As President and CEO of JV Smith Companies, Vic Smith has been seeing that customers and end consumers receive the freshest, most nutritious quality product possible for more than 40 years.
Vic oversees farming, packing, and cooling operations spread across a diverse set of categories and an impressive swath of the Southwest—growing on over 30,000 acres, with operations throughout both the United States and Mexico. The veteran produce provider commands an impressive amount of industry knowledge and as close to a comprehensive understanding of the challenges facing the industry as one can have.
We spoke recently about some of the challenges facing producers and the innovative solutions that JV Smith Companies is introducing to address these concerns.
ROBERT SCHAULIS: How is JV Smith Companies responding to a lack of labor supply?
VIC SMITH: Well, the big picture viewpoint is that labor has been chronically short, and it’s getting worse each year. It’s basically a demographic trend where field workers—wherever they’re working in the United States, whether they’re documented or undocumented—are getting older, and they’re retiring. It’s physically demanding work and, at a certain point, people say, “I have to retire. I can’t do this anymore.”
Each year, we seem to have a drop-off of the existing workforce to which we’ve become accustomed. And it’s hard to say, but that number is probably somewhere in the 10 to 20 percent rate, so those numbers are accumulating.
Those of us in the Western United States—we have operations in Colorado, Arizona, and California—have continued to reach toward H-2A to import workers. The only system that's available is the H-2A program, so the number of H-2A guest workers has increased dramatically over the course of time. I'd say in the last three years, the amount of H-2A workers entering this country has probably almost doubled.
RS: Is automation part of the solution to this shortage? How is JV Smith Companies employing innovations in automation to address labor concerns?
VS: Absolutely. I’d make the differentiation, first of all, between automation and mechanization. The first thing we have to do is mechanize certain activities, and as we get into mechanization, we can start bringing automation. A lot of people use the two terms synonymously, and it’s a differentiation where there’s truly a difference. Mechanization would be taking what human hands are doing right now and doing the same process with some kind of machine. As we’re doing it with the machine, we can then create autonomous systems and build upon those systems to increase productivity and reduce the need for human labor. We have been working on that for at least seven years, and we’ve had some successes—but we still have some problems.
It’s a slow process because our particular leafy green industry is somewhat unique, where it really requires that skill set of the human hand judgment to cut the heads and trim to maximize the yield. We still haven’t found anything that I could really say three years from now should be able to reduce labor by 50 percent. Now, having said that, it doesn’t mean that we’re not continuing on, and certainly we have ideas out there we continue to test.
“I’ve been in this business for over 35 years, and the complexity that we are facing compared to even 10 years ago has become exponential.”
- Vic Smith, President and CEO, JV Smith Companies
We've stepped back and said, "Okay, we're going to have to get involved." The first company we started was in cooling and distribution. But as this industry has evolved, we decided to create products to be delivered to the backdoor of the shippers and the processors. We’ve now began a process to better integrate labor, in particular harvesting labor techniques, into our operations.
RS: What innovations have JV Smith Companies introduced to address the labor issue?
VS: I’m funding a startup company that's focusing on dealing with the labor shortage. We're going to capitalize on our Mexico operation—which is substantial—for recruiting. As the United States draws labor from the northern Mexico border, we're having to continually feed the pipeline by bringing people up from Central and Southern Mexico, as well as Central America.
So we’re establishing a major training center in one of our campuses in Mexico to do basic training. It’s something that nobody has really done before, that I know of. We’re going to focus on really training individuals on, first of all, their rights. We want to make them aware that we care about their livelihood; we care about their concerns. We want to empower these workforces and create an avenue for them to air their grievances without any retribution. So we have to create an anonymous system of input about anything negative going on in the work environment, particularly things like sexual harassment.
In addition, we’re training people for specific areas. Tractors are becoming more high-tech; machines will require higher skills. We’re still going to need some basic labor components, but we want people to be trained and have a breadth of skills and knowledge, particularly with regard to food safety. We really want to educate each and every employee we have to the dangers of poor food safety, so that if I have 500 people in the field, I have 500 sets of eyes—not only doing their job, but being highly aware and focused on any potential food safety risks.
So, it’s a little different approach, and we’re initiating that program at the beginning of 2019.
RS: I know in recent years a lot of produce providers have been introducing value-added products and processes to boost prices and encourage demand creation. Is this something you think that the leafy green industry has benefited from and will continue to benefit from?
VS: Well, pricing pressure and shrinking margins is a very real problem. Our costs are going up with labor. It is going to cost us 50 percent more on a calculated per-hour basis within a relatively short period of time. So really, the only way we could deal with that is to shoot for increased productivity.
In regards to innovation and the marketing of product offerings, I would say that’s a continuous process and always has been. Fresh-cut fruit and vegetables, different options, are all variables out there to help the foodservice operators really entice and get counter or shelf space with retailers. We really have to challenge ourselves with that, and I believe we continue to do so. Hopefully, we drive more demand. With more demand, I think that we can help solve some of these tight margin restraints, but it’s always a problem.
Shippers and processors are becoming more consolidated. And that has, of course, put a lot of pressure on those of us upstream in the supply chain, where there’s “X” amount of money that we can afford to pay you, and you can’t expect to give price increases every year. These buyers will say to us, as producers, that the marketplace is not accepting it.
At some point, you realize, “Well, maybe I need to focus my efforts on some other aspect, some other business or industry, or I need to get continuously better and improve on my costs.” And that comes down to innovation and improved productivity.
RS: Is there anything in particular, as a producer, that you can do to address something like a depressed market with these very narrow margins and the consolidated buyer basis you were talking about?
VS: I would say that, just as retailers have consolidated, shippers and processors have consolidated. I think producers have to consolidate and build economies of scale. Build the scalability and achieve some economies of scale to try and meet the expectations of our buyers—which are the shippers or the processors—and still keep margins where they can sell to their buyers, to retailers, and to foodservice operators.
We want to build a very strong, educated, productive workforce and be very socially accountable for it
I’ve been in this business for over 35 years, and the complexity that we are facing compared to even 10 years ago has become exponential. But that’s the free market. Those of us who are innovative and adaptive will hopefully continue to survive and do better.
RS: Shipping issues also seem to be some of the biggest concerns in our industry as of late: Has that been your experience? How do you expect the current shortage of truckers/high freight costs to pan out over the course of the next several years?
VS: I’ll first give the disclaimer: I’m not an expert in this field. But we do have two different operations where we ship product direct, too. We feel it but not to the level that our customers do. It’s a problem because it adds total cost. So, when the buyer in Boston or New York is buying product from Yuma, Arizona, or Salinas, California, he’s looking at the total loaded cost. “What are you going to charge me, Mr. Shipper, for your product, and what is it going to cost me to get it delivered to my warehouse?” I think that’s just an adjustment we’re going to have to go through.
I think, quite honestly, there will be an upward adjustment in the cost of freight. Not spiking maybe as high as what we saw this past winter, but there’s going to have to be more trucks put on the road and more drivers to drive them. Once we find the balance there, then we’ll be able to smooth things out. And at the point where we find a price equilibrium, then I think we’re going to be able to start evaluating different methodologies.
I think the first thing we have to do is find that stability, then based on what it costs to achieve that point, we’ll make decisions on how we change operations. Some of that may be more regional sourcing. Some of it may be innovations in trucking, different procedures, or better fuel costs.
RS: What makes JV Smith Companies uniquely attenuated to these challenges and able to address them for your customers?
VS: I’d say by virtue of producing in the desert out West, in Baja, Mexico, and central coastal California—primarily Salinas, California—we’re competitively offering our services on a year-round basis, which I think is important. We’re now in the process of growing over 30,000 acres of fresh vegetables annually, and we’re striving to achieve the right balance—offering the benefits of the economy of scale while delivering the productivity and value to our customers every day.
We’re looking at becoming more and more vertically integrated. We are getting into the labor business, for example, but not just to be a farm labor contractor. We want to build a very strong, educated, productive workforce and be very socially accountable for it. We’re vertically integrating more and more of the upstream functions of the supply, so we can deliver to the shippers’ and processors’ backdoor the product they need at a price where we can both can survive, thrive, and be successful.
After some 40 years in business, JV Smith Companies has gained the perspective and the scale to meet the challenges of today’s economy—and anticipate the needs of their customers in the future.