‘Crunch’ year for growers as vegetable prices wither

Press, 14 February 1986, Page 13

‘Crunch’ year for growers as vegetable prices wither

By

DAVID LUCAS

Commercial vegetable growers are facing a “crunch” year because they are receiving a declining share of the retail price of vegetables, according to Mr David Burke, chairman of the market section of the Canterbury Growers Society. The poor financial rettums from growing vegetables have put confidence among full time growers at a low ebb, said Mr Burke, a Christchurch tomato grower.

Some growers have cut back production and are supplementing incomes with money from outside employment and others are considering getting out of the industry. Mr Burke said several glasshouses in Christchurch were empty this season as growers had decided it was not worth while growing crops at the recent level of wholesale prices. The lack of confidence among growers was summed up at a meeting of the society’s market division where a grower commented that “I have never seen growers looking so despondent.” Apart from a sudden lift in prices in recent weeks and occasional, short-lived peaks, wholesale vegetable prices have been depressed for three years. Growers have said they could not survive properly on last year’s prices; and this season’s prices are even worse.

The future for growers is not encouraging. A report from a consultant firm states that growers would continue to get a declining share of retail vegetable prices unless the efficiency of the marketing chain was improved. As well, growers’ re-

turns would continue declining in inflation-ad-justed terms, meaning that growers would have to increase efficiency to maintain their income levels, said the report, prepared by Business and Economic Research, Ltd, and commissioned by the market division of the Vegetable Growers Federation.

One of the major reasons for growers getting a declining share of the retail price was the fact that growers were price takers, rather than price fixers, said Mr Burke.

“Growers have virtually no control over their prices; we can’t pass on our costs automatically.”

Dissatisfaction with wholesale vegetable prices recently led to Canterbury growers passing a resolution declaring that they were losing confidence in the distribution system. Mr Burke said growers would have to take a close look at the central marketing system and consider whether it was working successfully for growers.

Canterbury growers have traditionally supported the central marketing system where auctions theoretically set a “fair” price according to supply and demand. Auctions enable large quantities of produce to be sold quickly and the market floors are cleared of perishable goods each day in readiness for the next consignment Mr Burke is quick to acknowledge that the blame for poor wholesale prices is not the fault of the retail trade or the auction firms. "Retailers are in a competitive environment and will only pay more for

their produce when they have to, such as when particular items are in short supply.” Vegetable gluts were difficult times for all parties. In past years, the vegetable growing industry had been seasonal, and gluts were usually short-lived, followed by periods of better prices. This fluctuating nature of the industry made it self-correcting to a large extent because growers were rewarded with good prices during shortages and discouraged from sending supplies to the markets by low prices during periods of over supply. But big advances in growing techniques, plant varieties, transport and machinery now enabled most crops to be available over a much longer time span and most vegetables were produced all year round.

This has led to bigger supplies of vegetables and longer periods of low wholesale prices. Growers were now unable to ride out periods of poor prices because their profit margins were too slim.

A decline in the number of individual buyers at auctions and the growth of wholesale commission agents and supermarkets contributed also to the lack of competition at markets, said Mr Burke. The Chrustchurch markets are supplied by several full-time growers, plus dozens of part-timers who own small areas of land on the outskirts of Christchurch. Mr Burke said there was a continual turn-over of small growers many of whom were looking for the “back to nature, good life” attractions of market gardening, but soon gave up after receiving consistently depressing prices, only to be replaced by newcomers.

Traditional farmers, lured to the Industry by

high gross returns, also helped swamp the market, said Mr Burke. These farmers were often unaware of the high cost structure involved in growing vegetables and as well as depressing market prices were liable to make very small net profits, if any.

The B.E.R.L. consultant report studied the movement of retail vegetable prices, retail margins and wholesale prices, from 1980 to 1985. Similar studies had been done in 1965 and 1975-and the consultants noted that the core structure of the fresh vegetable market appeared to have remained unchanged. Unless vegetable growers were able to coax, initiate, encourage or force changes in the distribution and retailing of vegetables, then growers would continue to get a declining share of the retail price, says the report.

This return would also be declining in inflationadjusted terms, which meant growers would have to increase efficiency .to maintain their income levels.

The report concludes that retail margins were relatively large and tended to be fixed or constant per unit, irrespective of retail price level. Thus, when retail prices fell, wholesale prices in percentage terms fell much more; this was the heart of the vegetable growers’ problem.

The high retail margin reflected the high labour content of customer services at retail level, such as individual weighing, and the perishability and distribution of vegetables. In the medium term, the report says there had not been big increases in margins to retailers, over and above their increases in costs, and therefore, no apparent massive profittaking.

Householders spent $197 million on fresh vegetables in 1984-85, with potatoes, tomatoes and onions filling 46 per cent of the market, a slight decline from 49 per cent in 1980-81. Carrots, lettuce, 'cauliflower and cabbage make up 20 per cent of the market, pumpkin, kumera. taro, cucumber, celery, and Brussel sprouts 13 per cent; mushrooms, broccoli, courgettes, asparagus and bean sprouts 9 per cent; and corn, parsnips, silver beet and swedes 3 per cent.