FRESHCONOMICS — The Podcast of the Fresh Produce Business

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.

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.

I have spoken already in previous episodes about the difficulty, in our business, of building knowledge through experience. Because of volatility, what worked yesterday is no longer useful today.

I often use the example of rain. Sometimes it rains and it causes us a quality problem or a loss of crop, and other times it rains, exactly the same, and absolutely nothing happens.

That’s why this business feels so essentially tactical. And in that sense, there seem to be plenty of examples of successful and innovative people in the industry who got there without any conscious or thoughtful strategic reflection.

There are people who connect and align with the fundamentals of their business naturally, or simply by imitating the practices of others who have succeeded in the sector before them.

In any case, paying attention to these fundamental truths of the business and managing accordingly — whether tactically or strategically — requires, in our world, a very particular connection with the day-to-day sales development.

And yes, this episode is about salespeople. A function that is somewhat looked down upon as a mere salesforce, but in the fresh produce world is strategically essential to keep the company profitable.

And the reason this is so, is quite far removed from the view we tend to have about how salespeople should be managed. Yes, I mean the typical: “Hey, I don’t want any excuses… you got sell at a higher price.”

That we have to accept that, in the fresh produce business, we have to manage our volatile products in our uncertain markets. Therefore, business management will be closely tied to the difficulty of the trading management... And that we are constantly face the paradox of  Turnover Vs. Margin.

And a warning before we start: I’m going to have to use a few concepts from accounting, business management and marketing that I hope doesn’t give you a headache… Let’s see how it goes!

There are words we use so often in this business that, by the sheer act of repetition, they end up meaning nothing at all. We pass them around in meetings and on calls as if everyone agreed on what they referred to, and only when someone places a particular example on the table do we realise that each of us was holding a different definition in our head.

“Specialty” is, without a doubt, one of those words. It sounds prestigious, it suggests value, it dresses up presentations and product catalogues. And yet, the moment you press on it, the conversation derails. Nooo, come on, that's not a specialty! Aaah, but neither is that one!

So what are we actually talking about?

From my point of view, the key is that the concept is dynamic. What was once a specialty is liable to become just another item in the assortment. A phrase I used to enjoy repeating, internally, with my team was: “today's specialties are tomorrow's commodities”. (A line I now avoid, because, as you know, I'm convinced we never really work with commodities - but rather with what I've called Freshmodities).

Around this concept, in the book Freshconomics, I reveal a methodology for innovation in fruit and vegetable products.

The methodology pivots on a strategic review matrix for fresh produce, which I have, with "great originality", named the Fresh Produce Strategy Matrix — the FPS Matrix for short. It has been enormously useful to me over the past 2 decades, both in product development decisions and in mapping our competitive position against others. (*Check the FPS Matrix in the Episode post on DavidDelPino.com)

In today's episode, I want to take that overused word back to the workshop, strip it down, and try to put it back together with a more useful meaning. Because, as we'll see, what we call a specialty today may well stop being one tomorrow, and confusing the two costs real money.

I'm afraid we are witnessing a breach of the social contract that was struck between society and farmers at the founding moment of the Common Agricultural Policy in 1962, following the Treaty of Rome of 1957.

When the CAP was founded, it was built around the objectives of cheap, abundant and safe food, with European preference, and, in return, an income guarantee for farmers. Well, none of those founding goals looks like it's going to hold up in the immediate future.

In other words, I am challenging whether, from now on, food will be cheap, abundant and safe. Of course, we already know that the European preference is gone, and the income guarantee for farmers is over… they'll have to fend for themselves.

The disappointing proposal that the Commission has put forward for the new Common Agricultural Policy makes me as angry, in equal measure, as I admire it for its sheer Machiavellian brilliance. And which, on top of that, brings to mind the plot of a famous film from 2012, The Hunger Games.

There is a word we keep repeating in the fresh produce business, almost without realising it. A word we inherited from textbooks, from conferences, from our business professors who told us that our fruits and vegetables were just another example of the agricultural economic model. The word, of course, is “commodity”.

And if I had to pick one idea from my book Freshconomics that I would like to shake out of the collective head of the industry, this might be the one. Because calling our products commodities is not just only inaccurate, it is actually misleading.

It shapes how we price, how we negotiate, how we plan, how we invest. And it often sends us in the wrong direction.

So today I want to share with you an evolution of that concept. An evolution that is the backbone of a full chapter in the book, and that I have decided to give its own name because.

Because, as the famous philosopher Wittgenstein reminded us, “the limits of my language are the limits of my world”. If we don’t have a word for something, we literally cannot see it clearly.

And that word I want to offer to you is “Freshmodities”. And by the end of this episode, I hope you will never again look at a pallet of apples, or a crate of lettuces, or a tray of strawberries, in quite the same way.

Gregory King was a pioneer of economic science. He was the first to document how volatility in production affects prices more than proportionally. How a small change in the available quantity of a crop can send prices through the roof.

I suppose that what we now call King’s Law is intuitive for some people, but it wasn’t for me. Perhaps because the modern world -especially in developed countries- has shielded us from some fundamental truths.

In many other parts of the world and in other times, people were painfully aware of the suffering caused by scarcity. Mr King simply put numbers to it and explained the mechanism back in the 17th century. But the truth was always there for anyone willing to see it.

What follows is the story of how, despite having studied all of this at university, I only truly understood it when I was already out there, working. It seems there are things you can only learn through the school of hard knocks and street fights.

Welcome to a new episode of Freshconomics Podcast

What truly drives the fresh produce business?

If you come from a marketing background (like I do), your gut will say “demand”. If you were trained in any business school (as I was), you will talk about understanding the consumer. And if you’ve worked at a consulting firm advising food companies (like I have), you will probably recommend building your entire strategy around what people want to buy.

And you know what? In most industries, you would be absolutely right. But in ours… if that’s your mental model about the fresh produce industry, you are heading for troubles.

Today I want to talk to you about one of the singularities of the industry that I feel more strongly about, one that I discuss in the book perhaps too politely, too academically, and that, by contrast, in private conversations with colleagues and clients I end up repeating myself with, probably, far more emphasis than needed.

The concept is simple to state but profound in its implications: the fresh fruit and vegetable business is a Supply Sector. And if you do not understand what that means, you will keep running into walls you cannot see.

Not everything was going to come straight from the book. This is the first episode we go off-topic. In any case, this episode picks up a story that, I think, is little known: "the birth of the Sicilian Mafia due to the cultivation of lemons".

Yes, I know it sounds unbelievable but fruits and vegetables are behind a many extraordinary stories like this one or, to name another, the case of the banana that gave rise to the so-called “banana republics”.

Learn about the history of Italy and the fresh produce business through the power of stories, legends, books, podcasts and academic papers.

Quality control in the fresh produce business is one of the most misleadingly complex activities you can imagine. On paper, it seems straightforward: learn the regulations, understand the specifications, measure the tolerances.

In practice, it becomes a philosophical journey into the nature of perception, value, and what we truly mean when we say something is "good enough".

Today, I want to share with you one of the most powerful heuristics I learned early in my career—a simple rule that has saved me many times from losing perspective in the chaos of daily quality assessments. It’s called The Kinship Test, and it might just change the way you think about quality forever.