Sometimes when events occur, we make the mistake of focusing on why the changes occurred as opposed to asking why things were as they were.
On November 1, 2004, Ready Pac announced the completion of its acquisition of the Salad Time fresh-cut processing unit of Tanimura & Antle. As part of the deal, Ready Pac took over Salad Time’s processing plants in Salinas, Montreal, Jackson, Georgia, and Plymouth, Indiana.
At the time, Ready Pac said the Salad Time business did a volume of about $220 million each year.
When that deal closed, we expected Tanimura & Antle to thin down its management, on three counts:
- That was a big chunk of its business, so Tanimura & Antle would now be a smaller company.
- Although we would be the last to say that running a commodity vegetable company is easy, running a national fresh-cut processor with regional plants requires marketing, product development, food safety and other competencies that go well beyond what most commodity shippers have to maintain. It is just a more complex business.
- Value-added has higher margins than shipping commodities and thus can sustain a thicker management structure. Commodity sales means basically commodity prices, which places an imperative on reducing costs.
So after Tanimura & Antle management lost responsibility for running Salad Time, we expected the other shoe to drop in terms of reductions in the management team at Tanimura & Antle. Yet it never did…at least until this month.
The best explanation is an expectation on the part of strategists at Tanimura & Antle that it would be able to grow substantially or do acquisitions as part of a supply side consolidation that would match that which has occurred on the retail side. That has still not occurred.
We can all have a lot of fun with industry gossip, but our sense is that it is this lack of consolidation that is a big part of the “story behind the story” of the resignations of President Ken Silveira, Rick Bravo, vice president of sales and marketing, and Rick Russo, vice president of crop management, from Tanimura & Antle.
For years now, Tanimura & Antle has maintained an executive infrastructure expecting to be able to capitalize on a consolidation that has simply not developed.
Of course, this still raises the question of why act at this particular moment. The answer to that lies in a few other dynamics that are confronting the industry.
One is the way in which the growth of processing is distorting pricing on commodity items. In February. we ran a piece entitled, Just Say No: The New Dynamic Of Producer/Buyer Relations, in which we discussed Tanimura & Antle’s decision to cease most sales to processors. One of the unwritten subtexts of that decision poses a real challenge for the industry.
The fresh-cut industry may look to buy inexpensively but each firm has a vested interest and in some cases a contractual obligation to keep whatever shelf space it has at retail. So if raw material is short, processors will fight hard for available produce. The heavy purchasing from processors reduces bulk supplies available for the fresh market, which drives up FOBs that then get reflected in higher retails. Those retails can be a little “sticky” and come down far more slowly than the FOBs come down.
These higher retail prices depress consumer demand, so the processing-driven run up winds up depressing the sales of bulk product. To a significant extent, that is what happened last October as high prices wound up sewing the seeds of lackluster demand.
Much as selling Salad Time reduces the size of the organization and the managerial complexity of running it, the decision to not sell to processors pointed to a reduction in the breadth and depth of management needed to run the company.
Another issue is that competitive uses for land are making production of crops on leased acreage less feasible. All over the produce industry, from the strawberry industry in Florida to leafy greens and vegetables in Salinas, we hear the same refrain: we can make a living on land we own, even if we may not be getting an appropriate return on the value of that land, but leasing land to grow produce is often a loser.
In parts of California, we are told that land people were happy to lease to grow cantaloupes at $100 an acre is now bringing $400 to $700 an acre to grow wheat.
High prices for grains and competition from biofuels, including ethanol, are making it marginal, at best, to rent land to grow more produce. Now Tanimura & Antle and the families behind it have a pretty impressive asset base; it will be one of the nation’s largest produce companies without renting an acre. But, once again, reducing the use of leased acreage both reduces the size and complexity of the business and thus reduces the need for the kind of management team that was in place at Tanimura & Antle.
Obviously you never like to see people lose their jobs, though Tanimura & Antle is a larger organization and one supposes that people had employment agreements and didn’t leave empty handed. Also, traditionally, Tanimura & Antle executives have been coveted for managerial positions in other firms, so we suspect and hope that Ken and the two Ricks will land on their feet and soon.
Yet to us this story is not really about three respected industry executives or one prominent firm; it is about big challenges facing the Salinas Valley and the industry at large:
- Too many marketers for the number of buyers is leading to undisciplined markets.
- A growing processing sector disrupts the normal ebb and flow of pricing in the bulk commodities, with run ups at retail leading to depressed commodity markets.
- Competitive use for land from higher paying industries outside of produce is starting to restrain production in some areas.
There may not be much we can do about land being prized for other agricultural uses, but both points one and two relate to the strength of marketing organizations. When the Pundit was just a pup in the industry, we had the pleasure of learning from Marty Michaelson, a longtime family friend who ran a company called United Apple Sales in New York State. He taught us that the size of a crop was only one consideration in its impact on pricing. Although he marketed New York apples, he explained that a bumper crop in Washington State had far less effect on pricing than a big crop in Michigan, New York and other areas.
The reason was that the large shippers from Washington were more disciplined marketers with greater capabilities and would manage the increased volume. Many of the other regions had smaller shippers, many of whom would wind up dumping product in terminal markets, which would cause a price collapse.
We need fewer, larger, more capable, more disciplined marketers better able to negotiate with large buyers and able to smooth market gyrations caused by processing needs.
For the moment, Tanimura & Antle has adopted a ”back to the future” strategy, bringing Bob Antle back running the sales desk. The history of the Tanimura and Antle families is a rich one, and among the great winners from this situation are the salespeople at Tanimura & Antle who will get to work side by side with an industry legend.
Bob Antle joined his father’s (Bud Antle) company back in 1949. Things have changed a lot since Bob ran the sales desk. There is a lot more program business and there are a lot fewer buyers to sell. But the basics of sales don’t change and in some ways by pulling back to a core operation, one is liberated to do what one does best and to start building again on a new and stronger foundation.
We wish Ken Silveira, Rick Bravo and Rick Russo a speedy voyage to the next stage of their careers, and we wish the Tanimura and Antle families as well as all the folks at Tanimura & Antle a prosperous future.