April, 2009

Research Perspective and Comments & Analysis

Helping Industry Members Help Themselves

We’ve been hearing a lot about the Economic Stimulus Plan and various bailouts recently, which lend new fuel to the age-old debate of helping yourself versus asking the government to help you. Lucky for us, our industry was built on hard work and entrepreneurship — a labor of love if you will — to bring high-quality, healthy products to consumers. Could any of you imagine our industry lining up on Capitol Hill demanding we need a handout? And where should we rank compared to those industries that already have gone to the trough, in terms of our economic impact?

Well, now we have an answer to that latter question. Produce Marketing Association’s (PMA) recently released economic impact study gives us — for the first time ever — a good sense of our place on the national economic scale. We now know we contribute $554 billion annually in total economic impact and the 2.7 percent of all jobs within the United States. The results of this unprecedented industry-wide study will help all of us on a wide range of initiatives, from federal policymaking to individual business pursuits. From field to fork, our industry now has some accredited, hard numbers to back us up both on a macro and micro level.

The study demonstrates the role our industry plays in stimulating the U.S. economy. From an economic perspective, the study found we are a significant income-generator, providing $36 billion in direct wages and $71.8 billion of total wages each year. These figures account for 1.7 million direct, full-time equivalent (FTE) jobs, an additional 1 million ripple-effect jobs and 1.9 percent of all U.S. employment. Our total impact is 4.23 percent of U.S. Gross Domestic Product (GDP). Within the agricultural sector, produce and floral production is one-third of total U.S. animal and crop production.

The numbers also reflect the significant and real value our industry adds to our products. The study reports $1 of production value ultimately generates $16.75 of total economic value, as produce and floral products move up the supply chain. A general economic rule of thumb is that as added value approaches 20 percent, it shows the industry is doing something valuable with the raw material, rather than marking it up for handling.

These big numbers will help PMA and our partner organizations in our mission to advance the industry’s interests at the federal level, while the granular detail also provides tools and information for our members to help themselves at the regional and local level. As opposed to lobbying for a bailout package, our industry can use this information to support self-help efforts, by providing backup for loan applications, grant proposals and business development or expansion plans. Additionally, the employment information at the local level can help maintain existing jobs, develop future jobs and prevent further job loss.

The study shows how the industry touches every state and congressional district in the country. While California, not surprisingly, is a leader in many areas of the study, the noted impact of other states and districts not traditionally considered to be major produce players may be a new revelation. Florida, Texas, New York and Pennsylvania round out the top five states, each accounting for more than 100,000 direct and ripple-effect employment, or total impact employment, while 15 states exceed 50,000 total impact employment. Every congressional district benefits from at least 1,500 direct fresh produce and mass-market floral industry jobs, and at least 2,200 total jobs with more than half of congressional districts attaining an impact level of $1 billion or more.

The credibility of the study’s non-profit research firm, Battelle, and the standards used to develop the study give us high confidence in the data’s value. A team of economic researchers and industry experts alike tested the study model, and results were validated against other established data. Its field-to-fork perspective incorporates all levels of production, distribution, marketing and foodservice. This inclusive modeling will allow all members of the industry to benefit from this study.

The beauty of this study is that it shows an industry rich with economic value and success. Left to our own invention, our industry has grown nationally while still providing a crucial comprehensive local component. In an increasingly analytical business environment, the produce industry now has real-world numbers to use with federal, state and local government, banks and even zoning boards to validate that we must be highly-valued economic contributors — and that we’re not waiting for the next bailout.

Confidence-Building Information

It is terrific that PMA has funded a study to ascertain the size and scope of the produce industry. This data is intriguing to all who toil in this trade and essential to those looking to make the case for federal or state action to help the industry.

PMA certainly attempted to create a “gold standard” study and deserves praise for that high standard. It is, however, in the nature of these things that differentiate industries to be inherently duplicative in these types of studies. So although it may be true that we account for 2.7 percent of all U.S. jobs, it is also true that if you add up all the studies done by all the industries, the percentage of jobs accounted for by all the different industries would substantially exceed 100%.

Why? Well, if the supermarket industry does a study of its impact, it will count many of the “produce” employees as supermarket employees. If the restaurant industry attempts to quantify its impact, it will count employees and sales as “restaurant-related” that PMA counted as “produce-related.” If the transportation business wants to showcase its significance, it would count all those produce hauling trucks as “transportation,” although they fall into the PMA study as part of the impact of the produce industry.

The fact that states with high populations but small produce production bases often counted as substantial parts of the produce industry in the PMA study is really testament to the value added in marketing and distribution. If nobody lived in California and nothing was processed in the state, so California only contributed raw product, this production colossus would drop quickly and substantially in the rankings of the states.

Of course, this is just the flip side of the grower’s common lament that they receive too small a percentage of the retail price for their produce.

Although one can imagine all kinds of uses for this data, such as persuading the federal government to invest in updating a half-century-old water infrastructure, this study is really an investment by PMA in arming the trade’s public policy advocates with additional data.

When it comes to individual companies, it is more important to pay attention to the micro than the macro. In fact, this subject was recently brought up in a joint presentation this author conducted with Steve Lutz, executive vice president of the Perishables Group, anchoring PMA’s Produce Solutions Conference. In the Dick Cavett-style discussion with industry consultant Kevin O’Connor filling the Dick Cavett role, we tried to emphasize that the prospects for most produce companies are far more influenced by what those companies do than by changes in the gross domestic product.

Sure as John F. Kennedy reminded us a “rising tide lifts all boats,” if you have a two percentage-point share of the national market for, say, cucumbers, it is nice if cucumber consumption is on an upswing and if all your existing cucumber customers just buy more cucumbers than they did last year. That makes life easy.

But the truth is that cucumber consumption probably doesn’t correlate with Gross Domestic Product increases and that, even if it did, different retailers are going to grow at different rates. So, even in boom times, one’s growth is heavily dependent on how one has positioned oneself. For example, is the supplier consciously aligned with retailers that are gaining market share? If not, if one is aligned with a stagnant or declining chain, then the economy could boom, cucumber consumption could boom and one’s own market share could still fall.

Aside from helping lobbyists for the trade, the PMA study has another benefit: It helps to build the confidence of an industry that, though one of the world’s oldest and one newly invigorated by the emphasis on health, has often thought of itself as old-fashioned and not very sexy, compared to computers and semiconductors and all kinds of high-tech industries.

Yet, now we have good evidence that the trade is critical — that we matter. We already knew that we mattered to 300 million Americans because we provide healthy sustenance, but we also provide good jobs, economic heft and make a real contribution to the economy.

Now, hopefully, each firm will take this shot of confidence and use it to build up its own business in these recessionary times and be a bit more aggressive about trying to boost business. After all, recessions are part of a business cycle, which means there may be lows, but there are new highs yet to come, as executives in the produce industry plan for how to come out of this downturn positioned to win. Thanks to the new PMA research, they know they won’t be charging into the post-recession future all alone. They now know they are part of a mighty army charging forward, together.

For delivering that realization through funding this study, PMA certainly deserves high kudos.