ATLANTA — It's beginning to look as though 2009 will be a very difficult year for most people in the U.S. Fortunately, food retailing is a very resilient industry, but with unemployment on the rise and many consumers looking to save money wherever they can, shopping habits will likely change in unexpected ways.
In an interview arranged by the Produce Marketing Association, Newark, Del., Jeff Rosensweig, associate professor of finance and director of the Global Perspectives Program at Emory University, shared some thoughts on how the recession will affect consumers and impact the produce industry.
Rosensweig will present his up-to-the-minute analysis of key issues affecting produce growers and retailers, such as rising input costs and changing economic policy, on Friday, March 20, at PMA's Produce Solutions Conference in Nashville, Tenn.
SN: There's a range of forecasts right now regarding when the U.S. economy will stabilize and start growing again. What is your opinion?
JEFF ROSENSWEIG: I think that we'll start seeing some relief, and the economy will start growing again, in the fourth quarter of 2009. I think that in 2010, the economy will be growing, albeit very slowly. It won't be until 2011 that we start to return to normal growth rates. However, there are people who have been quite pessimistic, and so far they've been proven correct.
And, I am worrying that I'm becoming, like so many economists, a “nine-month guy.” For quite a while now, economists have been saying “in nine months the economy is going to turn up.” It's a little bit like [Fidel] Castro. For 20 years now, people have been saying that he only has six months to live, and at least once, they will be right.
But, I've worked at the Federal Reserve, and I know what they're up to. I think they have their eye on the ball. You combine that with some of the programs that President Obama will be able to craft with Congress — combine that with very aggressive action at the Federal Reserve to get credit flowing. I do think that the people who were very pessimistic were first right, but, having tasted some success, they risk overdoing it by riding that horse too long.
SN: Do you have an opinion on what will happen to consumer eating habits during this recession? What kind of trade-offs will people make to save money?
JR: There's a portion of the population that will lose their jobs and become so cash-constrained that they'll have to trade away from fresh foods and fresh produce. But even in the worst-case scenario, about 90% of the labor force will still have their jobs. And, every day, the country is becoming more health-conscious. So, I still see a good future for produce.
On the other hand, I wouldn't want to be running a higher-priced restaurant right now, compared to a lower-priced eatery. People still like to go out once in a while, but they are looking for ways to keep [spending] within their newly tightened budgets.
And, it's fascinating to consider whether companies like McDonald's will see increased sales or decreased sales in this environment. Most people would say their sales will increase, because instead of going out to a more expensive restaurant, people will go to McDonald's. But, on the other hand, I recently spoke to a member of the board of McDonald's and said how well they had been doing, and he noted that if things get really bad, even McDonald's costs a lot for a family of four. You can go to the supermarket and get macaroni and cheese or the ingredients for spaghetti, and that still ends up a lot cheaper for a family than several orders of drinks, fries and Big Macs.
So, it's interesting to consider whether companies like that will gain from people trading down from more expensive places, or whether they'll ultimately lose if things get bad.
SN: On a related note, convenience has been a topic that we've been writing about for the past several years. For example, two-income families with kids were so busy that they needed the convenience of prepared foods departments, or they were willing to pay more for bagged salads or fresh-cut fruit to cut down on preparation time. How do you think that those types of items will fare going forward in this economy?
JR: You see two countering forces here. One, some people are going to have to moonlight to make ends meet — working 12- to 16-hour days. They're going to continue to look for prepared and prepackaged items. On the other hand, sad as it is, there's going to be a lot of people who aren't working, or who are working involuntary part-time. It's something that's growing very fast in the U.S. — people who want a full-time job but can only find part-time work.
So there's going to be a lot of people with time on their hands and not as much money. And they're going to consider ways to save by buying ingredients and cooking because they have time. So instead of everyone working eight-hour days, some people are going to be working 12- to 16-hour days, and others will want to be working eight, but will be working zero to four.
SN: During difficult economic times, people tend to become more protectionist. What do you think will happen during the next couple of years in terms of trade and also in terms of issues like immigration laws?
JR: There's been rhetoric, but there's been no real moves to send back essential workers. Due to the collapse in the housing industry, many construction workers have gone back to Mexico, but that's because there's no work for them. But to the extent that there is a big demand for agricultural workers, they may be going home, but I don't think they'll be pushed home.
One thing that impresses me about President Obama is that he's very pragmatic. He'll be hearing from various elements — ranging from people who want to block off the borders, to people who argue that it's labor we need here.
And, despite the fact that some people who helped elect him might say, “We're in a union, let's cut back on trade with other countries,” I think he is wise enough to know that if we try to block their sales to us, then they're going to retaliate and block our sales to them. And we're the world's best agricultural producer.
I know some of [Obama's] top economic advisors, and they've studied the Great Depression, and probably the single most damaging thing that [led to the Depression] was the Smoot-Hawley Tariff Act. This is well known by the Obama team. There may have been talk of protectionism — both against goods and people — during the election, but I think we have to realize that in order to keep the economy growing, we've got to let in the workers that we need, and we've got to let in manufactured goods so that we can export our products as well.
SN: Based on their efforts so far, are you generally optimistic about the Obama administration?
JR: I think there's a great awareness that getting the economy going is job one. And, there seems to be an awareness that in order to get the economy going, they need private businesses to create jobs and keep the economy healthy. I say that, also glad that they realize that in order to jump-start this economy, the government needs to hire people to go out and improve our infrastructure. But, I've been impressed that they seem to understand that they need to give incentives to private businesses, or you're going to end up with an economy that's going nowhere.
SN: What is the biggest challenge that businesses in the produce industry will face in the coming year?
JR: I think credit will continue to be tight. The Federal Reserve is doing everything they can — they're wide awake on this — but still, better-capitalized firms within the industry are going to be in much better shape. If you don't have a good credit rating, try to figure out how to clean it up, because it has become very important. That does have me worried.
I think the industry as a whole has to let their voice be heard, because amid this huge increase in government spending, we still have to make sure that credit is flowing to these sectors of the economy that are the strength of the U.S.