A few months on from severe floods in southern Peru which caused major humanitarian issues as well as impacting several fruit categories, including avocados, PBUK speaks with managing director of Pacific Produce, Rob Cullum. He explains how low volumes from the flood-stricken growing regions of South America are leading to “exorbitant” prices and how in the coming weeks the US – a huge consumer of avocados – is likely to absorb much higher volumes of the Peruvian fruit possibly creating gaps elsewhere.
Peruvian avocado association ProHass has formally downgraded its crop forecast for 2017 and estimates could be pushed down further due to the impacts of the heavy rains and consequent flooding in January.
Organisation president, Daniel Bustamante, tells PBUK the official estimate has been cut by 10,000 metric tonnes (MT) to 240,000MT, and over the course of weekly updates that figure could easily fall by another 20,000MT.
However, Cullum says the impact in terms of supply into the UK and Europe is not dramatically affected right now because fruit can remain on the tree, with volumes from Peru expected to pick up shortly.
However, he questions what will happen to the market once the US season really picks up pace in early to mid May.
“It doesn’t really make too much difference to the fruit itself because you can leave avocado on the tree, not indefinitely but not like some fruit where it has to be picked in the right moment,” he tells PBUK.
“In most terms the fruit is still there, it’s going to come. There is no dramatic issue to the volume out of Peru, but the fruit is going to come slightly later so that’s left a bit of a gap in the market and has put prices to what we believe are exorbitant levels in the UK and also in Europe.
“We’re seeing that part of it is a reflection of volume not coming, but another part is a reflection on the fact that this is the first time that Peru comes back into the market post currency collapse.”
Cullum says that two aspects are compounding; short market plus poor currency.
“The third impact, which I don’t think people have properly understood yet, is the impact of the US,” he continues.
“This year it’s a common known fact the US will be short of avocado because Mexico is down on volume. They (US) consume huge volumes per capita as a country and Mexico is a giant grower so they’re having a lower season and even though Peru is becoming a big player, Peru’s normal volume that goes into the US is a very small percentage of the total.
“With Mexico down, they’re going to pay big money as the US is a true market, it’s a market-based receiver.
“It’s not something anyone can control, Peru is late. But I think the real damage is going to come soon when the US starts taking fruit and giving returns, that’s when a lot of the Peruvian volume will go in that direction.”
Despite the potential difficulties in the market, Cullum says Pacific will continue to operate as usual, but warns of a tough few months ahead and looking to the longer term he’s concerned what impact escalating avocado price tags can have on overall consumption, particularly in the UK.
“Of course there is a limit to how much people will pay for an avocado which we all understand. My biggest fear is that we may have a situation where – if South Africa doesn’t have too much fruit, the US is starving for fruit – meanwhile consumption has been growing every year and we could hit a problem where we could damage that increase in consumption because once an avocado gets to a certain price, it’s like anything, it will hurt the consumption.
“And we’ve had such a good run, year after year of increases in avocado consumption. It’s been one of the real fruit and veg success stories and if we are not careful, we could have a problem by putting prices too high.
“And that’s not good, then people move onto something else. You put people off.”
Cullum says last year’s data shows the US started to “open its doors” to avocado in around week 19 or 20 and so he expects the same this year.
“There are a couple more weeks where Peru is focusing on Europe in terms of its export and don’t get me wrong, Europe has in the past taken more volume that north America, but this year I think it will swing a bit.
“Because the numbers they are talking about already, well they’re too high. The issue we have in the UK is that Europe doesn’t necessarily think in the same way as us in the UK, they will just say the market is the market and start paying higher and higher.
“While the UK is all about long-term fixed pricing and that’s very difficult because as it gets harder and harder, they’re going to ask for more and more fruit and the reliable shippers from Peru will try to fill those gaps but at the same time, every container they send to the UK is essentially lost money.
“You have to look at it differently and look at the long term – I see that this summer is going to be very complex for avocados.”
Cullum says he personally dislikes going back to the market base asking for “more and more money” because it doesn’t help the long term positioning of the product.
“People say ‘your farm is going to make loads of money’, but I’m not happy about it, it’s not good because it’s not good for a product to be too expensive and you see it in all products, anything that crashes.
“Look at lime, for the last four weeks lime has been £9 or £10 a carton and this is ridiculously high. It’s a significant amount more than usual and what’s happened? Everyone has shipped limes from everywhere and it’s going to completely crash.
“It kills consumption and now people aren’t consuming so many because it’s too high and then all of the growers have sent product and the market is going to crash. Boom and bust is not good for the farm, it’s not good for anybody.”
Pacific Produce supplies the UK and Europe, working from its base in Oxfordshire, and is the marketing arm of La Calera Group headquartered in Lima.
“We supply Europe including the UK because with avocado you have to have a good mix; each country takes different sizes and you have to have a jigsaw puzzle with receivers across the world. You can’t just say I supply France, Spain or wherever because then you will get stuck with certain sizes.
“I would say that the bigger guys in Peru will have a foot in each place, sell all of the different sizes, and in each place for currency risk, but this year’s numbers being talked about in America, it’s huge differences not a case of 5% or 10% – and when that happens it disturbs everybody.”
Impact of Peruvian floods
Cullum was in Peru shortly after heavy rains and floods hit two major cities in January, Trujillo and Piura and as a Peruvian owned company Pacific Produce has been involved with humanitarian efforts over the last few months.
“I was there when it all started. What seems to be happening is that the rest of the world is not that interested in it but Peru is helping Peru. A lot of effort has come in from different regions around Peru to help those most affected and I think the government or regional government has stepped up and done it’s bit.
“We’ve given food and water and lots of companies that we work with have supported this. The immediate thing was to get them lots of clean water, food and shelter and then the government is dealing with the logistics and rebuilding the roads, bridges and so on.
“And I think they will bounce back relatively quickly. The numbers were huge, the amount of people that were displaced was massive.
“All we can do from our side sitting here in the UK is to sell as much fruit as possible so the money can go back to Peru and help them there. We’ve also raise a bit of money and we’ll give that to our Foundation which then goes directly to help the aid effort, but ultimately that’s a drop in the ocean, we need to sell more fruit and just keep business going.”