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Did Wal-Mart Have A Role In Ballantine’s Fall?

Jim Prevor’s Perishable Pundit, May 12, 2009

We’ve written many pieces about the challenges facing the California tree fruit industry, including these:

Although we had no reason to think it was going to fail, we can’t say that the collapse of Ballantine Produce was a shock. We had heard they were slow on paying growers and that led to a loss of volume. When a few big growers decided to leave, that led to a collapse.

Although, of course, the failure of a company is always related to its own situation and its financial strength, one of the key factors that many in the industry feel led to this collapse was the way Wal-Mart has been dealing with the California tree fruit industry. Here is how one insider put it:

Ballantine’s crown jewel was that it had 10 Wal-Mart DC’s. There may be a short-term scramble, but the supplies will get filled by others.

However, the way Wal-Mart is comporting itself toward the tree fruit industry may have been a major reason for the decision of the ownership to pull the plug.

First, Wal-Mart opened the 2009 pre-season bidding for tree fruit to ‘everyone’. Those outsiders, who would do ANYTHING to get in, including some vertically integrated companies, gave Wal-Mart what most concede were unnecessarily low season-long prices. Then, Wal-Mart used the ‘outside prices’ to leverage its traditional suppliers, including Ballantine, to lower their prices to match, then essentially gave all DC assignments back to its traditional suppliers.

Finally, the ‘last straw’ may have been a decision by Wal-Mart to ‘turn the screw’ and demand suppliers supply only 60s and larger on both peaches and nectarines during a traditional contract period where 70-size were permissible — at the same price — a huge price concession in a traditionally high priced harvest period!

There was quiet outrage among Wal-Mart suppliers and their partners, but all industry suppliers acquiesced to meet the new standard.

Put another way, if one’s biggest customer won’t let you make any money, what is the point of struggling to continue?

Some, of course, believe in a “last man standing” theory, whereby if the Ballantine’s of the world go out of business, they hope to stand, at the end, as one of very few suppliers — maybe the only supplier able to meet Wal-Mart’s volume needs. They hope to profit at that time.

It is a theory, but not one we have really seen work in practice.

It is not unethical for Wal-Mart to pursue low prices or to consider alternative vendors. Though trying to demand things not called for in the contract after the deal is made would be unethical.

The problem is that one would hope that the biggest buyer in the industry would be selecting vendors via other criteria. Perhaps it could restrict its purchases to the vendors who are furthest along in pursuing traceability or those that have invested most heavily in preparation for Global Food Safety Alliance certification, or maybe those whose efforts most closely match Wal-Mart’s publicly proclaimed priority of sustainability.

Obviously Wal-Mart did not cause the Ballantine collapse. Wal-Mart treated others the same way and the others were sufficiently capitalized not to collapse — at least for now. Still, the fact that Wal-Mart went back to its traditional vendors is telling. It meant it was satisfied, thought it had the best vendors and, yet, elected to make these “best” vendors compete on price with those it thought less desirable.

This is the habit that is inching through the industry, in which our best producers who take supply chain obligations most seriously are put in a position of competing with secondary producers on price. As long as this continues, industry progress will be most difficult to obtain.

Ballantine’s future and the future of the fruit it marketed is uncertain. It is reported that some key employees were trying to hold together a ‘surviving company’ that might have perhaps 1.4 million boxes — a very rough guess — from Ballantine-owned orchards and some key growers who would like to stay together.

What is clear is that the industry needs fewer handlers and sellers, not more.

Although industry orchard pullouts are far above recent experience, and estimates are for 12-13% fewer peaches and nectarines, that doesn’t actually tell us enough.

The time frame of the volumes — still heavily clustered — the volumes for the eastern crops — projected to be above average — and the fragmentation of the marketing effort — still quite fragmented — all will impact on grower returns.

So what happens to the plans for the 1.4 million boxes really matters. If it winds up in weak hands, cuffing stuff in the markets, there could be a big impact on returns.

Plum supplies seem more in line with demand, maybe even a bit short, but the estimating program does not include pluots — and these often get sold as plums.

We had the opportunity to chat with a number of growers late March when we gave a talk on sustainability for The California Grape and Tree Fruit League. For the most part, despite its problems, the industry is hopeful. However, industry weakness persists, Ballantine being the latest and most shocking example. It will take a lot of discipline to manage profitable sales during the whole of the California tree fruit season. We wish the growers and handlers good fortune.

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