Produce defies inflation trend
by Christina DiMartino | October 04, 2009
According to the U.S. Bureau of Labor's statistics inflation calculator, what cost $1 in 1980 would cost $2.61 in 2009.
The People History (www.thepeoplehistory.com), a web site project with the goal of making modern history interesting, reveals some retail food prices from past decades. Apples sold in a Wyoming store for 39 cents per pound in 1986, the equivalent of $1.02 today; tomatoes were 39 cents per pound in New York in 1980, the equivalent of $1.02 today; bananas sold for 19 cents a pound in Maryland in 1960, the equivalent of $1.39 today.
On-line supermarket circular ads that ran early last month reveal current prices in the same or similar categories. Royal Gala apples were on ad for 99 cents per pound; adjusted for inflation, that was $1.95 per pound in 1986. Tomatoes were advertised for 99 cents per pound, the equivalent of $2.59 in 1980. Carrots, beets, yellow onions or red onions were on sale at four five- pound bags for $5 - 20 pounds of produce for the equivalent of $3.27 per pound in 1980. Bananas were found on special at two pounds for $1, or $3.65 per pound in 1960.
Lower produce prices do not apply to only commodity items. Charlie Eagle, vice president of business development for Southern Specialties in Pompano Beach, FL, told The Produce News, "In 1980, I was importing radicchio and mache from Europe for the foodservice industry. A flat of radicchio from Italy or a flat of mache from France sold for close to $30. Today it is less than one-third of that. Baby squash wholesaled for around $3.50 a pound then. Today it's a fraction of the price."
Recognizing that prices are lower (inflation-adjustment accounted for) than 30-40 years ago leads to the question of how price stabilization or reduction is possible given increased costs of production, transportation, food safety initiatives, labor and other items producers now face.
"The price taker is at the bottom of the food chain," said Reggie Brown, manager of the Maitland-based Florida Tomato Committee and executive vice president of the Florida Tomato Exchange. "And he gets the residual amount of money. The ability to saturate any market is the 500-pound gorilla in the industry. If the market remains over-supplied, growers are forced to sell for barely survivable prices over long periods of time -- until they simply cannot stay in business."
Production per acre in the tomato industry has had tremendous gains in the past couple of decades. "But those gains reached a plateau over the past 10 years," said Mr. Brown. "A lot of yield increases resulted from growing technology and the introduction of hybrid varieties, but yield strides have leveled off since the mid-1990s."
Mr. Brown said growers cannot pass on the cost of production and still remain competitive, so they must absorb it. But profitability has disappeared, and further absorption is impossible for most producers.
"Unrestrained exercise in buying power can result in major changes and failures in the supply chain," Mr. Brown added. "This will force a change in the industry across the board in time. We're all on this train together."
"Produce is still a bargain," said John Rice, president of Rice Fruit Co. in Gardners, PA. "In the late 1970s, bulk Red Delicious apples would have been on ad for 59 cents or 69 cents, and slightly higher when not on ad. And customers were eager for the fall movement to begin shipping. Supplies, and consequently prices, don't fluctuate much now that supplies are year round."
Mr. Rice pointed out that there are far fewer apple producers today than 30 years ago. Where development encroached, many were pushed out. The remaining producers have grown larger and are typically not faced with high real estate costs because they are generational family businesses that have owned their land for decades.
Commenting that technology has led to higher yields on less acreage and production costs have increased, Mr. Rice said that sustainability initiatives are now part of the long and growing list of overhead.
"Retail margins have been escalating over the past 20 or so years," he said. "It used to be the rule of thumb throughout the industry that when retailers received product at their warehouses, they marked it up by 40 percent. Today, I don't think you'll see much produce, at least in the apple category, that's not marked up at least 100 percent, and often as much as 200 percent."
A consultant once told Mr. Rice that apples have an advantage for produce departments because they are a good source of revenue. Retailers can not only mark them up, they can also mark them down considerably for on-ad sales. That advantage is not possible in other departments, so buyers take advantage of this ability in the produce section.
The first Walmart, which opened in 1962 in Rogers, AR, was 16,000 square feet. Today, there are 2,682 Walmart Supercenters nationwide, and they average 187,000 square feet.
According to Progressive Grocers' 2009 Super 50 Supermarket Retailers report, based on information from Nielsen TDLinx, the top 50 supermarkets in the United States represented $490.7 billion in sales in 2008. The top 10 of the top 50 - Walmart, Kroger, Safeway, Supervalu, Ahold USA, Publix, Delhaize America, H.E. Butt Grocery Co., Great Atlantic & Pacific Tea Co. and Meijer - represent 75.4 percent of the sales, or nearly $370 billion. Produce buyers for those retailers must all have a continuous supply of highly perishable products that have to be sold every day. It's little wonder that they use sophisticated methods for pricing.
"Logistics in the produce industry are the best of any industry," said Frank Dandrea, president of Dandrea Produce Inc. in Vineland, NJ. "How good we are at this is nearly unbelievable. We can get produce from 10,000 to 12,000 miles away, and it's in produce departments with a shelf life. Where we used to get 300 to 400 bushels of peppers out of an acre, we now get 1,000 to 2,000 bushels. The downside is that there are far fewer producers today. It's unfortunate that consumers still do not understand their food supply process and how great a value fresh, healthy produce still is."