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Impending Marketing Order Leads To Frantic Efforts To Get Chilean Grapes In The U.S.

Jim Prevor’s Perishable Pundit, March 29, 2010

Congratulations are due to Richard Bright, whose valuable newsletter, Reefer Trends, just published its 500th issue. Just prior to the USDA rejecting the petition to extend the period when Chile can ship to the US without meeting more stringent requirements, Reefer Trends wrote the following:

It has been a long time coming but the reefer charter market at last has its peak — the good news for owners and operators is that the current scarcity of tonnage is set to last for at least 2-3 weeks and possibly longer. The market is being driven by the desperate, Dunkirk-like evacuation of Chilean seedless grapes to the US market before the implementation of the Marketing Order on 10 April. Ecuadorian banana charterers and US poultry charterers hoping to load prompt are faced with the knowledge that there are no Spot ships for the next 7 days.

This is possibly the first time in two years that the market has been so tight. With operators looking to recover from what for them has been a miserable period it would be no surprise to see rates for Spot cargoes moving sharply higher — especially with the value of TC fixtures almost doubling between Monday and Wednesday this week.

In the short term there are reported to be 4 banana and 4 (non-US to Russia) poultry requirements uncovered for next week. It is also possible that more tonnage will be absorbed by Chile, especially if the Marketing Order for grapes is extended. This has become marginally more likely now the powerful International Longshoremen’s Association and Wal-Mart have thrown their weight behind the petition. The Friends of Chile have also written an open letter to the American people asking all those who agree with the request to extend the Order to add their names to the petition by e-mailing the United States Department of Agriculture at Karen.S.Ross@usda.gov or Ed.Avalos@usda.gov The situation is so pressing in Chile that the self-geared reefer vessels are having to load out of the container port of San Antonio as well as Valparaiso and Coquimbo, the first time in many years that this has happened.

That led a frequent Pundit contributor to point to how rules often work in perverse ways:

As usual, Reefer Trends nails many of the logistical issues facing the import business, especially the Chilean deal.

The Marketing Order intended to ‘stop’ grape imports that compete with the Coachella growers is going to have the exact same “opposite” effect it did with Mexico.

Mexico’s table grape volume now dwarfs the Coachella Valley with consistently better grapes because ‘they have to’ have better grapes. The total industry grew, and Coachella “created” its largest competitor.

Now with the administration of the Federal Marketing Order moved to April 10 from the historical April 20th, there is near panic to load as many grapes as possible prior to the Marketing Order, especially Thompsons, and the market may likely go from famine to feast — quickly.

Beginning Saturday March 20th to Saturday March 27th, there are 8 charter vessels with a total of 3.6 million boxes of grapes (not to mention numerable liner vessels with containers of grapes) to arrive to the US East Coast. There are another 8 charter vessels of the same size scheduled to arrive in Week 13 as well, so you can expect ANOTHER 3.6 to potentially 4 million boxes of grapes. The number of ships announced for Week 14, the last week to arrive prior to the Marketing Order is not fixed, but the names announced are similar in size, so potentially another 3.5 million boxes potentially could arrive, UNLESS more ships are diverted to Europe. Conservatively, there will likely be as many as 11 million boxes arriving to North American East Coast in the span of 3 weeks.

The US West Coast had about 1.1 million boxes this past week, but catches a break next week 12 with only 531,000 boxes arriving. However for Week 13, the West has 3 ships with perhaps 1.2 to 1.5 million boxes followed in Week 14 (last week before the Marketing Order) with 4 ships, which will have easily over 2 million boxes. This potentially about 5 million boxes to the US West Coast prior to the Federal Marketing Order.

If all the vessels are filled to capacity, the total volumes left to arrive to North America beginning next Week 12 until the Marketing Order may be as many 16 million boxes.

Not only will there need to be major promotions, but inventories are going to have to be managed efficiently. I would question that there is sufficient cold storage on the East Coast to effectively handle this much fruit within 100 miles of the ports of Philadelphia and Wilmington, Delaware. Storage on the West is less problematical, with considerable capacity in the San Joaquin Valley.

This is just grapes. What about the big apple crop in Chile? How are they going to arrive to the market, just to mention a single item?

The Federal Marketing Order is not going to achieve its original purpose in 2010. Rather, it is going to exacerbate the oversupply prior to the Coachella season.

The tail end of the Chilean 2009-2010 season may be as interesting in the artificially created oversupply, as the extremely short supply seen through this Week 11.

We shall see.

Good luck to all stakeholders.

— Richard A. “Rick” Eastes
Procurement
Market 52

Richard’s analogy to Dunkirk is apt and Rick’s point that the marketing order is having perverse consequences is well taken.

We live in a world now where much of the citizenry has a philosophy that expects government to solve every problem. Yet there is no likelihood that government can do this on a multitude of issues.

Indeed, there is a perversity in that the more things government attempts to do, the more likely it is to fail. In other words, strong government is focused government because that is a government that can achieve its intended goals. Broad government is inherently weak, because it cannot achieve its intended goals.

The issue is often information… central planning has difficulty with freedom, because free people find ways to achieve their own goals, and laws are typically a step behind.

So, the impending marketing order leads to hysterical efforts to get fruit in the US before the deadline, thus making the marketing order impact shipping schedules in ways never intended.

The authors of these types of rules ought to read more Shakespeare and so learn the limits of their philosophies. They might start out with a little Hamlet, especially Act I, Scene 5, when Horatio and Marcellus disturb a conversation that Hamlet is having with his father’s ghost.

Horatio, the rational one, isn’t ready to buy into the idea of a ghost. His “philosophy” does not allow for the existence of ghosts, but Hamlet urges Horatio to open his mind to the possibilities he had not expected:p>

Hamlet:
Swear by my sword
Never to speak of this that you have heard.

Ghost:
[Beneath] Swear by his sword.

Hamlet:
Well said, old mole, canst work i’ th’ earth so fast?
A worthy pioner! Once more remove, good friends.

Horatio:
O day and night, but this is wondrous strange!

Hamlet:
And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy.

Hamlet Act 1, scene 5, 159–167

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