Mexico Broccoli and Cauliflower Face Inflation
Posted by Edward Noon in Food Products, General TradingWe just recently discussed about worldwide inflationary pressures on our food supply and interestingly enough today I received the letter below from the “Asociacion De Procesadores Y Exportadoes De Frutas Y Vegetales En General, A.C.”. Mexico is no exception. Food inflation is here to stay.
September 25th, 2007.
All Members of this Association feel that given the present circumstances it is necessary to bring our valued customers up to date on the broccoli and cauliflower industry in Mexico and the likely effect it will have on production, sales and inventories for the United States market.STATE OF AFFAIRSIn brief, the demand created in the United States market in 2006 by the drop in frozen broccoli production due to the closure of Bird’s Eye’s plant, the ethanol effect on corn production and its repercussions on other crops and an above-the-average rainy season have all conspired to create historically low inventories and historically high production costs.INVENTORIES
According to the current USDA Cold Storage Holdings Report, there was 64.4 MM pounds of broccoli inventory in US warehouses as of August 31. This compares as follows with prior similar periods:
21.3 MM pounds “less†than August 2006.
45.9 MM pounds or 41.6 % “less†than the August average during the 2002-06 period.
PRODUCTION COSTS
As it was mentioned in our last newsletter (July 2007), President Bush’s decision to expand the production of ethanol created an unexpected demand for corn that doubled the price for this crop which, in turn, put substantial price pressure on all competing crops, one of them being broccoli. While product that we are currently harvesting was contracted at substantially higher prices during the early summer period, growers will once again be faced with the same planting decision this coming spring: corn or alternative crops. To prevent the diversion of badly needed acreage to corn, Mexican processors are now negotiating substantially higher prices for future contracts.
On top of all this, the recently approved tax reform legislation by the Mexican government will mean higher taxes for all farmers since most of the concessions previously given to the agricultural sector will be eliminated, thereby increasing each growers cost of production.Â
As a cumulative result, there are very substantial pressures on cost that Mexican processors will need to recover by means of price increases. Our members sincerely regret having to pass along these higher costs but the impact of the ethanol and tax reform legislation decisions taken by the US and Mexican governments can not avoided.
Once again we appreciate your patience and understanding of the difficulties the industry is going through to meet your needs during this specially trying time but we are optimistic that once we put the rainy season and its consequences behind us we will be in a position to keep up with your demands, although we do not expect inventories to be at a comfortable level until the end of the Bajio harvest in April, 2008.
Technorati Tags: Noon International, Bajio, Mexico, broccoli, cauliflower
Entries (RSS)