Produce Buying

Produce Buying is a daily juggling act for the supermarket produce buyer.

Growing and marketing of produce is big business.  This statement is as applicable to Indian gherkins ending up in a glass jar and American soy beans being turned into a breakfast drink as it is to tomatoes being grown in a South Auckland and bananas exported from Ecuador. 

There is one discernable difference though.  As the gherkins are being squeezed into their jars and the soy beans are processed into a powder and then reconstituted into whatever, these two products undergo a remarkable metamorphosis. Gherkins and soy beans are no longer considered to be agricultural or horticultural commodities, but have been transformed into shelf stable products.  Tomatoes and bananas in unprocessed form meanwhile maintain their perishable nature.

The fact that gherkins and soy beans have suddenly developed shelf stable attributes means that they come with a wholesale price tag that includes production, shipping and marketing components as well as the cost of processing, packaging and storage. Tomatoes and bananas, in our example, remain unprocessed; i.e., their state has not been transformed from the natural into a man made enhancement.

It appears that under the financial models which govern our economic behaviours, the value of a glass of gherkins or a packet of soy breakfast drink can be fixed for a period of time and expressed as a ‘listed wholesale price’, whereas the price  of tomatoes or bananas is considered to be commodity based and therefore afforded very little stability.  Fresh produce retailers are thus working with continuously changing wholesale prices, whilst grocery category managers operate on the basis of periodic list price changes which may or may not be agreed upon.

These differences in the way cost prices are established are reflected in the retail shelf price and consumers have over time adjusted to never expect their fruit and vegetables selling for the same price they sold the week prior.

‘Big box’ retailing hates inconsistencies of this kind and right around the globe switched on produce retailers have tried to reduce wild produce price fluctuations to a minimum by way of technology, direct purchasing agreements with growers and shippers, seasonal contracts, counter-seasonal import programmes and whatever other means they could think of.  This strategy has been successful to a degree.  Produce values still fluctuate but the extremes have certainly been smoothed out. 

One of the key consequences of this evolution has been the demise of the produce auction system. Instead of one central market where produce and buyers ‘met’ on a daily basis to establish  the price of the day based on the volume available, we have a number of markets operating in parallel universes.

It takes more skill today to be a successful produce buyer than it took twenty years ago.  Product and volume availability can no longer be grasped by way of strolling along neatly arranged rows of fruits and vegetables in a covered building at 4am.  Information is gathered by phone, email and fax, via websites uplinks and Skype based conference calls – and visits to suppliers’ facilities will only ever generate a partial picture.  Produce buyers therefore also need to be tuned into what is not being said or not being shared in terms of market intelligence.

In a compact market, such as New Zealand, known produce buying behaviours assist over time with the creation of degrees of confidence.  A grower/packer who ‘knows’ that his or her product is unlikely to end up in supermarket chain A because that chain operates within predictable purchasing patterns  that do not include his production, will develop an intrinsic understanding for the difference between optimising his returns and overproduction.  He will strive to achieve the former and try very hard to avoid the latter.  When supermarket purchasing patterns become less predictable, grower/packers loose their aversion to risk and are more likely to err on the side of growing ‘a little extra’.  As the ‘little extra’ enters the value chain and finds its way onto the retail shelves, it leaves a trail of potential consequences in its wake.  These may include food safety issues, industry oversupply, price collapse, quality and fresh concerns, a drop in consumer confidence and others. 

Larger more complex markets, the US for example, work on a similar model, albeit that regional supply and demand data for, say Californian lettuce, is then fed into a national information grid that takes into account what is happening in all key lettuce producing regions able to supply or influence a particular market.

There are fine lines between maintaining the central pillars of our market economy such as true supply and demand models, operating profitably on a sustainable basis, growing one’s business and keeping the consumer happy.  In the case of the fresh produce industry, success is based on produce buying being a daily juggling act that needs to take all the above factors into account and any changes to longstanding operating behaviours do have the potential for the jugglers to drop a ball or two until they have adjusted to the new market place reality – and that may take a lot longer than change initiators anticipate.

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