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UNITED 2000

PHOENIX -- Government agencies compiling data on retail trade practices renewed their call for input from retailers and grower/shippers during the annual convention here of the United Fresh Fruit and Vegetable Association.Mark Denbaly, project leader for the fact-finding project launched last year by the Economic Research Service of the U.S. Department of Agriculture, Washington, said that the first

PHOENIX -- Government agencies compiling data on retail trade practices renewed their call for input from retailers and grower/shippers during the annual convention here of the United Fresh Fruit and Vegetable Association.

Mark Denbaly, project leader for the fact-finding project launched last year by the Economic Research Service of the U.S. Department of Agriculture, Washington, said that the first of three reports detailing the effects of industry consolidation on trade practices has just been completed and is undergoing a review.

"What we want to do is find out how these trade practices are changing, and what sort of an impact they're going to have on the industry, producers and consumers," he said.

Among the biggest hurdles his study and others face is getting a hold of proprietary data from grower/shippers and from retailers, he noted. He and the other speakers on the panel reiterated a strict policy adhering to confidentiality clauses that would even stand up in court.

"It's our promise to you that we will not identify any firm that comes forward and gives us data," he said. "We have gone through great lengths to make sure that that kind of data remains confidential with us."

As the information-gathering arm of the USDA, the ERS' goal with the first report has been to determine how the industry has evolved to date and who the "major players" are, as well as the economic forces behind the changes. For this, it was able to use statistics already widely available in the public domain.

Discussing the numbers for the first time in public, Denbaly said that consumers increased their spending on produce by about 8% a year between 1987 and 1997, the two benchmarks used in this first-phase study. In 1987, they spent $34.6 billion on fruits and vegetables, while 10 years later, that figure had increased to $75.7 billion.

Most of the spending was done at retail supermarkets -- $22 billion in 1987 and $39.2 billion in 1997. That compares to $12 billion and $35 billion in food-service establishments and $0.6 billion and $1.1 billion at direct-market venues, such as farmers markets, Denbaly said.

Among wholesalers, broadline grocery suppliers increased their sales to supermarkets by roughly 5% a year, from $16.2 billion in 1987, to $27.4 billion a decade later. The growth vastly outpaced that found in specialized produce wholesalers ($4.4 billion to $7.4 billion) and broadline food-service wholesalers ($6.9 billion to $11.6 billion).

Grower/shippers increased their sales from $11.2 billion in 1987 to $17.8 billion in 1997. They sold through both wholesale and retail channels, as well as export, according to Denbaly's findings.

The second-phase report, also being compiled, attempts to identify and characterize the types of fees and services included in produce transactions. In essence, the study will try to determine "what these fees buy, what is being offered at the other end," Denbaly said.

All of these figures will be part of the main study, which is progressing simultaneously. Here, ERS is examining seven produce items, including tomatoes, lettuce, bag salads, carrots and fresh-cut carrots.

"If we find evidence of market power, the study cannot determine that trade practices are solely the reason," Denbaly acknowledged.

Another speaker, Paul Conlon, a liaison with the Senate Committee on Small Business, recounted last year's hearings on trade practices, including the dramatic testimony of two manufacturers who related their experiences with slotting fees wearing hoods and using voice scramblers to protect their identities.

"Those witnesses testified that retail concentration, up-front slotting allowances, pay-to-stay, exclusive contracts and other questionable fees and allowances were slowly strangling their businesses," he said.

As a result of the hearing, the committee requested that the General Accounting Office and the Federal Trade Commission to investigate the practices and their legality.

"What really depends on what happens next is who comes to talk to us," he said. "We want people to tell us what's happening. Give us your knowledge, your experiences. We can't operate in a vacuum."

Representing the FTC, David Balto, assistant director of the agency's Bureau of Competition, Policy and Evaluation, said that officials are "beginning to see examples of anti-competitive conduct by buyers to drive rivals from the market or harm producers."

Among the FTC's concerns are that allowances can be abused, and used to raise the capital costs of entry for small manufacturers and producers, or to exclude them from the marketplace.

After the Senate hearing last September, the FTC launched a two-part investigation, speaking with more than 30 manufacturers and "numerous" retailers. It has also picked certain products to study, where manufacturers are called and interviewed. Produce items were not on the initial list of reviewed items, though could be in the future, Balto said.

Among the questions posed to retailers are whether fees and allowances result in more efficient practices for them and how; and whether they result in lower consumer prices.

One interesting question investigators at FTC are also posing is what would happen if allowances were banned outright, said Balto.

"Where would this money go? Would it go to more efficient practices? Would it result in higher prices for consumers? Or would the money just go somewhere else and have the same foreclosure effect?" he asked.

The FTC isn't sitting by the phone waiting for people to call, however. Balto cited recent cases that indicate a new, harder line by the agency in addressing trade practices. He mentioned the still-unresolved case involving Toys 'R' Us, Paramus, N.J., which was charged with using its market power to prevent manufacturers of popular items from selling to club stores. The FTC won the initial round, though the case is being appealed.

"It spurred new thinking about how buyer power can be anti-competitive," Balto said.

As a result, the FTC began taking a stronger stance and has taken 14 enforcement actions against supermarkets over the past four years -- most notably, forcing Albertson's Inc., Boise, Idaho to divest 144 stores three states in the retailer's plan to acquire Salt Lake City-based American Stores.

Similarly, it blocked the proposed merger between Ahold, headquartered in the Netherlands, and Pathmark Stores, Woodbridge, N.J.

"This posed competitive problems that appeared to be unfixable," Balto said.

As the list of actions grew, officials at the FTC directed staffers to begin asking different questions, according to Balto.

"And when we look at supermarket mergers, we're increasingly asking, 'Will they be able to use buyer power in an illegal fashion to harm producers?"'

In a specific mention of slotting fees, he cited the existence of the so-called Fred Meyer Guides, created by court order in 1969 and last revised in 1989. These parameters dealing with the subject of promotional allowances sanction the use of slotting fees for new products, but the rest of the practices remains a very gray area, he noted.

Ironically, the guide is up for review again next year. Balto said the occasion might be used to undertake a more significant debate on all fees.

Until then, "the preventive medicine is an active and aggressive merger enforcement program," Balto added.