Growers’ profitability hit by rising costs, global survey says
Nearly 60% of produce traded internationally is sold at break-even prices or below the cost of production.
That’s the conclusion of a new survey of suppliers published by the Global Coalition of Fresh Produce. The coalition includes produce associations from around the globe, including the International Fresh Produce Association and the Canadian Produce Marketing Association.
The 12-page publication on producer costs and prices was based on a survey conducted during the first half of 2023 by the Global Coalition of Fresh Produce. The questions to suppliers asked about the impacts of rising costs in global supply chains for fruits and vegetables over the past two years and potentially into 2024.
The 165 survey respondents included fruit and vegetable producers, shippers, packers, wholesalers, distributors and other supply chain partners in North and South America, Europe, Africa and Oceania, the report said.
“Suppliers of fresh fruits and vegetables experienced unprecedented increases in costs during and following the COVID-19 pandemic, regardless of their region of operation,” the report said. “The costs of fertilizers, construction materials, fuel, shipping services and electricity increased most. While most operators were able to increase their selling prices, these increases were not large enough to compensate for the rise in production and operating costs, leaving approximately 57% of the global industry selling at a loss or breaking even.”
The impacts of the rise in costs will be felt for years to come, according to the survey, with 80% of those polled stating that they are delaying or canceling investments in their businesses.
In the U.S., survey respondents unanimously agreed that there has been a significant increase in production and operating costs over the past two years, with an average increase of 24% across all cost categories.
“Rising labor costs are cited as one of the most pressing challenges,” the report said.
While nearly all who took the survey in the U.S. reported that their selling prices have gone up, 60% said the rise in selling prices has not kept pace with the rise in production and operating costs.
Only one-fifth of respondents in the U.S. have been able to raise their selling price in line with rising costs, the report said.
According to the survey, the most prominent reason that U.S. suppliers have not been able to raise prices in line with higher costs is competitive pressure from imported produce.
“This is coupled with operators’ lack of bargaining power vis-à-vis retailers who refuse to increase prices in line with rising costs,” the report said.
Another reason cited by respondents is dampening consumer demand for fruits and vegetables, the report said.
Fourteen percent of U.S. operators indicated that most sales are made at a loss; half are mostly breaking even and 36% are mostly sell at a profit.
Three-quarters of U.S. respondents said that rising production and operating costs have impacted their investments of all types — mostly capital investments and investments in equipment, but also in innovation and expansion, the release said.
“Operators are reluctant to invest considering the current business environment; one vegetable producer indicates that the rise in costs has led to a dramatic reduction in capacity and output and may lead to the closure of one or more production facilities,” the report said. Eighty-three percent of respondents indicate that rising costs have impacted strategic and operational choices, while only 17% state that these have not been affected.
Half of all U.S. operators believe that production and operating costs will go down by the end of 2023, mostly for packaging and ocean freight, the report said. The other half believes that costs will continue to rise (by up to 10% overall), and especially the costs of labor, utilities and raw materials.
