February, 2010

Fruits of Thought

Best Laid Plans...

Much of the time the produce industry goes on like any other: Products are positioned, branded, packaged, marketed and merchandised like most consumer products. Then, every once in a while, we have a freeze or El Niño strikes and, all of a sudden, like a puppy on a leash suddenly tugged while running, we are shocked into remembering that produce is not just like other consumables. All of our efforts are at the whim of Mother Nature, and the best laid plans, well, as the poet Robert Burns wrote, “go often askew.”

 On the business side of the industry, bad weather poses well-known conundrums. Should a branded marketer, for example, insist on an objective standard of quality — realizing that this quality may simply not be available? This may keep faith with consumer expectations, but how many companies can afford to forfeit the shelf space and the continuing business that the brand implies?

 Should retailers sell product at high prices that they know to be of low quality? Yet valued suppliers need outlets, do they not? And will consumers be forgiving if one retailer has the same product that another chooses to forego? And don’t retailers need those sales to utilize the square footage and shelf space so expensively outfitted for the produce department?

 What should a restaurant chain do? Suddenly change its menu? Raise prices? Swallow the reduction in margin when the tomato on the hamburger zooms in price?

 Producers who are suddenly short of product have to decide how to allocate among customers, when to enforce force majeure clauses and what product they sell fresh, what goes to a processor and what gets plowed under.

 As problematic as all this is, it is part of the business and recognized as such. Perhaps the more interesting question is how consumers react to unavailable or expensive fresh produce and to quality differentials caused by weather fluctuations.

 Some consumers, of course, react with sympathy. They read or see horrible destruction of the fields in the media and feel empathy for the farmer. They understand and accept some quality issues and recognize that on a small crop, only higher prices will sustain the farmer. This attitude may be increasing, with all the attention being paid to locally grown food and the whole concept of knowing where one’s food comes from. It all results in a greater consciousness of the reality that food comes from the land and that there are real farmers behind each produce item.

 Yet, such a generous attitude can’t be relied upon. For one thing — box schemes and farmer’s markets aside — few consumers deal directly with farmers, so they are removed from the reality of the farm. In addition, the high prices, limited availability and low quality can continue long after the weather event, and the ability of consumers to connect high prices to a weather problem six weeks earlier is questionable.

 Then, of course, we have to realize that consumers have their own problems, and, for the most part, consumers just can’t take on the problems of produce producers and marketers.

 Fluctuations in produce prices affect long-term demand in important ways. When product is in surplus and prices collapse, the low pricing serves as a kind of massive sampling program and consumers who had either never tried, say, avocados, now try them due to its bargain price. Consumers who had sampled the product before, may get in the habit of consumption when prices are low. Restaurants and salad bar operators at both retail and foodservice often add to this dynamic as chefs and operators, quick to note that an item is both inexpensive and, typically, top quality, start to feature the item more generously.

 The effect of this sampling and habit-forming continues long after prices rise. Conversely, high prices have the opposite effect. Sampling is reduced; habits of consumption shift away from the expensive items; menus and salad bars start to feature other items. Consumers may shift to different selections of fresh produce, but they may also shift to frozen or canned and, indeed, reduce produce consumption entirely.

 The availability of imports has moderated this whole process with both positives and negatives for the industry and consumers. The positive point for consumers is that bad weather, by leading to higher prices, creates a vacuum that imports can often fill. So price hikes are limited to what it costs to bring in product from elsewhere. The same dynamic, of course, moderates returns to producers in the area that suffered from bad weather. This creates a dilemma for producers, as the low prices — caused by excellent growing conditions — are as low as ever, but the high prices — in the past spiked by bad weather — are now not as high as they used to be.

 The challenge for the industry is to keep consumers focused on fresh produce, despite all kinds of weather. This is difficult because it means persuading consumers to eat differently when supply interruptions impact producers. Yet with the Produce for Better Health Foundation promoting fresh, frozen, canned and 100 percent juice, there is no institution in the industry devoted to selling the concept of fresh to consumers. Perhaps as new crops grow in the aftermath of bad weather, an answer to the trade’s institutional need for such a body can rise as well.        pb