Oct 10, 2018

Axios Future

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1 big thing: The U.S.-China garlic war

Illustration: Rebecca Zisser

American farmers are livid with President Trump's tariffs. But not garlic growers. Reeling after a quarter-century-long war with Chinese garlic farmers, they are thrilled with a trade war that they say could finally give them the advantage on U.S. turf.

Driving the news: Last month, the U.S. slapped a 10% tariff on garlic imports. In January, it will rise to 25%.

  • Chances are if you're cooking with garlic (or, less commonly, using it medicinally), it's from China, which has an iron grip on the U.S. market, controlling more than 90% of the dried garlic trade and killing many American garlic farms, reports Axios' Courtenay Brown.
  • U.S. farmers think Trump's new 10% tariff could bring them back to life.
  • There is a "garlic war that has crowded out U.S. farmers," says Eric Block, a University at Albany professor who has studied garlic for more than 30 years.

By the numbers: How the price difference ripples through the market can be seen in San Francisco, where the current price of a 30-pound carton of Chinese-grown white garlic is $38–$40, compared with $68 for U.S.-grown garlic, according to the USDA.

Ken Christopher, who runs Christopher Ranch, the largest U.S. garlic producer in Gilroy, California, says that even though the tariff will not equal out the prices, the penalty will make it less profitable for Chinese growers and "it will make an impact, when you're dealing in millions of pounds of garlic."

  • The U.S. is the world's largest garlic importer, according to the Agricultural Marketing Resource Center, accounting for 339 million pounds of garlic in 2017. It is also the world's largest consumer.
  • Cheaper labor, less regulation and overall lower production costs all allow Chinese growers to undercut most of its global garlic rivals. Pricing pressure from cheaper Chinese garlic has caused a lot of U.S. farms to scale back production, or shut down completely.

Background: U.S. troubles with Chinese garlic have a deep history. It's been a three-generation fight, says Christopher, the grower in Gilroy, which calls itself the "garlic capital of the U.S."

  • Christopher's grandfather, Don Christopher, was among domestic producers who in 1994 successfully lobbied the government to impose a 377% “antidumping and countervailing" duty on garlic imports.

But China got around those taxes, according to the U.S. Government Accountability Office, which in 2016 found that China's growers were not paying the duties in full.

  • By the early 2000s, Christopher began selling Chinese-imported garlic, too.
  • "Wholesalers demanded the cheapest products," said Christopher.
  • Trump's tariffs will "change the entire game for garlic farmers," he says, because the tariff will be collected in advance, confounding the past "duty invasion schemes."

Not everyone is so confident.

  • Louis Hymel, a 50-year employee of Spice World, which packages garlic imported from China, Mexico and Argentina, said the tariffs won't change the way the company does business.
  • McCormick Spices said the tariffs will drive up the costs of their seasonings, CNN reported last month.
2. Amazon’s biased AI recruiter

Amazon CEO Jeff Bezos. Image: Alex Wong/Getty Images

An algorithmic recruiter meant to help Amazon find top talent was systematically biased against women, a Reuters investigation found.

Why it matters: This is a textbook example of algorithmic bias. By learning from and emulating human behavior, a machine ended up as prejudiced as the people it replaced, writes Axios' Kaveh Waddell.

The details: Amazon's experiment, which dates back to 2014, was trained on 10 years of job applications, most of which came from men, reports Reuters' Jeffrey Dastin.

  • The system concluded that men were better candidates for technical jobs.
  • In 2015, Amazon began to realize that the system was penalizing resumes that included the word "women’s" (as in a women’s sports team or all-women’s colleges).

The company intervened to remove the negative weights on these words, but it couldn’t be certain that other, similar problems wouldn’t crop up.

  • Reuters reported that Amazon recruiters used its recommendations but didn’t rely on them entirely.
  • In a statement, an Amazon spokesperson disputed this, saying, “This was never used by Amazon recruiters to evaluate candidates.”
  • The company dissolved the team in charge of the system early last year, in part because the system was not surfacing useful candidates.
3. Sears on the brink

Photo: Justin Sullivan/Getty

Sears' share price plunged by 16% after WSJ reported that it's preparing for a possible bankruptcy filing, and an additional 9.5% after hours. The long-struggling retailer has $134 million in debt due Monday, and it's not clear whether it can pay.

Why it matters: Sears was to the last century of American retail what Amazon has become to this century — trailblazing, ubiquitous and iconic, writes Axios' Dan Primack. Now, it is a poster child for the decimation of large, mall-based U.S. department stores.

  • Wild card: Eddie Lampert, the company's CEO, largest shareholder and largest creditor, has proposed a severe slim-down plan that would include divestiture of real estate and the Kenmore brand, the latter of which he offered to buy for $400 million.
  • "I would not be surprised if Lampert crams the deal he has presented to his puppet board down their throats at the last minute before the company defaults on its upcoming $135 million obligation," Mark Cohen, former CEO of Sears Canada, tells Axios.
  • "It's a little standoff going on here between him and debt-holders trying to figure out who's gonna blink first," said Herb Kleinberger, a professor at NYU's Stern School of Business.

The bottom line:

"This is the inevitable end game of an effective liquidation process that has been going on for many years. Throughout that time the sale of various assets along with injections of cash from Eddie Lampert have kept the ailing retailer from going under. However, the activity is akin to bailing out water from a holed ship: It keeps the vessel afloat for longer but does nothing to sort out the underlying problem."
Neil Saunders, GlobalData Retail

Go deeper: The cannibal of Sears

4. Worthy of your time

Illustration: Caresse Haaser, Rebecca Zisser/Axios

The fight against fake news (Sara Fischer — Axios)

The Pentagon's push into soldiers' brains (Michael Joseph Gross — Atlantic)

University endowments invest in blockchain (Jon Victor — The Information)

The players in humanless retail (CB Insights)

First ever Chinese spy extradited to U.S. (Ellen Nakashima — WaPo)

5. 1 passing thing: The sad demise of American cheese

Photo: Katherine Frey/Washington Post/Getty

We've chronicled the fall of Big Mayo at the hands of millennials who developed tastes for sriracha, salsa, wasabi and anything else they regard as hipper condiments. Next to go: Big Cheese.

What's happening: American cheese, a longtime burger and sandwich staple, is under attack. Fast-food chains around the U.S. are swapping out Kraft Singles for fancier cheeses like asiago, sharp cheddar and smoked Gouda, Bloomberg reports. The result is a generational shift away from the orange squares that have populated school lunches for 50 years.

  • Wendy's, McDonald's, A&W and Panera are all introducing high-end cheeses. Panera Bread's classic American cheese grilled cheese is now served with a blend of fontina, cheddar, monteau and smoked Gouda — and that's boosting sales, per Bloomberg.
  • Sales of processed cheeses like Kraft and Velveeta will drop 1.6% this year, says market research firm Euromonitor International. It doesn't sound like a steep decline, but it's the fourth consecutive year of lower sales numbers.