September, 2007

Cover & Feature Stories

The Green Issue

What does the green movement and its parent, the broader social responsibility movement, mean for the produce industry? At base, it is a sea change in procurement criteria.

Since time immemorial, produce, like most material things, has been sold primarily based on three criteria: quality, price and service.

Even the rise of such important trends as the organic movement didn’t change this paradigm. Being grown without synthetic chemicals is still a testable product attribute; it is still an intrinsic characteristic distinguishing the organic product from another, conventionally grown, item.

On the other hand, no amount of product testing will ever reveal to a buyer — at the consumer or trade level — if a company’s distribution center is covered in solar panels, if it takes care of its employees or if it uses biofuel in its trucks.

The business importance of the green and social responsibility movements is that one’s customers — consumer or trade — will now evaluate not the product, not the price, not the service; instead they will evaluate the vendor itself in deciding from whom to purchase. They look to align themselves with marketers who represent the values with which the customer wants to affiliate itself.

This is, of course, an oversimplification. It is perhaps more correct to say price, quality and service are still the ante, the price of entry into the business with expectations uniformly high for all three, but buyers are now at liberty to look at other criteria in selecting from whom to buy.

Economist John Kenneth Galbraith — who had a degree in agricultural economics from Berkeley — published The Affluent Society in 1958. It posited that economic thought of the day was based on 19th century notions of scarcity as the defining characteristic of the age. Galbraith claimed the situation had changed. The traditional focus on increasing production was no longer going to be the driving force it once had been, since society had entered an age of mass affluence that would allow greater attention to social good and self-fulfillment.

He argued we had already reached a point where too much emphasis was paid on mindlessly increasing production of trivial items rather than investing in more needed and important social goods.

Since much of the world population still lives in poverty, increasing production remains an important public policy goal. Still, the green and social responsibility movements can be seen as an affirmation of Galbraith’s principles. With affluence widely established so high-quality products can be economically produced and distributed broadly, attention can be paid to “luxuries” such as making sure one’s vendors are in sync with one’s values.

The epicenter of this movement is the United Kingdom, but the emotional and intellectual appeal of the message, combined with the buying power of the highly consolidated U.K. multiples, has been spreading its influence across the globe.

Two years ago, several U.S. retailers began to buy into the movement; they started pressing third-party auditors — who had traditionally been concerned with food safety — to audit criteria focused on environmental and social aspects of operations.

It was only the great spinach crisis of fall 2006 that refocused the industry back on food safety and pushed green issues and corporate social responsibility to the back burner.

Yet the issues remain, ready to explode all over the industry when conditions are right. What will those conditions be? It is hard to say:

  • Perhaps all that is required is for food safety to become less of a marquis issue, leaving people to focus on other concerns.
  • Perhaps Tesco’s U.S. arrival, with its Fresh & Easy Neighborhood Market concept ramping up in volume and forcing dozens and, in time, hundreds of vendors to meet “British” standards will tip the balance.
  • Perhaps it will be Wal-Mart, under attack from all sides and with a CEO already showing great interest in sustainability issues, really allowing its British subsidiary — ASDA — to dominate its approach in the United States.
  • Or maybe some unpredictable person, company or event will trigger a dramatic change in procurement practices.

Food Safety As Baseline

The green movement may simply sneak up on the industry. The world is filled with food-safety certifications that cover more than food safety. EurepGAP, for example, is the baseline grower-level food-safety program throughout Europe. Even when retailers have proprietary certifications, EurepGAP is the base.

This program is spreading. Marks & Spencer, for example, generally won’t buy from a U.S. grower/shipper, even as a fill-in for a crop failure, without at least EurepGAP certification. Some parts of the world, such as Chile and Japan, have customized versions of EurepGAP to meet local conditions. Some have urged the United States to standardize on EurepGAP.

Food safety is the carrot to move in the direction of the larger social responsibility issues. These certifications often focus on issues Americans would see as green or related to corporate social responsibility as opposed to food safety.

The graph above, adapted from the ChileGAP program, shows three inner areas of the program: food safety, environmental responsibility and corporate social responsibility.

Even the food-safety portion of the program makes mention of many things, such as integrated pest management (IPM), that seem to be driven as much by environment as food-safety.

So as companies pursue various certifications to meet food safety requirements, they will find themselves enmeshed in green and corporate social responsibility requirements as well.

Yet the biggest beneficiary of the change in focus on the procurement end will be the area of the industry with the fewest certifications: locally grown.

The New Organic

In our new world of procurement, locally grown is the new organic. Yes, organic is still much in demand, but there has been a bifurcation in the organic community. The most deeply committed organic partisans care little for the technical rules governing the National Organic Program. They are as opposed to “big organic” — Whole Foods, Earthbound Farms, Horizon Dairy — as to conventional producers.

They dream of a world in which agriculture is local, preserving local green space, farmed by families and thus preserving the yeoman farmer and biodiverse — the antithesis of large fields of spinach or romaine needed to keep processors working at capacity.

Those committed to this vision are far from a majority. Through highly publicized articles in national publications, they may have provided the passion and intellectual capital to encourage a focus on locally grown, but numerous other criteria are also driving this trend.

First is food safety. Last year’s well publicized problems related to Natural Selection Foods and Taco Bell, both large-scale national operations, gave advocates of local an opportunity to push the notion locally grown produce is safer than that shipped in from elsewhere. This might be justified if a small farmer is more on top of field and harvest conditions. Theoretically, in this view, Joe the farmer sees Jack the farmhand is sick and sends him home without letting him touch the product.

This is more a localvore’s fantasy than a realistic assessment of food-safety practices on smaller farms. Although mixing a small amount of contaminated product can spread contamination throughout a large processing facility’s salad mix, it is true of all fresh-cuts, local or national. When it comes to bulk produce, the higher incidence of large-scale production food-safety outbreaks is mostly a statistical quirk.

Second, there is a culinary trend of chefs being much more concerned with local than organic. This was obvious from the chefs’ presentations at PMA’s foodservice conference; it grows out of the cultural predilections of chefs and the business imperatives of white tablecloth restaurants.

Small scale and locally grown are a competitive advantage for high-end restaurants. When a menu says the chef has searched out the best local growers and artisan producers of fresh produce, cheeses, poultry, etc., it is a form of valued-added that large chains and home cooks have trouble competing with.

So the culinary culture has jumped on the local agriculture movement.

Third, retailers are seeing local as a business tool. The great dilemma for supermarkets is how to compete when the Wal-Mart Supercenter and warehouse clubs are price leaders. The answer is to focus on perishables and organics — to be the anti-Wal-Mart.

This advice makes sense only if stores can use these products to differentiate themselves from less expensive competitors. The theory is they should focus on perishables where the competition moves beyond price to quality and assortment. Retailers have seized upon local because, done properly, it makes price comparisons difficult and allows differentiation.

Ironically, conscious of its scope, eager to ingratiate itself with the local community and looking to curry favor with local legislators so influential on real estate matters, Wal-Mart has one of the most aggressive local programs.

Yet this demonstrates the appeal of locally grown to a retailer. Every retailer can

have locally grown and be distinct because each can have a different grower and each chain can promote its unique way of identifying the growers.

Fourth, consumer perceptions of organic are changing. After many years in which consumers showed ignorance over organic standards — often thinking organically grown meant grown without any fertilizer, pesticide, etc. — more recent studies indicate a growing recognition organic means grown without synthetic substances. This creates a dynamic in which the environmental or health impact of non-synthetic substances must be compared with synthetic substances in growing conventional produce.

The more consumers perceive organic as using substances in the production process, the more they are likely to accept synthetic substances used in local growing as no big deal.

Fifth, and most important, concern about global warming drives the focus on locally grown product. There is little controversy over recent warmer temperatures but much controversy over the extent and meaning. Is it the start of a permanent change? Is it the beginning of a long-term trend? If so, to what degree is it a man-made change? If it is, can it be reversed? Is produce a significant contributor to the problem and can it be a significant part of the solution?

These are all important questions (See Is Climate Change Real? on page 16) but, for industry purposes, it may not make any difference if the science on global warming proves accurate or not — we may all be dead before we know.

What is clear is that the split in the organic community can be seen as running along this fault line: Those whose interest in organics is principally motivated by environmental concerns now find themselves confronted with the need to make a decision. If, for example, they live in Philadelphia and are looking to buy apples, are they better serving the environment by insisting on organic, perhaps trucking them from Washington state, or by buying locally grown product, perhaps grown with some synthetic chemicals but grown within a day’s drive from Philadelphia?

Because interest in the environment incorporates a desire to maintain local open space and because the focus of environmental concern has switched from chemicals to carbon emissions, more people are saying local is their first priority. Many would prefer produce both locally grown and organic, but if they must choose, local is increasingly the first choice.

New Paradigm Of Procurement

The focus on green issues and corporate social responsibility has its epicenter in the United Kingdom. It is not principally about produce. It encompasses sustainable fisheries, animal welfare, respect for the environment, making a difference in the community, packaging initiatives, transport issues and treating suppliers well, including helping them help their employees and local communities.

Looked at from a business perspective, the initiatives can be seen as attempts by U.K. supermarkets to fit the new paradigm of procurement. When it is so hard to differentiate oneself by product, price and service, the proposal is to give people an opportunity to fulfill more than their product needs by electing to shop with a particular store. It is a change predicted by Maslow’s hierarchy of needs: As our material needs are satisfied, we are free to reach for deeper kinds of satisfaction and meaning.

This reverberates down the supply chain; retailers can improve continuously on a range of green and social issues by taking credit for their suppliers’ improvements, one reason why the mandate in most certifications for “continuous improvement” has to be taken seriously.

Both the media and retailers are presenting U.K customers with initiatives to inspire greenness and social responsibility. Food miles — a calculation of the distance an item has traveled, with the assumption it is a useful proxy for the stress the item imposes on the environment — was the first phase. Experts quickly recognized it as oversimplification. Is growing bananas in a local heated greenhouse more environmentally friendly than shipping them in from the tropics?

This has led to an attempt to present consumers with more complete data, often referred to as a carbon footprint, which attempts to ascertain the carbon output involved in the production and distribution of an item. Each item could have a sticker or sign to inform consumers of the amount of carbon their purchase caused to be produced.

Many efforts are underway to standardize this calculation, but they are inherently subjective. If a passenger aircraft can fly without handling freight — but takes freight anyway — what percentage of the carbon output of that flight ought the freight to carry? Whether you believe you take total weight of passengers, luggage and freight and divide by the carbon output of the flight or you take the additional output caused by cargo and divide that much smaller number by the cargo pounds is a matter of choice — yet the choice of calculation shows a significant effect on the carbon footprint of an item.

Airfreight itself is another overly simplistic example of concern for the environment, with some retailers putting airplane stickers on airfreighted items. The airplane warns consumers that buying this item will hurt the environment, although airplane delivery tells almost nothing about an item’s impact on the environment.

One of the more innovative concepts being tried is ‘box initiatives.’ Rather than choose their own produce, consumers voluntarily get a weekly “surprise” box of produce. This allows farmers to grow a bio-diverse group of crops, focusing on horticultural needs rather than consumer preference.

If consumers buy the box, throw out the rutabagas and then buy oranges, the effort might result in higher carbon output than if consumers just bought what they wanted to begin with.

Burden On Suppliers

The supply base is being pressured to make progress in packaging, carbon emissions, other environmental areas, treatment of labor and sustainable horticultural factors.

Vendors are being required to produce many impact studies. U.K. law requires British retailers to publish annual reports on these issues, and, in turn, they press vendors to do the same. There is greater demand for certifications and initiatives to increase the availability of local production. It all puts enormous pressure on the supply base. However, vendors also have stronger grounds to object to poor treatment because, typically, retailers are also accepting a responsibility to “fair deal” with vendors.

We are still discovering what green and social responsibility will really mean. There are many unresolved internal contradictions. How do we measure the importance of highly sophisticated and expensive food safety systems and expertise — only available at large scale, centralized facilities — versus the desire for locally grown product? How do we judge the importance of less transportation of product, especially by air, with the need to create opportunities for trade in developing countries? How will the issue of organic vs. locally grown shake out?

Much is still up in the air. What is clear, however, is that the nature of procurement is shifting and whether one sells on a trade level or to the consumer, the evaluation process is shifting from price, product and service to the nature of the vendor.

In an age where you either have good product and good services or go out of business, the question is increasingly this: Is your company the kind of organization buyers will feel good about working with? Put another way: Does your organization hold true to values so strong that others will aspire to work with you?

Green is not just about what you do; it is about who you are. Procurement will never be the same again.  pb