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Pundit’s Mailbag — Mike Stuart Of FFVA Speaks Out On Ballantine And Buyer/Seller Relations

We received many letters on our recent piece, Did Wal-Mart Have A Role In Ballantine’s Fall? Many of the letters focused on the future and the implications of the story for the future of the industry. This letter came from a well respected executive at one of the most important regional produce associations:

Jim… it’s not been my practice in the past to respond to your articles in The Pundit. While I’ve been an avid reader, I’ve always thought it best to leave the dialogue to members of the trade itself. But in the case of your story on Ballantine Produce, I felt I had to speak up.

I’ll be brief. You’ve hit the nail squarely on the head. I would add, however, that this is not an isolated situation. There is no doubt in my mind that other significant suppliers are being treated in a similar fashion. At the end of the day, how are these firms going to make significant investments in food safety, traceability, sustainability and other important industry initiatives if the profitability of the business is squeezed to the breaking point? How are they going to survive at all? In the case of Ballantine, we know the answer. I fear other good companies will follow suit.

I urge you to dig deeper. It deserves more exploration.

— Michael J. Stuart
Florida Fruit & Vegetable Association
Maitland, Florida

We thank Mike Stuart and deeply appreciate his willingness to make an exception to his policy and speak out.

We need people to speak out because those who have the most to say — the producers that take supply-chain responsibilities most seriously but who are then put into a position of competing against suppliers that invest little or nothing in meeting such responsibilities — are fearful of speaking out lest they anger their customers.

Because our large national associations are vertically integrated, it is also difficult for them to really clarify the issues at hand. For example, the elephant in the room during the whole traceability initiative was simple: Would the big buyers constrain their supply chain to vendors that conformed to the metrics and timetables established in the Produce Traceability Initiative? Or was this going to be another bait-and-switch in which producers were enticed to make investments by the promise of business, but, in the end, the business would only go to traceability-conforming vendors if they were also the cheapest guy on the block?

It is a sign of how difficult it is for suppliers and associations to deal with issues such as these that, in the end, everyone just declared victory and went home, without the buying community making any binding commitments.

Of course, we have pointed to many examples of this kind of behavior. For example, in our piece, Is Tesco Defrauding Consumers? Promising Only Nature’s Choice Certified Product But Delivering Cheaper Alternatives? we pointed out that even a giant, with a fantastic reputation for food safety such as Tesco, was prepared to completely abandon its much praised Nature’s Choice program to save a few pennies.

Mike asks the question precisely:

At the end of the day, how are these firms going to make significant investments in food safety, traceability, sustainability and other important industry initiatives if the profitability of the business is squeezed to the breaking point? How are they going to survive at all?

So the question is how are we as an industry going to address this problem? Well we might make some progress by appealing to the enlightened self-interest of the buying community. Some of these activities are really not in the interest of the buying organization, which does, after all, have an interest in building and sustaining a supply base of quality.

The problem often is that the incentive of individuals is often to meet some quota or quarterly number and they really don’t care what that means for some future period because they expect they will be out of their current position and on to something else. So, just as on Wall Street we now have a movement that says you can’t pay people on a short term basis when they can make a fortune today and lose it tomorrow, so promotion and compensation programs at buying organizations have to change to incorporate values like the contribution to building a sustainable supply chain rather than just quarterly profits.

It is also true that producers can take some responsibility. Tree fruit is hard because those trees are planted and producing, but we know, for example, of one very large grower of a specialty row crop who went back and forth with Wal-Mart and almost didn’t produce for the retailer because he thought the contract unacceptable. In the end, Wal-Mart acquiesced but the grower was prepared to not grow a lot of crop if Wal-Mart had hung tough.

Of course, as consolidation continues on the buying end, it becomes more and more difficult for producers to say no. This is the British disease and one we’ve chronicled with pieces studying how vendors such as Del Monte eventually walked away from ASDA’s tender — ASDA of course, is Wal-Mart’s UK subsidiary.

Of course, it is one thing for a vendor of bananas, a crop traded across the world, to walk away; it can just send the boat to another country. Where, however, can a British cucumber producer go if he can’t get a profit from the handful of British retailers?

Perhaps these buyers think they are horribly clever to play one vendor against another and make the entire industry unsustainable. Perhaps they do even boost profits.

Yet issues such as food safety, sustainability and traceability are so in the public interest that the government may lose its patience with such games. Indeed, a free nation values a farming sector that is not merely productive but also manned by free and independent men and women, not supplicants to an oligarchy of buyers.

With all the attention to the financial crisis, we are at a time when democratic capitalism is itself under scrutiny. Many are thinking that the world of a few publicly held companies dictating to farmers who live at their sufferance is simply not the precondition for creating the free people necessary to sustain democracy… and capitalism.

We once wrote a piece that reported on Wal-Mart’s dedication to “Heritage Agriculture,” yet perhaps it has its focus wrong. Perhaps the heritage that counts most is not that the peaches once grew in Arkansas; it is that just as being completely dependent on government for one’s livelihood precludes the free expression necessary for democracy, perhaps a lack of alternative customers precludes the economic independence necessary for capitalism to be not just efficient but ennobling.

Perhaps big retailers should rethink their interests. After all, the US did break up Standard Oil. If large retailers come to be seen as domineering — squeezing independent business people and farmers so tight they can’t make a living or can’t properly produce high quality, safe and sustainable products — the government could well decide that the US could live — perhaps live better — with smaller retail organizations.

Many thanks to Mike Stuart and the Florida Fruit & Vegetable Association for the letter. As to our continuing to dig deeper into this issue… you can count on it.

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