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October, 2012

There's a Silver Lining to All Produce Storms

By Dennis Linden

As straightforward as this equation may seem, it tends to be a very sharp double-edged sword for many commercial growers who fall victim to some of the more illogical dynamics of this supply/demand pricing system that they supply.

Assorted Fruits

Due to a devastating summer draught across most all of the mid-west, there are grim forecasts of large retail price increases in 2013 for consumer items that depend upon corn and its by-products in their production. Staple goods like meat, poultry, dairy, processed foods containing corn syrup and biofuel will be particularly affected. While a shortage of so much of this nation’s corn crop at once is a rare anomaly, this weather-related domino effect is nothing new to the fresh produce industry. In fact, the basic market formula of supply divided by demand = price has always been the main driving force in the business of distributing fresh fruits and vegetables.

As straightforward as this equation may seem, it tends to be a very sharp double-edged sword for many commercial growers who fall victim to some of the more illogical dynamics of this supply/demand pricing system that they supply. While I have certainly met a few very market-savvy farmers during my produce career, most professional growers incorrectly blame those in the business of buying or selling perishables for any low returns they may get for their crops. Conversely, many farmers take undue credit when the value of their crop soars, claiming an astute foresight in planting the right crop at the right time.

This blame game stems from the fact that the perishable produce industry is really compromised of two very different professions – the producer and the distributor. It takes many seasons to master the science of growing a fruit or vegetable on a large enough scale to supply the business of fresh produce distribution beyond one’s local once-a-week farmers market. Similarly, it also takes years to develop the skills and customer relationships to be a successful marketer in the fluctuating environment of the produce industry. Though in takes the combined efforts of both grower and marketer to get a crop from field to fork, neither side of this partnership really understands the nuances involved in each other’s roles in the distribution pipeline.

Assorted Vegetables

After all, farmers are much too busy holding up their end of bargain, which involves tending to their fields or orchards throughout the long growing season, then harvesting and packaging their crops for market. It takes a grower’s whole day, every day, to grow the best grape or apple or carrot possible under all sorts of weather conditions. Few who supply the marketplace have the energy or time to devote to understanding the dynamics of that next stage in the chain.

Once the crop leaves the farm it enters the larger marketplace that becomes a perishable commodity adding to the supply of that particular fruit or vegetable from other harvests. In fact, one of the hardest things for a grower, who has focused on growing “the best” quality possible, is when that good quality turns into a contributing factor in lowering rather than raising the price. It goes against logic that achieving what all growers strive for – good quality and high yield – would work against them in the marketplace, but that is exactly what can happen on a “good year” and it actually makes perfect sense.

While it certainly takes expertise to grow the perfect peach, for instance, weather conditions play the most defining factor in agriculture. All the experience in the world means nothing during a hail storm or an untimely freeze when trees are heavy with blossom. So the peach grower who complains that the best quality of fruit that he has grown in years earned less than past seasons gives himself a little bit too much credit for a crop that Ma Nature had a big hand in by providing ideal weather conditions.

Also, this same peach grower is not taking into consideration that his neighbor’s peach orchard also enjoyed the same pleasant skies; as did his neighbor’s neighbor and everyone else growing peaches in the region. A bumper crop of nails can be sold over time; a bumper crop of peaches ripens and then rots within a very short window. To sell more peaches than usual in the same amount of time (before spoilage) wholesalers and retailer must meet the challenge with lower pricing to promote more consumption. In a glutted market, good quality may certainly help sell one lot of peaches quicker than fruit of lesser quality, but not for a premium price. A fact that is very hard to swallow if you are grower who figured he had “best in show” and expected monetary recognition for a job well done!

To further puzzle our already incredulous peach producer, the next year a hail storm completely destroyed 75% of all the peaches in his region. Luckily, being located on the periphery of the storm, his crop dodged the bullet with no loss of fruit. However, much of crop suffered cosmetic scarring from the high wind causing the leaves to rub relentlessly against the tender fruit. Still, because there was a 75% decrease in peaches from the area, his scarred, weather-beaten fruit earned him almost twice as much as those perfect ppeaches from his bumper crop of the previous season.

So, in the world of commercial agriculture, one may profit from the crop failures or bad luck of others and sometimes the lower the quality the higher the price when supplies are short. Two growers may get together for a friendly BBQ during the off season, but the fact is that they are competitors who would each profit by the other’s losses.

Even the draught-plagued corn crop has created some positive collateral benefits for the neighbors of some corn growers. Vintners in grape-growing regions of Missouri, Michigan and other Midwestern states are predicting that the dry conditions will produce some of the best red and white wines in years. While the lack of rain has caused the wine grapes to be smaller in size and yield, the fruit’s flavor and sugars are more concentrated than usual, holding the promise for some outstanding vintages. So a perfect peach is penalized for its good looks and one corn crop failure also generates a clink of glasses in celebration of a great vintage. I suspect whoever coined that truism that life just isn’t fair was a baffled farmer wondering what to plant next!