FRESHCONOMICS — The Podcast of the Fresh Produce Business

Ep. 16. Our Weakness is Our Strength

Today I want to talk to you about something that sounds like a contradiction: the idea that our greatest weakness, as a sector, is also our greatest strength. To get there, I’m going to use a few concepts borrowed from operations management, economics and even a little bit of physics: efficacy versus efficiency, supply-driven versus demand-driven industries, Just-in-Time, Lean Management, Kanban, the efficiency paradox, oversized production assets and local supply chains. And I’m going to ask you a question that I think every professional in this business should be able to proudly answer. How is it possible that during the pandemic the powerful, modern, sophisticated industries — carmakers and so many others — had to stop their production lines, while the fresh produce sector not only kept working but dealt with a spectacular surge in demand? What is so special about this sector that it can do what is impossible for others? The reason is this: “our own weakness becomes our most resounding strength” when we face volatility. Let me explain why, because it is not pure luck. It is an industry structure built up by means of incentives. And once you understand it, you’ll never again let anyone look down on this business with a condescending smile.

Ep. 15. Strategically Aligned Supply Chains

For this episode, let me give you a preview of the topics I’m going to talk about: commoditisation, economies of scale, standardisation, critical mass, logistics, efficiency, intensive distribution, technology, breeding, deseasonalisation, convenience, innovation, and much more. All of those terms are ingredients of something we call strategically aligned global chains, and to explain it I’m going to use the history of the banana in the world. What does it take to turn a strange, exotic fruit into something the entire world’s population eats every day? How do you go about enormously expanding the supply of a product while at the same time dominating its markets and developing its demand? Because this is the story of how a food that was almost unknown in the northern hemisphere at the end of the nineteenth century became an irreplaceable part of our modern diet. A product that has built empires, provoked wars, toppled governments, and to which we owe expressions such as “banana republic”. And we have to admit that the banana industry has done a spectacular job of turning it into an affordable, everyday product. However, being cheap (affordable) may be a necessary condition for such success, but it is not a sufficient one.

Ep. 14. The Minority Rule

Who really rules a market? Who really rules an industry or a society. We usually answer without thinking too hard: the majority rules! The big consumer rules. The big buyer rules. The retail chain that moves millions rules. And yet, every time I look closely at how decisions are actually made along the fresh produce value chain, I run into the same uncomfortable surprise: very often the one who decides is not the one who weighs the most, but the one who concedes or agrees the least. The less flexible ones and with the stronger convictions are winning. I learned to put a name to that intuition by reading a book of Nassim Taleb. In Skin in the Game, he describes what he calls the Minority Rule. I used it in my book Freshconomics, but, I think, I could’ve probably elaborated a bit more around this topic. I could’ve gone deeper in the implications. What follows is the story of how this exotic idea explains why almost every soft drink in the United States is kosher, or why almost all of New Zealand’s lamb is halal… … and explains with almost unsettling precision the famous “certification hell” we suffer in farming. And, above all, why that should change the way we look at sustainability, organics, and the new tsunami of requirements knocking at our door.

Ep. 13. Tycoons Crashing into Fresh Produce

In German there is a word, Schadenfreude, which roughly translates as “joy at someone else’s harm”. It refers to the pleasure one feels at watching another person suffer or fail. Friends, don’t do it. It’s not nice. Especially in our business. I know that some of our competitors can become actually insufferable, and when they get hit with bad harvests or wiped out by pests, we can’t help feeling certain relief. But it’s still wrong. We know all too well that we could be next when fortune’s wheel rolls round again. And yet… I cannot suppress an enormous guilty pleasure when I watch the technology tycoons crashing — over and over again — every time they put a tiny foot into the world of food, or directly into our agricultural and fresh produce business. I no longer know if it’s the influence of Hollywood films, which have turned the “billionaire tech-bro” into the favorite villain of our times. Well… I know is a stereotype, but I don’t think I can blame the movies for this one. I think this guilty pleasure has more to do with the arrogance I perceive in the projects these billionaires launch. And it goes without saying that this business (the fresh produce business) smashes the arrogant. You can have all the money in the world and all the confidence you like, but in our sector, just a couple of consecutive mistakes bring well-experienced professionals to their knees. So, in the fresh produce industry we live in a different kind of film, with no clear superheroes and no clear villains. We live more like in a low-budget B-movie — but our characters (I have to say) are far more authentic than theirs. Anyway, let me tell you about the adventures of some of these tycoons in our business.

Ep. 12. Natural Promotions

It is time to take on another one of those topics that is both a curse and a blessing. Let’s talk about promotions. Needless to say we usually talk about promotions in general, as if all types of promotions were all the same thing. The retailer asks for a promotion, we run a promotion, the supermarket flyer goes out, the pallets are shipped at a lower price, and we move on to the next week. But behind that single word are two very different beasts. One can be the salvation of a season; the other can be a slow painful loss of profitability that no one bothers to measure. So today I want to draw a line between the two. I want to give them names, give you a way of thinking about each of them, and share a couple of simple calculations (included in my book) that I think every fresh produce manager should run, at least once a year, just to keep their feet on the ground. Are running Natural Promotions or Marketing Promotions? You better now it before hand, because Promotions are a value-distorting element of the first order. Few attributes break the price-value relationship as profoundly as a promotion does. Promotions are an absolute necessity, both for producers and for retailers. There is no fresh produce business operating at scale that does not run them. But they also accelerate the evolution of the value cycle; and, normally, in the wrong direction. The more promotions we need to run, the faster the price-value reference of our product gets destroyed. The conclusion I’d like you to take away from this episode is this: not every promotion is a promotion in the same sense. And if can clearly state it during the negotiation, you’ll find that many of the conversations with retailers, sales managers and finance controllers become much easier.