lows in the bond market from the 1970s. It is going to be a blood bath in bonds… Not only are bonds going to plunge but the dollars in which they are denominated… are going to plunge too. So people are going to get wiped out in Treasuries. They are going to lose almost all their money or their purchasing power…

“… right now the Treasury is benefitting because everybody is focusing on default risk and nobody believes that the Treasury would default… but the real risk isn’t default, the real risk is that they pay you back but they do it with the printing press. They give you money that has no value.”

He points out that looking at these things in nominal dollars is very deceptive and predicts this recession could have five to ten years to go. He looks at stock prices in relation to gold prices and says history shows that enormous declines in the stock market are possible from current levels:

“The Dow was worth 43 ounces of gold in 2000. It just went below ten ounces of gold today. I think it is going to hit one ounce of gold before it is over just like the last major bear market. Remember in 1966 the Dow was at 1,000; it was worth 20 ounces of gold. By 1980 the Dow was at 800 and it was worth just one ounce of gold. The Dow did not get back above 1,000 again until 1982 from 1966. Major, major bear market. This one is going to be worse.”

Peter Schiff also thinks that retail is going to suffer… and that we need to shrink the retail sector:

“It is going to get much worse for the retailers but… that is a good thing. As we were taking our credit cards to the malls and buying imported products and running up these trade deficits and leveraging up our houses. That was the problem. The solution… is that we stop buying stuff.

We need to remember it is the thought that counts. Americans need to stay home for Christmas and not buy as many presents. We have to start saving and digging our way out of this hole. Of course that means a lot of pain for the retailers but that has to happen. We need to shrink our retail economy; we need to get rid of a lot of excess capacity; we have more shopping centers per capita than any place in the world. We don’t need it. We need more factories. We need more people making stuff. We don’t need people buying stuff.”

You can hear his assessment right here:

Peter Schiff has been as accurate as anybody in predicting what would happen to the stock market and to the broader economy. His diagnosis — that we need to have a deep recession, allow companies and people to go bankrupt so we can liquidate their debts — is surely harsh, but that doesn’t mean he is wrong.

In the first place, we seem to be unclear about what we really want to see happen. We alternatively chastise financial institutions for allowing their leverage to get too high and then, when they hold onto government investments so as to improve their financial ratios, we attack the financial institutions for not lending more aggressively!

Second, there are real limits to what stimulation of demand can accomplish. If the government spends money, it has to get it either through taxes, borrowing or the printing press. If it gets the money from taxes or borrowing, you have to argue that government expenditure of this money is somehow going to be more stimulative than the uses taxpayers and investors would have made of these funds if the government didn’t tax or borrow them. If the government simply turns on the printing presses, it will debase the currency and cause enormous inflation. In the short run this may be stimulative, but people will soon catch on and adjust their behavior — the stimulative effect will end.

There is, however, a question mark hanging over Peter Schiff’s specific prescription. To say we don’t need more consumption, we need more factories and “people making stuff” begs the question of who would buy the products made by all these factories and workers.

President Nixon famously announced that “We are all Keynesians now.” Yet, the oft-repeated narrative that President Hoover resisted interference in the economy and thus worsened the Great Depression and then President Roosevelt came in and saved the day with a stimulative policy is history as seen through rose-colored glasses. President Roosevelt’s Secretary of the Treasury and close ally put it this way at the time:

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong … somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…. I say after eight years of this Administration we have just as much unemployment as when we started…. And an enormous debt to boot!

— Henry Morgenthau, Jr., Secretary of the Treasury, testimony to the House Ways and Means Committee, May 9, 1939 (17.2% unemployment)

In fact the Great Depression was not ended by the Works Progress Administration or any other such “stimulation” — unemployment didn’t drop until World War II put everyone in the army or to work making armaments. Living standards didn’t rebound until after the War was over and the Dow Jones Industrial Average did not reach 1929 levels until 1954 — and that didn’t account for inflation.

Some Keynesians would not disagree; they would say that Roosevelt’s efforts were insufficiently stimulative and that World War II was a fine test of Keynesian policy and it worked. Or course, they wouldn’t urge a war; they would typically be fine with massive stimulative policy — employing tens of millions of people in jobs programs, etc. Here is how John Kenneth Galbraith explained the matter:

INTERVIEWER: You’ve written that World War II affirmed Keynes.

JOHN KENNETH GALBRAITH: Oh, there was no doubt about it. We entered the war with massive unemployment, general hardship, and a very weak, ineffective economy. That was the nature of the American economy in 1940, ‘39, ‘40. And then came the war, public borrowing on a vast scale, public employment simulating private employment, a return to full employment, a return to the problem with which I was overwhelmingly concerned, that of inflation.

One could not have had a better demonstration of the Keynesian ideas, and I think it’s fair to say that as a young Keynesian in Washington, in touch with the other Keynesians there, we all saw that very clearly at the time. We saw the war, which we regretted, and I still regret it. I don’t easily tell other people they should get killed, but we saw the war as a justification of the Keynesian theory, the Keynesian doctrine, and the Keynesian recommendation.

Of course, by 1945 the US had 12,350,000 people in uniform out of about 132 million people. This would be equivalent today to employing almost 30 million Americans in jobs programs — not counting the many millions producing weapons, food, etc., to supply the army.

Since there is basically no possibility that such a scale of stimulus will be proposed or enacted, if this is what is required, it is an academic theory with little practical application.

And, in fact, it is not clear it would work. Keynes used to speak of the importance of “animal spirits” in capitalism, which is just another way of saying that money alone may not be enough. The certainty of a policy that is designed to obtain victory at all costs and the importance of such a victory may rouse the animal spirits of entrepreneurs far more than the pledge to paint murals on the side of every public building or to clean up trash.

In fact in his critique of stimulus, Peter Schiff is alluding to Say’s Law, which is a principle articulated by Jean-Batiste Say that the supply of goods, in and of itself, creates demand. As Say put it:

“…a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value.”

Ludwig von Mises, the leader of the Austrian School of economic thought, wrote an essay, entitled Keynes and Say’s Law, which explained Say in this way:

Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.

Every commodity produced is therefore a price, as it were, for other commodities produced. The situation of the producer of any commodity is improved by any increase in the production of other commodities. What may hurt the interests of the producer of a definite commodity is his failure to anticipate correctly the state of the market. He has overrated the public’s demand for his commodity and underrated its demand for other commodities.

Consumers have no use for such a bungling entrepreneur; they buy his products only at prices which make him incur losses, and they force him, if he does not in time correct his mistakes, to go out of business. On the other hand, those entrepreneurs who have better succeeded in anticipating the public demand earn profits and are in a position to expand their business activities. This, says Say, is the truth behind the confused assertions of businessmen that the main difficulty is not in producing but in selling. It would be more appropriate to declare that the first and main problem of business is to produce in the best and cheapest way those commodities which will satisfy the most urgent of the not yet satisfied needs of the public.

So Peter Schiff is really saying that all our efforts to stimulate demand are on the wrong side of the equation. We should instead focus on the production side. Aye but here is the rub: Stimulation of production is just as flawed as stimulation of consumption if the production is not valued.

So if we bail out automakers that can’t produce cars people value enough to buy at a price that covers the cost of production, all we are doing is slowing recovery as we delay the Schumpeterian forces of Creative Destruction that reallocate resources to more productive uses.

Peter Schiff doesn’t say it, but this is the real reason why efforts to revive the economy will probably not be productive. The nature of capitalism is that those who are damaged by a change in the status quo are almost always known — so if Bear Stearns was allowed to fail there were specific people who would have been badly hurt and this creates a constituency for bailouts. It is why we will probably wind up doing something for the auto makers. The list of names of who will be hurt by a failure is likely too prominent to let it happen.

Yet the list of those who would gain from the redeployment of capital and labor is a mystery. After all, there is no lobbying group representing these people — they, themselves, do not know who they are or how they would benefit. So the institutional reflex in democratic capitalism is always to defend the status quo — whatever industry we happen to have.

This is a great loss because we can’t know what the people and resources allocated to one industry or company might have achieved if the situation was such that they had to find new opportunities. It may well be that among the researchers who will keep on designing cars is the guy who might have made solar power competitive but now he will never uproot his family, move to Arizona and reeducate himself to make a living in a new industry.

Politicians of both parties feel the need to be seen as “doing something” when there is a problem. Whether they are doing anything that is actually useful is, in fact, often an open question.

PMA FIT Kicks Off New Year
With Leadership Symposium

The newly named Produce Marketing Association Foundation for Industry Talent has a new board of directors:


The board of directors of the Produce Marketing Association’s Foundation for Industry Talent (PMA FIT) took office at the close of PMA’s 2008 Fresh Summit International Convention and Exposition in Orlando, Florida, USA. Chairman of the Board Bill Schuler, president and chief executive officer of Castellini Company, Newport, Kentucky, is joined on the 2008-2009 board by three other officers and 17 directors to lead next year’s foundation activities.

“We have a dynamic team of leaders in place to ensure the produce industry has strong talent and continued leadership long into the future. Bill Schuler’s passion and commitment to the foundation has been a driving force in our success,” said PMA FIT Executive Director Cindy Seel. “He has worked tirelessly with Immediate Past Chairman Steve Barnard, and will continue to help the foundation grow in the year ahead.”

“I’m honored to serve as chairman of this board, and am thankful to those who have helped the foundation raise nearly $3.5 million toward our $5 million goal. I believe young professionals are an integral part of our industry’s future and we need to invest in their development to ensure continued prosperity for our industry and an ROI for the entire supply chain,” said Schuler. “We have seen many successes in attracting new talent, but we still have many opportunities and much more work to do.”

The officers include:

Bill SchulerWilliam M. Schuler
Chairman PMA FIT Board
Preident and Chief Executive Officer
Castellini Company
Newport, Kentucky
Bud FloydBud Floyd
Vice Chairman, PMA FIT Board
Vice President
CH Robinson Worldwide
Eden Prairie, Minnesota
Peter GouletPeter Goulet
Secretary/Treasurer, PMA FIT Board
Pinnacle Sales & Marketing
Saco, Maine
Steve BarnardSteve Barnard
Past Chairman, PMA FIT Board
Mission Produce, Inc.
Oxnard, California

Other PMA FIT board members include:

John AndersonJohn Anderson
Chairman, President & Chief Executive Officer
The Oppenheimer Group
Coquitlam, BC, Canada
DaveCorsiDave Corsi
Vice President of Produce & Floral Operations
Wegmans Food Markets
Rochester, New York

Jan DelyserJan DeLyser
Vice President of Marketing
California Avocado Commission
Irvine, California
Duane EatonDuane Eaton
Senior Vice President of Association Services
Newark, Delaware
Robert GrayRobert Gray
Chief Executive Officer
Duda Farm Fresh Foods
Salinas, California
Gene HarrisGene Harris
Senior Purchasing Manager
Denny’s Corporation
Spartanburg, South Carolina
Lorri KosterLorri Koster
Mann Packing Company, Inc.
Salinas, California
Jim LeimkuhlerJim Leimkuhler
Progressive Produce Corp.
Los Angeles, California
Ed McLaughlinDr. Edward W. McLaughlin
Cornell University
Ithaca, New York
Lisa McNeeceLisa McNeece
Vice President of Foodservice & Industrial Sales
Grimmway Farms
Bakersfield, California
Jay PackJay Pack
Chief Executive Officer
The Pack Group
Dallas, Texas
Frank PadillaFrank Padilla
Assistant Vice President
General Merchandising Fresh foods
Costco Wholesale
Issaquah, Washington
Bryan SilbermannBryan Silbermann
Newark, Delaware
Jim SmitsJim Smits
Group Vice President Merchandising & Marketing
Supervalu, Inc.
Eden Prairie, Minnesota
Dick SpezzanoDick Spezzano
Spezzano Consulting Service, Inc.
Monrovia, California
Geoff WhiteGeoff White
Vice President of Produce
Safeway, Inc.
Pleasanton, California
Tim YorkTim York
Markon Cooperative
Salinas, California

It is an all-star cast and the very first event of the New Year for the newly named foundation is the annual Leadership Symposium. Yes, after many years under the auspices of PMA, the Leadership Symposium is now being presented by a partnership of Cornell University, Pundit sister publication PRODUCE BUSINESS magazine and the PMA Foundation for Industry Talent.

This makes perfect sense as the trade’s longest running leadership development event belongs as a jewel in the crown of PMA FIT, along with The Pack Family/PMA Career Pathways Fund and the Nucci Scholarship for Culinary Innovation.

The Leadership Symposium, whose curriculum was developed by the much esteemed Professor Edward McLaughlin, the Robert G. Tobin Professor of Marketing and Director, Undergraduate Business Program, Cornell University, is a truly unique event in the annual calendar of the produce industry.

It is the only event at which none of the speakers are selected for their knowledge about the produce industry. As such, it is the only event that solely is devoted to bringing new ideas into the trade.

Conveniently located in Dallas, Texas, the program has won wide acclaim not only for program content but as a first-class networking opportunity — with many attendees coming back time and time again, explaining they make the acquaintance of both new ideas and new people with each visit. Typically the attendance includes representatives of the retail, foodservice operator, wholesaler, grower/shipper and ancillary industry segments.

The speakers are terrific. The schedule jam-packed. The story compelling.

The Leadership Symposium will be held January 14-16, 2009, at the Omni Dallas Park West in Dallas, Texas. You can find out more information here.

And you can register right here.

Good luck to the new PMA FIT board, we look forward to seeing everybody in Dallas.

Pundit’s Mailbag — Irradiation Risks

Irradiation is a topic of great interest to the industry, especially since the FDA has approved its use for pathogen reduction on iceberg lettuce and spinach. The other day we ran a piece, UC Davis Produce Curriculum Is Open To The Industry, which included information on a UC Davis webinar entitled, Produce Irradiation: Food Safety Solution? The webinar is co-sponsored by the UC Davis Center for Produce Safety, United Fresh, the Produce Marketing Association and the National Restaurant Association.

Several of the participants in the webinar have been mentioned in the Pundit, and we did full-blown interviews with both Christine M. Bruhn, Ph.D., UC Davis, and Harlan Clemmons, President & COO, Sadex Corporation, on the irradiation issue.

In fact, the Harlan Clemmons interview was run as part of a more comprehensive piece we entitled, Irradiation Kickstart, which also included interviews with Richard Hunter, President and CEO of Food Technology Service, and Dr. Jeffrey Barach, Vice President and Center Director of the Grocery Manufacturers Association, and that piece brought a note from one of the Pundit’s most thoughtful correspondents, Bob Sanderson of Jonathans Sprouts:

Relative to the “good bacteria” irradiation question raised in your piece, Irradiation Kickstart, Dr. Jeffery Barach seems to be suggesting that irradiation kills pathogens but not benign organisms:

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 foodborne 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.

Is this what he intends to say, and if so, could he elucidate how this selective sterilization works?

Richard Hunter proposes that all bacteria on food are bad:

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.

If this is the accepted frame of reference, then it is a moot point — in fact, any survivors such as what Dr. Barach mentions could be seen as a shortcoming of the irradiation process.

Some perspective on the question of the “pro” or “con” significance of non-pathogenic microorganisms on food (what might be called “normal flora”), might be gained from observations of laboratory animals that are fed a sterile diet:

First, is their general level of health and immune function similar to that of animals not fed a sterile diet?

Secondly, if you raise a lab animal on a sterile diet, and then expose it to pathogens, is it more likely to have an adverse reaction than an animal would that had been fed a “normal” diet rich in many kinds of microorganisms?

I have not found a source for this information, and so, like many people, am left to my “intuitions,” which I find are shared by many: exclusively sterile food, or an overly sanitized environment, are not healthy for people who are not seriously immune-compromised, and their increasing introduction into the diet and lifestyle may have pervasive adverse health effects that are difficult if not impossible to accurately trace back to their causes.

— Bob Sanderson
Jonathans Sprouts
Rochester, Massachusetts

Bob Sanderson often raises intriguing questions, and we have featured his insights in pieces such as these:

Pundit’s Mailbag — Organics And Manure

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

In this case we thought Bob’s question were sufficiently intriguing to lead us to ask Pundit Investigator and Special Projects Editor Mira Slott to, once again, speak with Dr. Jeffrey Barach and try to get some clarification:

Dr. Jeff Barach
Vice President and Center Director
Grocery Manufacturers Association (GMA)
Washington, D.C.
Member, Executive Committee
Creating Sustainable Outcomes for Agriculture
The Keystone Center
Keystone, CO

Q. In your interview, you point out that after irradiation there are still normal bacteria that exist, but the foodborne pathogens have been eliminated. Could you elaborate on how this selective sterilization works?

A. Irradiation treatment will reduce both pathogenic and non-pathogenic (spoilage or normal) organisms.

In real life on a food product, such as fresh vegetables and fruits, the number of the pathogenic bacteria is a lot lower than the number of spoilage organisms.

In addition to that, different microorganisms have different sensitivity to irradiation. In an irradiation treatment, the dose chosen for a specific food product will target a specific organism, which is the pathogen most likely to contaminate that product.

Since many spoilage organisms are more resistant and are in numbers more prevalent than pathogens, the targeted treatment kills the pathogens and some of the spoilage (normal) organisms, but not all.

Q. Richard Hunter proposes that all bacteria on food are bad. If this is the case, could any survivors be seen as a shortcoming of the irradiation process?

A. The comment that all bacteria on food are bad is not exactly correct. I think he wanted to point out he would prefer not to have any kind of bacteria on his food, which is hardly possible, unless the food is “commercially sterilized” (such as with canned foods).

All produce, vegetables, fruits, bakery products, dairy products, etc., have some microorganism load. There are many food products that are purposely inoculated with bacteria, yeast or moulds (i.e., fermented meats, cultured dairy products, fermented drinks, etc).

Irradiation is used for the purpose of reducing the harmful bacteria (the life-threatening pathogens) and not to sterilize the food. Bacteria come in good and bad varieties, or more to the point, bacteria can be helpful or harmful.

Q. Have there been any scientific studies conducted on the significance of non-pathogenic microorganisms on food? For example, would general health and immune functions be similar between animals fed a sterile diet and animals not fed a sterile diet?

If you raise a lab animal on a sterile diet and then expose it to pathogens, is it more likely to have an adverse reaction than an animal that had been fed a “normal” diet rich in many kinds of microorganisms?

A. That is an interesting question but beyond the scope of our discussions here. Irradiated produce is not sterile and will contain some bacteria (of the non-pathogenic type). The remaining “normal” bacteria on the irradiated produce are the same ones you would find on unirradiated produce — there are just fewer of them.

This whole issue is reminiscent of the debate over sterile environments and allergies and asthma in children. There is an interesting little video on the “Hygiene Hypothesis” that focuses on the idea that farmer’s children have fewer incidences of allergies and asthma. You can see the video here.

Doctors describe the Hygiene Hypothesis this way:

Here’s the theory: The newborn immune system is tolerant and non-allergic to most anything (which is why it sometimes does such a lousy job of fighting off infection). When it is exposed to the usual allergy-causing antigens (such as dust and mold and dogs and cats), the immune system and allergens become lifelong buddies: a long-lasting acceptance and tolerance between them develops.

On the other hand, when an allergy-prone infant is raised in a very clean — almost sterile — environment, the immune system remains unfamiliar with these allergens. Then, when exposed later on, it reacts to them as it would to any alien invader, triggering allergies and/or asthma.

There have been a number of studies and some do make such a finding. One source says that as “…the hepatitis A infection rate has dropped from nearly 100 percent to less than 30 percent; meanwhile, the incidence of asthma has doubled. After analyzing hundreds of DNA samples, Umetsu found a link. More than half of Americans carry a variant of an immune-response gene, TIM-1, that makes people much less likely to get asthma — but only if they have been exposed to hepatitis A.”

Still the research is problematic, the data establishing an epidemic of childhood asthma and allergies is unclear often relying on patient self-diagnosis. There are also many variables. Children on farms may have fewer allergies — but maybe parents with severe allergies don’t become farmers. The role of antibiotics in both animals and people may affect this whole line of inquiry. And of course cleanliness can have positive attributes in preventing infection. As a result of all this, public health authorities are not urging parents to have their children eat dirt.

When it comes to irradiation, Bob Sanderson’s concern strikes us as intriguing, and we would like to see animal studies done such as he suggests. Yet it does not strike us as an important concern regarding the irradiation of iceberg lettuce and spinach.

Even if irradiation was to render produce completely sterile — which it does not — and even if bacteria wouldn’t start growing the minute that bag is open and the produce touches the air, a bowl, a fork, etc. — which it would — iceberg lettuce and spinach are just too small a portion of a person’s diet to make this much of a concern. “It strikes us as an argument against irradiating or otherwise rendering sterile the whole food supply as we do for astronauts, whose confined environment makes diarrhea a very serious problem.”

Today we are a long way from that; in fact, at this point the Pundit proposed just making a line of produce available for use by immune-compromised individuals or institutions that serve such people.

Since there is no danger anytime soon of the whole diet being “sterilized,” we can proceed with irradiation of higher risky items, such as leafy greens, in full confidence that the known benefits in terms of food safety outweigh any even hypothetical risk to society at large.

We thank both Bob Sanderson and Jeffrey Barach for their assistance with this challenging topic.

Perishable Thoughts —
What Is Leadership?

Now that President-elect Obama has unveiled his national security team, he is receiving praise from the right:

‘By far and away the best I think we could have imagined,” a former Bush administration official tells National Review Online about Monday’s unveiling of Barack Obama’s national-security team.

While the left is feeling cheated:

Not a single, solitary, actual dyed-in-the-wool progressive has, as far as I can tell, even been mentioned for a position in the new administration. Not one.

The Obama national security team followed in the steps of the decision of President Elect-Obama to appoint mostly veterans of the Clinton administration to his economic team.

When challenged as to how the appointment of numerous long-time veterans in both national security and finance could in fact be a harbinger of the “change” candidate Obama promised Americans, the president-elect explained that he would, personally, be the force for change in his administration:

“Understand where the vision for change comes from, first and foremost,” he told reporters at his third press conference in as many days. “It comes from me. That’s my job, is to provide a vision in terms of where we are going, and to make sure, then, that my team is implementing.”

Which sets us up perfectly to look at today’s Perishable Thought — one of several quotes that have been sent on by Scott Danner, Chief Operating Officer, Liberty Fruit Co., Inc., which addresses the nature of leadership:

“Leadership is the ability to decide what is to be done, and then to get others to want to do it.”

— Dwight D. Eisenhower

(Spoken to author Arthur Larson by President Eisenhower during a conversation on leadership in 1956)
Eisenhower: The President Nobody Knew
By Arthur Larson
Charles Scribner & Sons, 1968
210 Pages Pg. 15 and 21

The nature of leadership has long fascinated readers here. Our piece, Perishable Thoughts — Youth, Experience And The Subprime Crisis, which highlighted a quote on hiring and promotion from Dee Hock, the founder and former CEO of Visa Credit Card Association, has been the most widely e-mailed of our Perishable Thoughts selections.

We also dealt with leadership in a number of pieces in the early days of the Perishable Pundit, including:

Pundit’s Mailbag — Leadership

Pundit’s Mailbag — More On Leadership

Pundit’s Mailbag — Where’s The Passion?

Pundit’s Mailbag — Wild Oat’s Harris Talks About Mentorship

This quote dates from September of 1956 when Arthur Larson, an author, law professor at Cornell, dean of the University of Pittsburgh School of Law and Under Secretary of Labor under President Dwight D. Eisenhower, attended a discussion on leadership by President Eisenhower. The discussion, held in the midst of his re-election campaign, provided an opportunity for President Eisenhower — who had become quite annoyed by the ceaseless attacks on his leadership abilities by Adlai Stevenson, the democratic candidate for President — to explain his position.

Eisenhower didn’t think much of Adlai Stevenson. Though he acknowledged that Stevenson was a great speech writer and presenter, he argued that if speaking prowess were qualification enough to be President, “We ought to elect Ernest Hemingway.”

We understand why Barack Obama has selected the team he has. These are not jobs amenable to “on the job training,” and the only experienced Democrats of working age are really those who worked in the Clinton administration. It is also true that we have a delicate situation both internationally and financially and that a smooth transition is very important. So if there are Bush holdovers such as Robert Gates at Secretary of Defense who are doing a good job and are only nominally Republican, it makes sense to keep them .

Still we think hidden in Eisenhower’s quote is a bit of a problem for Barack Obama. To “get others to want to do something” is always a challenge. To get experts in the field who disagree with you to change their mind is almost impossible.

Antonin Scalia, one of the Associate Justices on the US Supreme Court, gave an interview in which he explained that the public’s image of the justices deliberating is not true. He said that all the justices had spent their lives studying these questions and that it was almost impossible to persuade any of the justices that they were wrong.

Many would hold that “Personnel is Policy.” Indeed one of the more sensible reasons for voting for one candidate over another is the thousands of lower level political operatives who get placed in positions that deal with issues which never reach the President.

In other words, Dwight Eisenhower’s point might apply to the public masses or even to a general inspiring his army of privates — but not to high level experts.

There is another saying in the lexicon of recruitment: “Never hire someone you can’t afford to fire.”

Is Barack Obama setting himself up for a fiery resignation down the road? Or is he the shrewdest of all, recalling still another adage: “Keep your friends close and your enemies closer.”

Many thanks to Scott Danner and Liberty Fruit Co. for leading us to discuss this important question.

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