Wednesday, November 23, 2011


On October 21, President Obama signed legislation to renew the Generalized System of Preferences (GSP) through July 31, 2013. GSP is a program designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.
The Bioterrorism Act of 2002 required overseas processors to register their facilities and identify a U.S. agent for administrative purposes. The new Food Safety Modernization Act is now requiring that this same U.S. agent be held responsible for FDA’s new food processor plant re-inspection fees, which, at $325/hour, can cost as much as $40,000 per overseas plant. The law took effect Oct. 1, but the FDA is delaying collections until January 2012.

While the three month fishing ban on Fish Aggregate Devices (FAD) was lifted back in September, the pent-up market demand, the continued low catch levels and the flooding in Thailand have kept raw material prices firm. Although the cost of skipjack tuna has dropped to $1900/mton from the record highs this summer of $2100/mton, costs remain high compared to the historical average of $1300/mton. The big question now is this: given the increasing FAD fishing bans, will average costs ever return to these old levels or are we now establishing a new norm, just as higher oil pricing raised the breakeven/average costs years ago. Next year, it is reported that the FAD fishing ban will be imposed for six months instead of just three. Three months of the ban are expected to run July-Sept 2012. The period for the additional three months has still not been determined. Yellowfin catch is reported to have improved and is now closer to its normal ratio of about 25% of the skipjack/yellowfin catch compared to only about 5% a month ago. Albacore, now at $3500/mton, continues to firm and tongol remains scarce.
With the Thai flood waters running through Bangkok and into the sea, it appears hopeful that the pineapple plantations in the southern part of the country will be spared. Still, it is estimated that 15% of Thailand’s pineapple crop has been destroyed and the industry now suffers from the flooding of label/carton printing facilities and tinplate factories. The resulting empty can shortage, has forced some packers to leave the pineapple in the fields to rot or find alternative storage methods. The influx of water has also closed the Bangkok port, forcing exporters to reroute to other overcrowded ports. Road travel has also become increasingly difficult causing some packers’ offices to relocate their operations. All the above factors have led to lengthy delays in deliveries leaving many packers reluctant to sign long-term contracts.
To correct for “ministerial errors,” the U.S. Dept of Commerce issued amended final antidumping duty rates for Chinese mushrooms imported from Feb 1, 2009 through Jan 31, 2010. The new rates bring one Chinese plant down to a manageable 2.17% duty rate. The general Chinese rate however is 76.12%, making it prohibitive for most other plants to export to the U.S. While last years crop volume was down 35% from 2009, this year’s crop is expected to improve by 10-15% over 2010. Demand however has grown and the domestic Chinese market is now consuming a full 30% of the crop. Inflation continues to be a problem as well, with workers’ wages, tin plate cost and loan rates increasing. These along with the appreciation of the Chinese currency could neutralize the lower raw material cost.
The Chinese mandarin crop is underway and runs until Chinese New Year. Because the holiday comes early in 2012, the pack will end 11 days sooner than last season. It is expected that the total processed volume will be down 10%. Other cost inputs such as tin plate, sugar, and wages have increased, and severe shortages in working capital have packers pushing for immediate shipments. This year’s opening price is hovering about 5-10% higher than last year’s closing level. Additionally, quantities in Spain are running 25% behind last year and Europe has now become a net importer of mandarin products.
Reports from Italy warn of widespread product shortage and escalating costs. Due to high temperatures and drought-like conditions in 2011, producers are predicting a 14% decrease in the grape harvest, making this the worst crop in 60 years. A 15% increase in wine sales has also usurped grape stocks previously prescribed for balsamic vinegar production. Due to these circumstances, some packers are warning that their costs could rise by as much as 40% compared to last year.
The Spanish harvest is running well for most varieties with the exception of Queens. While extreme high temperatures and dry conditions were recorded, an abundance of unemployed and thus available seasonal workers meant the crop was harvested in record time. However, low prices at the beginning of the harvest forced much of the early variety Queens into olive oil rather than table olive production. As of late October the estimated production for the major varieties was predicted as follows: Queens 23 mtons (vs 37.9 last year); Manzanillas 147 mtons (vs 121 last year) and Hojiblanca 200 mtons (vs 254 last year)
The Thai flooding has stalled the replanting of corn, delaying availability of new crop. Packers reported that farmers need to wait for the flood waters to recede completely before they begin to plant. Furthermore, farmers are switching to faster growing varieties causing a severe scarcity of smaller sizes of baby corn (200+ and 300+ counts).
The pepperoncini/pepper crop in Turkey was hit by unexpected frost at the end of October. This cut short the pepperoncini crop by one month, further exacerbating the previous one month delayed start due to heavy rains in May. As a result, most packers are reporting that they will be about 40% short of their projected volumes.