By Fall Creek Farm & Nursery manager Cort Brazelton

Harvest season in the processed blueberry industry can be like an awkward middle school dance. The music is playing but like jittery boys and girls at the dance, growers, packers and 'buyers' - an all-encompassing term, refers to purchasers of finished, packed, processed blueberries - are nervously standing back, no one making the first move to pick a dance partner. With a few rare exceptions, blueberries destined for the processor or freezer business are purchased from growers by a packer who takes ownership of the product. This business model is historically common in many crops and though it has endured in many commodities it is not without flaws.

Dance nerves

In some years demand is high, supply low and commitments come quickly. In other years the blueberry industry endures a challenging time of uncertainty. Generally the North American season begins with a period of anguish in which no one really knows what might happen with frozen blueberry prices. Ambiguity and risk are high.

Growers produce and deliver crops in advance of knowing what they will be paid. Processed packers take on considerable risk to buy fruit, sometimes sight unseen without knowing quality, and without clarity as to what price they can sell it for. North American growers, especially those in the Pacific Northwest, Southeast and in Michigan, often wait to commit until they know which processed packer will will pay the highest price or if the fresh market will present a more attractive alternative.

Risky business

All of this leaves buyers bewildered, wondering why they have so much difficulty with volatile prices and shaky commitments in volume. In this precarious market, companies in the food industry which are most likely to create the next hit consumer product utilizing blueberries, to the benefit of the whole industry and consumers, must attempt to develop products, budgets and forecasts. Retailers selling polybag individual quick freezing (IQF) and other frozen products must manage these fluctuations in price and keep their customers buying blueberries.

In the meantime, growers, packers, and their bankers, wonder what the future holds and how on earth they’ll plan. Enter the awkward dance and the nervous murmurs among the wallflowers about pricing with hopes of gaining any morsel of information that may provide some clarity.

The dance continues

This year the industry continues to face uncertainty. Cold storage inventories remain high from last year’s crop with the percentage sold unclear and quality nebulous. The fresh market has stayed quite firm, however, with record volumes committed even without the processed 'floor' of 2011 and 2006-08. Many U.S. regions are done with harvest. The Pacific Northwest harvest is underway, New Jersey is almost done and Michigan is past its peak. And still, no one knows what to expect for processed prices this season.

The discomfited dance scenario continues. Buyers figure if they don’t get everything they need, they’ll go to South America at ostensibly lower prices. The entrance of Chile as a player in the processed deal has had an impact on the psychology of the market although the volumes remain low compared to big producing regions in North America. Packers and processors ask themselves how they can possibly commit to any price when they don’t know what buyers will pay or what the quality is. Additionally they must figure out how to compete with the fresh market which often liquidates returns to growers much faster.

Growers' blueberries commanded good prices last year in the processed market. This year in some regions, like Michigan, the crop is short. Many are optimistic that they can maintain high prices in the 'freezer market' while others wonder why not go fresh for more of a sure thing. Labor will be a major deciding factor this season. If and when it is short, it will push machines into the fields and fruit into the processors. Without a clear market price, an advance payment from packers with no ultimate guarantee seems to be the name of the dance this year.

Turning on the lights

When the lights turn on and the evening ends, nothing at the dance is as pretty as it was when the music was still going. Stepping back for a moment to examine how the processed deal is set up, one can’t help but think it’s a bit dysfunctional, especially as the industry grows and other sectors of the business professionalize.

Growers think they can wait until the last minute to go fresh. Even though there is no guarantee that fresh will offer the best return. Fresh marketers and processors are left unprepared to do their jobs.

This frustrating structure is familiar to those who live this reality in the regions with a processed component. Yet, with so many traditional fresh growing regions, for example Chile, Argentina, and new growing areas entering the processed deal and ta growing global crop, the nature of the system is worth examination with fresh eyes.

The power of human nature

Participants in the value chain can’t help but be enticed by the hope of high returns and the fear of missed opportunity. The temptation is often greatest at the grower level. The quest for high prices incentivizes farmers to take a non-committal approach to entrusting their fruit and when the opportunity to demand high prices for blueberries comes, well, it is rare for anyone to want to turn down a high price.

The big loser is in these peak pricing years is the packer, who must advance high prices for fruit before having a clear idea of 'finished' market prices. For the packer to recover from those tough years, they in turn rarely pass up opportunities to pay low prices for fruit. And thus goes the vicious cycle.

The buyers in the meantime endure the frustration of big fluctuations in price and product availability which does not necessarily correlate with total volumes. It is hard to quantify how much this dynamic has limited the overall growth of the blueberry industry. One can debate what drives this system and keeps it alive. Arguably the root is raw human nature itself, namely the tendency to believe that the grass is always greener on the other side.

The alignment opportunity

The contrarian approach offers one of the biggest opportunities in the processed blueberry industry: focus on the long game of achieving alignment in the supply chain. The more growers, processors, handlers, buyers and product creators can collaborate and seek mutual benefit, the greater value they will generate for all.

It sounds very altruistic, but many other fruit industries have come to this conclusion and found solutions. The Washington apple industry is a good example. 30 years ago, they faced the same struggles with all product bought at a grower’s dock long before a final sale was committed. Although there still remains plenty of room for improvement, the apple business is much healthier and value focused. They now have aligned commission-based marketing systems with incentives for quality, the right genetics, grower fidelity, marketer transparency and the like. The fresh blueberry industry is much further along this path already as well.

There exists an alignment opportunity that will benefit all in the processed blueberry business. A longer term perspective and commitment to aligning with a program that delivers value to all is worth consideration. The caveat – this commitment may involve missing out on the occasional windfall years when prices are high. However, long-term, strategy-driven businesses are not built on the fleeting hopes of a windfall year.

As the North American blueberry industry grows from 500 million pounds to a billion pounds in the coming decade, the most successful companies in the processed blueberry business will participate in these aligned business models. They won’t be standing along the walls at the dance waiting for someone else to extend a hand and make the first move.

www.freshfruitportal.com