Grape industry in The Americas facing changes
Many dynamic changes are at hand that will impact the future of grape production in The Americas.
FreshFruitPortal.com spoke with two experts on the international fresh grape industry. David Magaña is the vice president, analyst for RaboResearch Food & Agribusiness, Fresno, CA. Gonzalo Salinas is the firm’s senior analyst, who works from Santiago Chile.
Regarding Chile, they see changes forced by external competitive pressures.
On May 5, Magaña had just returned from a tour of the Jalisco, Mexico, grape industry. He is impressed by the new varieties and sophisticated production techniques being used by the three Mexican grape companies who have led development there, beginning about five years ago.
“Jalisco is the only growing region that is able to harvest grapes in the whole continent” in the late March to early May timeframe. “They have plans to continue to grow to take advantage of the early market window.” A greater boost to Jalisco this year, was the happenstance that the Chilean season ended early. Chile was down about 15% in production and exports, but it’s the lowest in more than 20 years.
Magaña adds, “The Chilean season is under pressure on both sides, right? The more well-known story is the overlap from the extending Peruvian (early) season and now at the end of the Chilean season we will have more production coming from Mexico in the next few years. But Mexico will continue to focus on the U.S. market whereas Chile has a more diversified portfolio of markets, going to Europe, and to Asia as well. Whereas Mexico has the geographical advantage due to providing to the U.S. market. But definitely this will be growing in the early front end of the Mexican season.”
It is growers in southern Chile are competing with Jalisco but also have options in Europe and China.
Salinas notes that the last three difficult Chilean grape seasons “sort of shook the Chilean industry but it was a call of attention for most of the producers. I think what happened in the last season with the 15% decline in the exports was a reflection of the current state of the grape industry. They have more competition and obviously in the last three years all the global factors of the pandemic, logistics and cost increases affected the industry for the immediate and long term.”
RaboResearch’s estimates indicate that Chile’s 2022-23 grape campaign will close with 520,000 metric tons. The last season with a lower export quantity was 1998-99 with 480,000 metric tons.
“Because of these declining exports, for the coming years we can see that the Chilean industry will keep the best producers,” which Salinas says, are the “most profitable and the ones that can reach the best quality, the best yields and the best fruit.” The producers not doing so well in grapes “will move to other fruits like cherries, walnuts hazel nuts, avocados. Especially in the southern parts of the production zones.” This would involve the metropolitan region and the VI region which are the back end of the season in Chile and compete with the transition of the Mexican supplies, especially in the U.S. market.
Salinas adds that another factor in south Chile “is the varieties produced there. The southern areas are more focused on traditional red seedless - Red Globe and Crimson mainly - so they are trying to also conduct this variety renewal but in Chile it’s much slower than in Peru and maybe Mexico.”
In Chile, Salinas continues, it will take at least three or four years to get the first new commercial production before “maybe we will see a bigger share of the new proprietary varieties from these regions.” As the number of growers decline in deference to the best producers, Chile’s coming export markets will include Latin American countries, which are already important for Chile, with primary South American customers being in Brazil and Colombia. In all Asian, South American, and European markets, Chile’s competition from Peru has increased.
“Five years ago, we saw that Peru was starting to export grapes in January but now you can see even in the USDA prices that they were reporting prices for Peruvian grapes at the end of April. It’s a much longer transition not like years before that in might be a month or month and a half. Now we have two or three months of transition between the Peruvian and Chilean grapes. Now this transition period is knocking at the door of the southern regions of Chile. So, the Chileans are also having this pressure and maybe they will start to look more into other markets but at least in the last five years the share of the U.S. as a destination for Chilean grapes has declined to being focused more now on China, Europe, and Latin America.”
Magaña was asked if Peru’s unique, steady, coastal climate would allow Peru to grow and ship grapes 12 months a year.
“A long Peru season would face additional costs.” Peruvian growers tell Magaña that they could produce table grapes year-round, however that is technically but not economically feasible. They would have to prune more than once a year, adding additional costs.
Salinas adds that Peruvians are looking to flatten their production curve. With production running from September to January they’re trying to move production to the front and back end and thus flatten the production peak that is now amid the season.
Salinas suggests it will be interesting to track Peruvian early production, which may tangle with California growers. Peru might be able to extend their transition period at the beginning of their season. “If California has a low season and a low stock that is very good for Peru, if they can start their season early and they don’t have to face a crowded market. But if California does have a bumper crop with high stocks at the end of a season that is bad news for Peru, and they must start looking for other markets” with more competition and that affect would be transmitted throughout the Peruvian season to the end. ‘That also affects Chile and maybe even Mexico.”
Might Peruvian freight costs decline to make early Peru more competitive with the latter part of the California season?
Salinas responds, “That depends how much Peruvian ocean freight will decline. Freight prices, especially for reefer containers, have been much lower than dry container rates” so downward price pressure for reefer containers may at least through all of 2023.
Magaña adds that there has been a positive development in recent months as reefer containers have declined in cost for the first time in three years. “They are still at higher levels compared to pre-pandemic but already coming down from elevated levels.”
Ongoing economic Americas grape industry considerations
Continued shipping prices are hard to predict, given “a lot of moving pieces, because you depend on energy costs, and things like that. However, there are a couple of factors moving the container rates. One is positive, which is increased capacity. Some of these companies have been investing in capacity and more containers. The second one is not so positive, which is lower demand given the deceleration in the global economy and the possibility of a potential recession later this year or starting in 2024.” Recessions are hard to predict and “hopefully, it does not occur. Or when it occurs it is just shallow and short lived. However, we are already seeing consumer confidence impacting economic growth and that is also playing a factor in terms of containers.”
Mexican grape exports to the U.S., obviously, do not rely on ocean freight. As far as truck rates are concerned, diesel prices in Mexico don’t come down as in other markets. Thus, “they don’t have that advantage of lower transportation costs so that’s a little bit of a disadvantage. At this point, input prices for fertilizer and other chemicals have been coming down from very elevated levels in 2022. So that is moving in the right direction.”
Another important economic factor for Mexican growers, especially for this year, Magaña says, is exchange rates. Over the past few years, the U.S. dollar has been 20-21 Mexican pesos per dollar so now is more around 18 pesos per dollar. So, the Mexican peso is one of the strongest currencies over the past few months and that helps with the imports of inputs. However, the biggest component is the exports and that is not as good for them as it was before since they are selling in U.S. dollars, and they are paying all their labor in Mexican pesos. Pesos now are a little bit more expensive.”