June, 1989

Fruits of Thought

The Great Chasm

Whenever a crisis arises, in any industry, it is common to analyze the participant’s actions to determine if everything possible was done to respond to the problem at hand. By and large, the apple industry associations responded well and greatly helped to lessen the impact of the recent Alar crisis. But what are some of the structural characteristics which made this problem more likely and which prevented the industry from capitalizing on the opportunities this situation made available to it? Is there anything else we can learn from the apple industry’s experience? I think so, and I think it has to do with the dangers inherent in divorcing production from marketing.

For some time now many chain stores, exporters, foodservice buyers and some wholesalers have been requesting certification that apples being sold to them are Alar-free. I have read some of the “circulation letters” that are circulating in the trade, and I think they reveal a problem. Typically these letters involve a statement like this: “We certify that ABC Packers has letters on file from each of its growers certifying that none of the apples supplied to ABC Packers were treated with Alar during the current crop year.”

Very rarely are the packers willing to stick their neck out on the line and guarantee an Alar-free box of apples.

What seems to have happened, not only with apples but also with other crops, is that you have two separate worlds. One world is composed of the growers who worry about yields and fertilizers. In another world are the packer/shippers and brokers, the marketing people. They worry about salesmen and advertisers, promotional allowances and getting on ad. The two groups need each other desperately, but they don’t fully trust each other. Last year in Washington, as some growers got back nothing for their crop, many raised the cry to have greater control over the sales function.

One of the problems with the division of responsibility between production and marketing is the difficulty of getting “the feel” of the market back to the production end of the business.

The other problem is that of giving the marketer confidence to promote the product. As it stands now, the marketers do not have enough confidence that the product is Alar-free. Therefore, they cannot properly promote it. The truth is that this Alar issue was a time-bomb waiting to happen. And marketers knew it. The marketers saw how quickly supermarkets adopted no-Alar policies when threatened with pickets a few years back. The marketers knew that the science on Alar was not going to make the difference. But somehow, this information did not really make it back to the growers. After quoting a 5% figure for the percent of the apples treated with Alar, the government recently increased their estimate to 15%. From my conversations in the industry, I suspect the percentage was higher. But even at 15%, by the time you get to May and June, meaning that all the apples being sold are the best storage apples (and the best storage apples are those generally treated with Alar), probably over 50% of the red apples for sales are treated with Alar.

Normally when customers express a problem with a product, persuading the customers that they are mistaken is a very long-term job. So the marketer doesn’t try and change the customer’s mind. The marketer tries to provide what the customer wants.

Many supermarkets immediately responded to the Alar and Chilean grape problems by starting organic produce sections. Is this because supermarkets in some way believe in organics? Of course not. This is marketing; not religion or science. The supermarkets were responding to customer demand. Equally there was an opportunity for Alar-free apples to be promoted aggressively. The opportunity was missed because the apple marketers did not have first-hand knowledge that their apples were, in fact, Alar-free.

In most industries, the marketer of the finished product purchases his supplies outright. As such, the marketer is free to establish stiff specifications and enforce them.

But in the produce industry, it is different. The apple packer/shipper is not usually purchasing his raw material; rather he is having it consigned to him. In addition, the packer/shipper has to keep his packing shed running to make money. As such, the packer tends to take fruit from the grower who is willing to give it to him. This relationship between grower and packer/shipper is awkward, for it means that the grower is not only the packer’s supplier, but is also his customer for packing and marketing services. It means that packers are not in a position to be as demanding as they could be if they purchased fruit outright. If packer/shippers had to purchase all their fruit, many would have probably issued firm demands and simply rejected any Alar-treated fruit.

The thing to realize is that the Alar issue is fundamentally a marketing obstacle. What this whole Alar escapade has shown is that individual marketers and growers can no longer rely on the notion that if the government has approved a chemical, it will not meet with objections in the marketplace.

From now on produce growers and marketers must memorize this sentence: “I know this chemical is approved by the government as safe, but might it still be objectionable to my customers or the end user?”

Throughout the industry, this will pose a mighty problem. Growers are often too far from the market to know what is objectionable, and marketers are too dependent on fruit from growers to rigorously enforce their product desires. This is a chasm within the industry which must be breached. Only by doing so can marketing and production progress together toward meeting the wants of the consumer of tomorrow.  pb