Planting Into a $7 Tailwind
This piece is scheduled to run in the Capital Press in Summer 2006
An article in the August 27, 2006 San Francisco Chronicle painted a rosy picture of the market for super high-density olives in California. The article, which can be found online at SfGate.Com, focused largely on the growth of the industry in terms of the acres super high-density plantings and the volume of oil produced in the state. The super high-density system uses tighter plantings and mechanized pruning and harvesting to achieve its economies of scale. However, while both the number of planted acres and the total number of gallons produced are increasing at dramatic rates, the jury is still out on whether or not California producers can compete in the world market in a “normal” year, that is a year when there is not a shortage of olive oil.
The global olive oil market is currently in the midst of a “perfect storm” where unprecedented demand, a shortfall in supply, and the disparity between the Euro and the Dollar have combined to vault the price of olive oil to near historic highs. In 2003, when both the Dollar and the olive oil supply were stronger, one could buy a truckload of bulk olive oil for $9 per gallon delivered to the port of Oakland, California. Today, only the most well-connected buyers could buy the same load delivered for $15-$18.
Spain is the largest producer of olive oil in the world and the Spanish crop has been short for the past two years as a result of a drought. A large Spanish crop in the next few years will again depress pricing. Thus, it is not much of a stretch to say that today’s prices, which are roughly double what they were in 2003, and about 40% over 2004’s price of $11/gallon, which was then considered “high, are an anomaly. One of the most poignant facts in the Chronicle article was that the California Olive Ranch, the largest producer of olive oil in the United States, is paying its growers $9/gallon, roughly the landed cost for oil in 2003.
The fact of the matter is that the California olive oil industry is enjoying a $4-$7/gallon tailwind. As is always the case with new tree crop fads, the only folks guaranteed to make money on super high-density olives are the nurseries. Producers in Australia, Chile, and Argentina have also begun to make serious commitments to super high-density olives. I have competed against the Australians in the international sales arena and I can say definitively that their price floor is lower than any Californian producers. This is because the Australian government stands firmly behind their olive oil industry and is not above subsidizing them in creative ways.
My advice to farmers who are considering planting super high-density olives is simple: proceed with caution. Although, California olive oil may enjoy a slight premium over other olive oils of the world, I would be surprised if that premium was more than 10%-12%. When I was a kid, Emus were going to revolutionize the meat industry and kiwis were only inches away from becoming the staple of the American diet. Sometimes, even the smartest, most well-intentioned people are wrong.
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Walking The Talk
This article is scheduled to run in the Capital Press in the Summer of 2006
Every so often, an event causes a seismic shift in the food industry. Sometimes, as in the case of the alar scare in 1992, the magnitude of the event is only apparent in hindsight. While the alar scare began the mainstreaming of the organic movement, Michael Pollan’s most recent book, The Omnivore’s Dilemma (2006, The Penguin Press), may begin the mainstreaming of the local food movement.
Aptly described on its cover as “A Natural History of Four Meals,” The Omnivore’s Dilemma addresses a series of food issues from both the perspective of the field and, to a lesser extent, the farmer, as well as from the perspective of the plate and the consumer. As such, the “Omnivore’s Dilemma” provides a view of our nation’s industrial food complex that is as important to farmers and ranchers as it is to consumers. The fact that the book has been on the top of several bestseller lists hints at the impact that it is having on public opinion.
Sometimes the best way to judge a work’s impact is to look at both the substance and the origin of its criticism. In the case of the Omnivore’s Dilemma the criticism has focused on the book’s “one-sidedness,” its lack of journalistic rigor, and the author’s “intellectual navel-gazing.” However, the fact that this criticism has come from all frequencies of the food spectrum, from corporate farmers to Whole Foods Market to vegan activists to meat marketers, illustrates the fact that it has touched a major nerve.
Pollan’s criticism of Whole Foods is that it has become an agent of “Big Organic” or “Industrial Organic.” Although there are holes in his argument, his criticism is totally fair. Whole Foods has become a very powerful force in the organic movement and that movement has become increasingly industrial in nature. The foundation of Pollan’s criticism is that Whole Foods, which has always positioned itself as a totally different and revolutionary type of grocery company, is becoming just another big grocery company by neglecting the very small farmers that its marketing says it supports. The truth of the matter is that, as a publicly traded corporation with nearly 200 stores, Whole Foods can’t afford not to deal with the big players in the organic industry. By sourcing more products from fewer companies, Whole Foods achieves huge economies of scale, in keeping with the capitalistic standard to which all publicly traded companies are held. The sad truth is that economy tends to trump ideology in nearly every instance.
However contentious the book may be, it has caused Whole Foods to very publicly put its money where its mouth is; the retailer recently pledged $10 million in small loans to support small farmers across America while also announcing that it will begin hosting farmer’s markets for small farmers at select stores. However, one feels about their positioning, Whole Foods still represents a great deal of opportunity for small farmers and food artisans.
If you have not yet read The Omnivore’s Dilemma, check it out and let me know what you think at brianjkennymediaworks@yahoo.com.
8/21/06
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Get The Good News Out Fast And The Bad News Out Faster
This column is scheduled to run in the Capital Press in the Summer of 2006
I have been on the road for most of the summer working out supply-chain problems for one of my clients who produces a perishable product. They are currently doing business with several of the largest players in the food industry. They are a green company and their product is both outstanding and sustainable, and the premium price that they charge reflects both of these facts.
At the beginning of the summer, my client was informed by their primary distributor that they would have to change packers immediately. All of the sudden, their current packing house was no longer approved by the distributor, and they were forced to find a new approved packing house while in the middle of harvest. In this highly time-critical situation there very few choices and even less margin for error. It was definitely a worst case scenario.
Up to this point, my client had done an outstanding job of tailoring their product to meet their customer’s needs. They had essentially let the market dictate what products they should create and this strategy had worked; they had many dedicated customers who were committed to helping them succeed. Unfortunately, my client’s new packer had a difficult time handling their product and their products’ changed significantly. In one fell swoop, a perfect product became a major problem and a year’s worth of good will and outstanding work evaporated. Suddenly, issues that had been resolved long ago, like pricing and product formulations, resurfaced with renewed vigor. Customer relationships were strained and orders were cancelled.
My client and I have scrambled all summer to regain both the credibility and the good will that they had built with their customers. I have had to explain why the product changed without complaining and without blaming the distributor. Herein lies the lesson that I have learned this summer: when your name is on something, any problem that exists with that something is your problem.
In business, as in life, there are always problems. In a situation where your name or your brand is associated with a problem, your reaction and your response to that problem can either sink your brand or save it. Here are a few truths that I have learned the hard way: get the good news out fast and the bad news out faster, deliver the good news anyway you can but always deal with the bad news in person.
When you encounter problems that affect your customers, let your clients know what is happening as soon as poss
Ill will breeds in silence. It can make the smallest of problems colossal and it can resurrect even the deadest of issues. ible. Offer full explanations for your problems and clearly communicate what you are doing to rectify thee situation and to prevent it from happening again,
Ill will breeds in silence and it can make the smallest of problems colossal. Ill will also has the miraculous power to resurrect even the deadest of issues. By dealing with bad news in a swift and decisive manner, you can make things right before they spiral out of control. Good news can be handled casually, but problems demand the most immediate attention.
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