Guest guest Posted January 24, 2006 Report Share Posted January 24, 2006 Global fishiness How can Wal-Mart sell Chilean salmon for $4.84 a pound? An excerpt from " The Wal-Mart Effect. " Editor's note: In 2006, the name Wal-Mart may have more polarizing power than any other corporate brand. The world's most powerful company is an economic juggernaut, political flashpoint and social phenomenon. In " The Wal-Mart Effect, " a thoughtful, comprehensive examination of how those famous " everyday low prices " are changing the world, Fast Company writer Charles Fishman offers up a compelling look at the company that, more than any other firm, is driving the global economy. By Charles Fishman Jan. 23, 2006 | The glass seafood display case in Wal-Mart Supercenter #2641 near Allentown, Pennsylvania, is small, but it is a mouthwatering testament to the power of global sourcing. From Thailand -- sea scallops and three kinds of shrimp. From Namibia -- orange roughy. From the United States -- swordfish steaks and fresh shrimp. From China -- squid, scallops, tilapia, and crawfish. From Russia -- Alaskan king crab. From the Faeroe Islands -- cod. (The Faeroe Islands are an archipelago in the North Atlantic, halfway between Iceland and Norway, population forty-seven thousand -- no Wal-Mart, but some Wal-Mart effect.) Every item for sale is meticulously labeled -- kind of fish and country of origin -- but also whether the seafood is farm raised or wild caught, and whether it has been previously frozen. The signs themselves conjure exotic images. The squid are a " wild-caught product of China. " Wild, indeed. Right down front in the display case, with fillets thick and long enough that they run from the front of the case all the way to the back, is a platter of Atlantic salmon. Each fillet, the flank of big fish, is gleaming and vivid pink-orange. The salmon is a " farm-raised product of Chile, " according to the sign, and it's fresh. It managed to get from southern Chile to a small town seventy miles outside Philadelphia -- more than five thousand miles -- without even being frozen. The salmon fillets are priced at $4.84 a pound. Almost any American over thirty is old enough to remember a time when you could hardly buy a quarter of a pound of salmon for $5.00. Any American over forty can recall an era when salmon was a delicacy. A half pound of smoked salmon, the kind you'd put on a bagel, might have cost $16.00 or $20.00. But there it is, in the Wal-Mart display case -- pink, oily, and alluring -- salmon fillets for $4.84 a pound. That's not a special; it's the everyday low price, and available in most supercenters from one end of the country to the other. It's a couple of dollars a pound cheaper than farm-raised salmon at a typical supermarket. It's less than half the price of the farm-raised salmon sold by Whole Foods. Salmon for $4.84 a pound is a grocery-store showstopper. If prices contain information, if prices are not just a way of judging whether something is expensive or affordable but contain all kinds of other signals about supply, demand, prestige, and even the conditions under which products are made (bad freeze in Florida, expensive orange juice; hurricane on the Gulf Coast, expensive gasoline), then salmon for $4.84 a pound is a new, unintended Wal-Mart effect. It is a price so low that it inspires not happiness but wariness. If you were so inclined, you couldn't mail a pound of salmon back to Chile for $4.84. It's a price so low, it doesn't seem to make sense if you think about it for even a moment. Salmon at $4.84 a pound is a deal that looks a lot like a gallon jar of Vlasic dill pickles for $2.97 -- it's a deal too good to be true, if not for us as the customers, then for someone, somewhere. What exactly did Wal-Mart have to do to get salmon so cheaply? The Atlantic salmon fillet in grocery display cases and on restaurant menus is, as one expert in the business says, " a factory product " -- hatched from eggs, raised to adolescence in freshwater hatcheries, grown to maturity over two years in open-topped ocean cages of thousands of fish suspended in cold coastal waters. And most of the farm-raised salmon we eat comes from Chile -- 65 percent of the farmed salmon sold in the United States is imported from Chile; most of the rest comes from Canada. As bemusing as it is to see how salmon has found a place on American menus and plates as a kind of affordable luxury, salmon really has conquered the economy of southern Chile. The area around Puerto Montt, six hundred miles south of Santiago, now has eight hundred salmon farms, and the salmon business provides nearly one in ten of the area's jobs. In 2005, Chile expected to export $1.5 billion worth of fresh-packed salmon, with 40 percent of it coming to the United States. Salmon is the second largest export in Chile now, behind copper, ahead of fruit. " Five years ago, " says Rodrigo Pizarro, " salmon wasn't on the list of exports. Chile didn't have any salmon twelve years ago. " Pizarro is an economist who heads Terram, a Chilean foundation dedicated to promoting sustainable development in Chile. Understanding the impact of salmon farming is one of Pizarro's most urgent projects. When he says that twelve years ago Chile didn't have any salmon, he's not exaggerating for effect. He means it literally. Not only is the Atlantic salmon not native to Chile -- the Chilean coastline, of course, runs along the Pacific -- but as Pizarro puts it, " Atlantic salmon is an exotic species in the whole Southern Hemisphere. " The Atlantic salmon doesn't appear naturally anywhere south of the equator. Farming salmon in Chile is a bit like farming penguins in the Rocky Mountains. Now, however, not only are there far more Atlantic salmon in Chile than people, there are ten times as many, maybe even one hundred times as many. More salmon are harvested in Chile now than anywhere else in the world, including Norway. Even as the price has drifted down, the value of Chile's salmon exports has risen nearly 70 percent in five years. Chile wants to increase the amount of salmon it exports by 50 percent again by 2010. In just a decade, salmon farming has transformed the economy and the daily life of southern Chile, ushering in an industrial revolution that has turned thousands of Chileans from subsistence farmers and fishermen into hourly paid salmon processing-plant workers. Salmon farming is starting to transform the ecology and environment of southern Chile too, with tens of millions of salmon living in vast ocean corrals, their excess food and feces settling to the ocean floor beneath the pens, and dozens of salmon processing plants dumping untreated salmon entrails directly into the ocean. Pizarro is thoughtful, direct, and passionate about his country without being excitable. " Anyone who is working in a salmon plant, it's very much a factory-type system, " he says. " It's an industrial-type system. If you were to see the factory, it's just like Charlie Chaplin's movie " Modern Times. " The plants are very clean, very modern, with proper apparel and gloves. The issue is not the health conditions of the fish. It's the labor conditions of the workers " -- long hours, a demanding pace using razor-sharp filleting implements, low pay. As for the farms themselves, he says, " All the information we have indicates that the environmental impact is considerable. " Wal-Mart is not just another customer of farm-raised Chilean salmon. Wal-Mart is either the number-one or number two seller of salmon in the United States (the other top seller is Costco), and Wal-Mart buys all its salmon from Chile. Wal-Mart, in fact, may well buy one third of the annual harvest of salmon that Chile sells to the United States. That kind of focused purchasing in an arena of surging production is one part of how Wal-Mart delivers salmon for $4.84 a pound to supercenters around America. Chilean salmon needs markets; Wal-Mart has 1,906 supercenters. That kind of focused purchasing also gives Wal-Mart and its customers a unique window on the impact all that salmon raising, salmon buying, and salmon selling is having far away from Bentonville, in southern Chile. Does it matter that salmon for $4.84 a pound leaves a layer of toxic sludge on the ocean bottoms of the Pacific fjords of southern Chile? Wal-Mart's ability to reach in and remake the operations of its suppliers is unchallenged. And Wal-Mart's single-minded focus on using that power to reduce price has sent waves of change across the U.S. economy and around the globe. But what if Wal-Mart imposed conditions on its suppliers that went beyond cost, efficiency, and on-time delivery? What would the ripples from that look like? Rodrigo Pizarro has a calm appreciation for both the impact of the salmon industry in Chile and the opportunity. He also has a sophisticated appreciation for American business and consumer culture. " I know what kind of story Wal-Mart has, " he says. " I am not naive about Wal-Mart. " Pizarro's undergraduate degree is from the London School of Economics, his Ph.D. is from the University of North Carolina at Chapel Hill. How does he think Americans should think about that salmon in the seafood display case at Wal-Mart, selling for $4.84 a pound? " I remember when I was in the United States, you had a debate about Kathie Lee Gifford promoting clothes which were produced in an offshore factory with awful labor, " says Pizarro. In 1996, at a congressional hearing, a well-known labor rights activist revealed that the workers in a Honduran factory making a line of clothes under the TV personality's name were children. The Kathie Lee Gifford line was sold exclusively at Wal-Mart. By the time the use of child labor became public, Wal-Mart had stopped using the factory. But the ensuing scandal took Gifford and Wal-Mart by surprise, and the publicity was scorching. Forbidding child labor is one of the absolutes of the global economy. But the larger issue of the overseas factory conditions where products sold in the United States are made is still being navigated gingerly by multinationals. They don't necessarily want to assume the responsibility, and the cost, for monitoring everything that goes on in workplaces in countries that have their own laws, cultures, and enforcement mechanisms; they also don't want to have to explain dramatic, unsettling revelations about how the familiar products they sell manage to have such low prices. Pizarro is thinking not of child labor in particular, but of the widespread public outrage when American shoppers connected clothing they were familiar with a well-known personality, and sweatshop factory conditions. Says Pizarro, " Increasingly, the American consumer is aware of these types of working conditions, and the salmon is the same as the clothes. The only difference is, what is being produced by these workers is something the American consumer is feeding to his children. " If you look at the growth of three things between 1990 and 2005, the graphs are near perfect shadows of one another: farmed-salmon production in the world, farmed-salmon production in Chile, and Wal-Mart's grocery business. They all start low on the scale, and go almost vertical after a few years. Wal-Mart did not create the farmed-salmon business; Wal-Mart did not plant the salmon farms in southern Chile. But the dramatic growth of domesticated salmon drove down prices for salmon and fed Wal-Mart's ability to deliver salmon to the fish counter; and the dramatic growth of Wal-Mart's grocery business created a huge opportunity, and a huge appetite, for salmon that has fed the salmon-farming industry. The total world salmon harvest in 1985 was fifty thousand metric tons. It doubled in two years. By 1990, it was three hundred thousand metric tons. As the 1990s dawned, the Canadians and the Chileans started aggressively farming salmon, and the price started to drop dramatically as the worldwide supply surged. Salmon farming in Chile was spurred by a business incubator called Fundación Chile, according to Rodrigo Pizarro. " A lot of young businessmen, in the late 1980s and early 1990s, men who were the sons of families with historical business ties, found out about salmon and went to the south to find out what was happening, " says Pizarro. " They went to a sort of frontier area -- and they stayed in those places and built this industry. It took five or ten years. " Among other things, Chile's rugged coastline is much like Norway's, dotted with inlets and fjords that provide the kind of protection that pens of farmed fish in the ocean need. James Anderson, an aquaculture expert at the University of Rhode Island, has visited the salmon farms of Chile as part of his academic work. " They had no history of aquaculture in Chile, " he says. " None at all. But there is a real entrepreneurial spirit in Chile. And they had cheap labor, and a cheap environment. " Salmon farming flourished. Now, says Anderson, you can get salmon from farms in Chile up to the United States faster than you can get it down from Alaska. " In Chile, " he says, " they harvest the fish early, early in the morning, when it's still dark. They get it to the processing plants near the farms right in the morning. Then it's on a truck or a plane to Santiago, and then on a plane to Miami. There's fish killed in southern Chile that is in Miami or New York in under forty-eight hours. " In 1985, the total world farmed-salmon harvest for the year was fifty thousand metric tons. Twenty years later, in 2005, Chile sent ten thousand metric tons, just to the United States, just in January. Salmon farming on a commercial scale is really only twenty years old, and on a mass scale, it's more like ten years old. Aquaculture is an industry growing much more quickly than its impact can be measured, understood, and managed. " Have you ever seen a hog farm? " asks Gerry Leape, vice president of marine conservation for the National Environmental Trust, a Washington-based environmental nonprofit group. " These fish are the hogs of the sea. They live in the same sort of conditions, it's just in water. They pack them really closely together, they use a lot of prophylactic antibiotics, not to treat disease, but to prevent it. There's lots of concentrated fish waste, it creates dead zones in the ocean around the pens. " Jennifer Lash is executive director of the Living Oceans Society, a marine conservation group in British Columbia, which is one of two centers of salmon farming in Canada. " Salmon are generally raised in open-net pens, " she says. " There is a metal cage on the surface, with nets hanging down to a netted bottom. " The density of fish depends on the nation, but they grow tens of thousands of fish per net, 1 million or 1.5 million per farm. Then they all go poo. There is a huge amount of waste going into the ocean. People say, oh, that's natural, all fish go poo in the ocean. But not in that kind of concentration. It just smothers the seabed. " One million salmon produce the same sewage, says Leape, as sixty-five thousand people. The ocean pens suffer from another source of pollution -- excess feed. Any food that isn't consumed settles to the ocean floor, adding to the layer of feces. The waste itself contains residues of antibiotics and other chemicals used to keep the fish healthy during the two years it takes them to grow to harvestable size. All those problems are manageable; it's just that managing them costs money, and if there is no reason to spend that money, no incentive, then no one does. In southern Chile, says Pizarro, the impact on the daily lives of the local people comes not so much from the pens of fish as from the processing plants built to prepare them for export. " What salmon farming has done is move the people from subsistence agriculture to factory work, " says Pizarro. " Salmon farming for the people is about the processing plants, it's not about the farms. " The plants themselves are modern and hygienic, in part because American companies fear nothing so much as importing tainted food that sickens their customers. Despite the cleanliness, the processing plants suffer by most accounts from the kinds of sweatshop issues more commonly associated with garment factories in developing nations. " The hours worked are not respected, " says Pizarro. " There are a lot of women working in the processing plants. There are a series of issues in terms of sexual harassment, in terms of hours worked standing up. They are not allowed to go to the bathroom. And there are antiunion practices. " Pizarro is quite careful in discussing the labor issues. " Much of this is denied by the companies, " he says. " But currently, the labor standards are very weak, and they are very difficult to enforce. These plants are very far away from Santiago. " Part of the reason Wal-Mart can sell a salmon fillet for $4.84 is that, as Leape puts it, " they don't internalize all the costs. " Pollution ultimately costs money -- to clean up, to prevent, to recover from. But right now those costs aren't in the price of a pound of Chilean salmon. Salmon-processing facilities that are run with as much respect for the people as the hygiene of the fish also cost money -- for reasonable wages, for proper equipment, for enough workers to permit breaks and days off. Right now those costs aren't in the price of a pound of Chilean salmon either. Groups like Pizarro's and Leape's, concerned about salmon's impact in Chile and elsewhere, agree on two things. The salmon industry isn't going away -- Chile has declared that it intends to increase production another 50 percent by 2010. And the key to managing the impact of salmon farming, to making the business sustainable for both Chileans and their environment in the long term, isn't self-regulation or government regulation. It's the customers, the big corporations who buy salmon by the ton. Even the corporations realize that. " When the guys with the checkbooks talk, " says Bill Herzig, " the producers listen. " Herzig knows because he is one of the guys with the big checkbooks. He's senior vice president of purchasing for Darden Restaurants -- Red Lobster, Olive Garden -- for all proteins, including seafood. " We own thirteen hundred restaurants, " says Herzig. " We have to have something to feed those customers, not just this year, but five years and ten years from now. We won't put something on our menu if we don't believe the supply is sustainable. " That's why someone like Rodrigo Pizarro thinks a company like Wal-Mart could have such a rapid and positive effect on improving conditions in the salmon industry in Chile. Wal-Mart buys so much salmon that if it imposed and enforced a set of standards on how salmon was to be raised, and how salmon workers were to be treated, salmon farming and processing companies would need to comply, either to keep Wal-Mart's business or to stay competitive. And because the volume of purchasing is so high, and because Chile is driving to further expand the supply of farmed salmon, the improved conditions for both the salmon and the people would not cause much of an increase in the price of a pound of salmon in the seafood case. " It wouldn't be considerably more, " says Pizarro, who is working on just such a set of standards, backed by research, that he plans to present to Wal-Mart and other companies in early 2006. " The increase in cost is not something to pick a bone about. It would be 10 or 20 or 30 percent, a minor cost when you are making a long-term investment. " The result could be a completely new kind of Wal-Mart effect -- Wal-Mart using its enormous purchasing power not just to raise the standard of living for its customers, but also for its suppliers. In July 2005, four Wal-Mart staff members traveled quietly to Chile to look at conditions in the salmon industry. It wasn't a Wal-Mart trip; the Wal-Mart staff members were part of a larger group of twenty buyers, industry representatives, environmentalists, and others who spent four days talking to Chileans, looking at salmon farms, and touring processing plants. Gerry Leape of the National Environmental Trust had two staff members on the trip, along with representatives from several marine conservation groups in British Columbia, where regulation of salmon farming and salmon processing is further along than it is in Chile. Rodrigo Pizarro met the group in Chile. Part of the goal of the trip was to start developing a consensus on what needs to be done to make salmon farming sustainable in Chile, across a wide group of constituencies. The Wal-Mart staff members were in the group for a couple reasons, according to Leape, Pizarro, and others: to learn the dimensions of both the industry and the problems, and to hear for themselves what Chileans have to say. Wal-Mart, according to Leape, realizes that issues around salmon farming in Chile are a potential flashpoint for it, a vulnerability, a food version of the Kathie Lee Gifford problem. Indeed, for most of 2005, Wal-Mart was in quiet but consistent conversations with several environmental groups to try to understand what kind of standards, and what kind of enforcement, would solve the salmon-sourcing problem. The conversations are a delicate dance, especially in a year when in the United States, the Sierra Club and two major unions joined forces to create an organization to publicly challenge Wal-Mart across a broad front of its practices. The environmental groups in conversations with Wal-Mart want to bring along the big company toward a view that it can, that it must, use its power to solve some of the environmental and labor problems that the industries it relies on create. They think Wal-Mart could ultimately do for corporate environmental stewardship what it has done for corporate productivity and efficiency. Wal-Mart wants to be seen as taking criticism seriously, and it wants to be seen as a responsible citizen. But the environmental groups don't want to be duped, or co-opted, by a Wal-Mart campaign that turns out to be more public relations than substance. And Wal-Mart does not really know that much about taking " externalities " into consideration in managing where its products are coming from and how they are made. If salmon poo needs to be cleaned up and properly disposed of, well, that's not a way of making salmon cheaper -- it's potentially a way of making salmon more expensive. And Wal-Mart must surely be worried that once you open the door to considerations other than what's required by law, to considerations other than what's required to improve efficiency and decrease cost -- well, where will the demands end? What won't people ask of Wal-Mart? Indeed, it is possible to argue that it's not Wal-Mart's job to worry about salmon farms in Chile. Protecting the waters of Chile, and the workers of Chile, is the responsibility of the government of Chile. Wal-Mart's job is to obey the law, and to deliver low prices. That, in fact, is pretty much how things have looked from Bentonville for forty years. But the global economy is turning out to be much more complicated. In Chile, according to four people who were with the group, the Wal-Mart staffers were reserved, polite, and kept their own counsel. They listened, but revealed little. At one meeting, Rodrigo Pizarro got to speak directly with the Wal-Mart representatives. " I was very insistent to them about the social conditions of the workers, " says Pizarro. " My impression is, they were very impressed by the sanitation conditions of the processing plants they were taken to. But they were surprised by the claims of the labor issues. On the other hand, they were very polite and willing to understand the issues. " The Wal-Mart representatives got a potent illustration of the importance of the labor problems. The meeting was interrupted by labor unions coming into the building and holding a rally inside to protest the working conditions at the salmon-processing facilities. Pizarro says the concerns of the workers cannot be lightly brushed over. " What I told the Wal-Mart representatives, " Pizarro says, " is that I am convinced if the labor conditions are the way they are, it wouldn't be surprising to me if an American consumer found a nail or a knife in their fillets. Once Wal-Mart realizes that the same workers who are producing the food product may sabotage it, then surely, for their own self-interest, they will have an interest in seeing labor conditions improved. " When I said that to them, " says Pizarro, " clearly they were more interested. " Leape, of the National Environmental Trust, is not directly involved in Wal-Mart's conversations about the salmon standards, but he knows the people who are. " Wal-Mart will adopt standards. The question is how strong they will be, " Leape says flatly. " They dictate terms to their suppliers all the time -- how to produce it, what should be in it, what they'll pay for it. They've got a responsibility, if they want a sustainable product. " Pizarro, too, is optimistic. " We don't have to impose very high conditions to make a considerable improvement in people's lives, " he says. " What I would say is, in a global economy, we're all globally responsible. I think Wal-Mart will make changes. It has to. " >From the outside, the changes look easier to impose than they will be. For Wal-Mart, it's not simply about adding a few new bullet points to the existing list requiring companies to deliver products on time, on price, packaged the way Wal-Mart requires. Using Wal-Mart's purchasing power to improve the environmental and working conditions under which those products are produced requires a radical shift in thinking at the home office, a willingness to admit that not every cost squeezed out is good. But forty years of discipline and culture at Wal-Mart, from the buyers in Bentonville out to the pallets lined up in Action Alley of every store, runs counter to the hopes of Rodrigo Pizarro. Pizarro knows one point of leverage that Wal-Mart never ignores: shoppers. And he thinks if American consumers understand what's required to deliver salmon at $4.84 a pound, they won't think the price is worth the cost. " I wouldn't think American parents would want to feed themselves or their children with something being produced by a worker who is miserable, and who works in terrible conditions, " says Pizarro. " And I don't think Wal-Mart should tolerate that. " Excerpted from " The Wal-Mart Effect: How the World's Most Powerful Company Really Works -- and How It's Transforming the American Economy " by Charles Fishman. Reprinted “Well, since you really wanna know. Quite simply, a missile defense shield is a net… made of magic… held in place by pixies. That’s what it is, we have 70 pixies ready to go.. they’re all wrapped up in special kevlar lining. They’re in a bunker in Colorado ready to go up there and defend our country! And that’s how it works, and it costs a lot of money folks. That doesn’t cost $100. That’s what a box-cutter shield would cost, that’s what you guys seem to be wanting.†David Cross Quote Link to comment Share on other sites More sharing options...
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