By Jarek Czechowicz
With a name like EarthFresh, should a supermarket chain even be thinking of an alliance with a biotech partner that has links with a product recall?
Biotechnology is said to hold great promise in agriculture. Despite such claims, some of the largest supermarket chains in Europe have resolved not to deal in genetically modified products.
Japan, China and now the European Union require labelling of GM products for human consumption. Concerned that GM products could cause allergies and antibiotic resistance, the British Medical Association called for a moratorium on growing GM crops. In 1998 the EU prohibited new GM crops for cultivation or for food.
Recent laws allow no more than 0.9% accidental mixing of GM produce with non-GM produce shipped to the EU. The laws require that reasonable measures be taken to ensure that GM crops do not crosspollinate with non-GM crops.
GM supporters believe the laws provide an opening that will eventually have EU states welcoming so-called “genetic improvements” in produce. One optimist is Gene-E, a United States company that has developed genetic techniques to reduce spoilage in foods and plants destined for supermarkets around the world. Gene-E produce can retain a fresh appearance for many weeks.
Since the outbreak of mad cow disease and again after the EU restrictions on GM imports, Gene-E has lost a number of European backers, and it has survived by scaling down and operating only in the US. The company has recently attracted substantial investment on the strength of this latest patent.
With a small group of managers and scientists, Gene-E chief executive Cliff Hager has scheduled meetings with some of the largest international supermarket chains and food outlets. The meetings are the idea of Gene-E’s marketing and distribution company, BioGood.
BioGood has an established international brand name. It has been a high-profile supplier of personal health-care and pharmaceutical products since the early 1970s, but this is its first food-marketing venture. Some Gene-E investors are sceptical of the link between Gene-E and BioGood because the latter has just lost a class action culminating in product recalls, payouts and bad publicity.
Gene-E management has every confidence that the company’s position won’t be affected by BioGood’s bad press. Many shareholders disagree, and Gene-E shares take an unexpected but not unmanageable dive. The company bears the losses and ploughs on.
The next Gene-E meeting is with a relatively new Australian supermarket chain, EarthFresh. Gene-E and BioFoods believe EarthFresh could be an important player in more than just the distribution of their products.
After an audio-visual presentation of products, Hager introduces a surprise. He says: “We don’t just want EarthFresh to accept our products. We want to explore with you the possibility of establishing an Australian owned and controlled subsidiary of Gene-E. Is there a way that we can do this with EarthFresh?”
BioGood and Gene-E are hoping that this or some similar move will eventually lead to winning support from farmers and from GM critics in the Department of Agriculture, Fisheries and Forestry-Australia and CSIRO. With the right publicity it could even start to turn public opinion in favor of GM produce.
BioGood’s plan is to sell the idea of Australians creating GM produce to satisfy Australian needs for Australia’s benefit, with some of the profit going to the coffers of BioGood and Gene-E.
EarthFresh chief executive Harrison and his team are caught unawares by what sounds more like a potential partnership than a trade negotiation. Yet they can clearly see the commercial benefits of having “long lasting” produce on their supermarket shelves.
Eventually the conversation turns to general concerns.
Bill Paxton, an EarthFresh operations manager, says: “Labelling GM foods will prove to be a hideous task. It’s going to be prohibitively expensive and impossible to monitor. I expect in the long run that food producers will probably avoid GM ingredients.”
Another EarthFresh staffer says: “In Europe most people want to avoid GM products. A lot of producers are careful to ensure that they supply GM-free products.”
Harrison feels uneasy about this transaction. His guests may not know it yet but he too has strong doubts about GM products. He and his wife have science degrees, and their son has a PhD in microbiology.
At the dinner table that night Harrison tells his wife, Sandy, about the offer from Gene-E.
Sandy says: “There are too many unknowns as far as I’m concerned. You can’t easily predict the allergenic potential of GM foods. The consumer has to be sensitised by initial exposure to the allergen. Remember the genetically altered soybeans that contained a gene from a Brazil nut? They caused allergic reactions in consumers allergic to Brazil nuts. So much for ‘substantial equivalence’.”
The idea of “substantial equivalence” is an indicator of food safety. It became established through the UN Food and Agriculture Organisation and the World Health Organisation in 1990. The reasoning is that if GM foods are substantially equivalent to non-GM foods then they are considered safe and no testing is required. Opponents of GM foods argue that genetically modified genes cannot be substantially equivalent to the parent line because new genes are introduced.
Harrison says: “We have supported these products but we can’t ignore consumer concerns, particularly now that plants are being modified to produce medicines. There have already been instances of contamination between GM and non-GM produce. We don’t want to risk situations where food containing antibodies or vaccines or hormones gets mixed up with non-GM food.”
Their son Matthew says: “Remember that potato developed in 1999 by Dr Arpad Pusztai. Among other things it impaired immunological responsiveness in rats. You wouldn’t want that on your shelves.”
Harrison: “Yes. And if we look into the future of our business we also need to consider that conventional liability insurance models probably won’t cope with the risks of genetically engineered organisms.”
Sandy: “Organic farmers could lose certification if their crops are contaminated. How will we ensure the quality of what we are eating?”
Matthew: “Even if you could prove that the risks are manageable, and could track the produce from crop to consumption, is it worth the monumental hassle? If everything in the world is subject to continuous change, then any scientific proof is also subject to change.”
Harrison: “Few things in life are hassle-free Matt. And on what should we base our decision? Should we just go with our our intuition?” The conversation falls unresolved into a comfortable silence.
In the last of his three meetings with Gene-E and BioGood, Harrison produces a surprise of his own. “Our policy has always been to stock whatever products our customers wanted to buy. Nevertheless, we are about to review that policy.”
Hager says: “May I ask why? And what do you see as your company’s future?”
Harrison: “What differentiates Australia from other cultures is what we represent. This applies equally to our company. In any case, our core expertise is not in biotech, so we decline your offer to explore that avenue.
“I appreciate your presentations and proofs. They will be helpful to you when it comes to marketing your great-looking products. At the same time, I’ve got enough experience to know that the real tests happen not in the laboratory but in the unfolding and unexpected events of life.”
Miller, Henry, “Food-Label Follies”, Forbes , December 27,1999 , Vol 164, issue 15, p36.
Pockley, Peter, “The Gene Game”, Australasian Science , October 1999, Vol. 20, Issue 9, p24.
“Corporate Piracy of Our Food Supply”, Habitat Australia , December 2000, Vol 28, Issue 6, p16.
Life Sciences: Systems Biology, annual report by Burrill & Company, 2002.
1. Should Gene-E have raised the issue of establishing an Australian biotech company? Should EarthFresh have explored the idea?
2. Harrison seems to be thinking of rejecting GM products. How might EarthFresh profit by taking an opposing stand?
3. Should a food product be withdrawn from sale when it looks great but has little of the expected nutritional value? Should it be reclassified as a “something else”?
4. Does intuition have a place in today’s hi-tech business management arena?
Proposed Solution #1
R. J. (Bob) O’Brien, AFAIM, is managing director of Percat Water, which deals in water licences. His doctoral model, The Performance Key, has been used by government organisations to measure performance.
Ideas should be explored even if they are “outside the square”. Gene-E has moved away from Europe due to GM issues and is looking at opportunities in Australia. EarthFresh has European backers who may have concerns about links with Gene-E. EarthFresh would be suitable for distributing new products. Gene-E is a product developer using patented GM technology but does not seem to be a food producer. There is no supplier of GM produce that would provide expertise in the area of production.
Surprise announcements from Hager at meetings with EarthFresh may be a useful tactic when negotiating. It would test the flexibility and true direction of EarthFresh.
Gene-E and BioGood are hoping that links with EarthFresh will lead to winning support from farmers, bureaucrats and scientists in Australia. This approach is loose and indirect. I would like to see more specific goals.
The loose approach also seems to apply to Gene-E’s relationship with BioGood. Gene-E is moving away from the relationship, which does not seem to have borne fruit – raising concerns about others that may not be productive. A partnership means talking about roles and responsibilities. “One who is dependent on another must accept and accommodate the other party’s demands and idiosyncrasies. Interdependent relationships are characterised by interlocking goals – the parties need each other in order to accomplish their goals.” (Lewicki, et al, 2001, p6).
Ego can play an important part in any negotiation. Continuing the family involvement in the overall business of EarthFresh comes into Harrison’s thinking. He is thinking that his son, Matthew, could be involved in any Gene-E company in Australia. However, his son is not thinking positively about GM products. This could be destructive or beneficial. A positive attitude may mean a “softer” assessment of the potential business; a cynical attitude may bring about a closer examination of costs and benefits.
Harrison’s son thinks properly about risk but wonders whether it would be worth the “monumental hassle”. All businesses are hassles, and one questions Matthew’s commitment to new business. The personal and organisational goals of Hager and the Harrison family are not interlocking at this stage.
The promotion of “green” or GMfree produce may provide a competitive advantage for a new supermarket chain that is looking for a point of difference. EarthFresh sees the benefits of GM produce that has been modified to last longer on the shelves. “Green” marketing is a real option, especially when there is resistance to GM products.
EarthFresh has an opportunity to access markets in the European Union, Japan and China if it does not distribute GM products. Otherwise, additional labelling for the products would be required.
The operations manager of EarthFresh says GM products may harm the brand. This should be supported by evidence. Generalised comments on the expense of labelling and monitoring of GM products are not helpful when making big decisions. The decision whether to accept GM products on the shelves has consequences that will affect the business for many years.
Arguments about the nutritional value of food seem to go in cycles; some are based on individual values and tastes and therefore there is no right or wrong answer. Should chocolate be withdrawn from sale because it has little known nutritional value? Food should be withdrawn from sale only if it is proved to be unsafe to eat or is portrayed as being something it is not.
Intuition is becoming an accepted and recognised management skill, especially in entrepreneurial businesses. However, it should be in the decision maker’s area of expertise. A new idea should not be ignored but in these cases more research is needed to understand the new business and its risks. Then, links with an appropriate partner are even more important.
Lewicki, R.J., D.M. Saunders and J.W. Minton,Essentials of Negotiation (2nd ed), McGraw-Hill Irwin, Sydney 2001.
Proposed Solution #2
Bob Molloy is a lecturer in the International Graduate School of Management at the University of South Australia. He is managing director of Molloy Corporate Development Services, which specialises in executive development and corporate coaching.
The EarthFresh management team has some homework to do. Harrison must seek counsel from his executive team and the board before making a decision on the joint venture and becoming a distributor for BioGood products.
There are two proposals: acting as a distributor for BioGood products, and joining an alliance with Gene-E to produce GM foods under licence in Australia.
Harrison should mainly concern himself with risk – loss of money and reputation due to low customer acceptance, adverse medical reactions to products, intervention by legislators, competitor appeals to public sentiment, and the negative press that can arise. In such cases the EarthFresh market position will slide, insurance costs may rise, and shareholder confidence will be eroded.
The relationship between Gene-E and BioGood is problematic. The reason for product recalls, and the companies’ ability to separate other products from offending items, would bear on any decision. Also of concern is the Gene-E attitude that giving an Australian face to GM materials developed overseas would positively affect public and government acceptance.
Laws are constantly in flux in the biotechnology area. Harrison must ensure that EarthFresh scans the legislative environment in order to protect client welfare.
The discussion on labelling laws seems irrelevant: manufacturers and retailers already must ensure that labelling meets regulations for safety, content, expiry and medical information.
With a name like EarthFresh, and the fact that the company is mainly European financed, Harrison must think before making any move that would be seen as a shift from the company’s implicit or espoused values. He should also examine the values, vision and mission of Gene-E. Are there points of compatibility or incompatibility that would make an alliance acceptable or otherwise?
Shareholders will be interested in the bottom line, as will suppliers, which may be squeezed out of a relationship by an alliance, or may find it counter to their values and business ethos. Customers, consumer groups and the general community may react negatively to an alliance in terms of the “social obligations” of EarthFresh. Legislators, consumer advocates and producer lobby groups may have concerns about environmental implications.
The caution for Harrison and his team is whether any adverse stakeholder perceptions of the credibility and integrity of Earth- Fresh will arise. If the company has a “green” reputation, there would be no way in which he could gain an advantage by going against public resistance to GM foods. However, if its reputation is as a ground-breaker and pioneer and its clientele has a significant minority of “early adopters”, there may be an opportunity to woo them to advanced products.
Intuition, coupled with rational decision-making, has a place. Theorists say intuition is the subconscious utilisation of the results of experience that emerge when decision-makers have mastery in their area of expertise and can gain an understanding by observing relationship patterns and other cues that would be missed by less competent people.
Harrison shows some intuitive behavior coupled with rational decision-making in his final response to Hager of Gene-E.