FRESHCONOMICS — The Podcast of the Fresh Produce Business

It gets harder and harder for me to explain, in plain words, why the fresh produce business is so complex. The book I wrote is a proper doorstopper. It’s conceptually dense, and it forces the reader through their own process of discovery.

And ever since I wrote the book, my own way of reasoning has become more and more anchored in those specific concepts — but to talk to someone who hasn’t internalised them, you have to set them aside. So, for the podcast, I keep racking my brain over how to get “my truths” across in plainer, friendlier language.

And that’s how I came back to the poker-and-chess analogy applied to the world of business. Both games have been used endlessly to draw parallels with strategy and with business or financial decision-making.

A while ago I relistened to an episode of The Tim Ferriss Show where he interviewed the former poker player Annie Duke that I thought I could be useful. And after re-listening to that Tim Ferriss episode, I got a pretty good sense of this former professional poker player’s book.

In 2018 she published the bestseller Thinking in Bets, about her life as a professional player and how to apply its lessons to decisions in life generally... and in business too.

I also remembered a book by the hugely famous world chess champion Garry Kasparov on what chess can teach us about business strategy. As a teenager I went through a phase of youthful fascination with chess, and it seems my mind still chooses to pay attention to the subject.

I have to admit I haven’t actually read either book. But the topic came to my attention after I read a post on twitter, and I thought: hi, what a great analogy!

Maybe this way I can talk about determinism, stochastic processes, Bayesian statistics or emergent processes in complex systems without boring you to death.

And although - as I said, and as you can check for yourselves with a quick internet search - this analogy has been used a great deal, I’m going to try to adapt it to our business.

So let’s see how it turns out…

 I came across Niklas Modig (a professor and researcher at the Stockholm School of Economics) by the TED talk he gave in 2016 in the town of Umeå, in Sweden, which deals broadly with a concept he calls “the Efficiency Paradox”.

After watching the whole video (that lasts almost 20 minutes) I was swept up in a feeling of rediscovery. He managed to explain something complex, something every one of us in management deals with, in a wonderfully simple way.

The concept is the efficiency paradox, and the visual analogy is that of islands of efficiency.

Ever since that rediscovery, it’s a concept I’ve gone on using in my talks, in my articles, and of course in my book. I’ve even borrowed the graphic image this author proposes to illustrate the phenomenon: the image of a group of small islands, all sitting close to one another.

Mr Modig (and the co-author of his book, Mr Åhlström) use the analogy of a group of islands as a powerful visual image of a system that is only nominally connected.

Very often, those of us connected by a business value chain are like a group of islands. We can almost see one another from island to island, yet we operate disconnected from any common logic.

Each island, perfectly formed, with its own ecosystem running like clockwork. But between them, the ocean. A few kilometres of water that make communication, trade and movement difficult. Each island optimises according to its own internal resources; but are they optimised to function together? Not necessarily.

In today’s episode I’m going to try to explain what this efficiency paradox teaches us, and what these islands of efficiency look like when we apply them to our fresh produce world.

You’ll remember that in Episode 15 I used the banana to illustrate the concept of strategically aligned supply chains. Well, this is exactly the same phenomenon that people tried to replicate with the pineapple.

In fact, it was mainly the very same companies already operating successfully with the banana that set out to repeat the trick with this new product on the world market.

And here we arrive at the heart of our fresh produce analysis: if the pineapple enjoyed such historic prestige, why is less commercially successful than the banana?

Both are tropical fruits, both were grown on similar plantations, both reached global markets by comparable routes. And yet the banana dominates, absolutely.

What are the differences? What happened? Why aren’t their successes comparable? Is it all just down to consumer preference?

But before we run into conclusions, I need you to imagine that we travel in time to the eighteenth-century in England. You’ve been invited to a gala dinner at an aristocratic mansion.

As you walk into the dining room, your eyes are drawn to the centre of the table: there, gleaming and exotic, sits a tropical pineapple.

But here’s something you don’t know: that pineapple probably won’t be eaten tonight. In fact, it might not even belong to the host. It may be… rented.

Welcome to the fascinating history of the pineapple.  A fruit that went from being the ultimate symbol of status and hospitality to a mass-market commodity. A product that, for a brief moment, looked as though it might fight the banana for the crown of the global fruit trade.

It’s a fresh produce story that speaks to us about economics as much as about imperialism, and about how value and popular taste evolve in a global market.

Allow me an analogy that I believe captures the essence of many of our problems. Imagine that your fresh produce business is one of those sandcastles you build (with your children) right at the water’s edge on a beach day.

You built it with effort: perfect towers, well-defined walls, an elegant moat. But you're on the beach, and the waves keep coming. Every wave that breaks erodes the walls a little, blurs the outlines, drags sand away from the moat. There's no malice in the waves; they simply do what they do. And if you sit back and admire your castle without doing anything, within a few hours nothing will be left but a shapeless mound.

To keep the castle standing you need to be constantly rebuilding, reinforcing, adding sand where it's been lost. You spend energy nonstop just to maintain what you already had. Not to improve it, mind you: simply to keep it from getting worse.

This is the reality of the fruit and vegetable sector. The waves battering us are many: shifting climate, mutating pests, fluctuating markets, worker turnover, information that goes stale, processes that degrade. And our castle, our business, requires constant rebuilding effort just to remain standing.

That's entropy feasting on our business. The Second Law of Thermodynamics, as this principle is formally known, tells us that the entropy of the universe always increases. That creating order requires investing energy. That maintaining order requires continuing to invest energy. Disorder, by contrast, is free. The universe, ironically, gives it away.

But here's the crucial nuance: not all sandcastles are built equally close to the water. Not all businesses are equally entropic. And the fruit and vegetable sector, due to an accumulation of specific characteristics, is built practically right on the shoreline.

In this episode know "the type of waves" that hit our business and how to mitigate their impact.

Welcome to a new episode of Freshconomics Podcast. Today we’re going to talk about how our prehistoric hominid brain explains one of the biggest challenges facing the modern food industry: the immense difficulty of innovating in the produce sector.

And that “prehistoric something” is known as the omnivore’s dilemma. It’s a concept that anyone involved in food innovation should be familiar with.

It was a man named Paul Rozin, a psychologist at the University of Pennsylvania, who coined the term for this evolutionary dilemma. Given that it’s one of our species’ oldest conflicts, I’m surprised it isn’t better known.

As omnivores, humans have a huge competitive advantage: we can eat almost anything. Plants, animals, fungi… our diet is incredibly varied. This allowed us to colonize virtually every corner of the planet, from the Arctic to the tropics.

But that flexibility comes at a very high price: constant uncertainty. And our brain, shaped by millions of years of evolution, developed a default answer: food neophobia.

In this episode, discover how this concept connects to the challenges of innovation in our industry.

One of any retailer’s central obsessions is getting people through the door.This is what the trade calls “footfall”, the frequency with which customers visit the store.

The underlying theory is disarmingly simple: if we can just get you inside, you will end up buying something. And probably quite a lot of something.

Many strategies exist to achieve this, and one of the most powerful is the Loss Leader Pricing Strategy. The implementation is straightforward to describe and somewhat brutal in practice.

You take a “Leader” product and you sell it at a very low price -below market price- sacrificing your margin, and quite often selling at an outright loss. Hence the name: a product that leads the consumer in, sold at a loss.

For the trick to work, the product has to meet two conditions at once. It must be relevant enough that people genuinely want it, and it must be offered at a price so unbeatable that it creates an irresistible pull - an exaggerated perception of value in the mind of the consumer. “Fifteen pence for two kilos of potatoes? I am running to the store now.

The retailer is perfectly willing to lose money on that single line, in the firm belief that the loss will be more than recovered through everything else you drop into the trolley once you are inside.

Welcome to a new episode of Freshconomics Podcast, dedicated to the consequences of the Loss Leader Pricing Strategy!

Quite some time ago I remember reading a viral tweet from an American dentist that made me laugh out loud. If I recall properly, the dentist was sarcastically replying to the typical press story of: “9 out of 10 dentists recommend…”.

The dentist said something along the lines of: “I’ve been in this profession for 20 years and nobody has ever asked me anything… and the thing is, I talk to my colleagues at the conferences, and I’ve never once met a single dentist who was asked anything either.”

I think my automatic, almost involuntary laugh came from realizing that every industry is dealing with the same issues. It also made me realize that I tend to read news about surveys, trends, and market research in our own sector with a mixture of amused disbelief and skepticism.

And I couldn’t help but start wondering since when, and how, all this happened to me.

How did I go from being a marketing believer in market research and the power of data to a sarcastic sceptic?

This is a story that spans the replication crisis in Academia, the erosion of trust in the Press and Media, and, ultimately, the challenges of building reliable knowledge from data in our sector.

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.

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.

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.