USDA Launches Local Foods Blitz, Bans Fried Foods and Donuts in Cafeteria for a Day

I don't usually get calls from the USDA, let alone the deputy secretary, but there Kathleen Merrigan was on the phone from her car and it wasn't a prank. 

She wanted to talk about the Know Your Farmer, Know Your Food campaign that the USDA launched this week, which centers on building buzz around local and regional food systems and "spurring economic opportunity." Merrigan is chairing the initiative, which comes not a moment too soon.

The USDA has finally recognized how important and vital local and regional food systems are -- and is tapping into the vibrant activity already underway by making an effort to open up its doors and purse strings. 

Among other things, the USDA is 

• loosening rules on interstate meat commerce, to help smaller processors, and making grants on rural economic initiatives.
• making it easier for institutions like schools to buy locally.
• offering grants to improve community food security, to be announced Wednesday.
• emphasizing direct marketing, with the launch of the White House farmers' market, and farmers' markets grants on Thursday.
• pushing the idea that "ag is back" with a new web portal launching Friday and a Facebook web chat with Merrigan.

This sounds like a lot of hoopla -- you can review the press materials at the USDA links above -- but I did get a chance to ask a few questions, most notably, "What is this about?"

Merrigan said she has been quietly heading a task force since May to push local and regional agricultural initiatives. Representatives from various department programs are meeting biweekly to discuss how best to achieve that goal. Like Obama, Merrigan and her team seem impatient about getting things done.

"The secretary told me he wanted me to take on the local and regional food challenge -- it was a top priority of my job aside from the USDA budget," Merrigan said. "And, I'll always be involved in organic."

Given the size of the USDA - 114,000 employees - Merrigan felt it wasn't imperative to create new programs but to increase outreach to existing ones (and perhaps, though unstated, light a fire within the agency on this new priority). The effort also involves tweaking existing regulations and programs to make these goals easier to achieve.

The initiative even extends to the USDA cafeteria, where your intrepid blogger has actually eaten (I recommend the House Cafeteria up on the Hill instead). In any case, the USDA is offering dishes with locally grown products all week long.

Merrigan said the cafeteria is also banning donuts and fried foods on Wednesday and putting a sign on the soda machine "have you considered water, juice or milk?" Sounds almost radical.

"Maybe this will be my last act as deputy," she quipped.

But if staff groan about food police, at least they get to see a celebrity on hand: White House Chef Sam Kass will be doing a cooking demo in the USDA cafeteria on Wednesday. 

On Thursday, the action shifts to farmers markets, when the one down the street from the White House opens. Merrigan will be on hand. The USDA will also announce a series of farmers' market promotion grants, and research monies aimed at local food systems in the northeast. 

Finally, on Friday, it is trying its hand at internet democracy and launching a web site that includes outreach to citizens for their ideas. Not sure how this effort at crowd-sourcing will work out, given what happened when the White House tried it. But I gotta say, this is a sea change from the last team in charge. 

- Samuel Fromartz

Recession Hits: "Not Even Fruit Loops to Give Out"

By Samuel Fromartz

Given the recent financial crisis, deepening recession, and looming food crisis for the poor, I thought it a good time to contact Mark Winne, author of the excellent and readable book Closing the Food Gap, published earlier this year.

Winne worked on getting food for low-income communities in Hartford,  Conn., at a time when the middle class -- and supermarkets -- were exiting the city in droves. He sought to do this with food from local farms and fledgling community gardens (where the community was at times ambivalent about the endeavor, as he recounts in his book). Now this was long before local food was all the rage. In fact, we're talking about the late 1970s and 1980s .

Even back then, he saw the potential conflict in trying to protect the livelihood of farmers and also provide access to healthy and affordable food -- a conflict that lives with us, with even more intensity today.

With the news rising about food scarcity for the poor, I emailed him a few questions to muse on our current situation.

Fromartz: Economists are predicting the deepest recession since 1980-81, possibly the worst recession of the post-World War II era.  Was this the tsunami you always feared when working on food access issues in the inner city?

Winne: Yes, this could be the Big One that we've always feared. We indeed have all the makings of a perfect storm -- rising energy and food prices, caving financial markets, and high unemployment. There will be many victims, but unfortunately not the ones who got us into this mess, namely the tasseled loafer crowd.

What I dread the most is the impact that a massive economic downtown will have on the poor and the near poor. Taken together, those two categories constitute almost a third of all Americans. Just when we were starting to put together the political will and economic resources to turn things around in low-wealth communities, states are slashing their budgets, the federal government is using all their/our money to bail out the banks, and the lines at food banks are growing longer. Right now the Food Stamp Program has more people enrolled than at any time in its 40 year history, and food banks don't even have Fruit Loops to give out.

Fromartz: Wal-Mart recently reported that it noticed a spike in sales of baby formula around payday, which means these shoppers can only afford bare necessities when they get paid. In your experience, is this unusual?

Winne: When times get tough, as they are now, you will see unusual forms of consumer behavior. What's happening at Wal-Mart is nothing more than the kind of coping strategies that lower income families have always been forced to resort to: stretching the paycheck as far as they can, putting off paying the rent or the credit card bill in order to eat, or sending their children out to play with their friends late in the afternoon in hopes that their friends' family will invite them for supper. The U.S. Department of Agriculture has euphemistically labeled these strategies "food insecurity", which means nothing more than people adapting to harsh circumstances to survive. Right now, according to USDA, that's 35 million Americans, a number that is likely to go up when they release their latest findings very soon.

Fromartz: You've written about the lack of access to healthy, fresh food in the inner city. Have you encountered an example of any company really willing to tackle this issue or will the solutions come from elsewhere?

Winne: One of the best examples of a public/private partnership designed to bring food stores back into underserved communities is the Fresh Food Financing Initiative created by the State of Pennsylvania and advocated for by the Philadelphia Food Trust. Since the program was created in 2005, it has financed the development of over 20 new supermarkets, resulting in one million square feet of new food retail space and 2,500 new jobs. What I find particularly interesting about these new stores is that they are all independent food stores operators. Not a single major chain supermarket has stepped up to the plate.

This suggests to me that the answers are going to come from a combination of good solid advocacy and research by non-profit organizations, the public sector closing the financing gap with taxpayer funds, and indigenous businesses -- those that already exist in the communities and know the terrain. In saying that, I think it is unfortunate that major corporations that walked away from inner-city America over the past 30 years don't have the decency or the character to reinvest once again in those communities.

Fromartz: Michael Pollan and others have argued that cheap food (the subsidized corn-soy-meat driven food system) doesn't reflect its true cost, in terms of environmental damage or health-related expenses. If food did reflect its true cost would the poor be better off or worse off?

Winne: Like everybody else, I love Michael Pollan. We're both former Connecticut boys which means we have nutmeg running in our veins. But Michael gives short shrift to what his vision for a responsible food system would do to America's poor. Without a doubt, his ideas, if put into practice, would send the food insecurity rates into the stratosphere, unless there was a plan ready to be launched simultaneously that would enable low-income families to buy the same high quality, all-costs-accounted-for food that affluent foodies buy. So far, he hasn't shared that plan with anyone that I know.

Fromartz: What is your ideal vision for an urban food system?

Winne: Community gardens and farmers' markets in every neighborhood; food integrated into every aspect of the school life; supermarkets readily accessible to all major population centers and adequately serviced by public transportaton; and food policy councils that actively and effectively engage citizens and policy makers in monitoring and improving the performance of the community's food systems.

Fromartz: In a new administration, what is the No. 1 policy initiative the president can take to raise food access for low-income people?

Winne: One of the very little victories that came out the 2008 Farm Bill was the requirement that USDA conduct a "food desert" study, meaning that they assess the barriers and recommend solutions to making healthy and affordable food available in all communities.

The results of that study should be sitting on the new President's desk on January 20, 2009, and within his first 100 days he should send to Congress a bill to create a "Re-Store America" program that will do some of what the Pennsylvania FFFI program has done, but add to it funding for farmers' markets, community and urban gardens, infrastructure that will aid in the development of local and sustainable food systems, and initiatives that will promote food competency in our nation's schools.

Mackey Interview, Part 2

In the second installment of the interview with John Mackey, CEO of Whole Foods, the focus is on humane meat, sustainable seafood and local food. The first part of the interview can be found here.

Fromartz: There has been a bit of buzz about your humane meat program, which institutes a five-star rating system based on the humane practices of the livestock producers. When will it roll out?

Mackey: We'll roll it out this summer. It got delayed because we were doing it under the Whole Foods-funded Animal Compassion Foundation but we're now shifting it to a third party, the Global Animal Partnership. We think from a credibility standpoint, third party certification is better. Organic is third party, Fair Trade is third party and we think that will have more credibility with our customer base. But this summer, you will start to see the one-through-five rating. (One being the most basic rating and five, the highest, with background here and here).

Fromartz: Have you found enough livestock producers to fill out the meat case? Are there enough grass-based producers, for instance?

Mackey: Well, it's not just for our grass-based producers. All of our meat will be in the program eventually because if they want to sell at Whole Foods, they have to be rated. But if you're asking, have we found that many producers that have the highest ratings, like three, four, and five? The answer is we don’t have enough yet but we think what will happen. As we create more transparency into welfare practices, the desire to have a higher rating is going to kick in. Customers are going to prefer the better ratings, so we're going to see those getting one's and two's try and get three's and four's

Fromartz: Do you expect those with a three or four rating get a premium over the one's and two's?

Mackey: I do. To even get a three, it has to be a pasture-based system, which rules out almost all meat sold in the United States right now. And I don't mean just access to outdoors but a real pasture-based system.

With chickens for example, "free range" is a myth – the birds are not in cages but they are in a big barn. When the consumer thinks of free range, they think the chickens are out running around in pasture but that's not the case. So to get a three under the Global Animal Partnership ratings system, animals will have to live outside and have access to shelter, rather than the other way around - living indoors with supposed access to outdoors. Once there's more transparency and the ratings are out there, the consumer demand is going to be push a lot more producers to get into organic and animal welfare production – they're going to get better scores, a premium and more brand loyalty.

Fromartz: So when are you going to do more in seafood?

Mackey: In terms of sustainability?

Fromartz: You are selling some MSC-certified fish but it's not across the board. (The Marine Stewardship Council certifies whether wild populations of fish are sustainably harvested).

Mackey: We've had quite a few meetings on aquaculture and are coming with standards this summer on farmed fish. That's probably the biggest initiative we've got.

But sustainability in seafood is a huge issue, and I don't have any good answers to it, because world demand for seafood is doing nothing but going up. I think having good aquaculture standards will help. But of course, as you know, demand is very strong for wild caught – and wild caught is hunting and gathering with very efficient technology. It's the tragedy of the commons. I was just looking at our stores in the New York area, and the only certified fish we had was salmon from Alaska and some sea bass. We need a lot more than that.

Fromartz: Yes, in my opinion, your fish case needs the most work.

Mackey: I hear you but is there someone else that's doing more? We're out there working, we're doing monitoring, we've cut off some species. We recently stopped selling orange roughy, and we don't have a lot of species because of sustainability issues. It puts us at a competitive disadvantage against other retailers who do sell those fish.

I think we need someone other than MSC to do sustainability certification, to encourage competition. When we started our Whole Trade label (Whole Food's fair trade designation), we started working with Transfair and Rainforest Alliance. The competition between the two has been intense and that leads to innovation. On the seafood front, there's only one game in town, MSC. We need half a dozen competing to certify sustainable fisheries.

Overall, though, I am very frustrated about it and I don't feel we're going enough. But frankly, I don't know what to do about it.

Fromartz: You've also put a lot of emphasis recently on local foods. Is it growing?

Mackey: I do think it's a fundamental trend, and it's going to grow. But I don't think the locavore movement is going to sweep America.

The simultaneous trend along with local is ethnic and international foods – Asian food, Middle Eastern Food, Mediterranean food. It's not just in the big cities,  there's been a big explosion in different cuisines and that's happening at the same time as local, but they both reflect a growing awareness people have about food. People are looking for authentic artisan food rather than industrial food, or fast food.

Fromartz: Both trends -- imports and local -- are rising?

Mackey: Yes. And there's also whole trade, ethical trade, that's a huge trend that's only going to grow. As Peter Singer said in his book (The Way We Eat: Why Our Food Choices Matter), the local food movement sometimes lacks a perspective on the globe. Developing countries need to sell in other markets and fair trade gives them a premium when they do that.

Fromartz: So fair trade is growing too?

Mackey: Our goal is to have 50 percent of our foods from developing world be ethically traded in the next 10 years. Right now it's substantially less than that.

Fromartz: I know you need to wrap this up, but one last question: Does anything in the business keeping you awake at night?

Mackey: The truth is the last year was a terrible year for me personally and I had plenty of sleepless nights, while I was being investigated. I feel like I've gotten out of jail, with the SEC dropping its inquiry and not recommending any enforcement actions. Symbolically and emotionally, I feel like I've been liberated. That's really how I feel.

We've got some short term concerns. We've got to integrate Wild Oats, we've got some additional competition, we've got a slowdown in some of our comp sales, and we have an economic environment like I've never seen in my 30 years in this business. I've never seen $133 a barrel oil, I've never seen this kind of real estate crash, we got the Iraq war dragging on, we're sort of in turbulent white water and I don't know what rocks lie ahead because I've never been down this river before.

Fromartz: And your stock price is at the lowest since 2003.

Mackey: The stock was definitely overvalued, trading at 60-70 times earnings. It was a bubble and it popped. But I'm looking to get past 2008 and our earnings back on an upward track. I anticipate that happening next year.

Fromartz: Thanks for the time.

Interview: Whole Foods CEO John Mackey

By Samuel Fromartz

John Mackey, the outspoken CEO of Whole Foods Markets, has been at the center of the natural and organic food business for three decades. But he had stopped talking to the media and shut down his blog because of an investigation by the Securities and Exchange Commission into his anonymous posts on a Yahoo message board. 

Once the SEC ended its investigation without taking action last month, Mackey began talking again. "I feel like I've been liberated," he told me. In a wide ranging interview, he talked about the Wild Oats deal, rising food prices, the company's soon-to-be-launched humane meat ratings system, and the prospects for sustainable seafood.

The interview, conducted by phone in late May, has been edited and condensed. It will run in two installments.

Fromartz: Well you're finished with the SEC, but the FTC is still trying to block your deal to acquire Wild Oats.

Mackey: The FTC is still appealing the court decision made last August (which was in Whole Foods' favor), which is unfortunate because the merger's done. We paid all the shareholders, we sold off the Henry stores, we integrated Wild Oats into our system, we’ve shut down several stores, changed the name of many of the stores – so the eggs are scrambled and mostly eaten.

Fromartz: Ignoring the FTC for the minute, was it a good deal in retrospect?

Mackey: It's a difficult question. Because if I could go back in time, we wouldn't have done the Wild Oats acquisition. We spent tens of millions of dollars in legal fees, we've been investigated, it's been highly disruptive. I didn't realize it would cause so much grief.

But if you're saying has it been a good deal aside from that, well, it's very early in the process. And we have to invest money before we get returns on it. We always say it takes about two years to integrate a company we acquire and with Oats we're about 8 months into the process. I'd say we're pretty happy so far but can't say with an absolute certainty until the 24 months have passed. But moral is very high and we've seen a lot of good sales increases.

Fromartz: You've made a lot of acquisitions. Was this one the most difficult?

Mackey: No, I wouldn't say it's the most difficult one. Usually in a merger, there's resistance – the good old days stand firm in the minds of employees. But here, Wild Oats people were waking up from a nightmare of uncertainty. They were glad to have some leadership and some security. We didn't lay anyone off, we've raised pay, raised benefits, and did a lot of training, and they haven't been resistant.

Fromartz: You even offered job security at the stores that were closed?

Mackey: Correct. All the stores we closed were in markets where we already had stores, so they were offered alternative positions. First of all, that's the right thing do, and secondly, if people have a lot anxiety that they could lose their jobs, that inhibits their ability to learn and to adapt. I feel you've got to offer security if you want to get people to move forward. Otherwise they're too scared.

Fromartz: As you've said, the deal was distracting. But did it inhibit your ability to compete with up-and-comers in the supermarket business or even more mainstream players nibbling at your heels?

Mackey: You said nibbling. Well, they're doing a lot more than nibbling. They're very aggressive and coming from a lot of angles. The whole idea that Whole Foods doesn’t have competition (as the FTC argued in its case) actually boggles my mind – we have more competition than we've ever had before. It isn't from Wal-Mart, which the media was talking about a couple of years ago. It's from Trader Joe's, and Safeway's Lifestyle stores. HEB is difficult in Texas, Wegmans has expanded up and down the East Coast and is now targeting Boston. You've got Sunflower and Sprouts and Henry's that are going after the lower end and then the whole phenomenon of farmers' markets. You add all that stuff up and we have a lot more competition.

Fromartz: And you've been feeling that competition in less robust sales?

Mackey: Our comps (year-over-year store sales gains) have declined.  We don't know for certain all the causes of that but it's not unreasonable to assume competition's one of the factors. A year ago, the media was making a lot about competition. The theme this year is trading down. I have to read about it every day, how people all over the United States, apparently hundreds of millions of people, aren't going to shop at Whole Foods markets anymore, and it almost becomes self-fulfilling because it's such a theme.

Our comps last quarter were pretty strong at 6.7 percent, which means we gained market share at the expense of our competitors. But the way it's been portrayed, you would think customers were abandoning us in droves. An objective look indicates Whole Foods had more customers in the last month, or in the last year, than ever before, but we're not gaining them quite as fast as we used to. Is competition a factor in that? Yes.

Fromartz: On food price inflation, have you retooled to react?

Mackey: I don't know if I would say we retooled. We respond mostly on a local level. I always thought Whole Foods had good value if people would take an objective view of it, but they seldom do. An article came out in the Twin Cities on May  17, and it just showed – surprise, surprise – Whole Foods was just about as cheap as Trader Joe's, but almost no one does the objective research. We're tagged with the name Whole Paycheck, and we have expensive things, but we also have 30,000 items. So we're trying to respond by emphasizing value in our stores to our customers.

Fromartz: Like emphasizing private label products?

Mackey: Well, just communicating to customers the value products we have, just trying to get the message out there but it's sort of a message most people don't want to hear because they associate Whole Foods with Whole Paycheck. They don't register that we have products with good value. They've got us in a category and don't want to change.

One of things that hurts price is perishable foods. In areas like meat and seafood, Whole Foods isn't cutting corners. Our core mission is selling the highest quality organic and natural foods. And the highest quality and the lowest price – they don't go together.

Fromartz: But is that precisely the areas people are going to cut back on, to lower their grocery bill?

Mackey: In Whole Foods case, I think what's affecting us more is gas prices. Customers driving 10 miles or more to our stores may not drive as often. Plus with the real estate crash, people don't feel as wealthy. I mean I don't feel as wealthy. Whole Foods stock has fallen 65 percent in the past two years and by any objective standard I'm wealthy, but compared to two years ago, I'm a lot less wealthy. So people are more concerned and cautious.

Fromartz: So you've seen a slowdown or slump in perishables?

Mackey: We have seen a little of that, but I'm not going to disclose any more information than I already made in our earnings call.

Part II: Humane Meat, Sustainable Seafood, and Local Food