Product Sourcing in the Pickle Industry
Pickling Cucumber Improvement Committee Meeting Abstract
Edmund Estes and John Cates
North Carolina State University and Addis Cates Company
As we begin the new millennium, food industry buyers and sellers recognize that business practices must evolve as companies react to changes in the U.S. and global economies, the creation of new product sourcing opportunities resulting from reductions in trade barriers; continued consolidation in the retail, wholesale, manufacturing, and producer sectors; and ever-increasing scientific and technological advances. For the pickle industry, issues have focused primarily on sourcing product, ranging from the type of harvesting method used (machine or hand) to off-shore procurement of raw and/or finished product. In Session V we will discuss all important elements and dimensions of product procurement, with particular emphasis on cucumber for pickle harvesting (via mechanical aids and hand labor) and the importation of product. It is anticipated that the discussion will provide some insight about industry efficiency, opportunities to increase sales, identify ways to enhance consumer acceptance of pickles, and lead to enhanced company competitiveness in the marketplace.
During the 1990’s, consumer food purchase patterns changed significantly as health, nutrition, and convenience increased in importance. Packaged salads and fresh-cut produce sales expanded as consumers reduced meal preparation time. Rising incomes enabled consumers to purchase a variety of high quality, value added items. Foodservice establishments and restaurants often introduced consumers to a wide range of exotic and specialty produce items. As consumer purchase patterns changed, procurement patterns for retailers, wholesalers, and foodservice distributors also changed. Firm consolidation in all sectors resulted in reduced costs, but also increased the minimum breakeven volume. For the pickle industry, consumer analysis revealed that 20 to 50 year old men living in the Midwest and the South ate the most pickles. However, as Americans got older, pickle consumption declined sharply, most likely because doctors recommended that older Americans limit their sodium intake. While fresh fruit and vegetable consumption has doubled over the past 20 years, pickle consumption declined. During the 1990’s, supermarkets saw sales growth in lower salt, refrigerated pickles increase significantly, but other industry indicators were less optimistic. During a period of strong economic prosperity in the U.S. and significant increases in produce consumption, there was a 6% decline in U.S. cucumber for pickle production, a 7-fold increase in finished (pickle) and unfinished (cucumbers for pickles) imports, and a 4% decrease in pickle consumption. Pickle packers also saw an increase in carryover brined stock of about 9% between 1990 and 1999. It is clear that many production and marketing challenges exist for the industry.
An underlying question of concern to growers, processors, and distributors can be summarized as “Are the high costs of producing and processing cucumbers for pickles in the United States, compared to poorer foreign countries, pushing America out of the cucumber for pickle production and processing business?” Related sourcing questions include: “Is it advisable to increase U.S. processor reliance on foreign raw or finished product suppliers” and “To what extent do foreign processors have much lower cost structures than U.S. processors?” In the U.S. mass merchants such as Wal-Mart introduced supply chain management practices to the retail grocery business and fundamentally changed the competitive structure of the grocery industry. The immediate result was lower retail prices, reduced distribution costs, streamlined logistics, and increased competition for traditional grocery stores. Increased sales and lower margins required development of more global strategic alliances. Business partnerships can facilitate the efficient flow of product from farm-to-market, irrespective if the farm is in the U.S. or not. In food distribution today, it is usually one supply chain network competing against another supply chain network in order to sell product rather one firm competing against another firm. Product sourcing for finished and unfinished product has become global because of fundamental changes in the supply chain system. In order to compete in the marketplace, companies must coordinate and manage the efficient movement of product from supplier to handler to seller. This impact has influenced the pickle industry as recent trends indicate that finished and unfinished product is sourced from foreign suppliers.
The first three talks in Session V focus on one aspect of procurement, that is, whether a mechanical harvester or hand labor is used to pick cucumbers for pickles. Pickle Packers International (PPI) estimates that nationally two-thirds of the domestic pickle crop grown in northern U.S. states is machine harvested. In contrast, PPI also estimates that 90% of the pickle crop grown in the South is harvested by hand. In general, hand harvesting often increases marketable yield levels, minimizes harvest and handling damage, and allows for frequent and size-specific harvests. For smaller size, higher-value pickles such as gherkins, hand harvesting is often cost effective. A number of factors must be considered, including harvester equipment investment and operating costs, piece rate wages paid, H-2A worker costs (housing and transportation), minimum and maximum acreage planted, cucumber for pickle sizes requested by customers, and the relative efficiency of workers and machinery. James Adkins and Ed Kee examined all relevant issues involved in utilization of a mechanical harvester. Adkins and Kee compared the standard tractor-mounted, Raven-type cucumber harvester with the newer tractor-pulled PikRite harvester. Adkins and Kee examined the investment and operating costs for the PikRite, estimate a breakeven acreage volume, assess claims about improved product recovery and investigate reductions in abrasions, scratches, and cut loss on harvested cucumbers. In general, Adkins and Kee noted that the PikRite harvester had a slightly higher cost, but the equipment also improved the quantity of marketable product, and this resulted in higher gross revenues per acre. If growers do want to purchase a mechanical harvester and are unable to locate sufficient numbers of migrant and/or local farm workers, they often utilize the services of the North Carolina Growers Association (NCGA) located in Vass, NC. Each year Stan Eury, President of NCGA, locates and secures approximately 10,000 H-2A workers for tobacco, sweetpotato, pickle, and other U.S. farmers. However, heightened media attention about the plight of migrant and H-2A workers, as well as increased regulations and requirements concerning worker documentation, housing, and work conditions, have motivated many Southern growers to re-examine mechanical harvesters. For pickle products where larger fruit size is acceptable (spears, relish, slices), it would appear that mechanical harvesting is very cost-effective. Average production costs per unit are often lower if a mechanical harvester can be used (sufficiently large acreage to justify purchase or rental of harvester). Thus, individual grower-shipper situations and economic circumstances will dictate whether mechanical harvesting or hand harvesting is the preferred method of pickle harvesting.
The final half of Session V will focus on foreign sourcing of finished and unfinished product. All foreign trade was, of course, encouraged by trade agreements such as NAFTA that reduced or eliminated barriers and tariffs. Since 1995, U.S. pickle exports have remained relatively constant, accounting for about 2% of total pickle utilization. Typically, U.S. firms export finished product to buyers located in 35 countries, but nearly three of every four loads end up in Canada, South Korea, or the Netherlands. In contrast, import volume for finished pickle and raw product increased steadily dramatically during the 1990’s, and significant volume increases have been noted since 1996. In 1999, about 3.6% of total pickle availability (domestic production, brine carryover stocks, and imports) were obtained from foreign sources. Significant gains were reported by two sectors. First, imports of Canadian and Indian ‘ready-to-eat’ chilled, gherkin pickles increased significantly between 1996 and 2000. Second, imports of bulk brined pickles (that is, stock that needs additional finishing) totaled 50 million pounds in 1999, up from just 7 million pounds reported in 1990. A majority of brined pickles were obtained from suppliers located in India, Sri Lanka, and Honduras. Pickle processors expanded purchases of offshore stock because of lower prices, and seasonal availability allowed better utilization of storage and packing equipment. With declining per capita consumption levels, increased offshore purchasing places greater pressure on domestic producers and shippers. Global sourcing has affected domestic pickle producers and offshore purchases are likely to expand in the near future barriers to trade are reduced.
Lou Rosenmayer and Manik Veerakumar will focus their remarks on the importation of raw products for the U.S. pickle industry. Rosenmayer notes that preparing product grown thousands of miles away from the manufacturing point is not a simple task and poses a serious challenge for manufacturers. Possible obstacles to trade include: the administrative paperwork requirements necessary for processing foreign product into the U.S.; the physical requirements of moving product quickly, such as hydrocooling, packaging, and refrigeration; plus the financial considerations, such as currency exchange rates, currency devaluations, and bank letters of credit. Veerakumar notes that many manufacturers want small cucumbers for pickles, and it is increasingly difficult for domestic processors to obtain smaller size cucumbers for pickles because of the prevalence of machine harvesting. Veerakumar believes that most imports are of size 1A large (5/8-13/16 inches) and 1B (13/16 to 1 inch), with South India serving as the dominant foreign supplier to U.S. companies. For India to maintain its market position as a main supplier of gherkins, Veerakumar believes that India suppliers must ensure complete traceability of product, minimize worm damage, manage pesticide residue levels, and increase grower returns. Guillermo Brun discusses the importation of finished pickles from foreign suppliers and notes that processors in the U.S., Canada, and Europe who outsource fresh-pack or refrigerated pickle products from abroad will benefit from better product quality, real freshness, better inventory management, and realize net cost savings. Brun points out that there are quality risks in outsourcing, but many of the risks are manageable for most companies. Finally, Brun stressed that all EPA, USDA, and FDA regulations must be met rigorously by the co-packer to assure continuous, trouble-free access into the U.S. To wrap up the Session V discussion about sourcing, Larry Graham and Mike Wuller offer the views and perspective of U.S. processors. Graham believes that increasing quantities of small size stock will be imported as foreign suppliers seem better able to provide the quality and small sizes demanded by U.S. consumers. Wuller notes that little testing is done of imported food products (USDA uses statistical sampling methods). Do we need to increase sampling rates or testing for additives, contaminants, or unapproved chemicals to ensure food safety for U.S. consumers?
In conclusion, we believe that this session will be exciting and informative for attendees. After all speaker remarks, the session will conclude with a panel discussion that includes a question and answer session. All Session V speakers will participate in the panel discussion so audience members are encouraged to attend and ask questions of speakers.
For further information, contact:
- Dr. Edmund A. Estes, Professor
- Department of Agricultural and Resource Economics
- North Carolina State University, Raleigh, NC 27695-8109
- Telephone: 919-515-4553; Fax: 919-515-6268
- E-mail: firstname.lastname@example.org
- John Cates
- Addis Cates Company
- P. O. Box 146, Parkton, NC 28371
- Telephone: 800-423-4457; Fax: 910-858-3074