Overall, Western agriculture is finishing up a good year with strong commodity prices in most crops. However, there are segments of highly diversified California and Arizona farming that are struggling.
One is the vegetable industry, specifically leafy greens. The other is the stone fruit crops.
Both are plagued by the “disconnect” between farmer/shipper prices and retailer prices. Peaches grossing a money-losing 40 cents per pound for farmers sell for $2.99 per pound in supermarkets, reflecting a significant disconnect that is not a good for producers trying to stay in business and increase consumption of fruits and vegetables.
“If a consumer has to pay $2 for a peach, she will take that $2 to McDonald’s and buy a Big Mac,” said Barry Bedwell, president of the California Grape and Tree Fruit League, Fresno, Calif.
Bedwell joined Jasper Hemphill, vice president and general counsel for Western Growers; biotech guru Eric Sachs of Monsanto and economist Mike Swanson of Wells Fargo Bank on a market trends and issues panel recently at Western Plant Health Association’s annual meeting in Tucson.
With increasing retail grocery consolidation and the meteoric rise of the big box stores, this cost-retail price disconnect goes beyond the price tags for fruits and vegetables.
When the leafy green industry was sent reeling from last fall’s spinach E. coli incident, the Western vegetable industry responded with an aggressive, far reaching leafy green initiative to enhance safety in the production and handling of Western vegetables. Hemphill said the retail food industry promised to back the industry’s efforts, but has not. Retailers also reject putting country or state of origin labels on fresh produce and generally ignore the disconnect issue.
Hemphill said the E. coli outbreak cost farmers, packers and shippers $100 million in lost revenue. Not included in that total is lost revenue to suppliers like tractor dealers, agchem and fertilizer suppliers, insurers, and financial institutions. It had a huge trickle down effect to workers in all segments of agriculture.
And it is far from over. Mexico still does not accept U.S. spinach and although the industry staved off state legislation mandating food safety standards last session, Hemphill expects the issue to arise again this session.
The leafy green marketing agreements for California and Arizona were quickly formulated and established by the industry to restore public confidence in leafy greens. Hemphill said Western Growers took the road it did — a voluntary program with government oversight — to get something in place quickly.
It would have taken far longer than the 45 days it did to set up the leafy green agreement than it would have to establish a federal or state marketing order.
In place now, Hemphill said it is a “very unique marketing agreement.” It is voluntary, but once a handler signs on, he is bound by law to conform to the agreement to use good agricultural practices to ensure food safety and is subject to audits. Hemphill says shippers signatory to the agreement represent virtually 100 percent of the leafy green production in California.
Hemphill added that the leafy green agreements in both states are just the beginning. Although there is pressure to create a state-mandated marketing order in California, he believes — for several reasons — the “final solution” will be a federal marketing order. Although the leafy green agreements in place now are making California and Arizona produce safer for consumers, it is also putting Western producers at an economic disadvantage in the marketplace with producers in other states because it is costing Western growers more money to meet the regulations. More importantly, farmers shipping produce into the U.S. from other countries also are not regulated for food safety and presumably would be under a federal marketing order.
“Western Growers is working with other produce organizations in other states for a national food safety marketing order,” said Hemphill.
However, it is just as important to place imported foods under the same standards as American produce, said Hemphill, since imported food draws the most food safety criticism.
Hemphill said the fertilizer and pesticide industries play key roles in keeping food supplies safe by ensuring that the water used to apply products is pathogen-free and that personnel and equipment also is clean to prevent food contamination.
The WG vice president said WPHA members and their employees are the “first line of defense” since Pest Control Advisers (PCAs) are in the field often and can spot problems. They also provide products to trap and exclude disease-carrying animals from food crops.
Hemphill said there are opportunities for WPHA members in this new food safety arena to provide environmental monitoring, testing and analysis services, including third-party verification of grower production practices to meet buyer and government good agricultural production standards.
Hemphill added, however, with all that is in place it is virtually guaranteed that there will be another food-borne illness outbreak implicating produce.
Hemphill said the industry is better prepared than it was in the wake of the E.coli/spinach outbreak with a crisis management plan in place as well as details about the agricultural practices for the public to see as part of the leafy green food safety program.
Stone Fruit, Grapes
The season just completed was another challenging year for peach, plum and nectarine producers, according to Bedwell.
“One-third of the industry is still losing money, and one-third is breaking even, and one third is making money,” said Bedwell, president of the 300-member voluntary CG&TFL. “Others say 40 percent to 50 percent of the stone fruit industry is having trouble making money.”
California stone fruit growers produced 48 million boxes of fruit in 2007. Most in the industry say 44 million is a more reasonable supply for the demand.
The disconnect between the retail and the supplier was exemplified last season when a freeze in the Carolinas and Georgia reduced the peach crop, yet prices fell to as low as 40 cents per pound for California fruit that sold in supermarkets and big box retailers for as much as $2.99 per pound.
“The margins for produce continue to carry the load for the rest of the items in the supermarket,” he said.
Table grapes fared better. Some 86 million boxes of table grapes were sold last season. Bedwell said the market can handle 95 million. “The majority of table grape producers are doing okay,” he added.
The challenge facing the fresh fruit industry is the burgeoning organic market, which is growing at rates of 17 percent to 20 percent annually and now accounts for $20 billion in food sales.
Organics represent only 3 percent of grocery sales, but represent 25 percent of the overall growth of grocery sales. Thirty percent to 40 percent of organic food sales are produce.
Organics are projected to be 25 percent of the food market by 2025. It will no longer be a niche market then, but mainstream said Bedwell.
It is perception, not reality driving this organic market. Organic is perceived as healthier, free of pesticide residues, better for the environment and tastes better than non-organic foods, none of which has been scientifically verified.
“I read the other day that somehow rats preferred organic over conventional food. That kind of stuff drives me crazy ... rats?” said Bedwell.
“Unfortunately there is a lot of misinformation getting out about organics. Like the report not long ago that the 150,000 bales of organic cotton produced in the U.S. saved the use of two tanker loads of pesticides. When the cotton industry looked into it, it was more like 55 gallons,” he said.
Nevertheless, organics and sustainability are the future of food farming.
Organics is relatively clearly defined. Sustainable is not. Bedwell has found 27 different definitions, most lacking a key element, economics.
Environmental awareness and social responsibility, two of the three legs of the three-legged stool, are important but “without making a profit, you cannot be sustainable,” he noted.
It is Wal-Mart, the world’s largest retailer, and its big box retailer/cousins which are driving the organic/sustainable movements in the consumers’ minds. It is a challenge the industry must face in giving retailers what they want, if farmers want to continue producing food and fiber, he said.
The global warming/greenhouse gas issue is another challenge in an uncertain future for California farmers. Bedwell called AB 32 (The Global Warming Solutions Act) “a legacy item” for California Gov. Arnold Schwarzenegger, which calls for reducing greenhouse gases in California to 1990 levels by 2020.
Farmers believe they will be a key element in that effort because of the crops they grow, but Bedwell added, “be careful of what you ask for” because agriculture’s carbon footprint could be muddy with the tractors, trucks, harvesters and other equipment used to produce and take to market what those good guy plants produce.
Bedwell cautioned agriculture to keep an open mind until more is understood about the issue. Regardless of what comes out of it, farmers who want to do business with the likes of Wal-Mart will have to “play along” with reducing global warning and greenhouse gases.
It is no longer whether global warming is a fact or not. It will be a part of agriculture’s future.
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