Ontario fresh produce growers feel the squeeze as grocers consolidate

Thursday, January 23, 2014

by DAVE PINK

A decreasing number of grocery chains fighting over a limited amount of market share is putting an even tighter squeeze on the province’s fresh fruit and vegetable growers.

The recent move by Sobey’s Inc. to demand across-the-board price reductions from all of the chain’s suppliers will only add to the uncertainty in one of Ontario’s most uncertain farm sectors.

“It’s the Wal-Mart way of doing business,” says Ontario Federation of Agriculture president Mark Wales. “This is the world we’re operating in.”
 

photo: Mark Wales

Sobey’s – on the heels of its $5.8 billion acquisition of the 213 Safeway stores in Western Canada – is demanding a one per cent reduction in its suppliers’ prices retroactive to Nov. 3. It’s a buyer tactic most closely associated with the Wal-Mart Stores Inc. chain, and now there’s no reason to believe that the other big player on the grocery scene, Loblaw Companies Limited, won’t be demanding the same kind of deal.

“It’s pretty tough on farmers when you’ve only got a couple of buyers,” says Wales. “They’re holding us for ransom.”

One way or another, every food producer will feel the effects, but it’s the fresh fruit and vegetable growers that will take the hardest and most direct hit because they deliver directly to the buyers’ warehouses. Those in the grain and meat sectors almost always deliver to processors first, who then must deal with the grocery chains.

The Sobey’s demands should come as no surprise, says Jamie Reaume, executive director of the Holland Marsh Growers Association.

“It’s business as usual. It’s what we have to deal with on a regular basis,” he says. “Farmers are price takers. That’s the way it has always been.”

Survival, says Wales, will depend on an individual farmer’s ability to adopt new technologies and become even more efficient. It’s an old story. Considering that the prices paid for fresh fruits and vegetables have not effectively risen in the past 20 years, becoming more and more efficient is just part of the day-to-day routine.

“There’s a lot of technologies growers don’t use yet, things like using water more effectively. We have a ways to go, but this can’t go on forever,” says Wales. “With fresh produce, there are things you can mechanize and things you can’t.”

But, says Reaume, “Ontario farmers are already some of the most efficient in the world.”

Depending on what they grow, where they grow it and the amount of debt they carry, farmers will be going out of business, says Art Smith, chief executive officer with the Ontario Fruit and Vegetable Growers Association (OFVGA). “Growers, some of them fourth or fifth generation, come to me all the time and say they don’t know how much longer they can hang on.”

And it’s not just the grocery chains’ recent price squeeze that’s to blame, says Smith, a former grower. For several years produce farmers have had to put up with a buyers’ policy of holding back one to two per cent of the agreed-to price. “There’s nothing we can do about it,” says Smith. “It’s all legal. It’s the cost of doing business. It’s drafted into the contracts.

“The thing is, you have three corporate stores through which 95 per cent of the produce travels.”

And the farmers feel they have no choice but to quietly put up with it.

“Farmers are typically afraid to talk about it,” he says. “They’re afraid they’re going to lose that market.”

But Smith says the biggest challenge to the fruit and vegetable sector would be a provincially legislated increase in the minimum wage. Labour, he says, accounts for about 65 per cent of a produce growers operating costs.  Add to that the rising costs of fertilizer, fuel and pesticides, he says. And there’s always the weather.

Then consider that fresh fruits and vegetables are perishable. There’s no holding them off the market until prices improve. “That doesn’t give the growers a whole lot of bargaining power,” says Smith. “Everything’s a one-way deal.

“It’s simple economics. There are too few buyers and too many sellers,” he says. “And now, with globalization, the buyers can get whatever they want from anywhere in the world, year round.”

The Buy Ontario campaign and an increasing consumer preference for local, fresher produce has been encouraging, says Smith, but it doesn’t go far enough to offset the marketing power of the grocery chains’ very large and very profitable produce sections.

“More and more people want to know where their food comes from, and that’s a good thing,” he says. But, “from the point of view of a majority of consumers, it really does not matter where food comes from. The vast majority of people buy their groceries on a budget. How do you say to these people that they should be spending more money on Ontario produce because it costs more to produce.”

As some of Ontario’s farmers exit the business, there will be no fanfare or grand announcements, says Smith. Their land will be quietly sold, to developers or other farmers, and life will carry on. How many will sell out is anybody’s guess, he says.

“Will there be horticulture in Ontario in 50 years? Yes. Will it be like it is today? No,” Smith says. “There will always be people who can make things work.” BF