After the end of what many consider a positive season for California table grapes, the U.S. import market is suffering a supply shock. Months-old fruit is being sold at supermarkets, and tons of grapes are in cold storage waiting to be sold.
Freshfruitportal.com spoke with John Pandol, Director of Special Projects at Pandol Bros. Inc., about the California season, the oversupply in the import market, and the newly imposed tariffs on the United States's main trading partners.
How did the California table grape season go, and what is the current state of the market?
Since we changed our water regulations, which involved underground pumping, around five to six years ago, we have reduced acreage. Additionally, around three years ago, two private equity firms decided to leave the business, abandoning about 1,000 hectares of grapes.
Since then, the industry has been stable, and replanting is advancing. However, one of the significant market changes for us is China. Because it went from a market to a competitor, we've been displaced by Chinese grapes in many Far East markets.
While the final numbers for this last season will come out in the next few weeks, the previous estimate was around 95 million boxes, which means we recovered from Hurricane Hilary, which brought us down to 75 million boxes.
What was really different is that we saw strong demand in the fall, around August, September, and October. Overall, we saw really a much stronger U.S. market, and I would say Mexico and Canada are two big export markets now.
What is your take on the current oversupply of imported grapes in the market, and what is causing this issue?
See, I was in Miami on February 15. I went into a store to look at the pack dates. The pack dates for blacks were the 13th of December, the reds were the 10th of December, and the whites were the 27th of November. So, you think, okay, if that's what's in the store, how much is in cold storage?
Essentially, people hold on to inventory for certain customers, but how do we turn back on that faucet? It takes at least two to three weeks to restart a market. So, in January, retail sales were lower than last year when we had a supply crisis. There is much more fruit this year.
Therefore, when we started selling in earnest in February, we were selling the oldest or the least bad fruit that would not be rejected. We were constantly selling the oldest fruit, slowing retail down and creating a vicious cycle.
Additionally, you keep bringing in more fruit, so getting out of the cycle is very hard. Eventually, some of the fruit is so bad that it gets thrown away, which is the logical conclusion. We allowed it to accumulate and save fruit for a market that never materialized or a supply shock that never materialized.
Does this also show a reduction in consumption? Are there fewer people buying grapes this year?
Data shows that people bought 5.7% fewer kilos of grapes in January than they did a year ago. So yes, people bought less, but why is that?
This is mainly because around 40% to 50% of grapes are purchased at promotional prices, and people are accustomed to waiting for what is on sale. Some stores sell double or triple during sales.
Therefore, despite the amount of supply, if you have very few promotions for a month, you will have fewer sales.
Why did retailers not apply these promotions that push sales?
Basically, we sat on inventory, and then nobody turned on the faucet. Now, the fruit is old and selling slowly, which will take a long time to clean up.
Do you anticipate a certain percentage of this fruit will have to be destroyed?
I think so, they will eventually go bad.
What can happen to Chilean fruit still waiting to be shipped to the U.S. in upcoming weeks?
Chilean exporters must examine what is happening in the U.S. because it could be a problem market, so they may consider relocating some of these shipments to other markets.
Markets can take what they take, but we have oversupply and saturation right now.
What do you see in the long-term as a possible solution to this oversupply issue?
The root of the problem is living in the present and not in the future, not being aware of the true supply to the market, and not just looking at shipments.
The reality is that the market takes different volumes at different times of the year, and what is being shipped is not precisely what is being sold, so the economic balance part of it is very important.
Another issue is that we don't have data for the volume of shipped fruit plus available inventory, so we don't know how many grapes are physically in the U.S., unsold, or not shipped yet.
Could this situation have a lasting impact on the U.S. grape industry?
Not really, especially considering the lower prices. Lower prices should not destroy the market. The cost of grapes is volatile, and people are accustomed to it, so we lost all the customers who only bought grapes on sale.
Quality can be an issue because if people take a grape home and don't like it, they won't return for more.
John Pandol
How do you see the imposed tariffs affecting the grape industry?
A tariff is a tax. So many things are and will get expensive. About half of our produce is imported, so nobody wins, there will be added costs and damage.
I hope this gets pulled back fast, and it's not permanent, but it's been a shock. When you add up the tariffs, it may be $5 per box, but for a truckload, it's tens of thousands of dollars, which is a lot of capital. So it makes you question if there is liquidity to keep importing the volume.
Prices have to go up, and as a U.S. producer, if foreign produce gets more expensive, I can raise mine because you have to be efficient and compete with it. So, if this is long-term, the other problem is that our two big export markets are Canada and Mexico, so if they take fewer grapes, I will have to push more into the U.S. market. Can the market even absorb that volume?
Eliminating foreign competition is not beneficial for grapes in particular because most grapes come in during our off-season; they start selling once we are done. It's also not easy to simply start producing more for the local market to supply import windows.
Additionally, if essentials like gas start gowing up, people will choose to buy cheaper fruit, that is where they start reducing costs, so it really hurts us as well.
Essentially, this raises prices on a lot of things for U.S. consumers.
This interview has been edited for clarity.
The first edition of GrapeTech will be held on June 18 at the Casino Monticello Event Center. The event, organized by UvaNova and Yentzen Group, will be the most important technical event on table grapes in Chile and will bring together world experts to provide technical aspects that allow the growth of the industry, such as post-harvest issues, crop management, analysis of new varieties and nutrition, among others—more information at events@yentzengroup.com or visit www.grapetechconvention.com.
