264 (11 May 2016)

Welcome to week 264!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by an Internet title search.

(5 May 2016): “Breeders Stew Over How to Slow Pace of Chicken Growth” [SR](http://www.wsj.com/articles/breeders-stew-over-how-to-slow-pace-of-chicken-growth-1462372038)

——–“The U.S. chicken industry has spent decades figuring out how to grow its birds fast.  Now, some of its customers are looking for producers willing to slow things down. . . . [C]ompanies such as Whole Foods Market Inc. and Starbucks Corp. now are betting their customers are willing to pay more for chicken raised at a more leisurely rate.  Growing demand for meat from animals raised more slowly reflects a broader shift in consumer tastes for food and farm practices regarded as more human and natural.  The debate over how food should be raised has powered a flood of changes by meat companies that for decades have worked to drive down costs and scale-up production.”

********Two things really caught my attention in the article.  First, “Three breeding companies—Aviagen Inc., Cobb-Vantress and Hubbard, a unit of France’s Groupe Grimaud La Corbière—provide genetics for most of the world’s chicken supply.”  Second, “Whole Foods expects its transition to selling slower-growing breeds exclusively in its fresh poultry aisle will take roughly eight years.”  Regardless of how eagerly Whole Foods wants to change, it takes significant time for the composition of the chicken population to change.  This is a nice example of the role of the invisible handshake—social and historical forces—in human behavior.  I.e., changes in consumer preferences lead—can lead—to significant changes throughout to supply chain.

(5 May 2016): “Nestlé Wants to Sell You Both Sugary Snacks and Diabetes Pills” (http://www.bloomberg.com/news/features/2016-05-05/nestl-s-sugar-empire-is-on-a-health-kick)

——–“Nestlé is by far the largest food company in the world. . . . [Its] impact on the history of how we eat is almost impossible to overstate.  Sweets as we know them wouldn’t exist with Henri Nestlé, the company’s founder, who in the late 19th supplied condensed milk chocolate, made by a neighbor in Vevey, Switzerland.”  For more than 150 years, “sugar has been sweet.  It isn’t anymore.  Sugar is joining tobacco and alcohol in the club of products in which governments have taken an interest.”  This is of concern to Nestlé as its confectionery sales “have fallen every year since 2012, matching declines of competitors.  After assaults on sodium and saturated fats, some industry figures are wondering openly if Big Food is the next Big Tobacco, with all the destruction of value that would imply.”  Among the approaches being taken by food companies to this situation, Nestlé’s is different: “It wants to invent and sell medicine.  The products Nestlé wants to create would be based on ingredients derived from food and delivered as an appealing snack, not a pill, drawing on the company’s expertise in the dark arts of engineering food for looks, taste, and texture.  Some would require a prescription, some would be over-the-counter, and some are already on store shelves today.”

********The intersection of food and pharmaceuticals that seems to categorize where Nestlé is headed is referred to as nutraceuticals.  Regarding the strategy of Nestlé, it is said that “The company would expand from the vending machine and supermarket to the pharmacy, doctor’s office, and hospital.  At the same time, it would keep its core food and sweets businesses.  In other words, Nestlé would sell a problem with one hand and a remedy with the other.”  Regulatory agencies, it seems, figure prominently in the decisions being made by Nestlé and other food manufacturers.

********This week Fortune, too, had an interesting and related article: “Nestlé’s Half-Billion-Dollar Noodle Debacle in India” (http://fortune.com/nestle-maggi-noodle-crisis/).  It is the story of how the company struggled to manage a regulatory challenge against its once-dominant brand of Maggi instant noodles in India.  As a result, Maggi’s market share fell from 63% to 23% in the course of one year.  It is “a cautionary tale about a towering multinational utterly losing its way in one of the world’s most sought-after markets—India—which, as it happens, has chewed up and spit out a number of mighty names in the past.”  Three of those names are Coca-Cola, Walmart, and Facebook.  Interestingly, though, Nestlé has done business in India for more than a century, beginning business there in 1912.

********Nestlé has had bad press in the past, especially with its sales of infant formula in Africa.  Perhaps because of this, it has developed an approach that is referred to as Creating Shared Value (CSV), which lays out 39 commitments it aims to meet by 2020.  In document form it is more than 300 pages long.  You can learn more about CSV and download the document at: http://www.nestle.com/csv.

(5 May 2016): “’You Want A Description Of Hell?’  OxyContin’s 12-Hour Problem” (http://static.latimes.com/oxycontin-part1/#nt=oft07a-2gp1)

——–“The drugmaker Purdue Pharma launched OxyContin two decades ago with a bold marketing claim: One dose relieves pain for 12 hours, more than twice as long as generic medications. . . . On the strength of that promise, OxyContin became America’s bestselling painkiller, and Purdue reaped $31 billion in revenue.  But OxyContin’s stunning success masked a fundamental problem: The drug wears off hours early in many people . . . and when it doesn’t last, patients can experience excruciating symptoms of withdrawal, including an intense craving for the drug.  The problem offers new insight into why so many people have become addicted to OxyContin, one of the most abused pharmaceuticals in U.S. history.”

********This article appears to be a follow up, of sorts, on an earlier four-part series in The Los Angeles Times on “Dying for Relief” (http://graphics.latimes.com/prescription-drugs-part-one/); all four articles can be reached through the link.  The “Hell” article is very informative and troubling, providing a glimpse of how the approval process of the Food and Drug Administration can be used as an integral part of marketing strategy for a firm.  In this case, Purdue Pharmaceutical conducted clinical trials on the basis of a 12-hour time period, rather than an 8-hour period, in order to shore up the competitive advantage of the longer period.  But, when patient experience indicated that 12 hours was too long for many, Purdue was able to continue to assert that OxyContin was approved by the FDA for 12-hour doses.  The truth, to be sure, but the truth because the drug was only studied for that time period.  Rather than administering the drug more frequently during the day, doctors prescribing the OxyContin were advised to increase the dosage.  According to numerous research studies, “Those on higher doses of opioids are more likely to overdose . . . An analysis of the medical records of more than 32,000 patients on OxyContin and other painkillers in Ontario, Canada, found that one is 32 patients on high doses fatally overdosed.”

********I am currently reading, albeit slowly, Dreamland: The True Tale of America’s Opiate Epidemic (http://www.amazon.com/Dreamland-True-Americas-Opiate-Epidemic/dp/1620402521/).  It connects nicely—not the best word—with the current article.  Both OxyContin and black-tar heroin (Dreamland) show the power of marketing addictive drugs, legal and otherwise.

(6 May 2016): “Cartoonist Fired From Farm News for Pro-Farmer Cartoon” (http://www.nytimes.com/2016/05/06/business/media/cartoonist-fired-from-farm-news.html)

——–Cartoonist Rick Friday was recently fired as the editorial cartoonist for Farm News, a position he held for 21 years.  The cartoon that got him fired showed two farmers standing at a fence, talking.  One farmer said, “I wish there was more profit in farming,” to which the other responded, “There is . . . In year 2015 the C.E.O.s of Monsanto, DuPont Pioneer and John Deer combined made more money than 2,129 Iowa farmers.”  Friday lost his job “because a seed company had withdrawn its advertising in protest.”

********The article includes the Facebook posting made by Mr. Friday announcing that he had been fired.  In it, he indicated that his situation “will shine light on how fragile our rights to free speech and free press really are in the country.”  Since he published 1090 cartoons over the years, I hope we get to see some others.

(6 May 2016): “Marauding American Lobsters Find Themselves in Hot Water” (http://www.wsj.com/articles/marauding-american-lobsters-find-themselves-in-hot-water-1462457114)

——–[This is the A-Hed, quirky, article.]  “The male American lobster is clawing his way toward hegemony. . . . This means war—or at least a trans-Atlantic trade war.  Claw size is at the center of a push by Sweden to ban imports of live Homarus americanus to all European Union countries.  The effort began with the release of an 89-page report in December by the, featuring a full-color, half-page photo an American lobster and 13 instances of the words ‘invasive alien species.’”

********The Swedish report “Risk assessment of American lobster (Homarus americanus) is available at: https://www.havochvatten.se/download/18.1f4499311538d55bb494594b/1461928519265/risk-assesment-american-lobster.pdf.  Senator Angus King of Maine suggests “You have to wonder if this isn’t protectionism wrapped up in a cloak of science.”  Swedish officials say it isn’t, noting that “The government report cites an eerie parallel to the country’s endangered, indigenous Noble crayfish population, nearly wiped out since the 1960s by a plague that arrived with North American crayfish.”

(6 May 2016): “Inside the Gigafactory That Will Decide Tesla’s Fate” (http://www.bloomberg.com/features/2016-inside-tesla-gigafactory/)

********Despite the title of the article, this is more outside than inside.  Nonetheless, it provides some additional information about the factory that is of general interest.  Evidently it is being built in sections and is now 14 percent complete.  Currently the factory is producing “Powerwall batteries for the home and the larger Powerpack for commercial users.”  Car batteries will be produced there, too.

(7 May 2016): “Crony capitalism: Dealing with murky moguls” (http://www.economist.com/news/leaders/21698261-how-disentangle-business-government-dealing-murky-moguls)

——–[This is one of this week’s leaders in The Economist.]  “The past 20 years have been a golden age for crony capitalists—tycoons active in industries where chumminess with government is part of the game. . . . Now cronies are on the back foot.  Their combined fortunes have dropped by 16% since 2016, according to our updated crony-capitalism index . . . One reason is the commodity crash.  Another is a backlash from the middle class. . . . Elsewhere, pressure is coming from the top down. . . . Crony capitalism—or ‘rent-seeking’, as economists call it—shades from string-pulling to bribery.  Much of it is legal, but all of it is unfair.  It undermines trust in the state, misallocates resources and stops countries and true entrepreneurs from getting rich.  So the dip in crony activity is welcome.  To stop it roaring back, governments need to seize the moment.”

********The leader goes on to describe four “quickest fixes” for dealing with cronyism, which are clearly laid out.  Two articles are connected to the leader.  First, the lengthier discussion of the crony-capitalism index: http://www.economist.com/news/international/21698239-across-world-politically-connected-tycoons-are-feeling-squeeze-party-winds.  It describes the idea behind the crony index, noting that behind it lies “the idea that some industries are prone to ‘rent seeking’.  This is the term economists use when the owners of an input of production—land, labour, machines, capital—extract more profit than they would get in a competitive market.  Cartels, monopolies and lobbying are common ways to extract rents.  Industries that are vulnerable often involve a lot of interaction with the state, or are licensed by it.”  Second, there is the list of rent-seeking sectors included in the index: http://www.economist.com/blogs/graphicdetail/2016/05/daily-chart-2.  Of the 22 countries examined, Russia was the most crony ridden, while Germany was the least; the U.S. was at 16, two places closer to Germany than Britain.  You can learn more about the Index, with references, at: https://en.wikipedia.org/wiki/Crony-capitalism_index.

(9 May 2016): “The Rise Of Teachers’ Unions” (http://daily.jstor.org/the-rise-of-teachers-unions/)

——–Recent strikes in Detroit and Chicago show that “teachers and other public-sector employees are often the most visible representatives of the modern labor movement.  But public employees are relative newcomers to U.S. unions. . . . The sudden advent of public-sector unionism was partly a product of legal changes.  In 1962, President John F. Kennedy issued an executive order allowing federal workers to unionize, and some states and cities followed suit.  But, in many cases, it was only militant—and illegal—action by teachers and other public-sector workers that forced politicians to change laws.”

********As the article indicates, the rise “of public-sector unions was closely tied to other social movements,” including the Civil Rights and feminist movements.  At the time of his death, Martin Luther King, Jr. was in Memphis “to support a strike by public-sector sanitation workers” and “Unionization was an obvious rote toward the goal of equal pay for women’s work, and public-sector unions were—and still are—more likely to be led by women than their private-sector counterparts.”

(9 May 2016): “Starting a career?  Don’t live here” (http://www.newsobserver.com/news/business/article76495467.html)

——–“Is it easier or harder to start a career in your city compared to the rest of the country? . . . A study by WalletHub, a personal finance research site, looked at 150 cities in the United States using 17 measures, including number of entry-level jobs, median starting salary and housing affordability. . . . Of the top 10 worst cities to start a career in, California had four of them, while Texas had four of the top 10 best cities.”

********Here is the link to the results for the WalletHub study: https://wallethub.com/edu/best-worst-cities-to-start-a-career/3626/.  Asheville, North Carolina was not one of the cities studied.  However, state cities that were studied, in order of best to start, are: Raleigh (6), Charlotte (22), Durham (42), Greensboro (83), Winston-Salem (87), and Fayetteville (99).  In the specialized category Highest Starting Salaries (adjusted for cost of living), Durham came in at (2), behind Houston, Texas (1).  This is the second time in, I believe, three weeks that WalletHub has been mentioned in the news, the previous time connected to payday loan information.  This might be something to keep an eye on.

(11 May 2016): “Flower Fight: the Scandalous $45 Million Little Petunia Case” (http://www.bloomberg.com/news/articles/2016-05-11/flower-fight-the-scandalous-45-million-little-petunia-case)

——–“Forget for a minute that the flower industry sells beauty and fragrance.  Underneath its elegance is a business as cutthroat as Game of Thrones with mulch.  Take the case of the Candy Bouquet, a pretty, magenta-and-yellow flower that resembles a petunia.  It was developed by a German grower, Westhoff Vertriebsgesellschaft MBH, that says it was on the verge of selling the variety to Home Depot Inc. when a rival swooped in, copied the plant and spread lies about Westhoff in order to win the business of the world’s largest home-improvement chain.”  Legal disputes over the intellectual property embedded in plants is likely to grow, as there were “1,049 plant patents issued in 2015.”  Still the number of suits has been small: “There were nine lawsuits involving plant patents since 2009. . . . Most companies . . . resolve their differences without the courts,” according to Westhoff lawyer Russ Orkin.

********As the article notes, “Flowers and other plants that appear in nature can’t be patented.  Instead, companies develop new varieties through grafting or budding and obtain patents on them under the 1930 Plant Patent Act for plants that produce asexually, without seeds.”  You can learn more about the Act at: https://en.wikipedia.org/wiki/Plant_Patent_Act_of_1930.

********While exploring this article, the expression “red herring” occurred to me.  During an election year, perhaps, it is well to keep in mind that “A red herring is something that misleads or distracts from a relevant or important issue.”  The definition is taken from its Wikipedia entry, which is really quite interesting.  Here is the link: https://en.wikipedia.org/wiki/Red_herring.

May you have a good week!

Bruce

 

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