Skip to main content

Opinion: Supply shock, demand collapse?


Impact of the recent weather events in Chile on the table grape supply and price by John Pandol of Pandol Bros, complemented by charts from Agronometrics.


Original published in FreshFruitPortal.com on March 02, 2021 

By John Pandol, Special Projects Director at Pandol Bros.

A political survey recently asked, “Do you feel happy when bad events happen to other people?” No. I do not. The recent weather event in Chile, and its resultant losses of jobs, income and food waste, don’t make me happy.

Others may win, true. Other unaffected growers, holders of uncommitted inventories and substitute fruits may do better than they otherwise would have.

But the idea of 'there’s half the supply so the price should double' never happens. It is as unrealistic as believing retailers and consumers will pay more just because our cost of labor or transportation or variety royalties have increased.

Volumes (in Kg) and prices (in USD) of table grapes from Chile in the US market
Source: USDA Market News via Agronometrics.
(Agronometrics users can view this chart with live updates here)

The two largest supply shocks I remember were the San Antonio port closure after the 2010 earthquake and a big rain in early March in the 2000s. Different causes but similar market outcomes.

My memory of the March rain was the news that the general manager of one of the large grape exporters was so affected by the forecast losses he became ill and was sick in bed. In the United States, sellers began to cancel or simply not fulfill committed business.

No one would commit to supermarket ads, even at very high prices. Importers stopped selling and started allocating, withholding any inventory of grapes that had storage potential. Sellers REDUCED demand because one of the biggest sins is creating demand and not being able to supply the product.

That season, however, the forecasts of supply reduction were wrong. Volume was down but not anywhere near the total collapse predicted immediately after the rain. Inventories grew and a short market became a long one. The order to “turn the faucet back on” came too late. The desert growers in California and Sonora had expected a clean floor at the beginning of the season. It was an ugly transition. Demand didn’t collapse; we destroyed it.

The supply shock caused by the earthquake in 2010 was different and perhaps more instructive. Damage to the port as well as interruptions in supplies of motor fuel and electricity suspended operations. Workers needed to clean up and repair their homes. After two or three days the fruit flow began again. Some volume was lost to damage in transit when the earthquake hit, cold stores without electricity and other damages, but the supply shock was really a small delay and not a supply shock at all.

Volumes (in Kg) and prices (in USD) of table grapes from Chile in the US market the year of the earthquake (February 27, 2010) as compared to the previous year
Source: USDA Market News via Agronometrics.
(Agronometrics users can view this chart with live updates here)

Yet, demand collapsed that season. Why? The Chileans sent two very conflicting messages to the market. The press releases were as described above: no reduction in volume but simply a delay in operation. On the other hand, growers and exporters were instructing their sellers not to commit to ads and to hold back inventory. Retailers tried to buy, plan and promote, but could not reach agreements for supplies of Chilean fruit.

Retailers made other plans to fill their shelves. Inventories filled Philadelphia cold storages and the grapes became old. The decision was made to begin selling again and we started shipping the ‘least bad’ old grapes. These old grapes just don’t sell as fast as fresher grapes and could not compete with fresher, local spring fruits.

Remember: seller behavior can impact demand more than the product, both by our word and by our actions. This thing we call ‘the market’, does not have fixed demand. There are more substitute fruits than ever. Quality standards are relative and not absolute, and buyers will be more or less tolerant depending on supply, but low condition fruit does not sell at retail.

There will be lots of arguments about “the fruit was in good condition when it arrived” or ‘the grapes were in good condition when the retailer received it”. At the end of the day, if produce gets put on the shelf and the shopper or professional e-commerce order pickers pass it over, there may or may not be an adjustment to the invoice but will not be a follow-up order for more fruit. Game over.

The News in Charts is a collection of stories from the industry complemented by charts from Agronometrics to help better tell their story.

Access the original article with this (Link)

Comments

Popular posts from this blog

Blueberry boom: Worldwide growth creates challenges for NW producers

Overview of the northwest blueberry season by Doug Krahmer of Berries Northwest, Cort Brazelton of Fall Creek Farm and Nursery, Kasey Cronquist of the U.S. Highbush Blueberry Council and Mark Hurst of Hurst's Berry Farm, complemented by charts from Agronometrics. Original published in www.capitalpress.com  on July 30, 2020 ALBANY, Ore. — On a seasonably warm July afternoon in the fertile Willamette Valley, Doug Krahmer stood between rows of organic blueberries and watched as a large mechanical harvester rolled slowly through the field, rattling bushes heavy with ripe fruit. Measuring a little more than 15 feet tall, 11 feet wide and weighing 7 tons, the harvester seemingly floated in the distance over neat rows while fiberglass rods, or “fingers,” shook the berries onto a conveyor belt that swooped them to the upper deck and into plastic crates. From there, the crates were loaded into refrigerated trucks and driven from the farm north of Albany, Ore., to a packing shed ea

Agronometrics in Charts: Demand for berries skyrockets in 2021

This time for the ‘In Charts’ series we will give an update as to how the average prices of berries have been behaving. Specifically, we will look at the prices of blueberries, raspberries, strawberries, and blackberries in the United States market and compare them with previous seasons. An increase in demand, brought on by the tendency to consume “superfoods” such as berries during the Covid-19 pandemic, seem to have pushed prices up despite the fact that volumes imported by the United States have been similar or higher than those of previous years. Let's look at each particular case: Blueberries Blueberry prices experienced a significant increase from week 3 of 2021, showing the highest prices of the last 5 seasons for the same date. If we observe the following chart, we can see that, for week 7 of 2021, the average price of conventional blueberries was $7.60 per kilo. This is 24 percent higher than in 2020 when the average price was $6.14 per kilo. Volumes for blueberr

Peru's blueberry oversupply takes its toll on export price

Overview of the Peruvian blueberry season, complemented by charts from Agronometrics.   Original published in FreshPlaza.com   on November 25, 2020  This year's Peruvian blueberry season began in June with the export of 1,010 tons worth 5 million dollars. These figures represented a 25% increase in volume and a 77% increase in value over the same month of 2019. The lower production in the northern hemisphere due to weather problems allowed producers to achieve attractive prices of $ 5.15 per kilogram in June. Volume (in Kg) of blueberry from PerĂº in the US market Source: USDA Market News via Agronometrics . (Agronometrics users can view this chart with live updates here ) The good reception of Peruvian blueberries and the increase in prices encouraged exports during July, a month in which the country shipped 4,808 tons (+ 108%) for 26 million dollars (+ 102%). In this month, the increase in the Peruvian supply generated a slight 3% fall in the typical prices of the month,