Information for Fruits & Nuts Inc.
You have been assigned to negotiate on behalf of Fruits & Nuts, Inc.,
a corporation formed under the laws of the country of Laputa (F&N),
for the formation of a joint venture with the Springtime Cooperative,
a legally recognized farmers' cooperative located in the country of Camelot.
Laputa is a developed country. Camelot is a developing country.
F&N has expanded rapidly, in part because of its reputation for good
service and good food, and in part because of the public reaction to news
of Mad Cow Disease and recent reports on the health effects of a fast-food
diet. From a single restaurant in 1990, F&N grew to 300 in 1995 and
boasts 900 restaurants today. The company is now contemplating expansion
into overseas markets.
Although the company has managed this expansion of its operations successfully,
the same success that fuelled its expansion is expected to threaten its
profitability. Currently, an F&N restaurant spends, on average, $200,000
per year on foodstuffs, against gross sales of $1,000,000. The ratio is
high by industry standards, and changes in the cost of produce accordingly
has a greater impact on the profit margin of F&N. A typical F&N
branch consumes 1,300 kilos of potatoes per month, 300 kilos each of bell
peppers and aubergine, and 75 kilos of lettuce. A wide variety of other
produce is also used in preparing the F6N menu.
For better or for worse, the demand for organic food products among the
public has driven up the price of organic produce. While the company can
withstand moderate price rises in the short term, it is not certain that
it will be able to retain its customer base if it is forced to raise its
prices significantly. Since the company has built its entire image around
the theme of organic food, switching to lower-cost non-organic sources
of produce is not an option.
The bottleneck for F&N is the strict guidelines imposed by the Harvest
Association, a highly respected institution in Laputa that certifies produce
as being genuinely organic. To certify the produce of a farm as organic,
the Harvest Association's guidelines require that no pesticides, herbicides
or chemical fertilizers be used in growing crops, and that none be stored
on the premises of the farm to be certified. Few farms are able to satisfy
its strict requirements. Until now, F&N has served only produce from
Harvest Association certified farms. This fact is included in its advertising
in the Laputa market. The Harvest Association is active only in North
The president of F&N, Alan Anderson, recently made a trip to Camelot,
during which he visited the Springtime Coop. He was impressed by the interest
of the farmers in organic agriculture, and learned of a "Green Tag"
scheme, sponsored by the Camelot national government, for certifying organic
foods. Green Tag is the most widely recognized certfication scheme in
Camelot, but unfortunately the certification standard is lower than that
imposed by the Harvest Association (it permits the use of pesticides,
herbicides and chemical fertilizers, so long as testing reveals no trace
of these products in finished produce). There have also been some reports
of cheating and corruption in the scheme.
Nonetheless, Alan Anderson has a strong interest in pursuing a supply
contract with Springtime Coop for vegetables to be served by F&N.
He has asked you to visit the coop and begin negotiations for a joint
venture agreement. Before your departure for Camelot, your team was given
the following instructions:
F&N wants to use vegetables grown by the Springtime Coop in its restaurants,
because they are of high quality for the price, and because dealing with
a developing country may have a positive impact on F6n7s image over the
long term, if the arrangement works out well.
On the other hand, F&N is worried about the generally excessive use
of agrochemicals in Camelot, and the impact that this could have on F&N's
image and sales if it makes the evening news in Laputa. F&N therefore
wants strict monitoring and the power to control agricultural practices
at Springtime Coop for all crops. F&N sees this as the only way to
establish persuasive proof of the safety of F&N's imports in the event
of bad publicity.
In addition to control, F&N is concerned about cost. A supply contract
at favorable prices would ease the financial squeeze that F&N expects
to experience soon. The ideal result would be a long-term supply contract
at modest prices that is terminable immediately in the event of evidence
that Springtime Coop foods do not meet F&N's high standards of quality
For the same reason, in the short term, F&N does not want to include
the use of Camelot products in its advertising material, beyond disclosures
required by law. Five years of proven good practice would be required
to make such a move safe for the company, according to the F&N's Marketing
It is of utmost importance that F&N avoid the use of genetically modified
crops. The government of Camelot is known to be negotiating over technology
transfer of genetically modified grain and corn seed.
**Sample research links:**
Balance sheet of a typical restaurant:
Report of fakery in the organic food industry:
Report on a scheme in China that is similar to "Green Tag"