Wisconsin Geographic Indications

You can ask Erin, I've been railing at this for ... what? ... let's see I graduated law school in 2004, I took my first Trademarks class in ... 2002 or so? ... 16 years?

As you might expect from a lawyer that spends a lot of time thinking about how law applies to the food and beverage business, I am obsessed (obsessed!) with Geographic Indications, the TRIPS word for Appellation d'Origine Controlle (FR), Protected Designation of Origin (EU), Denominazione di origine controllata (IT), Certification Marks (US), etc.

Historically, the US has looked to take advantage of European intellectual property by "borrowing" their designations of origin for things that bear little passing resemblance to "cheese," let alone "parmesan" or "asiago" or "feta."

The chicken is now coming to roost, so to speak, with the current trade war. It turns out that when you slap huge tariffs on your trading partners, they don't like that and they look elsewhere. When they look elsewhere, the others ask that you play by their rules. If their rules are better (e.g., aren't huge tariffs), then you play the game. So, when our bumbling fool of a head of state imposed tariffs on Mexico and pulled out of the Trans Pacific Partnership, the partners to those looked to get their goods elsewhere - namely Europe. And Europe came in and say, we'd be happy to send you all the Asiago cheese you can handle, but you have to agree to play by our Asiago rules - so, no Asiago from anywhere other than Italy.

In response, and I can only imagine cartoonishly hopping mad, Wisconsin cheesemaker Sartori renamed their "asiago" cheese "Sartiago" so that Mexico wouldn't stop importing it.

In an event that I assume Sen. Tammy Baldwin has no recollection of, I actually spoke to her about Geographic Indications and how we, Wisconsin, were missing the boat. [ed note: the short version of this story is that we were both being interviewed for a documentary about beer]. And, she responded with something like this. I think her position, the typical American position, and definitely the official "Wisconsin Food Producers" position is that anyone should be allowed to call their hard white salty cheese "parmesan" because "What else would you call it?" Well...maybe Asiago?

Look, this full discussion is much longer. I actually get most of the way into the full rant in a podcast that I did with Edible Alpha about trademarks in food [ed note: that was part 2, you can find part 1 here.

But, the short of the argument is this: if "terroir" in food means anything - and I think the whole premise of the sustainability, locavore, slow food, whatever-you-want-to-call-it movement is fundamentally based on it meaning something - then, we [ed note: the "royal we" not literally you, the reader, and me, Jeff, the author, but yes, us too] need to protect Designations of Origin as meaning something. And that means, that when someone in a particular place creates something that you like and they call it something to show their pride in their place that you - manufacturer in the middle-of-nowhere foreign country - can't create something that vaguely resembles that thing and call your thing the same thing. Because that's misleading the public, it's deceptive trade practice, it's counterfeiting, it's infringement.

The State Journal article mentions that "The U.S. has been battling the EU over the geographic naming restriction during trade negotiations dating back to the Obama administration." This is wrong. This "battle" dates back to arguably, the Paris Convention in 1883 and certainly to TRIPS in 1995, but even back to the adoption of the American Viticultural Areas in 1981 and a first attempt at such a thing back in the 1930s.

Did You Know? Blockchain + Cheese

Did you know that the first international commercial transaction to use the blockchain as a verification mechanism was for cheese?

Back in September, Irish cheese cooperative Ornua (purveyors of Kerrygold for those hip to the know here in Wisconsin), sold a $100,000 letter of credit for cheese and butter to Seychelles Trading Company using the blockchain.

How did it work? The blockchain is a secure and inherently authenticated record-keeping mechanism. Thus, much of the lengthy contract due diligence of confirming who the parties are is short-cut merely by using the system. Second, now that the parties are authenticated, secure documents can be transferred digitally. Finally, the transaction is posted to the blockchain ensuring transparency and confirmation of the transaction.

[S]uch transactions typically involve a complicated paper trail that requires international courier services, is vulnerable to document fraud, and can take as long as a month to be completed. ... [U]sing blockchain technology, [] a process that normally takes between seven and 10 days [was cut] to less than four hours

Madworks and SlowMoney and Food and Beverage

First, the important stuff. If you are a food and beverage startup, Madworks Accelerator's spring cohort will be dedicated to food and beverage. YOU SHOULD APPLY. This Spring cohort is in conjunction with Slow Money Wisconsin; the companies participating in MadWorks will also be invited to pitch at the Slow Money Wisconsin Investor Showcase.

OK; with that out of the way, what's going on here?

I have been peripherally involved in both Madworks and Slow Money for the last ... ummm ... I don't really know to be honest. We'll call it the last "few" years. Both are wonderful programs.

Madworks is a seed accelerator dedicated to nascent entrepreneurship. It has changed focus over time with the changing demands of the Madison entrepreneurial community. At first, it was dedicated to true, brand new, nascent entrepreneurship. Today, it focuses a little further upstream helping companies already in the "pipeline" so-to-speak to better understand nuanced governance issues that are demanded of young CEOs with small teams and limited budgets. In other words, these teams don't yet have a staff CFO to generate financial statements; they don't have a general counsel to call shareholder meetings and record board minutes; they don't have sophisticated brand managers to think strategically about marketing plans. So, Madworks helps to get them up to speed - getting them to at least speak the language and understand the obligations that their companies will need to undertake.

Slow Money Wisconsin is a regional network of the national Slow Money organization. It is a non-profit comprising investors throughout Wisconsin that are "dedicated to catalyzing the flow of capital to local food systems, connecting investors to the places where they live and promoting new principles fiduciary responsibility that "bring money back down to earth." In other words, not every business is unicorn. Indeed, to be a responsible corporate citizen you probably shouldn't be a unicorn. By definition, not every company can be a unicorn. More importantly: not only is it probably bad company policy to want to be one, it is better for society and the environment if you aren't.

In startup ecosystems, not aiming to be a unicorn is heresy. Most cogs in the startup ecosystem machine are built on the fundamental premise of delivering the unicorn to investors. I understand that; I'm OK with that. But, hear me out. Unicorns require growth - and not just steady you're-doing-great profitable growth, but crazy, if-you're-profitable-you're-doing-it-wrong growth. In other words, if you are going to be a unicorn, you are, by definition, losing (a lot of) money.

On the other hand, it's possible to take time and grow a company organically - to design a business model that is cash flow positive relatively early on. You can build a company that not just hires people, but makes a point of hiring diversely from your own community thus building capacity in the local employee base. Interestingly, local hiring also has the effect of keeping the money the company makes in the local economy, thus it builds sustainable economies. Agricultural companies can (and should) use regenerative (or at least sustainable) agricultural practices. The effect of building businesses in a fundamentally sustainable way, though, is to depress profitability at the expense of corporate, economic, and environmental stability. Slow Money recognizes that these companies are as important, if not more important, than the unicorns. Investors in Slow Money want to put their money into companies that build stronger systems for overall economic wealth, not just seek to exploit those systems to build shareholder wealth.

So, Slow Money and Madworks are teaming up for a cohort of food and beverage companies. It'll be a wonderful partnership and I can't wait to work with this next class!

Innovation in Food and Beverage is Expensive

Here's some "leaked" documents in ReCode about a food delivery startup called "Maple". The basic gist of the company is that instead of going to a restaurant, the restaurant comes to you (ahem: delivery). Uber has tried a delivery service that doesn't seem to be going anywhere fast. EatStreet is testing delivery because, well, a menu aggregation site only gets you so far. I could do this all day; the point is, the list of failed or failing restaurant/delivery services goes on and on.

Why?

Delivery is expensive. Duh. Add that to a meal that already has a relatively low margins, and a $10 meal becomes a $15 meal really fast. OK; still, $15 isn't bad, but for $5 I'm willing to bet most of us will either forego the $10 meal or, more likely, just run for some takeout ourselves and pocket the $5.

And, here's the thing that a lot of people forget: restaurant food is pretty expensive. It's made (and served) by people who are expensive, uses ingredients that are either modestly expensive or grotesquely bad for you and/or the environment, and goes "bad" quickly (not, as in "goes bad it will kill you" like with spoiled or contaminated food, but as in "goes bad and you will complain it's too cold and/or soggy" or whatever).

[ed note: I'd normally provide evidence for each of things I've claimed above. I feel that doing so would detract from a relatively concise point I'm trying to make, so I will leave it to you to go find evidence (dis)proving the things I've claimed if you care to]

People underestimate the impact of labor costs in the food that they order out. In particular, they forget that the price of the food at a restaurant only includes $2+/hr for wages for the server (and then you tip). There is lots of evidence to show that tipping is a terrible way to pay people, but the business effect is that it makes it seem like food is a lot cheaper than it actually is.

Here's a thought experiment: pretend there is a restaurant with tipped staff where a burger is $10 and you pay $2 in tips; and right next door is a restaurant of exactly equivalent quality where the burger is $12 but there is no tip. Which would you go to.

Here's a really interesting report from the USDA. Its conclusion is: "... that the demands for disaggregated FAFH [ed note: Foods Away From Home] products differ in price responsiveness and tend to be more sensitive to changes in food spending patterns than FAH [ed note: Foods at Home] products."

In normal-people speak? You're going to buy the $10 burger.

These delivery services are trying to take what the USDA calls a "premium" FAFH and "turn it into" a FAH. But, here's the rub: we seem to treat the pricing as if it's still a FAFH product. The price of delivery creates a price discrepancy between competing FAFH experiences and the USDA report says that instead of paying the premium for delivery, we're more likely to either substitute with FAH products or prefer the less-expensive (i.e., carry-out) FAFH option.

For businesses that want to "innovate" in this space this means that you (your business) needs to cut into ingrained consumer practices and attitudes. Normally this is done through costly consumer education (read: "marketing") campaigns to convince the user that your product is worth the premium. Good luck!