Fresh produce supply chain, Supply Chain Management

The Fresh Produce Supply Chain

Fresh produce was grown in many locations worldwide. However, certain areas proved more economically viable than others for large-scale production due to the length of growing seasons, the availability of labor, and land costs. China, the European Union, India, Brazil, the United States, Mexico, Chile, and South Africa were the world's largest producers of fresh produce.

The U.S. fresh produce supply alone was valued at $113.2 billion. U.S. exports of fresh fruit and vegetables totaled $5.9 billion in 2009, and imports totaled $11.7 billion; those figures translated to approximately 5% of world exports and more than 10% of world imports by value.

The largest private company producing fresh produce was Dole, which had developed a grower-to-retailer supply chain of its own, contracting with growers and packers and then distributing and marketing their produce to supermarkets, mass merchandisers, wholesalers, and food service operators in more than 90 countries.

Growers, while often eventually supplying a larger firm, were typically independent contractors. Larger growers dominated the export and global market, while smaller growers typically looked to the domestic market for their livelihood. Some large growers owned packinghouses; others worked closely with a packer who handled,  cleaned, and packed produce before it was sent to its destination. If the packing station was not owned by the grower, it was traditionally owned and operated by a trader or broker. The trader purchased the produce from the farmer, then cleaned it, packed it, and delivered it to sellers such as supermarkets, wholesalers, and food service operators. Sometimes there was an additional link known as a commissioning agent. A commissioning agent worked either directly with a farmer or with a trader/distributor to find the best possible price for the produce and then took a fee on that price. While it was an added cost, paying for a commissioning agent was often advantageous for farmers and traders, as those agents were well connected and could find markets that were willing to pay higher prices for produce without burdening the farmer with the time and labor associated with those efforts.  

Brokers often worked with numerous farms and rarely branded the farmers' products, instead aggregating similar products from many farms  for large-volume shipments. Brokers typically assumed much of the risk in the selling process, commonly buying the farmer's product at harvest and navigating the delicate process of delivering produce that had not spoiled, was not diseased, and was presentable for sale. Reported margins for brokers ranged from 10% to 50%.

Retailers, food service operators, and wholesalers typically owned and operated regional distribution centers where the produce was dropped off, consolidated into mixed loads, and trucked to stores in the area. This allowed retailers to control delivery to stores and ensure a steady supply of product. Supermarkets typically made a 25% to 55% gross margin on fresh produce; that margin was significantly higher than margins for other products they carried in the stores.

The margins varied greatly due to the perishable nature of produce and required proper timing and controls. Average loss (shrinkage) for fresh produce at the retail level was 5% to 12%. On average, produce accounted for 10% of total supermarket sales yet yielded about 20% of net profit dollars.


Posted Date: 2/18/2013 1:49:52 AM | Location : United States

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