For many years Gustavo Yentzen has organized a Latin American themed panel discussion at The Global Trade Symposium of The New York Produce Show and Conference and one of the things that has become clear is that so many things have secondary effects that impact producing countries.
With war raging in the Ukraine and global sanctions against Russia, the situation is, as Winston Churchill said once before of Russia:
‘I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key. That key is Russian national interest.’
Yet, in the meantime produce is a supply and demand business and if produce destined for Moscow won’t be going there — because of restrictions, because there are no boats, because Russian credit is shaky — those items will seek to find other markets. This will lead to price declines and other issues.
How this will all play out is unclear and the war overlays on top of already dynamic changes in the role of Chile and Peru in the Latin American export scene.
We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
Gustavo Yentzen
General Manager
Yentzen Consulting
Las Condes, Santiago, Chile
Q: We truly value the unique partnership between our companies over the years, and the in-depth international experience and multi-faceted expertise you bring to the industry. From New York to Amsterdam to London, you are a welcoming presence throughout, whether presenting or moderating lively debates, you emanate an innate ability to bridge diverse cultures, through a masterful grasp of the critical issues facing global trade.
Let’s give attendees a sneak preview for LPS22.
A: The first thing I’ll be presenting is an analysis on how exports are changing coming from South America. The stagnation of Chile and how Peru has taken advantage.
I’ll look at trends in Peru and other countries in Latin America that have grown and have changed their share of exports to different markets.
The second thing, I’ll analyze the impact of the war in Ukraine on different countries in Latin America.
What happens to fruit that was destined for the Ukraine and for Russia.
In some countries the impact is minimal and in others the impact is very, very powerful. The analysis will explore which are the countries and the products that are being affected and possible solutions maybe.
In addition, I’ll present a special mini-case study on the impact on Ecuadorian bananas.
I don’t want to share all the details right now.
Q: OK. It sounds like there’s a lot to unravel. Could you provide some key points, in the context of your background and far-reaching business platform?
A: I’m in sync with Jim Prevor’s mission to share news and information globally. The London Produce Show is an exceptional venue to do that, and to join with industry leaders and decision-makers from around the world to exchange solutions.
As for myself, I’ve been working in the industry for the last 21 years. I started my company 16 years ago. We have three portals for the produce industry that reach 187 countries.
Q: How do you navigate the diversity of 187 countries in the relevancy and prioritization of information, and within the different segments of the supply chain? Not to mention the language and cultural nuances. How do you manage customization and competitive interests, with the compatibility on some major issues that necessitate industry solutions?
A: We must understand the varying needs and vantage points in every market, every country, and every continent. It’s necessary to adapt information to a U.S. retailer and U.S. supplier, which is different from what a European company would want to receive, for instance. Second, we’re always exploring which market needs specific information we could provide to them. At the same time, there is information that’s interesting for all the markets; the strategy of a big retailer in the world, a significant merger or acquisition of a major player that would have relevance to any leader world-wide.
Adjusting to specific markets is one of the challenges that we face, and if we can do it, we will bring a special media that could cover that market. For example, we launched Vision Fruitcola (Fruit Vision) focused solely on the export industry in Chile and Peru, not the production side, to cover their interests, and the strategies of the big leaders in our industry, and what they are seeing for the mid-to long-term in the markets. So, the need to adapt is permanent and the need to understand how the industry is changing is also permanent.
Q: How transformative are the changes confronting the industry now?
A: The biggest changes…well, there are many factors outside the industry shaping what’s going on.
The Russia-Ukraine War is one of the aspects no doubt. There are changes effecting the external happenings post pandemic, like the changes in logistics are having huge impacts on the fruits being exported from South America to markets like Asia, the U.S. and Europe. It’s not only the capacity to produce and sell and trade fruit professionally, right now we have challenges that go beyond that, such as logistics, and climate change that are definitely affecting the way production is being done.
So, we need to pay attention and we’re always trying to understand if the changes that are happening are long term or just specific challenges. In the case of logistics, what we’ve covered and understand, we have at least the next 24 to 36 months the conditions are going to remain and be very difficult for the exporters in Latin America. Lack of ships, lack of containers… that are obliging the industry to work together, even among competing companies, to secure spots, or to negotiate spots with the shipping lines, to make sure that the products arrive on time to the markets.
Q: Is that notable that competitors are joining forces to negotiate shipping contracts? This certainly is not the first time the produce industry’s complex and perishable supply chain has created dynamics enjoining competitors… While out of necessity, this action seems to portend broader applications and rewards…
A: Right now, that is what’s happening, and we’re seeing this as a trend. We saw this years ago with cherries, where companies gathered and decided to generate agreements as an industry, as the cherry industry, with the main shipping lines. It was called the Cherry Express, and later evolved to be called the China Express. These are boats that have a secure compromise of fruit that will get to the market in a certain amount of time. That meant it generated a huge reduction in transit time from Chile to China, going from 32-35 days to 20-21. And there are other countries benefiting from that. Argentinian cherries are crossing the border to Chile by truck and loading on the Cherry Express being sent to China.
I guess what I like, is the effects of working together that go beyond generating benefits to a specific company, beyond a group of companies, and generally impacting the whole industry. And not only one industry but impacting other industries.
For example, now these grapes going from Chile to China get on board the former Cherry Express, now the China Express, and can get to China in the same 21 days. Those are external changes that are affecting the industry and the industry is transforming the challenge to an opportunity. And that’s what we need to learn from.
Q: Could you share some insights now on the impacts of the Russian invasion of Ukraine?
A: The main challenge is for the countries that had big volumes considered for China. Because even if countries had no problem selling to Russia with no restrictions, there’s not an embargo for the South American countries, but technically there is, because there are no boats to take them. When you have the majority of your fruit going to one market, and you’re not able to get it there, that’s a serious problem.
Q: How is Chile positioned?
A: Chile is not suffering. Chile has always been very diversified in its shipments to the world, and to Europe, because of some particularities with how the Russian market works, Chile is not that exposed.
There are some other countries that are exposed, like Colombia and Ecuador. And Costa Rica as well with their bananas will be more affected. The challenge for them is that the cost of bananas does not permit huge changes of shipments to other markets.
When you have a product like cherries that has a higher margin of return per pound or per kilo, it allows you to pay a higher price for shipments. That’s not the case with bananas. It’s a pennies market per pound or per kilo. So, the options are still very limited.
And the companies that will benefit from it are the ones which have the secure spaces in the boats that are limited. And again, the challenge we have as an industry. For every challenge there’s an opportunity. But in this case the opportunity is going to be in the hands of very limited players.
Q: What about labor issues?
A: You really want me to cry, Mira. Labor issues are a big challenge in Latin America. There are labor challenges for all the countries. After the pandemic, not everyone had the same motivation to go back to doing the same kind of work they were doing before. Plus, in the case of Chile and Peru, particularly, there were incentives by the government to help people in the beginning of the pandemic, that disincentivized going back to work. That has changed in Chile with new laws and incentives that encourage people to go back to work to receive support from government. In the past, if people didn’t have jobs, or they were willing to work illegally in the black market, the industry was in a big problem because it was so regulated with traceability and protocol, growers and exporters couldn’t employ these workers. The government realized there was a problem and created another type of incentive for people who had gotten a job in a certain amount of time. And that meant people started going back to their jobs.
Q: Is Brexit something you’ll be discussing?
A: Not really. We have bigger problems. I think the pandemic ended with Putin. COVID stopped being a global problem because the focus shifted, and now we’re all concerned there’s going to be a major war between NATO and Russia. And making sure that other countries don’t support Russia, like China.
Q: I guess that dramatically elevates the expression, ‘You have to pick your battles.’ What are your greatest concerns, and what is your advice going forward?
A: It all depends on how long the war in Ukraine lasts, I would say, and that’s impossible to know right now. It’s difficult to have that information. My fear is that in the process, some banana growers that were already getting hurt in the market. They have the biggest challenge, to get retailers to pay more for the fruit that they are selling. But retailers don’t want to pass on that additional logistical cost to the consumer. That already had impacted different industries coming from South America. Now they are going to be more effected because the market they could go to, Russia, is not going to be available. So, it’s a double effect.
Q: Maybe a triple effect. I don’t know how it’s impacting all markets, but in the U.S., inflation is higher than it’s been in 40 years…
A: Yes, additionally there is skyrocketing inflation, that all links back to the increased costs in transportation to all the world markets. At the same time, you see the record years that the shipping lines are having. There’s a saying in France that I like, behind every big banquet, there is always somebody that killed the potatoes.
In this case, unfortunately it’s going to be the growers from South America. This is affecting countries like Ecuador and Columbia, or any country that is having major exposure to Russia. But for other countries like Chile and Peru, they’re not being majorly affected because they can always send their products to other markets. The challenge for them is increasing costs of transportation. That’s the main challenge, and it’s a huge challenge. But they don’t have the markets closed. That’s the point. Their exposure to Russia is very minimal. So, if you have 3 or 4 or 5 percent of your products to Russia, it’s not a major impact that you’re having, and you can divert that fruit to other markets. You’re not going to make as much as you were making but you can divert and increase in the different markets a little and you will survive.
The problem is when you have 50-60 percent going to one market. It’s the old saying, if you have one or two clients, when one has a problem, you have a problem.
Q: So, diversification is very important then?
A: Absolutely, especially in our industry which changes every day.
Q: You know John Pandol, who will be doing a quick-fire Q&A session with Jim Prevor at the London Show. He believes the industry is overplanting certain crops, such as grapes and blueberries, leading to a proliferation and over supply of volume for market demand. What is your view?
A: I wouldn’t go to that extreme. The consumption of grapes and the consumption of blueberries have grown tremendously through the years, maybe there’s a point where there needs to be a balance there, but there are still markets where people are still eating very few of those two products. In the U.S., it’s a huge market for blueberries, the amount per capita, but in Europe it’s still far away from that. So, there are opportunities to grow and expand. You need to build new markets, diversify, invest in market growth, etc. Our industry doesn’t always make it a priority to expand the market.
Q: You’ll have a chance to talk with retailers at the London Produce Show. What’s your key message?
A: My advice to retailers is, this is the moment to pass the increased costs to consumers. I know they are already suffering because of the inflation and the increased costs, but if not, there will be companies, and growers that will disappear or suffer heavily.
Value-added products, other innovations…all that can be explored but not in the scale of time that we need now. The problem is when you have abrupt closing of the market as we have now, it gives you no time to react. The banana exporters are in contact with different markets, trying to secure more products to China and to the markets they’re already supplying. There’s going to be price reductions no doubt. We’re going to be sending more fruit to markets. But there is a need. We need to move that product.
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What a crazy industry! We are now pleading with retailers to raise the price they charge for fresh fruits and vegetables, a move certain to depress consumer demand – as we fear, otherwise, the retailers will be merciless on the price they are willing to pay in order to continue providing low prices to consumers.
Come and join this robust discussion on the supply source from Latin America. Where does the product not going to Ukraine and Russia end up? And at what price? What other supply sources will be impacted and will retailers benefit? What about consumers?
You can register, and attend this important workshop, at no cost, just sign up for The London Produce Show and Conference right here.
There are a few opportunities for sponsorships and exhibiting if you act fest! Let us know your interest here.
Come join with Gustavo Yentzen and help the industry, and your organization, to plan for the brave new world!
