COVID may be in the rear-view mirror, but there’s no analgesic balm for all the hand-offs from one supplier to another. Anecdotal evidence abounds of ongoing parts, equipment and sales delivery problems across the entire fresh produce industry. Together, these factors contribute to stubbornly high retail food prices.
“We were hamstrung by a tiny device measuring four inches by four inches,” recalls Steven Roberts, director of produce sales for Vineland Growers’ Cooperative, Jordan Station, Ontario. “It’s the part that controls refrigeration coolers. The overseas supplier had the part on back order due to inflated production lead times.”
Mario Masellis, vice president of sales and marketing for Catania Worldwide, has witnessed such pressure points firsthand as a global fruit importer of kiwifruit, citrus and other perishables. He points to an infographic (see page 3) released by the Canadian Produce Marketing Association (CPMA) and Fruit and Vegetable Growers of Canada that details the effect that grower inputs – seed, fertilizer, packaging – have on the entire value chain.
“Every partner of that chain affects everyone in that chain,” he says. “Think of the decisions that are made to deliver a fruit item to the retailer in the right punnet or mesh bag or bulk case, at the right weight, at the right time.”
That’s exactly why a perfect storm has pelted the produce industry in terms of geopolitical upheaval in Ukraine, calamitous weather events, historically high energy prices and rising wages for labour. Inflation is still stubbornly high in 2023. The Canadian Consumer Price Index rose 4.4 per cent in April from a year earlier, but grocery costs were up 9.1 per cent raising the spectre that interest rate hikes may not have peaked. Combined, these factors have resulted in produce prices that are now at record highs. Retailers trying to explain this complex global supply chain have received little empathy from either consumers or parliamentarians.
“Yes, the selling prices have changed but the margins haven’t for retailers,” says Masellis, explaining that recent record profits come from increased volumes relative to pre-pandemic sales. “There’s been a lot of compromise from farm to plate to manage prices with cuts into everyone’s margin. And all of these negotiations depend on your partnerships.”
In today’s context, those relationships span the world. Pointing to his company’s kiwifruit purchases from New Zealand, Italy, Greece and Chile, Masellis explains, “Exchange rates have a huge bearing on whether a business transaction makes money, especially with delays in delivery time. For example, I may buy produce in euros, transport it in U.S. dollars and then sell in Canadian dollars.”
For Kirk Kent, owner of Algoma Orchards, Newcastle, Ontario, choosing the right port of entry has never been more important. In spring 2023, he used the Port of Philadelphia to bring in Argentinian pears for a retail customer in the Greater Toronto Area. Ocean freight costs have come down to close to pre-pandemic rates, but the choke point can be a port. It doesn’t take long for any cost savings in seacans to be negated by delays in off-loading and trucking the last mile.
The CPMA’s infographic detailing these dependent relationships conjures images of human anatomy. The hip and knee are connected both structurally and functionally. A tendon runs along the outside of the leg, connecting a band of muscles from the hip to the knee. When a problem develops in the hip, it can cause the knee to ache as well -- a phenomenon called referred pain.
Ron Lemaire, CPMA president, has observed this phenomenon in his role as chair of the Global Coalition of Fresh Produce, a group that coalesced in the cauldron of the pandemic. The impetus for the coalition was negative consumer perceptions about the high costs of fruits and vegetables. (https://producecoalition.net/)
“We want to preserve the share of voice for the global fruit and vegetable industry in a complex macro-economic environment,” says Lemaire. “Fruits and vegetables are too important to human health not to have policy makers of every stripe at the table. We need to engage all relevant industries whether that’s energy, shipping, packaging, fertilizers or retail.”
The coalition plans to release results of a member survey in June 2023. A sneak peek shows that 60 per cent of the respondents reported that they have not been able to adjust the selling price in line with increases in operating or production costs. And just under 70 per cent say that ongoing impacts from production and shipping costs will not abate before the end of 2023.
“We have reached a tipping point as consumers do not want to pay more yet it is costing growers more to produce,” Lemaire says. “The pressures to spread these costs across our supply chain are insurmountable.”
Armed with these statistics, Lemaire hopes to convince policy makers on improvements to transportation networks. The vision is for integrated, multimodal transportation solutions. Ports play a big role because they are hubs for trains and trucks which transport goods to inland consumer markets. For starters, he’d like to create priority lanes for imported fresh produce to ensure quick offloading and transit from seaports.
As Lemaire shared with attendees to the CPMA convention in Toronto in late April, clearly there is some urgency to find solutions.
“In 2023, we are seeing the formation of two geopolitical blocs between East and West so the question becomes will this create a new cold war, with both blocs having highly integrated commercial systems,” said Lemaire.
“We don’t know what this will mean politically but in business we are seeing the growth of friend shoring, which is manufacturing in and sourcing from countries that are geopolitical allies. This can shorten supply chains and reduce costs, but it is not traditionally a recipe for international growth. If this trend intensifies, what strain will that place on Canadian infrastructure and our traditional trading patterns?”
Inarguably, the pandemic has laid bare the interconnectedness of the global produce chain. Lemaire’s challenge – and for those in leadership roles -- is to help calm the joint pain in the short term. However, major surgery is likely required to improve infrastructure in the mid-term.
Digging Deeper Podcast: Ron Lemaire, president of the Canadian Produce Marketing Association shares both a global perspective and domestic context of the pain points that need to be addressed to protect the cold chain. Listen to podcast here >>