By Vicky Boyd
As consumers change their spending habits and hunker down for the economic storm, growers of many specialty crops will likely weather the downturn with minimal damage.
That's according to the 2009 Food and Agribusiness Outlook issued recently by Rabobank America, based in New York. The institution also held a Webinar and press conference on the same subject Dec. 18.
"We are seeing consumers cut back on all discretionary spending and waste," says Steve, Rannekleiv, a beverage and food service analyst for Rabobank. But consumers still have to eat.
One unknown is whether the U.S. dollar will strengthen against foreign currency. If that occurs, U.S. exports—including many agricultural products—will become less attractive to foreign consumers, says Marieke de Rijke, an analyst overseeing the fruit and vegetable sector.
"If the U.S. dollar would appreciate, it could result in a slow down of exports," de Rijke says. "We don't know how the U.S. dollar is going to develop."
Agricultural exports, such as almonds, have benefited from a weak U.S. dollar. About 70 percent of the U.S. almond crop are sold abroad.
Although almonds and other nuts, such as walnuts and pistachios, may have been considered a luxury only a few years ago, de Rijke says promotion boards have done a good job boosting demand and moving them more into the mainstream.
"I also think that in these regions, like Asia and Europe, people are now used to these types of products," she says.
In the United States, consumer sentiment is at its lowest in 56 years, Rannekleiv says.
Consumers, who in 2003 were willing to pay for luxury items, have done a 180-degree turn and have returned to frugality.
Many are now opting for grocery store private labels over nationally advertised brands and substituting cheaper cuts of meat for more expensive ones, he says.
Consumers also have shifted buying outlets, preferring more value-oriented channels, such as Walmart and Costco, over Safeway and Whole Foods, Rannekleiv says.
In addition, consumers have reduced the number of times they eat out and are now preparing more meals at home, Rannekleiv says. When they do eat out, they typically are trading down.
Quick-service and fast-casual restaurants, such as McDonalds and Panera, actually have seen sales increases during the past 12 months. White-table cloth restaurants, such as Ruth Chris' steak house and Morton's, have seen double-digit declines in sales.
What this means to the produce industry is a slight reduction in sales of fresh-cut product, which is a mainstay of food service.
On the other hand, consumers are expected to eat more fruits and vegetables at home.
"When people prepare meals at home, the portions of vegetables are larger than the portions served away," she says.
Even so, de Rijke says she expect a slight decline in pre-cut sales as consumers opt for less expensive whole commodities.
Consumers also may choose frozen over fresh, since frozen product isn't as perishable as fresh and therefore doesn't have as much waste.
The reduction in meals eaten out also will affect winegrape growers, since much of the premium and ultra-premium wines are served in restaurants.
"Alcoholic is fairly recession resistant," Rannekleiv says. "We haven't seen the volatile declines, but the growth rate is fairly soft. We are seeing companies shift away from the bar and club side to the retail side.
"Companies that have a strong portfolio across a wide range of price points will be better positioned to weather the storm."
And beer is likely to steal sales away from wine and spirits.
Regardless of the commodity, de Rijke says growers who want to succeed will have to focus on the consumer.
"In view of the economic downturn, it will really become key to stand out in quality and customer relationships."
To subscribe to the print version of The Grower, click here.