Chicago merchants struggle as fresh produce costs surge - The Packer

Chicago merchants struggle as fresh produce costs surge

12/12/2011 10:45:00 AM
Bruce Blythe

CHICAGO — Chicago produce merchant Peter Testa probably sums up the reaction of many Americans who’ve taken a trip through the supermarket aisles this year.

“Prices are all up,” Testa said in a November interview. “Everything is up, including meat and dairy. It’s going to hit everybody, though the produce category is not as bad.”

Testa and others in Chicago’s produce business have faced sharply rising costs for fresh fruits and vegetables that, given the sluggish economy and stiff competition, they’re unable or unwilling to fully pass along to customers.

Throw in pricier fuel and labor and the result is an ongoing squeeze on profits, merchants said.

“We can’t pass along our rising costs,” said Testa, who’s president of Testa Produce Inc., which supplies many of the area’s hotels and restaurants. “For the most part, we’ve been very good at controlling costs and not passing it along to our customers.”

Chicago is part of a broader acceleration in food inflation driven by surging prices for beef, pork milk and nearly every other food category.

In the case of produce, higher prices reflect bad weather — winter freezes in Arizona, Florida and Mexico, a cold spring in Washington — that hurt production of apples, tomatoes and other key crops.

Consumers also face stepped-up competition from China and other export markets that are buying more U.S.-grown produce.

Average nationwide retail prices for fresh fruit and vegetables are on pace to rise 3.5% to 4.5% this year after increasing just 0.6% in 2010, according to a U.S. Department of Agriculture forecast. The projected increase would be the largest since a 5.2% jump in 2008.

At the wholesale level, a fresh and dry vegetables price index tracked by the Bureau of Labor Statistics soared 17% in October from the same month in 2010. Wholesale fresh fruit and melon prices were up 8.2%.

Merchants at the Chicago International Produce Market said they’ve mostly been absorbing the rising costs.

Joe Lobraco, chief counsel with Jack Tuchten Wholesale Produce Inc., at the terminal market, said his company’s costs are up about 12% this year.

However, Jack Tuchten has raised prices charged to customers by only 3 cents a year on average over the past four years, on per-case basis.

“We’ve tried to keep those costs away from our customers as much as possible” Lobraco said. “We try to absorb as much as we can.”

Retailers also are trying to hold the line of rising costs amid growing competition for cash-strapped consumers.

Bob Scaman, who runs Goodness Greeness, a Chicago-based organic supplier, said promotions have become a much more significant aspect of retailers’ business.

“Price points” for customers “are a bigger issue than I’ve ever seen,” Scaman added. “There’s tremendous sensitivity to prices at these points.”

Produce inflation is expected to ease slightly in 2012, according to government forecasts, and Chicago merchants say relief also may be ahead amid an outlook for stronger production.

“We’re cautiously optimistic” for 2012, Lobraco said. “A lot of our suppliers say we’re going to have good crops next year. We’ll see an influx of apples, grapes, pineapples.”

Next year’s prices will hinge partly on winter weather, Testa said, and if growers can avoid many of the problems they had last season, “we’ll be fine.”

Testa also said the recent inflation offers an opportunity for the produce industry to grab more of the consumer food budget, because price gains for chops, steaks and other meat cuts have outstripped those for most other foods, making fruits and vegetables more appealing by comparison.

“There’s a lot of opportunity for the people in the produce business to get a bigger share of the dining plate,” Testa said.

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