January, 1990

Fruits of Thought

Diversify Or Die

I remember, as a boy, watching my father handle his produce business. I recall how he would respond to even the most disastrous loss of business with equanimity.

He would be making a good profit exporting to some far off country and, all of a sudden, the government would ban the use of currency to buy fruit. Poof! Like magic, the entire business would be gone overnight. But, my father used to say that it didn’t matter – we’d make just as much next year. Why? Because “We are in the business,” he would say.

What he meant is that he had carefully structured a business that was not overly dependent on any one crop or facet of the trade.

Often it seems that when exports are not doing well, importing is strong. When international trade is weak, the domestic business seems steady or growing.

Over and over I have seen this emphasis on diversity playing itself out. More than once, giant companies from Chile offered my father an exclusive on selling their fruit. The deals would have probably doubled the company’s Chilean sales. The only catch: the giant Chilean shippers always wanted an exclusive. They always wanted the company to give up its other Chilean shippers. The deal was a fantastic opportunity, but my father always rejected it. First of all, he couldn’t just abandon all those shippers he had worked with for years. But, maybe just as important, he didn’t want to put his whole Chilean business in the hands of one company.

I think of this diversity that my father strived to maintain when I think about the various woes that beset our industry. Apple farmers are losing a fortune, particularly those who grow red delicious apples. The growers claim they need $9.00 or $10.00 a box F.O.B. in Washington. Deals have been cut with U.S. Extra Fancy apples selling at $5.00 per box! This is a disaster for apple growers, even for those who have good crops.

Diversification, of course, can take many forms. Diversification by geography, for example, requires you to have supplies in various places. One form of geographic diversification calls for growing the same crop, such as tomatoes, in different areas at different times, following the tomato crop, for example, from north to south. Another form of geographic diversification is growing the same crop in different areas at the same time, for example, growing winter tomatoes in Florida, Mexico and Puerto Rico.

Another important aspect of diversification is by commodity. Where nothing more than bad publicity can destroy the market for any given commodity, you want to not be dependent on any one item. If apples are doing badly, maybe oranges are doing well.

One big obstacle to diversity is the lack of marketing sophistication of many growers. There are substantial shippers of commodities all over the country who are constantly in various states of battle with growers who don’t understand diversification, and who don’t understand what it means to meet a customer’s needs, or how very hard it is to get and keep a customer. I know northeastern apple growers who vehemently object to their packers and shippers selling Granny Smith apples from other parts of the country or abroad. In their narrow minded way of thinking, these growers see everything as competition. They dream that if their shippers just pushed their apples, they would sell more at a higher price. They don’t understand that their shippers don’t want their customers even talking to another guy who sells apples. And, indeed, the growers don’t understand that when a store puts up more varieties of apples, it often winds up selling more red apples than if it only displayed red apples to begin with.

Even mighty organizations such as Sunkist are restricted by their growers in what they can do. One day, unfortunately, there will be a freeze out west, or some bad publicity about a chemical used on western citrus, and the Sunkist organization and its growers will need income. They will wish like anything that they didn’t put all their eggs in one basket.

Of course, the recent growth of international industry giants is itself an expression of the need for diversification. These giants are multi-sourcing organizations. They will ship you citrus from Italy, Cypress, Spain, Uruguay, Argentina, the U.S. and many places around the world. We don’t see this as much in the U.S. because our phytosanitary rules are quite strict. However, if you go up to Canada or Northern Europe, you will see a United Nations of produce suppliers for items like citrus. The great strength of these multinational organizations is their ability to source product from anywhere to meet their client’s needs.

Another form of diversification that many of these giants pursue is diversification by industry. Castle & Cooke, for example, not only deals in fresh produce, but is substantial in packaged and processed foods as well as being a real estate company and a resort operator, among other things. Polly Peck is everything from the Pizza Hut franchisee in Turkey to the largest tea kettle manufacturer in Britain, to an enormous electronics group in Japan.

Whether or not to adopt a “Don’t put all your eggs in one basket” philosophy depends greatly on an organization’s resources and management depth. Few individual produce firms have the financial depth or marketing smarts to carry it off. For most, it’s better to mind their business and look to diversify their personal financial position by owning a house, having a pension fund and some outside investments.

If you are a tomato farmer in Florida, you have been taught sternly about the virtues of diversification. But frantic diversification without the resources to carry it off can be more costly than even the most severe freeze.  pb