Marketers are spending huge amounts of money battling for market share.
With an office in Yakima, Washington, Wal-Mart plans to keep prices lower and buy directly from growers, cutting out the middleman, says a former Wal-Mart executive.
Former Wal-Mart insider Bruce Peterson sees the company's recent move to do more direct buying from apple growers as one of several issues that the fresh fruit industry will have to deal with in the coming decade.
Peterson, formerly senior vice president and general merchandise manager of perishables at Wal-Mart, has worked as an independent consultant for the past two years.
Wal-Mart recently established an office in Yakima, in the heart of Washington's tree fruit industry, with the goal of contract buying directly from growers and cutting out the marketers. Peterson expects that over the next three to five years, Wal-Mart will work towards doing more direct sourcing of products. The objective is solely to buy at lower prices, he said. It remains to be seen whether this will be a successful strategy.
A problem is that this means that Wal-Mart will be competing with packers for growers so that a packer's customer now becomes a competitor. Another is that Wal-Mart will only buy certain grades and sizes from the growers, leaving them to find a home for the rest of their crop.
Wal-Mart will find out about all the other things that marketers do for the company in addition to simply supplying product, Peterson said. "They're going to find out how hard those marketers work on their behalf."
Other issues he expects will affect the industry are:
• Consolidation. Expect a huge consolidation of growers and packer-shippers in the next five to ten years because the supply industry is still too fragmented. This will take place partly through mergers but also through companies going out of business. Some fresh-produce companies will be acquired by frozen-food manufacturers to secure supplies and provide a catalog of fresh items that fits under their brand name.
• Transportation. Fuel prices will rise, Department of Transportation regulations will intensify, and finding truck drivers will become more difficult. A significant number of independent trucking companies have gone out of business in the past year. The fruit industry will look at different forms of transportation for moving product to market. Currently, 95 percent of produce is shipped by truck. "That won't be sustainable," Peterson said.
• More imported produce. This will be due to factors outside the industry, including U.S. trade policies with other countries. "The United States has a habit of throwing agriculture under the bus when it comes to trade policy," he said. "I think you're going to see further issues concerning that."
• Declining consumption. Consumption of fresh fruits and vegetables will decline as new technology improves the quality and convenience of processed and frozen foods, Peterson predicts. "I think that's going to be a huge threat to the industry."
• Immigration. Immigration reform is a political hot button, but has been eclipsed by other issues. "I believe that if it were not for the economy and health care, there would be some meaningful attempts to influence the immigration policy in the United States," he said.
• Food safety and traceability. These are two separate issues, and Peterson said the industry has not focused enough on traceability. Although fruits and vegetables are low-risk, they can never be completely safe because there is no kill-step for pathogens in a raw food. Producers will see much more regulatory activity, particularly relating to traceability, Peterson predicts. "Our industry has never been regulated to the degree that I think it's going to be."
• Water management. Peterson has calculated that if water usage in California's Salinas Valley continues at the present rate, there will be no water left in 40 years. Municipalities and property developers are buying water rights, which are more valuable than the land they apply to. The country's big produce-growing states—Florida, Texas, California, and Arizona—are also the places where people go to retire, pitting agriculture against developers in the competition for land and water rights.