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Costco Wholesale Corp
(Corrects top sugar producers in food table)
The challenge of making food nutritious, sustainable, and abundant is hard enough for a nuclear family. Now mix in climate change, volatile markets, and inefficient safety standards—along with a global population estimated to add 2 billion more mouths to feed over the next 25 years—and it’s clear that the food crisis will only become more acute. So how do we fix agriculture? That’s the question Bloomberg Businessweek Chairman Norman Pearlstine put to our panel: Dr. Elisabeth Hagen, Under Secretary for Food Safety, U.S. Department of Agriculture; Richard Leach, President and Chief Executive Officer, World Food Program USA; Charles Sweat, President and Chief Executive Officer, Earthbound Farm; and Craig Wilson, Vice President, Quality Assurance and Food Safety, Costco Wholesale. Their conversation has been condensed and edited.
One of the things that’s a surprise to anyone new to the subject is the amount of food that’s produced but for one reason or another not consumed. Where might there be opportunities for greater efficiency?
Craig Wilson: Most people don’t understand that the code dates you see on food aren’t related to food safety. Those are quality code dates. Quality declines over time with any given food item, be it a refrigerated item or not. So when the quality goes to a point where it’s no longer salable or consumable, it’s pulled. Companies like ours donate a tremendous amount of food to local services and food banks throughout the world on products that are coming close to that code. Look at those code durations: Can we increase them? Can we improve them and continue working with our valued suppliers?
Elisabeth Hagen: Technology is incredibly important. We want to make sure though that we aren’t focusing our technology just on reactive opportunities. Technology should be focused from a food safety standpoint, first and foremost, on preventive opportunities. Food needs to be safe before it reaches consumers’ tables. So we have lots of opportunity to trace back contaminated food once we know that there’s been an event. That’s really important to mitigate the scope of any given event. But we want to make sure there are adequate technologies out there to prevent that contamination from occurring in the first place.
From an organic perspective is technology friend or foe?
Charles Sweat: Oh, a friend. Using technology and becoming more efficient is the only way you can scale your business to drive economic value to the consumer. As recently as 15 years ago we were harvesting a lot of our lettuces by hand and knives with employees in fields. We’ve developed mechanical harvesters now that can cut those crops. Hundreds of people went down to three or five. Efficiencies went way up, and price went way down. So technology’s important from the food product system as well as food safety side.
Richard Leach: If you look at the 866 million people suffering from hunger, half are actually farmers—small-scale farmers, mostly women. And when we talk about “What do we need to increase productivity?” we’re talking about technologies that were being used in the U.S. in the late 1800s—irrigation, fertilizers, roads, warehousing. So we can have a significant impact on productivity without a major advance in technology, using techniques we’ve understood for quite some time.
Sweat: That also falls under your conversation about population growth. It’s moving from rural to urban. And if you look at China, for instance, there’s also a demographic shift from rural areas, which are farm producing, into cities as that middle class rises. So you’re losing that labor force in the farm-production aspects of the countries. If we don’t figure out how to increase productivity, we’re going to actually lose volumes being produced today.
The availability of information being taken out to the farm changes considerably in an era of ubiquitous smartphones. Can you see that making a big difference for hunger?
Leach: It has actually, in varying ways. One is we’re seeing farmers now having access to information about crop disease and other problems. If there’s a problem spreading in a particular part of the country, they can share it among different communities. We’re also seeing it in the sense that there’s access to information about pricing. Someone with a cell phone in Uganda can access the commodity exchange in Chicago and figure out what the price is for maize and actually be able to reap a greater benefit from their maize crop than they would have otherwise.
Wilson: There’s another very interesting point when we talk about cell phone ubiquity. We can use that for reverse trace back. When we have to announce a recall on a given item, we can call 1.4 million people per hour with a voice message. It’s a very effective way to reach people when we compare it to the old ways of contacting people for urgent information in recalls.
Is weather forecasting something you pay much attention to at Costco?
Wilson: We follow the sun, so to speak. When you shop at Costco, you can get Bing cherries at Christmas time. So we’ve got to understand weather patterns. We need to know where products are coming from and source based on the weather. That’s what we’re doing today.
There’s been a movement toward local agriculture, questioning the cost of moving grapes from Chile to New Jersey and so forth. Do you see any broad customer support for this?
Wilson: If we can buy local, we will. But they’ve got to meet the same specification we would have for a global or national supplier. For us it boils down to quality and food safety. If they can meet the same requirements and the same Costco (COST) specifications that are going to incorporate Dr. Hagen’s specifications, then the smallest guy up to the largest guy, we’d love to be able to buy from them.
Sweat: It’s probably even more true for organic. Consumers are looking to have that confidence and trustworthiness in how a product is made, how it is grown, and how it’s produced to those specs. As we look at going more global in our production system, we have found things that were labeled “organic” that weren’t necessarily organic. We found things that were not even of the same product type as their label.
Wilson: Dr. Hagen has changed the way the food safety inspection system has worked over the last two years. And from somebody who’s in the trenches every day, this regulatory change is so refreshing. I can have valued suppliers build an item and meet a quality or microbial specification, and the regulators can’t do that yet. But they can come out and say, “This is what we need to do to prevent this.” And then we can support that and push that forward. So there’s a growing industry-regulatory relationship that’s building—not just with Costco but across the board—where food safety is such a focus. Nobody gets up in the morning and goes to work and says, “Well, you know, I’m gonna make somebody sick today, because I’m gonna do this.”
What kind of decisions do you have to make with regard to transparency issues and alerting the public to a problem?
Hagen: Regulators have legal standards we have to meet if we’re going to recall a product or use our authority to seize and detain a product that a company would refuse to recall. But it’s not particularly helpful, I think, to consumers at large to get a notification from the government that says, “We think there’s a problem with ground beef.” You know, there are billions of servings of ground beef sold in this country every year. And the folks in the retail and wholesale world sometimes have the ability to get out in front and notify people before we might be able to put out an official release.
Wilson: Just last month there was a horrible salmonella outbreak. The salmon’s produced in two places: Holland and Greece. I was notified on a Monday evening. By the end of Monday night, we had contacted everybody who had purchased that salmon and said there could be an issue. There were no illnesses—nothing in the U.S. We went through the investigatory process. Two weeks later, it was confirmed that the salmon shipped to the U.S. was excluded from any recall. And so we sent a letter out at that point to let our members know that no, in fact, the salmon wasn’t included. So it’s very easy to pull the trigger on these things because you’re talking, in most cases, about a single item.
How would you grade the U.S.’s involvement in working with other countries to increase productivity and the quality of agricultural products?
Leach: Without a doubt, this administration has transformed the global effort to fight hunger. From the inaugural address four and some odd years ago to every G-8 meeting since, the president has put this issue on the table. It’s a not well known fact, but what they’re doing is bringing together host countries and the private sector. There was an effort launched that is very important called the Sun movement—scaling up nutrition—focused on the first 1,000 days. We have knowledge now, medical knowledge, that in those first two years of life, if a child isn’t properly nourished, they don’t develop properly—physically, mentally, intellectually—which has a significant impact on the gross domestic product of a country. And when you talk about technology, we have seen the most basic technologies transform the landscape. It used to be if you had a newborn suffering from acute malnutrition you’d have to provide IV fluids. We now have a paste in a small container. You just rip the corner off, doesn’t need to be refrigerated, squeeze it into the mouth of an infant. And within a relatively short period, they’ll be strong again and able to sustain themselves.
Has Congress been a partner in all this?
Leach: A hundred percent, and it is completely bipartisan. I mean, it is something that we, as a nation, can be very proud of. I shouldn’t say it [Laughter] but the monies dedicated to global hunger have gone up and have been sustained. They haven’t been cut even in a difficult fiscal environment.
As we look out over the next couple of decades with the demands for additional supply, does food become more of a political issue as countries try to figure out ways to secure resources?
Leach: You’re going to see a lot of political issues around trade. It’s going to escalate. As Brazil and China and India and Russia’s populations continue to grow and middle classes continue to grow, demand for food will outstrip their domestic production and they will all become significant importers. That will begin to put pressure on food production in the U.S. Moving food around will become much more political.
At a time when hundreds of millions of people go hungry, we also have people who are obese and who are a danger to themselves and society. Is there a role for government and for the food industry that’s different from what we’ve seen thus far?
Hagen: It’s the large retailers of the world who actually have the ability to move the needle on this thing. Global chains who have millions—billions—of customers lowering sodium content or cutting out saturated fats or decreasing portion sizes—that’s not a bad thing. But there’s a role for government policy, too. USDA’s responsible for what used to be called food stamps, the SNAP program, Supplemental Nutrition Assistance. Our secretary was committed: “If we’re going to spend this much money administrating the national school lunch program, this better do something to improve the nutrition of America’s school children.” But we can’t do this one with government policy alone. This has absolutely got to come from food companies and from educators.
Sweat: I think your education comment’s right on cue. I mean, when I grew up in the ’70s, I had to take Home Ec to learn about my food choices and nutrition. We had to take exercise classes and PE. And those things have kind of gone by the wayside now.
Will fish be an important part of people’s diet 10 years out? Or are we doing a good enough job of wiping out the world supply that it’ll be a real scarcity?
Wilson: Can we find sustainable ways to come up with these wonderful seafood items that we have today? I think the answer is yes. But it’s going to take a lot of work. It’s like being a great organic producer. We can grow these seafood items and they turn out great. But it takes a lot of work to get it right and then to sustain it, moved from different spots around the world.
Leach: As you get more globalization of food production on an industrial basis with more chemicals, we have seen increased dead zones in our oceans and population areas, which affects the ecosystem and the fish production, and where you have to source your fish from has now changed. In the Gulf of Mexico, the shrimpers have to go much further offshore. So it’s changed their whole industry.
Sweat: Seafood’s going to be a critical component of protein long-term. But the overall protein in the world’s going to have to increase. And it’s going to have to include plant-based as well as the animal-based.
Leach: The world is moving in the right direction—getting smarter, more creative, more innovative in the ways we address hunger. I think the biggest challenge really is to continue the political will, to continue the commitment of the private sector to solve these problems.
Hagen: What keeps me up at night is the sheer size and scope of the potential risk. Real people’s families are impacted forever by food-borne illness. Real people lose their children to contaminated food on their plates. And you know, it’s 2012. This is the United States of America. And we still have 48 million people a year who get sick from food, one in six Americans. This is food that’s grown in our fields and it comes from animals. So how do we stay ahead of that? We need good science and good data. We have to look at the risks as we know them now and not as we understood them many years ago. That’s what we talk about all the time at our agency, reminding every person—we’ve got 10,000 people. Most of them are out on the line somewhere, physically inspecting food. They’re not in Washington, D.C., making policy. And we need all those people to wake up every day and realize that there are families’ lives in our hands and that their work is that important.
For more video and conversation on Fix This/Food and Agriculture, visit: www.businessweek.com/fix-this/food-and-agriculture.