We recently wrote a column in Pundit sister publication, PRODUCE BUSINESS, that we titled The Produce World of 2016: Power Shifts To Producers. Here is an excerpt:
Want to know the state of the produce industry in 2016? True story: A California grower/shipper, one of the largest in the world, meets with an old friend who works for one of the largest produce buyers on earth. The buyer asks the seller: “So, what can I do for you in the new year?” The seller, without missing a beat, responds: “If you really want to do me a favor, then give me less business.”
He wasn’t joking. And the buyer was genuinely scared, because he knows there is no place to lay off a third of his order. There is no place to lay off 5 percent of his volume.
Some of this is temporary — a function of weather, which could be different next quarter or next year. But some of it is a function of the high cost of inputs leading growers to dramatically reduce the amount of product grown on speculation. It is increasingly the case that every acre planted is planted because the product expected to grow there already has a pre-committed home. That means that there is no product available for those who have not pre-committed.
Beyond costs, the reality is inputs are increasingly scarce. It is not easy for a grower to get more land that is suitable for growing, more water where it is needed, or more labor to harvest and pack when it is required.
Combined, this is a revolution in the produce industry, and for all the talk about how consolidation at retail gives buyers a stranglehold on producers, that notion is increasingly not aligning with reality.
You can read the whole piece here.
After years of hearing of producers being kicked around, the tables are turning. One big producer sent a gleeful note after reading the column:
“Your comments were SPOT ON! As always….the tide is finally turning in our favor. Not enough land to go around and no one has the margins to plant “insurance acres” for anybody. We are turning low to no margin business away.”
Another told us the story of a top-five buyer objecting to a price increase, but, begrudgingly accepting it when the producer wouldn’t back down — but explaining they would need to cut volume. The shipper whispered “Thank God” among its team and accepted the order cut. A few weeks later, the buyer returned asking to go back to its old volume. But the product was already committed elsewhere and there is no more product to be had.
This is a sea change. It means the old ways of buying and selling have to change. Shakespeare wrote most eloquently of the interaction between fate and free will by giving those words to Brutus in Julius Caesar:
We at the height are ready to decline.
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures. (IV.ii.269–276)
No one’s position is permanent, and how we deal with the realities we are given is the key to success. As those realities change, we must as well or “our ventures” are bound to be lost.