January, 1988

Fruits of Thought

24 Hours A Day

A lot of people are worried about the outlook for the economy this year. The fear is that the decline in the stock market has made people poorer and this so-called “wealth effect” will mean less spending by both business and consumers. But people who advance this argument need to factor the bond market into their calculations. Stocks have fallen in a big way, but bonds are up substantially and there are many more dollars in bonds outstanding than in stocks. This means that the “wealth factor” may be a factor helping the economy in 1988.

GIVING AND RECEIVING

Three cheers for the wholesalers around the country who have set up the programs to donate edible, but not salable, produce to charity. Not only are these people making a valuable contribution to solving a severe problem, but this makes good business sense too. Many of the terminal markets are located in poor neighborhoods. The houses on the markets are run by outsiders. By donating this produce, the markets give something back to the community, resulting in a better public image, which can mean less theft and vandalism. In addition, the rising cost of garbage disposal means the small cost of running charity programs can be at least partially defrayed.

NO CONSIGNMENT ALLOWED

If the new free trade agreement between the United States and Canada ever becomes effective, many trade barriers will fall. One that seems to have been preserved is the prohibition against consignment sales in Canada. Much of the trade supports this barrier as a contribution toward “stability” in the marketplace. Even granting the totally unproven point that prohibiting consignment sales actually does enhance the market’s stability, one has to wonder if stability is such an important goal as to compensate for the problems this regulation causes.

In the first case, this rule is a substantial restriction on people’s liberty and property. By preventing a willing grower and wholesaler from entering into a consignment sales agreement, this rule leaves the grower with the possibility that he may be unable to market his crop, and leaves the wholesaler with the possibility that he may have no produce to sell. To do this is a great restriction on the rights of free people to contract.

Second, this policy serves as a substantial barrier to the entry of new firms into the business. Rules like this are always subject to manipulation by established trading partners. A wholesaler agrees to purchase a load of produce at a set price but asks the shipper to promise him up to a dollar protection if he really needs it. The shipper gives him the protection by selling a future load a little more cheaply than he would have, or by giving a bigger allowance next time there is a claim, or by picking up the wholesaler’s hotel bill at the next PMA or United convention. But these types of arrangements are not legally enforceable. They depend on trust — the sort of trust that exists only between established trading partners. As it is, new people have trouble breaking into the business. If they were allowed to take produce on consignment, a lot of people might give them a shot with a load.

Third, this policy is very unfair to small companies. Large companies can get around this restriction by setting up subsidiaries in Canada, which are then free to purchase produce at a fixed price from the parent company. But these subsidiaries don’t have to have the produce sold before they can order from the parent companies. When the produce arrives, the subsidiary has to try to sell it at market. Note that this situation is exactly the same as that of a smaller company appointing a wholesaler in Canada as a marketing agent. So big companies can ship produce to Canada without having it sold in advance, but little companies are restricted from doing so.

The question raised is simply whether this restriction is good for the world. After all, what it basically means is that good produce, which someone is willing to ship to Canada, will not be shipped to Canada. This can mean higher prices for Canadians due to less available supply. It can mean produce left to waste away on packing house floors. This makes Canada and the world just a little bit poorer.

CUSTOMERS FIRST

Finally, I think the industry owes a hand to the small produce stores which, in many parts of the continent, are a prime conduit for getting fresh produce to the consumer. In New York City, the Korean-owned Green Grocer is open 24 hours a day, 365 days a year. On Christmas, from my office, you could see the people passing the shuttered doors of many supermarkets to pick up fresh produce from the Korean-owned produce stand. In today’s highly competitive business world, success comes to those who are willing to think of their customers first. Because the small fruit stands were open on Christmas, this industry sold more produce than it would have had they been closed. For this, they deserve a special note of appreciation.  pb