October, 2007

Fruits of Thought

The Consumer Covenant

A year after the great spinach crisis of 2006, we can look back and see that much has been accomplished regarding food safety.

Specific efforts, such as the California Leafy Greens Marketing Agreement, have made vulnerable items safer today, and a multitude of initiatives to expand safety programs on other items are afoot.

Research efforts, such as the $2 million dollar initiative funded by Fresh Express, as well as the UC Davis-based Center for Produce Safety, launched with $4.65 million committed by Taylor Farms, PMA, the state of California and UC Davis, are designed to make produce safer in the future by helping us understand better how risks to produce safety develop and how such risks can be ameliorated.

PMA and United’s call for mandatory, federal, food safety regulation has laid a framework for rebuilding regulatory and consumer confidence in fresh produce.

Fundamentally, food safety remains problematic because retailers are not willing to accept responsibility for the safety of what they sell.

Of course, retailers care about food safety. Tim York of Markon and Dave Corsi of Wegmans launched the Buyer-led Food Safety Initiative, and, with the help of 20 of their colleagues who signed the initiative, played an important role in the success of the California Leafy Greens Marketing Agreement and other initiatives.

Though the search for industry-wide solutions is admirable, it doesn’t absolve retailers of their responsibility for safeguarding their own customers. And here, the needed cultural shift has still not taken place.

Always and forever, food safety of fresh produce is a retail responsibility. Consumers may absolve the store and blame Campbell’s if soup is poisoned. But believing the chain deals with select farmers and ascertains the safety and quality of their produce is an intrinsic part of the relationship between retailer and consumer.

Retailers are the only ones who can put the industry on a virtuous cycle, in which growers and processors improve food safety, which gets them more business at better profits, which encourages other growers and processors to do an even better job, which brings them more business at better prices and on and on.

Unfortunately, the industry is stuck with, at best, efforts to raise minimum standards. This was made very evident when Costco, one of our industry’s marquee retailers, had a recall late this past summer on carrots. The carrot industry is highly concentrated. There are only two players of any size and only one truly prominent name.

So, how did such a large, prominent retailer wind up buying from such a minor player?

The answer: The retailer’s carrot buyer was not charged with finding the safest carrots; he was charged with finding the least expensive carrots meeting some minimum safety standard.

This way of thinking about procurement is bad for the industry and, in some fundamental way, breaks trust with the customer.

It is bad for the industry because it means the industry leaders in food safety get no “extra points” for undertaking extra effort — or extra expense. As a result, companies become far less likely to undertake extra food-safety efforts or incur extra expenses to implement improved food safety programs.

Almost all quality third-party certifications require, as a part of their metrics, continuous improvement; fixed minimum standards are, well, fixed. What we want, as an industry, is for the small carrot processor to know A) If it doesn’t match the food-safety standards of the industry leader, it has zero chance of getting the business, and B) If it can outperform the industry leader on food safety, it has an excellent chance of stealing the business away. This will put a tiger on the tail of the industry leader to make sure it is always top class on food safety. It is this virtuous cycle we want to drive.

Minimum fixed standards led to the attitude expressed by that small carrot processor when PerishablePundit.com, Produce Business’s sister publication, asked if it had any third party certifications. An executive at the processor pointed out, “Our customers do not require us to have certificates.” In other words, why spend time and money if it won’t help you get the business? In fact, where would the money come from to do this if buyers are indifferent to the efforts?

There is also the issue of consumer/retailer trust. Consumers shopping Costco don’t want to take extra risks with their carrots; they want the best quality — incorporating food safety. They trust their retailer to get it for them.

Retailers hate the implication of this. They lose bargaining power because buyers will be forced to negotiate only with the top players since going to the guy with the second-best food-safety program is not an option. The vendor will probably make extra profit.

That’s OK, though, and points to the simplest and most obvious lesson: If you want food safety, the key is rarely through regulations, which only raise minimum standards. If we set up the industry dynamic so vendors with the best food-safety programs always earn the highest margins and sell out of product, every vendor will fight to have a better food-safety program.

In the end, growers can’t afford to implement any food-safety programs retailers won’t pay for, and consumers cannot have faith in unknown farmers, only in their trusted retailer.

If year one after the spinach crisis focused on specific grower issues thought to contribute to the food-safety problem, year two has to focus on bringing the culture of procurement into sync with both the industry needs for a cycle of continuous improvement and the consumer need for a covenant of trust with the retailer.  pb