Ontario is a vibrant community of growers, carriers, wholesalers, and retailers who serve the local population and export to the nearby U.S. market and beyond. At the center of Ontario is the Greater Toronto Area, and in Toronto proper is the busy Ontario Food Terminal (OFT). This year, suppliers were hit hard by weather around the world that limited supply and sent prices of some commodities soaring. On the homefront, however, growers were excited by new technology and crop choices to help optimize yields and export opportunities.
OFT Rehab
As the largest Canadian wholesale produce terminal, the OFT was constructed in 1954 on the western edge of Toronto. Occupying a 40-acre tract and home to nearly two dozen wholesalers and 400-plus farmers’ market vendors, the terminal market’s reach is extraordinary: Niagara Falls, NY and the East Coast are across Lake Ontario to the east, while the Great Lakes are a convenient conduit to much of the U.S. Midwest.
The terminal market has completed several renovation projects in recent months, including a covered parking and unloading area, an updated septic system, and construction of a new guardhouse at the entry. Skyrocketing demand for locally-grown products is behind a proposed farmers’ market facility. “This past year, we created the loading area in the buyer’s court and built a bridge linking the north and south loading areas,” confirms Bruce Nicholas, general manager at the OFT. “Our next major project will likely be the new farmers’ market building.”
Big Weather, Big Problems
Over the course of the last year since we last reported on Ontario’s buyers and sellers, growers in California, Arizona, Florida, Mexico, and South America all took hits from Mother Nature, impacting crops. Giorgio Ceciarelli, president of GC Imports Company, Inc. says the roller-coaster weather made prices soar not only at the OFT, but throughout the industry. “We sell mangos, papayas, and avocados that we pack in Mexico, and we saw very large increases in price combined with low yields. In fact, I’ve never seen prices this high—we were seeing $18 to $20 for a case of mangos when $10 a case was already extreme.”
Avocados in Mexico, tomatoes in Florida, lettuce in California, and a host of other commodities were affected by extreme weather, most credited to the departed El Niño cycle. Regardless of the cause, price volatility hit growers and wholesalers then continued along the supply chain to retailers and consumers.
“The price spike had a huge impact,” agrees Anthony Formusa, president of National Produce Marketing, Inc. “There is some price elasticity in mangos, papayas, and other commodities, but there’s a point when that breaks and consumers stop buying. These fruits then become luxury items,” he adds, with consumers opting for staple items instead. “Our volume can go down not only because of a lack of supply, but also price pressure that reduces demand.”
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Ontario is a vibrant community of growers, carriers, wholesalers, and retailers who serve the local population and export to the nearby U.S. market and beyond. At the center of Ontario is the Greater Toronto Area, and in Toronto proper is the busy Ontario Food Terminal (OFT). This year, suppliers were hit hard by weather around the world that limited supply and sent prices of some commodities soaring. On the homefront, however, growers were excited by new technology and crop choices to help optimize yields and export opportunities.
OFT Rehab
As the largest Canadian wholesale produce terminal, the OFT was constructed in 1954 on the western edge of Toronto. Occupying a 40-acre tract and home to nearly two dozen wholesalers and 400-plus farmers’ market vendors, the terminal market’s reach is extraordinary: Niagara Falls, NY and the East Coast are across Lake Ontario to the east, while the Great Lakes are a convenient conduit to much of the U.S. Midwest.
The terminal market has completed several renovation projects in recent months, including a covered parking and unloading area, an updated septic system, and construction of a new guardhouse at the entry. Skyrocketing demand for locally-grown products is behind a proposed farmers’ market facility. “This past year, we created the loading area in the buyer’s court and built a bridge linking the north and south loading areas,” confirms Bruce Nicholas, general manager at the OFT. “Our next major project will likely be the new farmers’ market building.”
Big Weather, Big Problems
Over the course of the last year since we last reported on Ontario’s buyers and sellers, growers in California, Arizona, Florida, Mexico, and South America all took hits from Mother Nature, impacting crops. Giorgio Ceciarelli, president of GC Imports Company, Inc. says the roller-coaster weather made prices soar not only at the OFT, but throughout the industry. “We sell mangos, papayas, and avocados that we pack in Mexico, and we saw very large increases in price combined with low yields. In fact, I’ve never seen prices this high—we were seeing $18 to $20 for a case of mangos when $10 a case was already extreme.”
Avocados in Mexico, tomatoes in Florida, lettuce in California, and a host of other commodities were affected by extreme weather, most credited to the departed El Niño cycle. Regardless of the cause, price volatility hit growers and wholesalers then continued along the supply chain to retailers and consumers.
“The price spike had a huge impact,” agrees Anthony Formusa, president of National Produce Marketing, Inc. “There is some price elasticity in mangos, papayas, and other commodities, but there’s a point when that breaks and consumers stop buying. These fruits then become luxury items,” he adds, with consumers opting for staple items instead. “Our volume can go down not only because of a lack of supply, but also price pressure that reduces demand.”
The Waste Side Effect
Another side effect of limited supply, particularly in the repack/prepack industry, is waste. “We had some real challenges this year,” comments Robert Chapman, vice president of sales and marketing at Pride Pak Canada, Ltd. “Precut includes a certain percentage of waste, say, for example, 30 percent with romaine lettuce. This year, not only did we have a drop in supply, but what was available was so low in quality that our waste ratio went up to 70 percent at times.”
Everyone, Chapman says, gets squeezed in such an environment. The costs are passed down to retailers and consumers, margins get compressed, and the lower sales volume at the consumer level trickles back up to hurt the wholesalers and growers. “I have been in this industry for 30 years,” he reflects, “and I never saw a winter this tough with such low supply and high prices.”
Bleak Buying Power
Adding to the mounting challenges is the exchange rate. Just a few years ago, the Canadian dollar was worth more than the U.S. dollar; today, it’s valued at about three-quarters of a U.S. dollar. That’s a 25 percent loss in buying power when sourcing from the United States. “Everything we do is in U.S. dollars,” says Larry Davidson, vice president at North American Produce Buyers, Ltd. “The drop in the Canadian dollar has increased some of our prices by 30 to 35 percent, and if you combine that with the weather last winter, it was a perfect storm.”
Flying Off The Shelves
Weather challenges aside, one of the strongest trends on both the wholesale and retail side is organics.
“The trends?” asks Chapman. “Number one is organics, organics, organics. The affordability is here, there are more growers taking on organic lines, and there is a general consumer trend to eat better. A few years ago we were shrugging our shoulders, wondering which direction this would go, but now we’re seeing amazing growth potential.”
The sense is that consumers are not just choosing organics here and there, when on sale, or as luxury items, but starting to shop for organics on a consistent basis. “Not only is there strong demand,” observes Legault, “but we’re noticing [the need] for consistency in availability and price. It is still challenging to provide a steady organic offering in all commodities, but sales are up, and we’re seeing continuing double-digit growth.”
“In response to the increased demand for organics, we’re trying to establish more of a consistent supply chain,” explains Formusa. “The gap in price between organic and conventional has narrowed, which is, in part, supporting increased demand. We had a Peruvian mango program where we used the slogan: ‘Organically grown at conventional pricing’—that worked well for a few years until we ran into supply issues with growers due to bad weather.”
A new line of greenhouse organics from Westmoreland Sales in Leamington capitalizes on both the organics and greenhouse craze. “We started with organic tomatoes-on-the-vine and sweet grape tomatoes,” notes Jimmy Coppola, which will expand to include both seedless cucumbers and mini-cucumbers as well as bell peppers.
Specialties
Other trends include more specialty vegetables, the ever-versatile kale, and hybrids. “Ethnic vegetables have been a steadily growing category for us,” comments Dan Carnevale, vice president of operations at Veg-Pak Produce, Ltd.
“I have noticed a lot more Asian vegetables,” notes Roberto Franzone, director at Arizona Sky Produce, which distributes to Ontario through its Nogales hub. He sourced few Asian specialty items from Mexico a decade ago, but now breadfruit, Jackfruit, and other Asian commodities are available. “We’re also seeing more Hispanic varieties,” he continues. “Historically, I would never send chilies to Toronto—today, they’re asking for seven or eight different varieties regularly.”
Carnevale says kale is still hot, too. “I’m surprised at how long the kale trend has been going,” he admits, but says the popularity of kale blends and different varieties of kale continue to do well.
Hybrids are also in vogue. “We’re offering ‘kalettes,’ a cross between Brussels sprouts and kale,” describes Quinton Woods of Gwillimdale Farms, Ltd. in Bradfor. “These are small like a Brussels Sprout but with frilly leaves and not as dense. They’re popular with foodies and high-end restaurants.”
Marketing and Promotions
Many trends—like locally grown, pack-aging, organics, etc.—can be traced to rising consumer awareness and education efforts spearheaded by commodity groups, produce associations, retailers, and restaurants. Consumers can find an unlimited supply of information online, on their smartphones, from the news, and in the stores themselves.
Buying Local
Sarah Marshall, manager of both the Ontario Tender Fruit Growers Board and the Ontario Fresh Grape Growers Board, says the organizations monitor important market factors including price, new varieties, quality standards, and government issues, then make recommendations to growers and stimulate consumer awareness. “Last year, with funding from Ontario’s Local Food Fund [a government fund to support the agri-food industry], we supplied display bins to our major retail partners as part of a campaign to increase awareness and sales for our members.”
The promotion and creativity didn’t stop there. “We also provided recipe cards,” Marshall adds, as well as “posters on how to care for fruit, and in-store sampling with the retailers, in addition to advertising in the Toronto Transit System and on the back of buses. We are always trying to create consumer awareness and encourage more buying of our local produce.”
Suppliers, too, like selling local. “More and more sellers want to capitalize on the locally grown message,” comments Coppola. And what’s not to love? “Reduced food miles, which directly translates to longer shelf life, increased quality due to less time, handling, and breaks in the cold chain. And,” he adds, “buying local supports local farmers and communities which, in turn, helps maintain the local economy.”
Despite the clamor for local, one wholesaler believes shoppers still rely on price more than any other factor. “My personal opinion,” comments Julian Sarraino, vice president for marketing and sales at Fresh Taste Produce Limited Canada, “is that most consumers are typically drawn towards locally grown products. However, pricing does play a critical role in determining whether or not the consumer will follow through with a purchase,” he says. “They have to make that decision in-store, with the product in their hands.”
It would seem, then, that better displays and labeling to increase awareness is half the battle. In addition to local promotions, Marshall says her group’s campaign extends to exports as well, as food shipped out of country is adorned with a Canadian flag. Traveling Canadians then “recognize the flag and are educated about our CanadaGAP food safety program, so they see this as a safer product.”
Better Efficiency, More Experts
Ontario has the highest farmer population in Canada, almost 175,000, although due to the number of people in Toronto, this figure only represents 1.4 percent of the total population. Even so, 30 percent of Canada’s growers reside in Ontario, according to Statistics Canada.
Yet even with rich soils, a proliferation of greenhouses, and increased demand for produce at the retail level, the number of farms has fallen due to consolidation while individual crop plantings have declined as well (though acreage has remained the same).
What’s driving this trend? Urban and suburban growth, soaring property prices, more expensive farm equipment, and a smaller contingent of younger generation growers. As a result, acreage devoted to several crops—including sweet corn, potatoes, green beans, and peas—has fallen. On the other side of the equation, acreage has risen for broccoli and asparagus. Most significantly is the fall of field-grown tomatoes and cucumbers, which are thriving in greenhouse production in Leamington and elsewhere in the provinces.
Imports, Exports, and Yield
Despite consolidation and some lower crop volumes, Ontario exports have increased in recent years. To balance out supply and demand, imports have also risen. What may appear as a contradiction, lower acres planted yet increasing exports, is in fact a more complex formula that includes year-to-year crop choices, weather, and technologies that have increased efficiency and yields.
“If you look at census data, there is always variability in production and acres planted,” comments Wayne Caldwell, interim dean and professor in rural planning at Ontario Agricultural College. “For example, last year there was a lot less wheat because of weather; the decline was from weather and not from farmland size. Also, year to year, crops are driven by price. If corn is higher, farmers may try to plant more corn that year.” Further, he adds, even though statistics show fewer acres planted and fewer farms, production is still going up—which explains increases in exports.
“Yes, we are losing farmland in Ontario, but the counterpoint is significant increases in yield,” Caldwell explains. “Hectares planted would have very little to do with yield. Yield per acres has more to do with weather, genetics, and technology. For example, when I was a kid, corn farmers expected 100 bushels per acre. Today, they’re yielding 200 bushels per acre.”
The Role of Technology
Technological innovations range from seed genetics and hybrids to new growing practices and mechanized equipment advances. Any combination of these practices increases efficacy in the field by allowing fewer and more targeted inputs. One such innovation is no- and low-till growing to maintain soil nutrients and limit erosion. Another is a modern combine that can record yields as crops are harvested, and process the data to determine soil quality, fertilizer needs, and other information important to a healthy crop. The use of drones and satellite imagery are gaining acceptability as well, to measure changes over time and help growers analyze heat stress, nitrogen application rates, and other factors, optimizing field condition.
“There has been considerable investment in farming practices,” states Norman Ragetlie, chair for the board of directors at the Ontario Farmland Trust. “For example, apple growers are using intensive cropping techniques such as growing dwarf varieties on trellises and getting significantly more yield. There is also a lot of land, particularly in the southwest region, under glass [greenhouses] and there continues to be significant investment in this area.”
Shipping and Transportation’s ‘New Normal’
With increases in both imports and exports in Ontario, the shipping and transportation sectors have been active. However, they too, like growers and wholesalers, were hit by the short supplies this year. Fewer crops in the first half of the year meant fewer loads. And since reduced demand factors into freight pricing as well, transporters are hoping for a busier second half of the season. “Fuel price is down, but commodity prices are up,” says Joe Rubini, president of Rally Logistics, Inc. “That means less tonnage, which has resulted in less demand for trucks.”
And the drop in oil prices over the last year or so hasn’t affected freight rates as much as commodity volumes. The biggest lever in rates is the amount of demand for trucks to ship product. “This has been a really odd year in terms of transportation,” observes Jason Furman in business development for Sunbelt Logistics Group.
“Demand has been low because there has been less produce on the market. For example, the Florida deal was essentially dead from all the rain—there were very few pulls for strawberries by the chains compared to last year,” he says.
Furman added that logistics companies who make their business as transfer companies in Detroit or Chicago, switching loads from American trucks to ones certified to cross into Canada, are also seeing a significant drop in business this year. “They would switch the truck for a backhaul of produce and other products, but this year there has been little or none of that for these niche companies, and this shows the demand for transport is down significantly.”
“Freight prices out of California have been pretty low this year,” confirms Formusa, “but that’s not a direct reaction to fuel prices. When fuel prices go up, freight is quick to react, but when they go down, we don’t get the opposite reaction.”
Carriers have significant fixed costs as well as the expense of updating and maintaining equipment that is not offset by a drop in fuel. On the other hand, increasing fuel prices impact delivery costs and typically result in a fuel surcharge. Without the fuel surcharge and with lower produce volumes, rates have fallen significantly. Ceciarelli says freight prices have been about 20 percent lower this year. “I get calls and emails every day offering me trucks at lower rates. I can choose the ones I want and negotiate, and that, across the board, is also influencing the lower rates.”
For transport and logistics brokers, the rapid change in rates has made it a challenging year to work with some clients. “Clients are always analyzing where they were last year and simultaneously the market is very forward looking,” comments Furman. “Some of our clients are looking for multiyear programs with guaranteed truck rates, but the market can change very fast and you don’t know when that will happen.
“We offer some programs to meet their needs, especially with the bigger clients and using larger transport companies,” Furman adds. “In a multiyear deal, there are always winning and losing periods, and you hope to get a fair return over the term of the contract. Small and mid-size carriers are less likely to do this and more likely to go by the spot market or a quarter-by-quarter deal.”
Not the ‘New Normal’
In terms of freight prices, wholesale and retail profit, as well as volume—there’s room for improvement. The shortage of supply and lower demand softened freight prices, spiked commodity prices, and created a tough start to the year for all players in the industry.
Even so, in the long run this is a seasonal aberration and as most hope, not the new normal. Better technology, increasing yields, and climbing demand all point to long-term growth for Canada’s top produce market and growing region.
Images: Shutterstock.com/Ronald Sumners, David C. Rehner, Goran Bogicevic
