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Rabobank analysts talk navigating the perils of labor, heat and prices affecting the grape industry

The upcoming Southern Hemisphere season will be a challenging one for the table grape industry as a whole: scarce labor resources, unstable climatic conditions and backed-up ports have all pushed up costs for growers. Demand for grapes is holding, but prices are not growing, all pointing to a complicated scenario where some producers will likely fall into the red over the next season.

We spoke with David Magaña, VP and senior analyst for RaboResearch Food & Agribusiness and his colleague Gonzalo Salinas, senior analyst of fresh produce, to get their insights into the upcoming season. The analysts co-authored a report in July 2021, “Setting the Table for Table Grapes”, that identified key trends in the industry and established projections for the 2020-21 grape season.

Magaña believes that the prime issue for the table grape industry is the lack of labor. Even more than logistics, climate or other issues haunting the industry. The lack of workers for the grape harvest is something that affected producers before Covid-19 and is consistently driving up costs associated with the harvest.

Grape growers in California have had to turn to foreign workers on H-2A visas. In the past, the supply of migrant workers, mostly from Mexico, in local growing communities has been sufficient, but with labor shortages being a transversal issue in many industries, the labor pool has shrunk.

While other crops, like strawberries, have already come to use the H-2A visas as an option for labor, this is the first time that Magaña has seen it occur for grape growers.

“Before the pandemic, the supply of workers was one of the main issues, and it has escalated,” Magaña told The Grape Reporter.

The delicate nature of harvesting grapes also means that it's less feasible to use mechanized solutions for the fruit. The options for these sorts of technological applications the analysts see are more likely in Europe for crops like strawberries or cherry tomatoes but at a smaller scale.

Even with the increased logistical bottlenecks labor is still the main issue facing grape growers today. But together with logistics, water access and drought, it paints a complicated picture where profits are under stress.

“Prices are slightly higher than what we saw last season, however, it's not enough to compensate for the increase in costs”, he said.

There is a significant reduction in profit margins, and in some cases, there are producers working at the breakeven point or even at a loss for this coming season.

The analyst said that since there are producers who had already locked in prices through the beginning of December, they have little room to maneuver. As an industry, it's the retail chain and supermarkets that are in a far greater position to negotiate than producers. The latter in fact have been willing to engage in price wars, and this season the price squeeze is evidence of this market structure.

When compared to other crops, the scenario facing table grapes looks most similar to blueberries. Costs have gone up, but prices have stagnated over the last five years with the lulls in supply and associated higher prices in certain windows of time disappearing.

"The trend has been similar, the transition from Northern hemisphere supply to Southern Hemisphere has seen more constant supply and moving towards a 52-week offering of the fruit," Magaña said.

In both cases, the past emphasis on quantity needs to be replaced by a focus on greater quality and consistency from the harvest.

According to Gonzalo Salinas, what has allowed grapes to continue to compete with this growing offer of fruits for consumers has been the new varieties. If grape growers were heading into the season only with traditional varieties from twenty years ago, the situation would be far worse.

Salinas added that Covid-19 has shifted perceptions on fruit from consumers, creating greater demand and interest in consumers for fruits with high vitamin C, like kiwifruit and citrus.

Going forward, Salinas expects that the selection of grape varieties will ebb and flow much like apples. New, club varieties will captivate the consumer for a while but eventually be replaced with a newer option. This is a trend that is also being seen in markets like China, where the penetration of new varieties has advanced slower than in the US.

Both analysts agree, new varieties have helped keep up the popularity of grapes and with it, prices. And this phenomenon is thanks to consumer demand, while many growers would still be looking to sell traditional varieties if it were possible.

Climate conditions are also a constant concern. In the case of California, this year has seen record highs, with around 70 days above 100°F (38°C), doubling the average amount of 35 days. And besides the heat, it's the lack of water that is exasperating the already hot scenario.

This winter will be the Niña phenomenon, so for Northern California there will be more water, storms and inclement weather, but for the southern and central region of the state, it will likely be drier. Moreover, increased regulations on groundwater also intensify the scenario. The analyst said that the California season is ahead of schedule by around two to three weeks.

For Southern Hemisphere exports, Salinas added that recent rains in Chile have put the harvest in a better place, as prior to this late winter and early spring moisture, growers appeared poised to repeat with a disastrous season hampered by drought similar to 2019. 

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