OCTOBER 16, 2006
COVER STORY
The Organic Myth
Pastoral ideals are getting trampled as organic food goes mass market
By Diane Brady
podcast
COVER STORY PODCAST
http://www.businessweek.com/magazine/content/06_42/b4005001.htm
Next time you're in the supermarket, stop and take a look at Stonyfield Farm yogurt. With its contented cow and green fields, the yellow container evokes a bucolic existence, telegraphing what we've come to expect from organic food: pure, pesticide-free, locally produced ingredients grown on a small family farm.
So it may come as a surprise that Stonyfield's organic farm is long gone. Its main facility is a state-of-the-art industrial plant just off the airport strip in Londonderry, N.H., where it handles milk from other farms. And consider this: Sometime soon a portion of the milk used to make that organic yogurt may be taken from a chemical-free cow in New Zealand, powdered, and then shipped to the U.S. True, Stonyfield still cleaves to its organic heritage. For Chairman and CEO Gary Hirshberg, though, shipping milk powder 9,000 miles across the planet is the price you pay to conquer the supermarket dairy aisle. "It would be great to get all of our food within a 10-mile radius of our house," he says. "But once you're in organic, you have to source globally."
Hirshberg's dilemma is that of the entire organic food business. Just as mainstream consumers are growing hungry for untainted food that also nourishes their social conscience, it is getting harder and harder to find organic ingredients. There simply aren't enough organic cows in the U.S., never mind the organic grain to feed them, to go around. Nor are there sufficient organic strawberries, sugar, or apple pulp -- some of the other ingredients that go into the world's best-selling organic yogurt.
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Now companies from Wal-Mart (WMT ) to General Mills (GIS ) to Kellogg (K ) are wading into the organic game, attracted by fat margins that old-fashioned food purveyors can only dream of. What was once a cottage industry of family farms has become Big Business, with all that that implies, including pressure from Wall Street to scale up and boost profits. Hirshberg himself is under the gun because he has sold an 85% stake in Stonyfield to the French food giant Groupe Danone. To retain management control, he has to keep Stonyfield growing at double-digit rates. Yet faced with a supply crunch, he has drastically cut the percentage of organic products in his line. He also has scaled back annual sales growth, from almost 40% to 20%. "They're all mad at me," he says.
As food companies scramble to find enough organically grown ingredients, they are inevitably forsaking the pastoral ethos that has defined the organic lifestyle. For some companies, it means keeping thousands of organic cows on industrial-scale feedlots. For others, the scarcity of organic ingredients means looking as far afield as China, Sierra Leone, and Brazil -- places where standards may be hard to enforce, workers' wages and living conditions are a worry, and, say critics, increased farmland sometimes comes at a cost to the environment.
Everyone agrees on the basic definition of organic: food grown without the assistance of man-made chemicals. Four years ago, under pressure from critics fretting that the term "organic" was being misused, the U.S. Agriculture Dept. issued rules. To be certified as organic, companies must eschew most pesticides, hormones, antibiotics, synthetic fertilizers, bioengineering, and radiation. But for purists, the philosophy also requires farmers to treat their people and livestock with respect and, ideally, to sell small batches of what they produce locally so as to avoid burning fossil fuels to transport them. The USDA rules don't fully address these concerns.
Hence the organic paradox: The movement's adherents have succeeded beyond their wildest dreams, but success has imperiled their ideals. It simply isn't clear that organic food production can be replicated on a mass scale. For Hirshberg, who set out to "change the way Kraft (KFT ), Monsanto (MON ), and everybody else does business," the movement is shedding its innocence. "Organic is growing up."
Certainly, life has changed since 1983, when Hirshberg teamed up with a back-to-the-land advocate named Samuel Kaymen to sell small batches of full-fat plain organic yogurt. Kaymen had founded Stonyfield Farm to feed his six kids and, as he puts it, "escape the dominant culture." Hirshberg, then 29, had been devoted to the environment for years, stung by memories of technicolor dyes streaming downriver from his father's New Hampshire shoe factories. He wrote a book on how to build water-pumping windmills and, between 1979 and 1983, ran the New Alchemy Institute, an alternative-living research center on Cape Cod. He was a believer.
But producing yogurt amid the rudimentary conditions of the original Stonyfield Farm was a recipe for nightmares, not nirvana. Meg, an organic farmer who married Hirshberg in 1986, remembers the farm as cold and crowded, with a road so perilous that suppliers often refused to come up. "I call it the bad old days," she says. Adds her mother, Doris Cadoux, who propped up the business for years: "Every time Gary would come to me for money, Meg would call to say 'Mama, don't do it."'
Farming without insecticides, fertilizers, and other aids is tough. Laborers often weed the fields by hand. Farmers control pests with everything from sticky flypaper to aphid-munching ladybugs. Manure and soil fertility must be carefully managed. Sick animals may take longer to get well without a quick hit of antibiotics, although they're likely to be healthier in the first place. Moreover, the yield per acre or per animal often goes down, at least initially. Estimates for the decline from switching to organic corn range up to 20%.
Organic farmers say they can ultimately exceed the yields of conventional rivals through smarter soil management. But some believe organic farming, if it is to stay true to its principles, would require vastly more land and resources than is currently being used. Asks Alex Avery, a research director at the Hudson Institute think tank: "How much Bambi habitat do you want to plow down?"
IMPOSSIBLE STANDARD
For a sense of why Big Business and organics often don't mix, it helps to visit Jack and Anne Lazor of Butterworks Farm. The duo have been producing organic yogurt in northeastern Vermont since 1975. Their 45 milking cows are raised from birth and have names like Peaches and Moonlight. All of the food for the cows -- and most of what the Lazors eat, too -- comes from the farm, and Anne keeps their charges healthy with a mix of homeopathic medicines and nutritional supplements. Butterworks produces a tiny 9,000 quarts of yogurt a week, and no one can pressure them to make more. Says Jack: "I'd be happiest to sell everything within 10 miles of here."
But the Lazors also embody an ideal that's almost impossible for other food producers to fulfill. For one thing, they have enough land to let their modest-sized herd graze for food. Many of the country's 9 million-plus dairy cows (of which fewer than 150,000 are organic) are on farms that will never have access to that kind of pasture. After all, a cow can only walk so far when it has to come back to be milked two or three times a day.
STEWARDS OF THE LAND
When consumers shell out premiums of 50% or more to buy organic, they are voting for the Butterworks ethic. They believe humans should be prudent custodians not only of their own health but also of the land and animals that share it. They prefer food produced through fair wages and family farms, not poor workers and agribusiness. They are responding to tales of caged chickens and confined cows that never touch a blade of grass; talk of men losing fertility and girls becoming women at age nine because of extra hormones in food. They read about pesticides seeping into the food supply and genetically modified crops creeping across the landscape.
For Big Food, consumers' love affair with everything organic has seemed like a gift from the gods. Food is generally a commoditized, sluggish business, especially in basic supermarket staples. Sales of organic groceries, on the other hand, have been surging by up to 20% in recent years. Organic milk is so profitable -- with wholesale prices more than double that of conventional milk -- that Lyle "Spud" Edwards of Westfield, Vt., was able to halve his herd, to 25 cows, this summer and still make a living, despite a 15% drop in yields since switching to organic four years ago. "There's a lot more paperwork, but it's worth it," says Edwards, who supplies milk to Stonyfield.
The food industry got a boost four years ago when the USDA issued its organic standards. The "USDA Organic" label now appears on scores of products, from chicken breasts to breakfast cereal. And you know a tipping point is at hand when Wal-Mart Stores Inc. enters the game. The retailer pledged this year to become a center of affordable "organics for everyone" and has started by doubling its organic offerings at 374 stores nationwide. "Everyone wants a piece of the pie," says George L. Siemon, CEO of Organic Valley, the country's largest organic farm co- operative. "Kraft and Wal-Mart are part of the community now, and we have to get used to it."
The corporate giants have turned a fringe food category into a $14 billion business. They have brought wider distribution and marketing dollars. They have imposed better quality controls on a sector once associated with bug-infested, battered produce rotting in crates at hippie co-ops. Organic products now account for 2.5% of all grocery spending (if additive-free "natural" foods are included, the share jumps to about 10%). And demand could soar if prices come down.
But success has brought home the problems of trying to feed the masses in an industry where supplies can be volatile. Everyone from Wal-Mart to Costco Wholesale Corp. (COST ) is feeling the pinch. Earlier this year, Earthbound Farm, a California producer of organic salads, fruit, and vegetables owned by Natural Selection Foods, cut off its sliced-apple product to Costco because supply dried up -- even though Earthbound looked as far afield as New Zealand. "The concept of running out of apples is foreign to these people," says Earthbound co-founder Myra Goodman, whose company recalled bagged spinach in the wake of the recent E. coli outbreak. "When you're sourcing conventional produce, it's a matter of the best product at the best price."
Inconsistency is a hallmark of organic food. Variations in animal diet, local conditions, and preparation make food taste different from batch to batch. But that's anathema to a modern food giant. Heinz, for one, had a lot of trouble locating herbs and spices for its organic ketchup. "We're a global company that has to deliver consistent standards," says Kristen Clark, a group vice-president for marketing. The volatile supply also forced Heinz to put dried or fresh organic herbs in its organic Classico pasta sauce because it wasn't able to find the more convenient quick-frozen variety. Even Wal-Mart, master of the modern food supply chain, is humbled by the realities of going organic. As spokesperson Gail Lavielle says: "You can't negotiate prices in a market like that."
While Americans may love the idea of natural food, they have come to rely on the perks of agribusiness. Since the widespread use of synthetic pesticides began, around the time of World War II, food producers have reaped remarkable gains. Apples stay red and juicy for weeks. The average harvested acre of farmland yields 200% more wheat than it did 70 years ago. Over the past two decades chickens have grown 25% bigger in less time and on less food. At the same time, the average cow produces 60% more milk, thanks to innovations in breeding, nutrition, and synthetic hormones.
It's also worth remembering how inexpensive food is these days. Americans shell out about 10% of their disposable income on food, about half what they spent in the first part of the 20th century. Producing a budget-priced cornucopia of organic food won't be easy.
Exhibit A: Gary Hirshberg's quest for organic milk. Dairy producers estimate that demand for organic milk is at least twice the current available supply. To quench this thirst, the U.S. would have to more than double the number of organic cows -- those that eat only organic food -- to 280,000 over the next five years. That's a challenge, since the number of dairy farms has shrunk to 60,000, from 334,000 in 1980, according to the National Milk Producers Federation. And almost half the milk produced in the U.S. comes from farms with more than 500 cows, something organic advocates rarely support.
What to do? If you're Hirshberg, you weigh the pros and cons of importing organic milk powder from New Zealand. Stonyfield already gets strawberries from China, apple puree from Turkey, blueberries from Canada, and bananas from Ecuador. It's the only way to keep the business growing. Besides, Hirshberg argues, supporting a family farmer in Madagascar or reducing chemical use in Costa Rica is just as important as doing the same at home.
Perhaps, but doing so risks a consumer backlash, especially when the organic food is from China. So far there is little evidence that crops from there are tainted or fraudulently labeled. Any food that bears the USDA Organic label has to be accredited by an independent certifier. But tests are few and far between. Moreover, many consumers don't trust food from a country that continues to manufacture DDT and tolerates fakes in other industries. Similar questions are being asked about much of the developing world. Ronnie Cummins, national director of the nonprofit Organic Consumers Assn., claims organic farms may contribute to the destruction of the Amazon rain forest, although conventional farming remains the proven culprit.
Imported organics are a constant concern for food companies and supermarkets. It's certainly on Steve Pimentel's mind. "Someone is going to do something wrong," says Costco's assistant general merchandise manager. "We want to make sure it's not us." To avoid nasty surprises, Costco makes sure its own certifiers check that standards are met in China for the organic peanuts and produce it imports. Over at Stonyfield, Hirshberg's sister, Nancy, who is vice-president of natural resources, was so worried about buying strawberries in northeastern China that she ordered a social audit to check worker conditions. "If I didn't have to buy from there," she says, "I wouldn't."
For many companies, the preferred option is staying home and adopting the industrial scale of agribusiness. Naturally, giant factory farms make purists recoil. Is an organic label appropriate for eggs produced in sheds housing more than 100,000 hens that rarely see the light of day? Can a chicken that's debeaked or allowed minimal access to the outdoors be deemed organic? Would consumers be willing to pay twice as much for organic milk if they thought the cows producing it spent most of their outdoor lives in confined dirt lots?
ETHICAL CHALLENGES?
Absolutely not, say critics such as Mark Kastel, director of the Organic Integrity Project at the Cornucopia Institute, an advocacy group promoting small family farms. "Organic consumers think they're supporting a different kind of ethic," says Kastel, who last spring released a high-profile report card labeling 11 producers as ethically challenged.
Kastel's report card included Horizon Organic Dairy, the No. 1 organic milk brand in the U.S., and Aurora Organic Dairy, which makes private-label products for the likes of Costco and Safeway Inc. Both dairies deny they are ethically challenged. But the two do operate massive corporate farms. Horizon has 8,000 cows in the Idaho desert. There, the animals consume such feed as corn, barley, hay, and soybeans, as well as some grass from pastureland. The company is currently reconfiguring its facility to allow more grazing opportunities. And none of this breaks USDA rules. The agency simply says animals must have "access to pasture." How much is not spelled out. "It doesn't say [livestock] have to be out there, happy and feeding, 18 hours a day," says Barbara C. Robinson, who oversees the USDA's National Organic Program.
But what gets people like Kastel fuming is the fact that big dairy farms produce tons of pollution in the form of manure and methane, carbon dioxide, and nitrous oxide -- gases blamed for warming the planet. Referring to Horizon's Idaho farm, he adds: "This area is in perpetual drought. You need to pump water constantly to grow pasture. That's not organic."
Aurora and Horizon argue their operations are true to the organic spirit and that big farms help bring organic food to the masses. Joe E. Scalzo, president and CEO of Horizon's owner, WhiteWave, which is owned by Dean Foods Co., says: "You need the 12-cow farms in Vermont -- and the 4,000 milking cows in Idaho." Adds Clark Driftmier, a spokesman for Aurora, which manages 8,400 dairy cows on two farms in Colorado and Texas: "We're in a contentious period with organics right now."
At the USDA, Robinson is grappling with the same imponderables. In her mind the controversy is more about scale than animal treatment. "The real issue is a fear of large corporations," she says. Robinson expects the USDA to tighten pasture rules in the coming months in hopes of moving closer to the spirit of the organic philosophy. "As programs go," she says, "this is just a toddler. New issues keep coming up."
Few people seem more hemmed in by the contradictions than Gary Hirshberg. Perhaps more than anyone, he has acted as the industry's philosopher king, lobbying governments, proselytizing consumers, helping farmers switch to organic, and giving 10% of profits to environmental causes. Yet he sold most of Stonyfield Farm to a $17 billion French corporation.
He did so partly to let his original investors cash out, partly to bring organic food to the masses. But inevitably, as Stonyfield has morphed from local outfit to national brand, some of the original tenets have fallen by the wayside. Once Danone bought a stake, Stonyfield founder Samuel Kaymen moved on. "I never felt comfortable with the scale or dealing with people so far away," he recalls, although he says Hirshberg has so far managed to uphold the company's original principles.
The hard part may be continuing to do so with Danone looking over his shoulder. Hirshberg retains board control but says his "autonomy and independence and employment are contingent on delivering minimum growth and profitability." Danone Chairman and CEO Franck Riboud expresses admiration for the man he considers to be Danone's organic guru, but adds: "Gary respects that I have to answer to shareholders."
The compromises that Hirshberg is willing to make say a lot about where the organic business is headed. "Our kids don't have time for us to sit on our high horses and say we're not going to do this because it's not ecologically perfect," says Hirshberg. "The only way to influence the powerful forces in this industry is to become a powerful force." And he's willing to do that, even if it means playing by a new set of rules.
jeudi 5 avril 2007
lundi 2 avril 2007
THE LAST OF THE INDEPENDENTS
Sunday, March 25, 2007
When Tower Records went under last year, few people were surprised. With online sales and illegal downloads on the rise, neighborhood music retailers of all sizes have felt the squeeze. Take into account added pressure from the big-box stores and rising rents, and many of the Bay Area's independent record shops -- if not already gone -- are endangered. Meet some of the survivors and find out what's keeping them alive.
AMOEBA MUSIC
As one of the biggest independent music retailers in the Bay Area, Amoeba has also seen the biggest market changes.
"Every five years you would typically have a crop of new 14-year-olds that were discovering music and coming into the store," says Joe Goldmark, co-owner of the 25,000-square-foot Haight Street store. "But you don't have that anymore. They don't shop for music in stores. They download."
As a reaction, he says, the two Bay Area stores have simply emphasized their strengths.
"The No. 1 thing we try to do is customer service," he says. "We try to be as user friendly as we can be."
Increasing DVD sales have helped the store get through the CD slump, and there are tentative steps to get into the download business.
"We are just trying to stay ahead of the curve," Goldmark says.
Ultimately, he believes that it's the physical shopping experience that will help Amoeba stick around, and the store is sweetening the deal by offering free in-store concerts, a knowledgeable staff and generous trade-in credit.
"We try to make it a fun destination," he says.
1855 Haight St., San Francisco. (415) 831-1200. 2455 Telegraph Ave., Berkeley. (510) 549-1125. www.amoeba.com.
AQUARIUS RECORDS
Since settling into its current home in the Mission, the oldest independent record store in San Francisco has been catering to discriminating fans of indie rock, unusual sounds and hard-to-find releases.
Allan Horrocks, who became a co-owner in 1995, attributes much of the store's staying power to the exhaustive staff-generated reviews that not only accompany new releases on the shelves but also appear on Aquarius' Web site and get sent out through its biweekly e-mail newsletter.
"Having a record store is a lot like making a mix tape for your friends," he says. "We just happen to have 10,000 of them."
1055 Valencia St., San Francisco. (415) 647-2272. www.aquariusrecords.org.
BIG AL'S RECORD BARN
"Big" Al Farleigh, a former roofer who got into the record business after he fell and broke his back, was forced to shut down his original Santa Clara store after the landlord sold the building.
Eight months later he reopened at his current 6,000-square-foot location in San Jose, where he's been for nine years.
"I do records like nobody," he says. "I got stuff here nobody's got."
Farleigh recently bought 50,000 vintage 45s to add to his stock from a South Bay jukebox company that went under.
"It's something to see," he says. "The store is like a museum. I'm 74, and the guy who works for me is 82. It's a lot of fun."
Farleigh says his formula for success is simple: "People come in here looking for a record, and they don't mind paying a fair price for it."
522 S. Bascom Ave., San Jose. (408) 294-7200.
GROOVE MERCHANT RECORDS
Famously name-checked by the Beastie Boys in the song "Professor Booty" ("This one goes out to my man the Groove Merchant/ Coming through with the beats for which I've been searchin' "), this Lower Haight institution has provided record collectors with hard-to-find jazz, soul, disco, psychedelic rock and Latin American vinyl gems since 1989.
"We're customer oriented," says Chris Veltri, who bought the store from its original owners in 1997. "Everything that's in here is handpicked for certain people in mind."
Despite heavy competition from online auction houses that also deal in vintage goods, Veltri says he has little trouble keeping the regulars coming back.
"You just have to be really focused and always look ahead," he says.
687 Haight St., San Francisco. (415) 252-5766. www.groovemerchantrecords.com.
GROOVES
Giving music fans not so much a record store as a sensory experience, Grooves owner Ray Andersen has decorated his windows with colored vinyl and his walls with all kinds of tantalizing rock, jazz, blues, soundtrack and lounge rarities.
A prominent character on the '60s San Francisco scene as head of the Holy See Light Show, Andersen doesn't seem particularly surprised by his vinyl-only store's continuing success.
"CDs haven't done anybody any good," he says.
It's a philosophy his customers seem to share. Since 1997, Andersen has kept them coming back by regularly slipping gems from his personal collection into the general clutter.
"People like the idea of being able to find something serendipitously," he says.
Much of the store's success, he reckons, has to do with the eclectic population of the Bay Area: "I wouldn't want to do this in Ohio."
1797 Market St., San Francisco. (415) 436-9933. www.groovesrecords.com.
MOD LANG
Mod Lang was recently forced to move from its University Avenue home, a block from the UC Berkeley campus, after rents shot up.
"It's not just record stores," owner Paul Bradshaw says. "The price of running a small business in downtown Berkeley is just not feasible anymore."
The store, which once specialized in import CDs, was also affected by an influx of tech-savvy UC students.
"One person can buy a CD and go back to the dorm and put it up on a server that 400 people can access," he says.
With that insight, Bradshaw realized Mod Lang no longer had to cater to that demographic.
"It was a liberating moment," he says.
Mod Lang relocated to El Cerrito and started carrying more vintage country, soul and jazz vinyl releases. The hardest part has been shaking people's perception that it's still a Britpop specialty store, but the owner believes the customers are slowly coming around.
"We moved 4 miles and it feels like 400," he says. "You have to find your niche and accept that it's a different time."
6328 Fairmount Ave., El Cerrito. (510) 486-1880. www.modlang.com.
RECYCLED RECORDS
One of the only used-record stores in the Upper Haight that managed to survive the bust. For almost 30 years, owner Bruce Lyall has kept the focus the same: " '60s rock -- everything from the Beatles to the Grateful Dead."
There is a small corner for CDs, but Recycled has mostly adapted to the changing times by embracing online auction houses on eBay and expanding its inventory to include paper goods such as collectible books, posters and movie memorabilia.
"You just have to go with it," Lyall says. "You can't fight it."
1377 Haight St., San Francisco. (415) 626-4075. www.recycled-records.com.
ROOKY RICARDO'S RECORDS
"Business has never been better," says Richard Vivian, who opened Rooky Ricardo's on a rough stretch of Haight Street in 1987.
This overstuffed vinyl emporium features mostly soul and oldies 45s, but there are also a few surprises in the mix.
"I make my rent selling girl-group records," Vivian says.
Besides offering the thrill of discovery for young music buffs ("My customers are always in their 20s," he says), the store also sells vintage turntables, offers weekly repair clinics and does occasional business through online retailers such as Global Electronic Music Marketplace.
Despite his devotion to an outdated format, Vivian isn't at odds with new technology.
"A lot of my customers first hear this music on iTunes or Pandora," he says. "But at the end of the day, they need to touch the records, listen to them and thumb through them."
448 Haight St., San Francisco. (415) 864-7526. www.rookyricardosrecords.com.
SOUNDWORKS
Catering primarily to professional DJs, Soundworks has carved out its niche with the Bay Area club set by carrying a judicious supply of vinyl and offering a monthly record pool.
Owners Tom Seymour and Sam Labelle work with, rather than compete with, the like-minded stores in the city.
"Each of us has a little family," Seymour says. "And we help each other out."
Although Soundworks is facing a rent increase, Seymour and Labelle believe they can ride it out, unlike recent lease casualties such as BPM and Open Mind Music. It's all about keeping a skilled clientele.
"Not only do MP3s sound like crap when they're amplified, but the main problem with laptop DJs is it's hard to tell if they're mixing live," Labelle says. "They're making themselves expendable."
228 Valencia St, San Francisco. (415) 487-3980. www.soundworks-sf.com.
STREETLIGHT RECORDS
Streetlight has faced stiff competition not only from chains and online sellers but also illicit file-sharing networks that are loaded with hot sellers.
According to Andrew Shadgett, a manager and employee at the Market Street location since 1988, the four shops have survived by keeping up with their customers' changing demands.
"We're all neighborhood stores," he says. "We listen to what people are looking for and what people want."
While Tower Records' closure actually helped bring new faces into the stores, they still feel the burden of loss leaders like Best Buy and Target that undercut prices on new releases.
Still, Shadgett believes Streetlight can offer something the bigger chains can't.
"People still like the social component of going to a small record store," he says.
2350 Market St, San Francisco. (888) 396-2350. 3979 24th St., San Francisco. (888) 682-3550. 980 S. Bascom Ave., San Jose. (888) 330-7776. 939 Pacific Ave., Santa Cruz. (888) 648-9201. www.streetlightrecords.com.
TWEEKIN' RECORDS
This little specialty store may be tucked away in a sublevel space in the Lower Haight, but it's known around the world by club DJs.
Since 1991, Tweekin' has featured a tightly edited selection of the latest electro, break and hip-hop records (plus some disco reissues) and has let its customers sample the wares before making any purchases.
"We carry stuff you're not going to find on iTunes," says Anthony Mansfield, who became a co-owner last year.
He adds that the staff has made a serious effort to adapt to a changing market by building up its Web site and offering MP3 clips for every new release in stock.
"For a small store," he says, "we do a lot of work."
593 Haight St, San Francisco. (415) 626-6995. www.tweekin.com.
THE END IS NEAR
Time is ticking for CDs.
There's no shortage of evidence to show that compact discs are rapidly going the way of the eight-track tape. While vinyl sales have unexpectedly surged in the Bay Area, the LP's younger, shinier and glitchier cousin hasn't fared so well. According to year-end sales figures released by Nielsen SoundScan in 2006, sales of the physical format dropped nearly 5 percent, while digital sales shot up 65 percent. That means that while overall music sales jumped more than 19 percent last year, most of the purchases were made by clicking a mouse rather than stepping into a store.
THE LOSS LEADERS
Wondering why it's getting harder to find the latest releases at neighborhood stores? Blame big chains like Wal-Mart and Target, which sell new CDs as loss leaders.That's the practice in which the big-box retailers draw customers into their stores by offering hot sellers at cut-rate prices in the hopes of getting them to linger and make impulse purchases on bigger-ticket items such as televisions and stereo equipment.
Earlier this month Best Buy offered breakout singer-songwriter Mat Kearney's debut album, "Nothing Left to Lose," at $7.99, while Rasputin listed the disc at the discounted price of $11.99 and Streetlight had a few new copies for $11.98. The mega-retailers simply write off the loss as an advertising expense.
Many industry insiders suspect that that pricing strategy led to Tower Records' demise in the United States. And Virgin Megastores could be next. The chain reported a $495 million loss in the past two years.
LEAVING THE VILLAGE BEHIND
After nearly 40 years of operating this Mill Valley institution, Village Music owner John Goddard announced that he was planning to permanently shut its doors in September."I got this place rolling on my own terms, I ran it on my own terms, and I'm closing it on my own terms," he says.
There are several reasons, he says, among them a lack of local support and general burnout. But ultimately it was a business decision.
"The price of rent in Mill Valley is absolutely insane," says Goddard, who started working at Village Music in 1957, when he was 13, and took over in 1968. "I can't afford to stay open."
In recent years, the cluttered warehouse -- stocked with a treasure trove of 33s, 45s, 78s and rock 'n' roll memorabilia -- has mostly served as a popular destination for international collectors and touring musicians such as Tom Waits, B.B. King and Elvis Costello, who once called it "the greatest record-collecting store in the world."
Goddard says the only thing that has kept him around this long is stubbornness.
"The man created the store out of nothing and operated it almost as a public service to the community," says blues guitarist Ry Cooder, who recently made an in-store appearance at Village Music. "But that's not good enough anymore."
Many regulars would like to see it granted landmark status by the city, which they feel is quickly homogenizing.
"It's sad to see an institution close," says Richard Vivian, owner of San Francisco's Rooky Ricardo's record store. "It should be a museum."
But Goddard doesn't seem likely to change his mind in the next few months.
"I might be open to the idea of somebody buying the store and having me run it for a while, but it depends on the day you ask me," he says.
In the meantime, Village Music will get a bang-up goodbye. Costello has agreed to perform in the store sometime in May, and DJ Shadow (Marin resident Josh Davis) has designs on playing every day in September until the doors close for good.
"Might as well," Goddard says. "He's practically paying my rent now."
9 E. Blithedale Ave., Mill Valley. (415) 388-7400, www.villagemusic.com.
THE REST
More independent record stores that are still hanging in there:
Bird & Beckett Books and Records, 2788 Diamond St., San Francisco. (415) 586-3733. www.bird-beckett.com. Neighborhood bookstore that carries a small collection of classical, jazz and rock records.
Down Home Music Store, 10341 San Pablo Ave., El Cerrito. (510) 525-2129. www.downhomemusic.com. Specializing in jazz, folk and blues since 1976.
Green Apple Books and Music, 506 Clement St., San Francisco. (415) 387-2272. www.greenapplebooks.com. An annex stuffed with new and used CDs, plus a discriminating selection of vinyl.
In House Records, 988 Mission St., San Francisco. (415) 543-4003. www.throwdownsound.com. South of Market spot geared toward house DJs.
Jack's Record Cellar, 254 Scott St., San Francisco. (415) 431-3047. Another vinyl-only store, best known for its walls of 78s. Open Wednesday through Saturday, or by appointment.
Jazz Quarter, 1267 20th Ave., San Francisco. (415) 661-2331. Rare and out-of-print jazz records. Open Tuesday through Saturday.
Medium Rare Records, 2310 Market St., San Francisco. (415) 255-7273. www.modsystem.com/mediumrare. Show tunes, dance and lounge.
The Music Store, 66 W. Portal Ave., San Francisco. (415) 664-2044. Small record store with a knowledgeable staff, lots of vinyl and an '80s-leaning used-CD selection.
101 Music, 1414 Grant Ave., San Francisco. (415) 392-6369. A vinyl store with junk-shop ambience. Offers eight-track, cassette and reel-to-reel tapes, and working turntables.
Rasputin Music, 2401 Telegraph Ave., Berkeley. 69 Powell St., San Francisco. 1820 S. Bascom Ave., Campbell. 5777 Mowry Ave., Newark. 1035 Contra Costa Blvd., Pleasant Hill. 15590 Hesperian Blvd., San Lorenzo. 920 Admiral Callaghan Lane, Vallejo. (800) 350-8700. www.rasputinmusic.com. Fast-expanding local chain, offering a competitively priced variety of new and used releases.
The Record Man, 1322 El Camino Real, Redwood City. (650) 368-9065. www.recordman.com. A former residential building stuffed with albums, plus separate units for used CDs, reel-to-reel tapes and videos.
Reverb Records, 1816 Haight St., San Francisco. (415) 221-4142. www.reverbsf.com. Club music, dance tracks.
Saturn Records, 5488 College Ave., Oakland. (510) 654-0335. www.saturnrecords.com. Rockridge collectors' store, offering mail order and online sales.
Did we miss your favorite Bay Area independent record store? Let us know.
E-mail Aidin Vaziri at avaziri@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/03/25/PKGV4OMBI51.DTL
This article appeared on page PK - 18 of the San Francisco Chronicle
vendredi 30 mars 2007
mercredi 28 mars 2007
BBC NEWS
The end of the American dream?
Analysis
By Steve Schifferes
Economics reporter, BBC News website
The US economy has been generating strong economic growth over the past few years as it has come out of recession.
After growing at more than 3% a year in 2004 and 2005, the pace picked up to a blistering 5.6% annual rate in the first quarter of this year - although the pace has since then slipped back to 2.9%.
So far, though, little of that growth has translated into the hands of the average worker, according to new research from the Economic Policy Institute (EPI).
For real household incomes, the median point - the level at which half of households earn more and half less - has actually fallen over the past five years.
The unprecedented split between growth and living standards is the defining economic agenda
Jared Bernstein, Economic Policy Institute
That marks a notable contrast with the 1990s, when the economic boom boosted both jobs and incomes.
The puzzle of economic expansion without significant job or wage growth has been troubling US economists and commentators of all political persuasions.
Slowing wages
"The unprecedented split between growth and living standards is the defining economic agenda of the day," says the EPI's senior economist, Jared Bernstein.
During the five years from 2000 to 2005, the US economy grew in size from $9.8 trillion to $11.2 trillion, an increase in real terms of 14%.
Productivity - the measure of the output of the economy per worker employed - grew even more strongly, by 16.6%.
But over the same period, the median family's income slid by 2.9%, in contrast to the 11.3% gain registered in the second half of the 1990s.
The wages of households of African or Hispanic origin fell even faster.
And new entrants to the labour market fared particularly badly.
Average hourly real wages for both college and high school graduates actually fell between 2000 and 2005, and fewer of the jobs they found carried benefits such as health care or company pensions.
The poor performance of the US economy in delivering fuller wage packets may be one reason why the public gives the Bush administration's such a low rating on economic policy.
According to the latest Gallup poll, only 37% approve of Mr Bush's handling of the economy, and 70% think economic conditions are getting worse, substantially worse figures than in 2004.
With mid-term elections to the House of Representatives and Senate - both, currently, held by Mr Bush's Republicans - due in November, the contrasts are concentrating minds in both main parties.
Where has the increase gone?
One way to comprehend what is happening is to look at the split between how much of the economy is won by profits and how much by wages.
The share allotted to corporate profits increased sharply, from 17.7% in 2000 to 20.9% in 2005, while the share going to wages has reached a record low.
Meanwhile, a large section of the workforce - the unemployed or those not seeking work - have not benefited from economic growth.
Unemployment has remained stubbornly high despite the economic recovery, with the latest figure at 4.7% compared to 4% at the end of 2000. Overall job growth in the first half of the current decade has been just 1.3%.
In the 1990s, job growth of some 12% goes some way towards explaining why prosperity in that earlier period spread down the income scale.
Rising inequality
Even for those with jobs, the fruits of economic growth have been more unequally distributed within the labour market.
The incomes of the top 20% have grown much faster than earnings of those at the middle or bottom of the income distribution. The income of the top 1% and top 0.1% have grown particularly rapidly.
From 1992 to 2005, the pay of chief executive officers of major companies rose by 186%.
The equivalent figure for median hourly wages was 7.2%, leaving the ratio of CEOs' pay to that of the average worker at 262.
In the 1960s, the comparable figure was 24.
There has been much debate about the extent to which the tax policies of the Bush administration, which lowered many taxes on capital, have contributed to this trend.
The administration argues that the tax cuts have been vital to the economic recovery, and that more jobs and higher wages will eventually follow GDP growth.
It also says that the encouragement to invest delivered by lower taxes has made the US more productive, and therefore more competitive in the global economy.
Explanations
The authors of the EPI report argue that low minimum wages, weakened union power, and the loss of both blue and white-collar jobs to off shoring do much to explain the jobs picture.
Admittedly the Federal minimum wage has been static for a decade, but the downward pressure on wages is probably coming from other sources.
One is immigration, which may have a greater effect on the wages of low-skilled workers.
Another is the "China effect,", the idea that low prices of imported manufactured goods are pushing US industry to cut its workforce in order to increase productivity.
The head of the US central bank, Ben Bernanke, recently admitted that globalisation was producing losers as well as winners.
"The changes in the pattern of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity," he said.
So for politicians of all parties, trying to understand how the average family can gain a greater share in future prosperity may prove one of the biggest electoral challenges of the year.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/5303590.stm
Published: 2006/09/04 08:02:14 GMT
© BBC MMVII
The end of the American dream?
Analysis
By Steve Schifferes
Economics reporter, BBC News website
The US economy has been generating strong economic growth over the past few years as it has come out of recession.
After growing at more than 3% a year in 2004 and 2005, the pace picked up to a blistering 5.6% annual rate in the first quarter of this year - although the pace has since then slipped back to 2.9%.
So far, though, little of that growth has translated into the hands of the average worker, according to new research from the Economic Policy Institute (EPI).
For real household incomes, the median point - the level at which half of households earn more and half less - has actually fallen over the past five years.
The unprecedented split between growth and living standards is the defining economic agenda
Jared Bernstein, Economic Policy Institute
That marks a notable contrast with the 1990s, when the economic boom boosted both jobs and incomes.
The puzzle of economic expansion without significant job or wage growth has been troubling US economists and commentators of all political persuasions.
Slowing wages
"The unprecedented split between growth and living standards is the defining economic agenda of the day," says the EPI's senior economist, Jared Bernstein.
During the five years from 2000 to 2005, the US economy grew in size from $9.8 trillion to $11.2 trillion, an increase in real terms of 14%.
Productivity - the measure of the output of the economy per worker employed - grew even more strongly, by 16.6%.
But over the same period, the median family's income slid by 2.9%, in contrast to the 11.3% gain registered in the second half of the 1990s.
The wages of households of African or Hispanic origin fell even faster.
And new entrants to the labour market fared particularly badly.
Average hourly real wages for both college and high school graduates actually fell between 2000 and 2005, and fewer of the jobs they found carried benefits such as health care or company pensions.
The poor performance of the US economy in delivering fuller wage packets may be one reason why the public gives the Bush administration's such a low rating on economic policy.
According to the latest Gallup poll, only 37% approve of Mr Bush's handling of the economy, and 70% think economic conditions are getting worse, substantially worse figures than in 2004.
With mid-term elections to the House of Representatives and Senate - both, currently, held by Mr Bush's Republicans - due in November, the contrasts are concentrating minds in both main parties.
Where has the increase gone?
One way to comprehend what is happening is to look at the split between how much of the economy is won by profits and how much by wages.
The share allotted to corporate profits increased sharply, from 17.7% in 2000 to 20.9% in 2005, while the share going to wages has reached a record low.
Meanwhile, a large section of the workforce - the unemployed or those not seeking work - have not benefited from economic growth.
Unemployment has remained stubbornly high despite the economic recovery, with the latest figure at 4.7% compared to 4% at the end of 2000. Overall job growth in the first half of the current decade has been just 1.3%.
In the 1990s, job growth of some 12% goes some way towards explaining why prosperity in that earlier period spread down the income scale.
Rising inequality
Even for those with jobs, the fruits of economic growth have been more unequally distributed within the labour market.
The incomes of the top 20% have grown much faster than earnings of those at the middle or bottom of the income distribution. The income of the top 1% and top 0.1% have grown particularly rapidly.
From 1992 to 2005, the pay of chief executive officers of major companies rose by 186%.
The equivalent figure for median hourly wages was 7.2%, leaving the ratio of CEOs' pay to that of the average worker at 262.
In the 1960s, the comparable figure was 24.
There has been much debate about the extent to which the tax policies of the Bush administration, which lowered many taxes on capital, have contributed to this trend.
The administration argues that the tax cuts have been vital to the economic recovery, and that more jobs and higher wages will eventually follow GDP growth.
It also says that the encouragement to invest delivered by lower taxes has made the US more productive, and therefore more competitive in the global economy.
Explanations
The authors of the EPI report argue that low minimum wages, weakened union power, and the loss of both blue and white-collar jobs to off shoring do much to explain the jobs picture.
Admittedly the Federal minimum wage has been static for a decade, but the downward pressure on wages is probably coming from other sources.
One is immigration, which may have a greater effect on the wages of low-skilled workers.
Another is the "China effect,", the idea that low prices of imported manufactured goods are pushing US industry to cut its workforce in order to increase productivity.
The head of the US central bank, Ben Bernanke, recently admitted that globalisation was producing losers as well as winners.
"The changes in the pattern of production are likely to threaten the livelihoods of some workers and the profits of some firms, even when these changes lead to greater productivity," he said.
So for politicians of all parties, trying to understand how the average family can gain a greater share in future prosperity may prove one of the biggest electoral challenges of the year.
Story from BBC NEWS:
http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/5303590.stm
Published: 2006/09/04 08:02:14 GMT
© BBC MMVII
mercredi 21 mars 2007
mercredi 14 mars 2007
lundi 26 février 2007
Golden State may be blinded by its luster
California slipping in rate of growth and in job creation
Sunday, February 25, 2007
For much of the past century, California has often seen itself -- and been seen by others -- as America's avant-garde state. John Gunther, writing in his famous "Inside USA" in 1946, gushingly described it as "the most spectacular and most diversified American state ... so ripe, golden." Recently, Gov. Arnold Schwarzenegger compared California to "the ancient city-states of Rome and Sparta," praising it as "the harmonious, the prosperous state, the cutting-edge state."
Perhaps it's time to ditch the celebratory rhetoric and take a closer look at the sober realities. Our magnificent state may still be the home to Silicon Valley, Hollywood, the nation's largest port complex and the world's richest agricultural valleys, but by many critical measurements the state is slipping.
The most obvious signs are economic. Although far from moribund, the state may not be as fundamentally strong as its boosters, including the governor, suggest. The state rate of GDP growth over the past decade has been strong, ranking fourth in the nation, but California has been losing ground in the new millennium. In 2004-05, it fell to 17th, behind not only fast-growing Arizona and Nevada but also Oregon, Washington and rival "nation-state" Texas.
Job creation has been even less impressive. In the Bay Area and Los Angeles, it can only be considered mediocre or worse. If not for the strong performance of the interior counties of the state -- what Bill Frey and I call the "Third California" -- the state already would be rightly considered a laggard when it comes to creating employment.
More disturbing, as California's population has grown -- largely from immigration -- per-capita income growth has weakened. From the 1930s to as late as the 1980s, Californians generally got richer faster than other Americans. In 1946, Gunther reported, Californians enjoyed the highest living standards and the third-highest per-capita income in the country.
Today, California ranks 12th in per-capita income. And it's losing ground: Between 1999 and 2004, California's per-capita income growth ranked a miserable 40th among the states.
This slow growth reflects a gradually widening chasm between social classes. Although the rest of the country has also experienced this trend, the gap between rich and poor has expanded more rapidly in California than in the rest of the country.
Today, notes a recent study by the Public Policy Institute of California, California has the 15th-highest rate of poverty of all American states. When cost of living adjustments are made, only New York and the District of Columbia fare worse. Tragically, many of California's poor are working. Somehow, this does not seem the best road to the governor's dream of a "harmonious" society.
How did this happen to our golden state? There are many causes.
Certainly poverty has been greatly exacerbated by huge waves of immigration, particularly from Mexico and other developing countries. But other states -- including Texas and Arizona -- have also absorbed many immigrants, as well as people from the rest of this country, and have not experienced similarly strong jumps in their poverty rates.
Changes in the economy are clearly suspect. From the 1930s to the 1980s, California created a broad spectrum of opportunities for white- and blue-collar workers alike. Even the 1990s expansion, suggests Debbie Reed of the policy institute, helped reduce poverty by expanding a wide range of employment opportunities.
Today, economic growth in California -- like that in much of the Northeast -- seems tilted largely toward elites. Once a state known for its relative social democracy, the Golden State is becoming what Citigroup strategist Ajay Kapur has dubbed a plutonomy, dominated largely by a small wealthy class and their spending.
For example, despite all the hype about the renewed Internet boom in Silicon Valley, there has been only modest expansion of employment, even in the past year. Undoubtedly lavish takings by a relative handful of engineers, managers and investors are boosting high-end restaurateurs in San Francisco and revving up BMW sales, but benefits don't seem to accrue as much to assemblers, midlevel managers and other high-tech workers.
Similarly, the governor's entertainment industry friends, as well as art and developer elites close to Mayors Antonio Villaraigosa and Gavin Newsom, may feel these are the best of times. But Los Angeles and San Francisco, along with Monterey, now suffer a poverty rate of more than 20 percent, among the highest level in the country.
Parallel to these developments, California is losing its once broad middle class, the traditional source of its political ballast and much of its entrepreneurial genius. Outmigration from the state is growing and, contrary to the notions of some sophisticates, it's not just the rubes and roughhouses who are leaving.
Indeed, an analysis of the most recent migration numbers shows a disturbing trend: an increasing out-migration of educated people from California's largest metropolitan areas. Back in the 1990s, this was mostly a Los Angeles phenomena, but since 2000, the Bay Area appears to be suffering a high per-capita outflow of educated people.
A look at data from the 2004-05 American community survey, these emigrants include many workers in technology, arts, finance, science, management, high-end sales and medicine -- the creative class. Perhaps the only saving grace is that some migrants are still staying in California, largely in the Sacramento and Inland Empire regions.
This middle class flight is likely driven by two things: greater opportunities outside the state and the cost of housing in-state. Over the past 50 years, housing prices in coastal California in particular have grown much faster than elsewhere; the Bay Area's rate of housing inflation over the past 50 years has been twice the national average.
Given the shrinking per-capita income advantage for being in California, moving elsewhere increasingly makes sense, particularly for those who do not already own homes and don't have wealthy parents. In some parts of the state, barely 10 percent of households can now afford a median-price home; in the rest of the country that number is roughly 50 percent.
Taken together, these trends suggest that California could be devolving toward an unappealing model of class stratification. As educated white-collar and skilled blue-collar workers leave, businesses in the state will be forced to truncate their operations -- perhaps having an elite research lab, design office or marketing arm in California but shunting most midlevel jobs elsewhere.
Remarkably, neither political party seems to have a clue about any of this. David Crane, Schwarzenegger's economic adviser, seems to think the state can make do by concentrating on the highest value-added work. He seems untroubled that more mundane jobs go elsewhere. That may make sense if you are a venture capitalist, dot-com wiz or movie producer, but it's not so great if you are an electronics technician, customer support employee or movie grip.
Doctrinaire Republicans don't have many answers, either. Some like to blame immigration, which may well be diminishing, for virtually all our problems. But singling out immigration is like howling at the moon: The immigrants are already here and most will stay. Sure, we should control the borders, but for the foreseeable future the newcomers, and more importantly their children, will shape our future, like it or not.
Beyond bashing immigrants, the only clear priority for the right seems to be keeping property taxes low for their core home-owning constituency. Any shift in Proposition 13 -- like even slightly revising its profound generational bias toward older Anglos -- is off limits. So we are stuck with a dysfunctional system that benefits the already affluent and encourages local governments to pursue sales-tax-inducing big-box development over plans for new housing or industrial construction.
The Democrats, for the most part, are positively harebrained. Over the past decade, their support for a corrupt workers' compensation system certainly helped drive potential expansions and relocations to other states. Their economic program of redistribution and regulatory excess has hurt small business and the middle class while benefiting favored constituencies such as trial lawyers, politically connected developers and public employees.
Yet for all its problems, California still possesses the means to retool and grow its economy. One step would be to invest much more in its basic infrastructure -- the recent bond measures for transportation and levees, while welcome, are woefully inadequate. A particular priority should be to make trading with other countries easier and faster so that critical employment does not migrate to Houston or the Hampton Roads area of Virginia, which now have our lucrative global business in their sights.
We also must reform our education system so that businesses can find the workers they need here. The fanciful notion that all California youth should go to four-year colleges should be scrapped for a targeted vocational project that can allow many of them to find better futures as plumbers, technicians, welders and machinists -- respectable professions that offer a realistic chance of a middle-class life and socially beneficial employment.
At the same time, housing for middle-income people can be stimulated by reducing the onerous regulations and fees on builders that drive prices ever upward.
Most of all, to regain its promise, California needs to stop stroking itself and reverse course. A state that's great for a relative handful of moguls -- no matter how enlightened -- and their servants cannot serve as the national model for anything but decadence and decline.
Joel Kotkin is an Irvine senior fellow at the New America Foundation. He is the author of "The City: A Global History" and is working on a book on the American future. Contact us at insight@sfchronicle.com.
http://sfgate.com/cgi-bin/article.cgi?f=/chronicle/archive/2007/02/25/ING0BO934F1.DTL
This article appeared on page E - 1 of the San Francisco Chronicle
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