Since its founding, the Pundit been honored to play a role on the faculty of the United Fresh/Cornell University Produce Executive Development Program. It is really an incredible program. Set on the Ivy League campus of Cornell University in Ithaca, New York, the setting requires a trek for many in the industry. Yet our experience with the program is that this very remoteness is crucial to the value the program provides.
Many of our industry events are amenable to multi-tasking, but this one requires a commitment. It is five nights in which one has to put aside the day-to-day concerns to focus on the strategic issues involved in running a business.
This turns out to be a value all in itself. Obviously we could point out that the superstar team of Cornell professors, from psychology to accounting, delivers a mind-expanding course of instruction. We could mention that the time at Cornell — with structured events such as classes, trips and dinners mixed with informal time with one’s classmates — creates a networking experience far beyond anything you can get at a trade show or quick conference.
Yet we think that the most valuable point of attending this conference is that one is compelled to disassociate oneself from the press of the day-to-day and, instead, focus on where one wants to be in a year or two or five or ten or thirty.
It is always easy to say that current problems are too pressing to allow for a focus on long term goals, but our experience is that companies and individuals both only get past the pressing problems, past the tactical issues, by focusing on strategic positioning. If you haven’t signed up, we recommend it highly and if you can’t go yourself, send a worthy associate. In either case, you can register here.
Like a great symphony performed under an exceptional conductor, though the core of the program is stable; each year’s iteration is a unique variation on the theme. This year, one of the special aspects of the program is that we are bringing in both Bruce Peterson and Bruce Knobeloch.
These two gentlemen offer unusual perspectives. Bruce Peterson was responsible for developing Wal-Mart’s produce program and then served as CEO of Naturipe Farms. Bruce Knobeloch, a distant relative of baseball’s famed Chuck Knobeloch, was Director of Produce for Schnuck Markets and then worked as Vice President of Marketing for River Ranch Fresh Foods. So these two gentlemen have sat on both sides of the desk.
What have they learned in this journey? And how can the insights they have gained become valuable tools in your own strategic arsenal? Come to Cornell and find out.
We did think it would be nice if we could offer a sneak peak into the insight that will be gained by participating in the program. So we asked Pundit Investigator and Special Projects Editor Mira Slott to speak with Bruce Peterson:
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Bruce Peterson |
Q: Long before the spinach E. coli crisis, you had predicted food safety would consume the produce industry. Then in June of 2007, we had a fascinating interview after you left Wal-Mart and were on a mission to drive transformation of the industry’s trace-back and recall capabilities. At that time, you pointed to four key issues paramount for the industry to focus on: traceability, immigration, transportation and water utilization.
Much has transpired since then. You brought your retail savvy to the supplier side to lead Naturipe in tackling new challenges and opportunities. Now as you begin a new chapter in your life, what lessons have you learned from both retailer and supplier perspectives that can help the industry prosper?
A: It’s kind of rare for retailers to go to the supplier side, and when they do, they’re usually not that successful.
Q: Why is that?
A: Retailers are from Mars and producers are from Venus. [Editors Note: Read more about the analogy here]. One of the biggest problems is how differently growers go about thinking about their business and retailers go about thinking about their business. It’s not like one way is right or wrong. The two groups process problems from different lenses, and come up with different solutions based on how they approach answering the question.
There has always been distrust between buyers and sellers. It’s a contentious relationship; us versus them. Both sides are guilty of fostering that environment. Because of that, it is often difficult to come to mutually acceptable solutions. The buyer is fighting for the lowest price, and the supplier is trying to get the highest price. One of the biggest problems common to both is they are guilty of short-term thinking. Whatever is going on in the market clouds the decision, which may result in a long-term negative impact, whatever the perceived short-term gain.
Q: Here you are arguing that it behooves the industry to act on these overriding issues that impact long-term survival. Doesn’t this retailer/supplier dynamic stifle progress on that front?
A: Look at the area of traceability. Because suppliers have been burned in the past — where retailers said they were going to do something and they didn’t do it — they are reluctant to begin an intense capital-improvement program for fear of it being leveraged against something on the other side.
Food safety is another excellent example. Suppliers are loath to invest heavily in more stringent food safety requirements, when buyers refuse to limit their buying to those that step up to the plate.
Q: When you joined Naturipe, I would think instinctively it was beneficial to have the retail knowledge and perspective in which to strategize and innovate…
A: It’s not so much knowledge as perspective. I know how retailers think through issues and how suppliers think through issues. I’m aware of the stumbling blocks and have been on both sides of the aisle, so have the advantage of operating from different vantage points. At Naturipe, I was able to apply a number of business techniques, particularly gained through my experience at Wal-Mart, to the supplier side to manage business in a different way. It was a great experience.
A lot of times retailers who go over to the supplier side don’t listen particularly well; they are used to telling suppliers what to do. Retailers have to listen to producers because they have legitimate challenges in the business.
Q: Producers would argue that if they are squeezed too tight, they’ll go out of business and that certainly won’t be in the best interest of retailers… How do you respond to that?
A: Suppliers aren’t always totally honest with themselves in facing up to their business obligations either. If it costs too much to produce to meet market demand, the answer is to stop growing that way and re-think production strategy. There are ways to change your business model.
Q: Doesn’t the current economic crisis and instability in the market intensify the challenges for everyone across the supply chain?
A: The first problem is availability of money. Farmers have to go to the bank to get money to produce crops. When money tightens down, it can be tough. If a company is highly leveraged, it’s a bad deal, but if a company is fairly liquid it’s in great shape now.
The second problem is because there is so much pressure on retail margins for 2009, sales are soft, and as expenses climb, margin is going to have to expand to cover the expenses. There will be more pressure on the supplier to come down on price.
Q: How do you assess the industry’s efforts in the four areas you targeted 18 months ago, and how have these priorities evolved or changed? What are the key issues paramount for the industry to focus on going forward?
A: I’ll talk traceability first. I’m so pleased PMA, United and CPMA particularly took leadership roles in shoring up the Produce Traceability Initiative (PTI), and Kathy Green of Food Lion, who chaired the group, was outstanding.
Two key things were accomplished: broad sections of the industry recognized a common nomenclature was important for identifying produce, using the GTIN, and within that barcode certain things had to be common to everyone at the case and pallet level. That’s a big move forward. People have to recognize in our industry it’s not that traceability doesn’t exist within certain companies, but to look horizontally is complex because there are so many different ways of moving product across the supply chain. Once there was consensus for common identification and agreement upon what it looked like, participating organizations agreed on a time frame to adopt it. I was so pleased leadership of that group came to that point of view.
Q: Is the industry moving at a fast enough speed, with FDA feeling the heat to restore its reputation and the government wanting to get on top of food safety?
A: FDA wants to look at best practices in terms of technologies, and it is aware and acknowledges the industry’s traceability initiatives have gotten us to where we are now, but FDA wants to do this outside trade organizations. I was encouraging the produce industry to take a political role — to go to the FDA and make sure the government doesn’t do anything that doesn’t make sense. The FDA often has no clue what this industry needs.
While I’m really pleased with what the produce industry has done with the Produce Traceability Initiative, I don’t think we can come to the conclusion that because the industry has done this the FDA won’t come to its own conclusions. I‘m still concerned government will poke its nose in it.
The other thing about the produce traceability initiative I thought was so cool… it didn’t claim to be a single solution, it exposed the big challenges, and there are plans on how to overcome those challenges. It just takes time.
Q: Doesn’t the current peanut butter salmonella outbreak put those challenges in a new light? Proliferating recalls reaching such a divergent range of companies and product lines week after week seems to demonstrate the lack of trace-forward capabilities in the packaged foods arena. Perhaps in a warped sense, does this vindicate the produce industry, which has been vilified in its traceability preparedness?
A: The peanut butter crisis speaks to the same problem produce has. Remember, the peanut butter problem wasn’t with retail jars of Skippy and Jiff. It was ingredient raw material sold to processors to put between crackers or baked in cookies. That goes to show you the problems when you have a situation where product is not easily identified, and the package or container it’s shipped in is disposed of quickly. The manufacturer of the peanut paste, in five gallon buckets or whatever the configuration, sells to a Kraft, which puts it in a mixing drum and throws the package away. This just reinforces the challenges.
Back to the FDA… does everything in produce need to be packaged? At least in packaged form it’s a unit easily measured. The more time it takes in pinpointing the source the more difficult to control the outbreak. The spinach outbreak is a great example. Look how long the spinach crisis was going on.
Q: But trace-back is only one part of the equation. In the peanut butter outbreak, FDA investigators effectively traced back the source of the problem to a particular Georgia plant, now under intense investigation for possible criminal behavior, yet the trace-forward process is still ongoing with widespread recalls involving hundreds of companies.
A: I’ve always said traceability has three components: identification, isolation and communication. First identify the tainted peanut butter, and then isolate it. It was not retail packages. Eliminating peanut butter jars was huge. People are still buying peanut butter. This is peanut paste that got into crackers. In a broad sense, the problem was well communicated; people get it.
Q: In this instance, the FDA was quick to alert the public with a detailed list of products not involved. In the spinach crisis and again in the Salmonella Saintpaul crisis, one could argue the opposite occurred. FDA created consumer fear and confusion by putting a lingering mysterious cloud over whole categories, even in states and regions not in production during the time of the outbreak.
A: In the case of spinach, it went on for months and months, consumers refused to buy spinach. And the problem metastasized to other bagged salads and neighboring categories, even sales of canned and frozen spinach declined.
In the Salmonella Saintpaul crisis mass confusion occurred. A lot of produce items were suspect… tomatoes, maybe, then peppers. It shut down whole industries. In the peanut butter outbreak, FDA was definitive.
Q: So, will this PTI agreement on paper turn into a reality? Alas, good retailer intentions don’t always translate to meaningful action.
A: The industry has made great progress in coming up with traceability solutions. Another caveat on the producer side… PTI got statements from retailers that said they are going to do this. Wal-Mart and a couple other major chains are sending letters out to suppliers now. Suppliers are saying talk is cheap, but it’s going to cost quite a bit on the retailer and shipper side and there’s a little wait-and-see out there in regards to whether the retailers are going to follow through with this.
There are two key challenges with respect to the Produce Traceability Initiative. The government is still looking now and the industry has to manage the situation. Buy-side participants of PTI have agreed to timelines and have to reinforce their commitment to those timelines to the supplier side, emphasizing that even in the current economic environment they, the buy-side in the end will invest the capital to make it happen. That will encourage suppliers to make investments on their side as well. With the instability in the economy, this could be an issue.
Are there still challenges? Yes. During the first time we talked about traceability, it was a big elephant. How do you eat an elephant? One bite at a time. This is a journey. I can’t say we’ve arrived. We’re still talking case and pallet level. The industry can only get so far. If people think about food borne illness, most go unreported. If a consumer gets really sick or dies, it changes everything.
An ingredient sent out in bulk mutates to further units distributed through the supply chain. Data management becomes the next challenge. Where and how do you tap into data bases? This is a big push at the FDA, where all data has to be electronic. I’m not sure if I agree or disagree. If data is electronically based, it’s easier to get information but transforming the whole produce industry is an expensive proposition.
Q: Is this what you were talking about earlier when you pointed to FDA working on its own technology-based solutions?
A: Yes. The industry needs to get a handle on what the government is looking to do. FDA views industry self regulation as the fox guarding the hen house, intuitively skeptical of the industry to self govern. But with traceability and the PTI, the industry is in a whole different place than it was 18 months ago.
Q: Back in 2007, you singled out water shortages as the potential death knell of the industry, yet the issue seems to be mingled within corporate sustainability, which has become the buzzword these days. Has your priority list of critical issues broadened?
A: I wish people would be talking more about water than gasoline. Nothing has changed my mind. Water is not high on people’s radar, which is unfortunate. Already we have drought-stricken areas in the U.S., with increasing problems in California right now. You hear about Colorado River management. As needs for water in various forms continue to grow, agriculture falls in the pecking order. Water accessibility for agriculture is one of the biggest concerns.
Major municipalities are buying water rights from farmers. They say, stay on your land, we’re not trying to buy your crops, we want to buy your water rights, offering gigantic sums of money. Today this doesn’t seem to be a big problem. Now you have a municipality in charge of how much water the farmer is allowed to use on their land.
Look at San Antonio, a city growing like crazy. If you go through periods of droughts, states like California and Texas are becoming vulnerable. All other sustainability issues are secondary to that one. Last I looked, I don’t have to drive my car, but if I don’t have a lot of water I’m in trouble. If you project out 20 years, what are water needs for agriculture and where is that water going to come from? It’s a very long-term look at things.
Q: Is this problem exacerbated by global warming?
A: In defense of Al Gore, if we don’t change behavior today, 30 to 40 years from now we’ll be strapping people with problems they won’t be able to resolve. The industry has been doing the same things with land irrigation they’ve done for 30 to 40 years. This is probably not smart. And combine that with the fact that many farmers have sold their water rights. Who will be making those decisions in the future?
I read a report on water usage while at Wal-Mart. It referred to a study that showed if water consumption in Salinas Valley continued in the same way, in 40 years it would have no water. It’s a strong conclusion, but whether you believe it or not, even if it is just directionally correct, the implications are gigantic. Water is an issue that is not getting near enough attention in the produce community.
What do we do today in recognition of a problem 20 to 30 years from now? If it remains business-as-usual, it’s going to become a crisis, not just in the U.S. This is a global issue. One third of the world population is not readily accessible to potable water.
Q: At the risk of overwhelming our readers with the challenges ahead, let’s move on to your third key area of concern, immigration.
A: Immigration is still a major political problem. The new administration will deal with it differently than the former one, but how I don’t know. Will the industry be able to get the labor it needs to harvest and bring crops to market as it had done for all these years?
Q: For awhile, the immigration debate had reached a fever pitch, but now the economy seems to be taking center stage above all else…
A: Exactly. Politically, “it’s the economy, stupid.” We’re talking about spending a trillion dollars and no one knows if it’s a good thing. Unemployment is up, people are losing their homes. But no one is talking about these other issues. We have 10 million illegal immigrants in the U.S. What do you do about this? The ability for someone to legally immigrate to the U.S is daunting. The process is not an easy one, and maybe it shouldn’t be, but I hear horror stories from people wanting to get in.
Some see the solution is to put a giant fence around them. Yet there is a big difference between people coming under an approved program to legally pick crops and illegal immigration. There needs to be an amnesty period for people to come in and register, and to get our arms around it. Then we have to get into a process where people can enter the country to work here.
Part of the problem — and people don’t want to own up to it — is that immigrating to the U.S. to work, or coming temporarily to work, is not an easy thing. There should be a robust process, but the difficulties and red-tape that goes along with the existing programs is simply ridiculous.
Just because a person is in the country illegally doesn’t mean he or she is committing crimes. This is such a sensitive issue in Arizona, New Mexico, Texas and California, and so much produce is grown in those places. There has not been meaningful change, but economic problems of the country have taken over.
Q: I don’t see much movement in transforming the industry’s transportation system either… certainly fuel costs have taken a rollercoaster ride since you highlighted this as a critical issue years ago. What is your assessment now?
A: Transportation has not changed materially at all. Last year’s prices didn’t help the situation. Because of the energy pinch from April 2008 to September 2008, fuel prices went up astronomically and independent trucking companies, with maybe 20 trucks involved, couldn’t afford to stay in business and got out. Now we have fewer and fewer trucking companies.
Truck drivers would rather walk on broken glass than haul produce. Often they must make multiple stops, need to arrange labor to unload, deal with pallet issues and claims situations. With frozen food, they can drive up, unload the pallet, and be gone in 15 minutes. This was a problem more than 18 months ago. The fundamental problems haven’t changed and now there are fewer trucking companies, fewer drivers, and fuel costs are ultimately going to continue to escalate once the economy turns around. Unless the industry finds alternative ways to move significant amounts of produce, it’s going to be in dire straights.
Q: Scattered efforts have been underway for quite some time to reinvent the industry’s historic railway delivery system, yet logistics and financial issues have not allowed such efforts to meaningfully increase the share of produce transported via rail. Still is that the ultimate way to go?
A: I’ll guess 95 percent of produce moves via trucks or tractor trailers. If there are fewer trucks it’s going to be more expensive. We need alternatives. The industry is not doing a whole lot about that. We have to get major grower/shippers and retailers together and talk about how you address this logistics issue. Most distribution centers today don’t have rail heads in them.
If I was on a terminal market, I’d look at how I could be instrumental in this issue. Chicago or New York could bring in rail cars, a hub-and-spoke scenario. There is no data being gathered on what the situation will be. How many trucks will be available for produce distribution? Every produce company thinks they can call a trucking company and it will be able to haul their peaches. Is any task force out there working on this?
Q: Your eye-opening thoughts regarding traceability, water shortages, immigration and transportation implore action across the supply chain. It’s a lot to take in. What advice would you like to leave our readers?
A: These four areas are going to dramatically change how this industry operates, and either we wait until they become such a problem that we react to them, or we start to build an understanding of what the industry will look like. I’m thrilled with what the traceability task force did; for the first time they looked at the issue from all distribution channels, even knowing it will take seven years to do this.
Nobody can think sitting back and doing nothing will solve the problem. We have to take similar actions in the other three areas. Does Lake Mead have less or more water? Is the population of Los Angeles getting smaller or bigger? The Great Lakes have a lot of water, but who’s moving to Detroit?
Q: I remember back in the late 70s early 80s in California, restaurants stopped automatically serving water and the customer had to ask to get a glass, but that didn’t last long…
A: I lived in Michigan in the late 70s early 80s, and I remember a lot of talk of how the West and South wanted to tap into the Great Lakes water. There was a big debate going on because of many drought-stricken areas.
I get concerned about the industry because there is not meaningful conversation in three of the four issues. These are major threats to the economic viability of the produce industry, not tomorrow but down the road. These problems are so significant. We can’t wait until San Antonio is turning off water to five farms before we do something about this.
Water shortages get me fired up. People can live the rest of their lives and not eat some particular produce item but they can’t go without water to drink. When you look at places like Southern California, most of the water comes from someplace outside the area because they don’t have the ability to get a lot of water locally. There needs to be some projection.
You don’t have a produce industry if you don’t have water, labor and transportation.
All of these issues are going to dramatically impact the produce industry. How it impacts us is really up to us. We’re very fortunate as an industry today; we still have choices we can make, and it’s the thoughtful choices we make that will determine our survival.
As always Bruce is intriguing. The Pundit has done much work on sustainability, and we can say that in the most sophisticated circles there is a sense that there has been over-focus on carbon to the exclusion of much else and, especially, water.
There is a severe water shortage today under present political and economic arrangements. This is not so much a physical water shortage, after all in Saudi Arabia they utilize desalination technology for urban and industrial water thus freeing up other supplies for agricultural use. So, for a price, we can produce all the water we want. Unfortunately the challenge today is the political issue regarding the allocation of inexpensive water and a political roadblock regarding the building of desalination plants, aqueducts, etc.
Traceability has been another important focus here at the Pundit, and we agree with Bruce that much has been done. Yet we also hear in Bruce’s words the influence of his time as a grower/shipper and note his admonition to the buy-side to “reinforce their commitments” to the vendor community.
Immigration is also going to be a big issue again, though we think the trade’s problem is less a lack of internal cooperation than a difficulty in relating to the interests and concerns of those outside the industry.
Transportation is one area the industry simply must do a better job on. Bryan Silbermann, President of PMA, and the Pundit had an exchange in Pundit sister publication PRODUCE BUSINESS, reporting on PMA’s task force and the best practices document that came out of it.
Unfortunately the report was just a series of recommendations and it did not propose any substantive changes that would make the produce industry a more attractive industry to do business with. For example, there was no proposal to change the rather unfair treatment the PACA Trust represents to truckers.
Bruce also questioned whether any task forces were out there working on a data bank to determine future transportation need. Perhaps United Fresh will take up that call with its new Supply Chain Logistics and Technology Program, headed up by Dan Vache, who we mentioned here.
These are all fascinating issues, and what is distinctive about the United/Cornell program is that these issues are treated as realities and guideposts of the environment in which business will get done. The program is designed to help each executive know how to process information in such a way that these realities become the opportunities and obstacles that define the parameters within which one builds the strategic future of one’s business. Participants will leave Cornell thinking both that they have gained insight into the business environment and insight on how to use the new perspective to the strategic advantage of their organizations.
The Pundit will be on the faculty this year as well. We can’t wait to get to the United/Cornell program ourselves, and we hope you will decide to register as well. We look forward to seeing you. Please click here to sign up today.
