Heinz and Buffett: Big government for thick ketchup

Reuters

Traders work at the post that trades H.J. Heinz Co. on the floor of the New York Stock Exchange, February 14, 2013. Warren Buffett's Berkshire Hathaway and private equity firm 3G Capital will buy ketchup and baby food maker H.J. Heinz Co for $23.2 billion in cash, a deal that combines 3G's ambitions in the food industry with Buffett's hunt for growth.

Article Highlights

  • Like Warren Buffett, H.J. Heinz lobbied for “progressive” big-government policies that profited his company.

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  • Heinz didn’t stop at using market tools to gain advantage. He reached for political tools, too. @TPCarney

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  • One undisputed winner of progressive food-regulation efforts was H.J. Heinz.

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Billionaire Obama fundraiser Warren Buffett teamed with a Brazilian firm last week and paid $23 billion for ketchup titan Heinz. Given their similar views, it's only fitting that Buffett should acquire the company founded by the late H.J. Heinz.

Like Buffett, H.J. Heinz was a brilliant businessmen and a true American success story. Like Buffett, Heinz was also a generous philanthropist.

And like Buffett, H.J. Heinz lobbied for "progressive" big-government policies that profited his company.

Buffett champions the inheritance tax, which drives family businesses to sell out to his holding company, Berkshire Hathaway. Buffett also backs President Obama, whose green energy agenda subsidizes Buffett's expanding wind and solar portfolio.

How did H.J. Heinz try to profit from big government? Once his company developed a more expensive, preservative-free ketchup about 1905, Heinz joined forces with the Roosevelt administration and tried to restrict artificial preservatives and even ban them. In other words, Heinz tried to outlaw his lower-price competitors.

It was a classic instance of Progressive Era collusion of big business and big government.

The industrial revolution spawned a processed-food industry. Advances in chemistry brought along artificial preservatives -- ketchup-makers mostly used sodium benzoate (then called "benzoate of soda"). Heinz ketchup had artificial preservatives as late as 1904.

Heinz, according to historians, was personally uneasy with artificial preservatives. He may have been influenced by the crusading efforts of Harvey Wiley, the chief chemist in Teddy Roosevelt's Agriculture Department. Wiley embodied the progressive fantasy: a man of science willing to wield the might of the state to improve the lives of the American people, whether the people liked it or not.

Wiley was convinced sodium benzoate was harmful. His evidence was thin, but Wiley proceeded almost on faith. Today, scientists find that sodium benzoate, when combined with vitamin C, is a mild carcinogen. It is still allowed as a food preservative, because in small quantities it is not considered harmful.

As Wiley pushed Roosevelt and Congress to restrict sodium benzoate and other artificial preservatives, Heinz began experimenting with new recipes that used natural preservatives. He added vinegar and the right mixture of pectin and pectic acid. The result was the thicker ketchup we now know.

To make the recipe work, Heinz had to better control tomato quality: hand inspections, refrigerated rail cars, better storage. This made his preservative-free ketchup both better and more expensive.

To convince consumers it was worth the additional cost, Heinz launched a massive public relations blitz. He slapped a second label on the bottle neck, blaring "Benzoate-free." He bought ads warning that other ketchups included "benzoate of soda," which might be unhealthy, and which certainly was used to accommodate subpar ingredients.

All of this was good old market competition. Heinz wanted to convince housewives that his ketchup was worth the premium price. And so consumers had a choice: spend more on thicker, preservative-free ketchup, with better tomatoes; or save money and buy cheaper stuff, which some people thought might be unhealthy.

But Heinz didn't stop at using market tools to gain advantage. He reached for political tools, too.

"H.J. Heinz was obsessed with banning benzoate of soda," according to his biographer, Quentin Skrabec. The first step was passing a federal law. "He was the main force behind the passage of the Pure Food Law of 1906," Skrabec writes.

This supposed triumph of progressive reformers over the special interests was nothing of the sort. Heinz -- who dominated his industry -- and the large meat packers supported the law and benefitted from it.

Food historian Ann Vileisis writes, "The law effectively eliminated countless small and regional food producers that could not meet its sanitary production standards, which were based on large-scale specifications."

Roosevelt's law required labeling of artificial preservatives but didn't ban them. So Heinz pushed on. He formed "the Association for the Promotion of Purity in Food Products," headed by the company's lobbyist, Loren Dow.

The association worked closely with Wiley and called for "the specific prohibition by name of the use of artificial preservatives in food," as Dow put it in a 1911 press conference.

Heinz never got his preservative ban, but the 1906 law did help him squeeze out smaller competitors. Stricter standards have health benefits, but industry consolidation carries costs: The Centers for Disease Control and Prevention says that "an increasingly centralized food supply means that a food contaminated in production can be rapidly shipped to many states causing a widespread outbreak."

One undisputed winner of progressive food-regulation efforts was H.J. Heinz. Warren Buffett must be proud to be the guardian of Heinz's legacy.

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About the Author

 

Timothy P.
Carney
  • Timothy P. Carney helps direct AEI’s Culture of Competition Project, which examines barriers to competition in all areas of American life, from the economy to the world of ideas. Carney has over a decade of experience as a journalist covering the intersection of politics and economics. His work at AEI focuses on how to reinvigorate a competitive culture in America in which all can reap the benefits of a fair economy.


     


    Follow Timothy Carney on Twitter.

  • Email: timothy.carney@aei.org

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