Editor’s Note: This story is part of a series that explores the shifting economic landscape of the specialty crop industry.
Marc Arnusch, a third-generation seed wheat, barley, craft grains, silage corn, alfalfa and former onion grower in Prospect Valley, Colo., says this notion of growers being “price-takers” is nothing new. In fact, this notion has been repeated for more than 30 years, starting when he was in college and even when he graduated in the mid-1990s.
“I heard that we’re just price-takers, we’re not price-makers, and that always stuck with me, whether it was the commodities that I grew or the specialty side,” he says.
The Squeeze in Michigan as Margins Tighten
Nick Oomen is also a fourth-generation specialty crop grower with West MI Produce in Hart, Mich. His family’s business grows organic cabbage, zucchini, yellow squash and bell peppers, as well as conventional asparagus, butternut and acorn squash, broccoli, green beans, carrots, potatoes and jack-o’-lantern pumpkins.
For Oomen, the math simply no longer adds up for labor-intensive crops like asparagus facing steep pricing pressure from imports. (Production costs and labor costs will be examined in detail in future articles.)
“In the last five years, our gross sales costs, or what we sell it for, have been probably within 5%,” he says. “It’ll go up and up and down, but it never really moves. I can’t go to a single retailer and say, ‘I’ve seen input costs go up by 20%, labor’s gone up by 15% and my overhead has gone up by 25% in the last four years, and I need a pay increase.’ They just come back with you with, ‘You have to match that price.’”
Oomen says, as a result of these increased costs, his family has opted not to buy new asparagus seed and plant new fields and has instead maintained fields in production. He says they have tried to maximize efficiencies in harvest and packing, but there’s only so much they can do.
“Sooner or later you stop picking the low-hanging fruit, and there’s not much left on this tree,” he says. “You’re trying to squash pennies out to make a difference, and you’re losing dollars. It’s at a certain point [where] you just have to hang it up and say, ‘This is a lost cause. This crop’s no longer going to be profitable.’”
That’s the position Chris Pawelski and his family found themselves in. Pawelski, a fourth-generation onion farmer from Goshen, N.Y., eventually left specialty crop growing due to the challenges of selling his family’s onion crop.
He says he never had a way to verify the price he would get was fair or real; if the price came lower than production costs, he would have to eat it.
“The packer would say, ‘I’m getting them from your [neighbor] for $13 or $12 [per 50-pound bag],’ and there’s no verification; you have to take their word for it,” he says.
Pawelski often faced pressure from imports from Canada or other parts of the country that the packer would use as leverage to keep prices down.
“I had onions sitting in my barn that I could not sell, and they were good onions,” he says. “I would go to the local grocery store 5 miles away, and it was just loaded with Canadian onions, and I had onions sitting in my barn that I could not sell.”
Pawelski says he sold the onions he grew to a local packer-shipper, though he would often have to beg the packer-shipper to take his crop.
“I could not tell you, even to this day, what the process is as far as like when the onions leave my dock,” he says. “I know they go to a local repacker, but the actual full process of what and who the other buyers are like where they are located, I couldn’t tell you.”
Pawelski says while some buyers tried to help keep prices up, generally, the prices were about the same as they were 40 years ago.
“I’m getting paid the same price for my onions dollar for dollar that I got in the 1980s,” he says. “I was paid $6.50 a bag, and I’m paid $6.50 a bag now.”
High Production Costs Reshape the Agricultural Landscape
Jordon Walsworth, a fourth-generation asparagus grower for Golden Stock Farms in Mears, Mich., says growers often face higher production costs, whether that be labor, inputs or more, but they can’t necessarily pass those inflated costs on to the retailer.
“The farmer grows the product, and the downstream packer, input providers, chemical providers, salespeople, they all don’t have a job without that product, and all of their costs have inflationary increases,” he says. “We have the pleasure of paying all of those inflationary increases before we end up with what’s left.”
While costs have gone up, Walsworth notes, commodity prices have either gone down or remained flat.
“What that’s done to the landscape of agriculture is that these specialty crop guys are getting bigger, but the smaller guys are getting pushed out because they can’t afford it on those margins,” he says. “Growing up around here in Mears, everybody had 10 acres of asparagus. Kids after school ... would go pick it. Everything was great. Those farms don’t exist anymore. Now you have to have guys that can capitalize on little economies of scale and stack together the pennies that are left to make a go of it.”
Though his family’s farm is about six years away from a Centennial Farm designation, aside from a genuine love of farming, what’s weighing on him is the potential loss of domestic production. (Import pressure will also be examined in detail in a future article.)
“Where will our food come from if we’re not growing it?” he says.
Jon DeVaney, president of the Washington State Tree Fruit Association, says another challenge that he’s faced in conversations with legislators is that any government policy change that adds cost to a grower’s production can’t get passed on to the consumer.
“[Legislators] just assume that if they impose a new cost on everyone, it will get socialized, and it just gets baked into the price of goods,” he says.
Over the last two years, DeVaney says retail fruit prices have climbed while wholesale returns for growers and packers moved in the opposite direction.
“Consumers see retail prices increasing and the assumption is that, well, growers are getting some part of that,” he says. “The policymakers and a lot of the public’s assumption is that the growers get a share of the price. Price at retail remains relatively constant, and it’s not necessarily the case that retailers may be using a higher margin on particular products to absorb their overall cost of doing business and potential losses or non-increases in margins on other products. And while that might make sense for their enterprisewide management, it really puts growers in an untenable position to have their own production costs increasing even as their wholesale pricing is flat or declining.”
Starting With the End in Mind
Arnusch says he thought about the notion of growers as price-takers as he entered the fresh produce industry and eventually took over a packing shed. He says he was at one point the third- or fourth-largest onion packing shed in Colorado.
“We started with the end in mind,” he says. “We started with the market, and we worked backward. Let’s start off with these consumer packs. Let’s try to hit that, that high margin, that high revenue, maybe lesser volume, but that high-revenue product.”
Arnusch says he looked to 2- and 3-pound bags and onion sacks to hit that higher-revenue item, and then that informed the types of varieties he planted and the management.
“We weren’t looking to produce the most onions in the state of Colorado. We were looking to produce the highest-return onion per acre, and that’s not just a metric of yield, that’s not just a metric of cost, but it was the metric of market value,” he says. “We did a lot of specialty labeling. We did a lot of things in that space that differentiated in the marketplace, where maybe a lot of the big packers didn’t want to play. That was our sweet spot, and because we were smaller, because we were more individualized, we could do so many more things in the field that rewarded us in the marketplace.”
Shrinking Share of the Consumer Dollar and Consolidation
Washington State University professor and economist Karina Gallardo points to a stark USDA metric: For every dollar a consumer spends at the grocery store, the farmer sees only 14 to 15 cents.
“The rest of the 85 cents goes to the supply chain, whoever is between the grower and the end consumer,” she says.
Packinghouses sit in the middle of that gap. Growers face receiving fees and per-box processing charges, while the packinghouse — and not the grower — negotiates the final fob price with the retailer.
Gallardo works with growers to maximize efficiencies, often fighting the “pick everything” mentality. While clearing a tree quickly cuts harvest labor, it often backfires at the packinghouse.
While a faster pick will cut harvest costs, picking everything will also increase packing charges through receiving fees. She says a grower that reduces the number of defects going into packing by about 15% to 20% will likely see a beneficial outcome.
“It is a very fine trade-off,” she says. “The packinghouse charges $100 to $130 per bin they receive. It is to the advantage of the grower to send only the best apples possible.”
Chris Jones, executive director of the Main Street Competition Coalition, an alliance of independent business owners, trade associations and agricultural groups, says this notion of growers being price-takers is true when there is a lack of competition among retailers. That consolidation has a significant impact on the overall market share; in fact, a study in 2021 showed the top four grocers sold 69% of the country’s food.
Consolidation creates more leverage for retailers over suppliers, but Jones says part of the reason the fresh produce industry finds itself in this situation is the lack of enforcement of antitrust laws. A healthy competitive retail marketplace benefits both growers and consumers.
“For producers, generally, you want a robust, robustly competitive retail marketplace to sell into. And likewise, for consumers, consumers want to have choices,” he says. “When you have a market like that, you create space for smaller-scale packers and produce growers, and you also address the problem of retailers being too consolidated in one area and dictating terms to produce growers and packers.”
Jones says that unfortunately has allowed for continual consolidation in the last 40 years in which those retailers have more power over producers and food product suppliers. He says this consolidation of retail forces a consolidation of packers to meet the scale of this new marketplace.
“It’s created this cascading effect of consolidation that’s problematic if smaller producers want to be viable in this retail economy,” he says. “What we believe is needed is a fair marketplace that is policed by our antitrust laws, and right now, the marketplace is being inadequately policed by the antitrust laws, and that is ... in large part responsible for this problem we have in the economy.”
Breaking the Commodity Cycle and Winning the Fresh Aisle
What can growers do? For one, Arnusch sees an opportunity with value-added.
“You’re de-commoditizing a commodity,” he says. “Even though a specialty crop can sometimes be a commodity, you can add value to that crop by differentiation. You can add a little bit more margin ability into it because it is so specialized.”
Arnusch points to how his company packed two yellow, two white and two red onions in a sleeve that was a unique pack and offering.
“What drew me to that space originally was the opportunity to be economically viable,” he says. “I could differentiate myself in the market. If I’m a corn grower or I grow wheat, I really can’t differentiate myself in that space; maybe by location, maybe by growing a particular variety, but I’m very much still producing a commodity, and when you do that, you’re subject to the market. With a specialty crop, a lot of times you can set the market or participate in that up value.”
Growers can also deploy effective storytelling to help set the business apart from competitors.
“Most consumers, they really don’t care who’s growing their flour,” he says. “They buy corn oil at the store, and they really don’t think twice about the farmer who was behind it. But they pick up that onion, they grab that bag of potatoes, they grab that apple off the shelf and there’s a story behind that.”
Arnusch says that in a time when the disconnect between consumer and grower is at an all-time high, storytelling will be paramount.
“Especially in Colorado, where agriculture feels like it’s on the defensive, I think that’s going to become more and more important all the time, to get the story out in front of the consumer rather than playing defense,” he says. “I think a specialty crop does that for us.”
Dawn Thilmany, an agricultural economist and professor at Colorado State University, agrees, noting that specialty crops have to some extent leveraged branding to stave off the price-taking notion. Thilmany points to about 10 to 20 different fresh produce brands that consumers can likely name, which hasn’t happened in the past.
Along with branding, there are new cultivars that offer unique eating experiences. She points to Cotton Candy grapes and new apple varieties.
“Just even look at the tomato section,” she says. “Now, between all of the different variants of grape tomatoes, cherry tomatoes, multicolored tomatoes, there’s brand names that weren’t there 10 years ago. So, that’s a signal to economists that they actively have chances to not be price-takers.”
Thilmany says that while retail consolidation may continue, bigger isn’t always better, and the produce industry can look to independent grocers to an advantage.
“Some of those midsize brands can survive by just being in the independent grocers and don’t need to have access to the Big Five, because the Big Five are really the ones who are saying ‘You shall be price-takers. This is what we’re giving you,’” she says. “And if you can stay at the size that the volume you need to move can be workable through what is still left of an independent slice of the food supply chains, you’re going to be in a much better position.”
Innovation serves as a final defense, Thilmany says. Because specialty crop growers are naturally entrepreneurial, growers are more nimble than those in broader commodities.
“With all the changing conditions and stuff, they pivot better, because it’s not as big of a shock to them,” she says.
