2014 Fruit Outlook: Quality Will Matter Most

When our team of editors at American/Western Fruit Grower wanted to learn more about the trends that will affect the fruit industry in the coming year, we decided to go right to the source: you! We surveyed growers of different crops across the country on where their business, and the fruit and nut markets, might be headed in 2014.

The most detailed response we received came from Brad Hollabaugh, general manager of Hollabaugh Bros., Inc., a large apple growing operation in Biglerville, PA. When he’s not running his own orchard and market with the rest of his family, Hollabaugh is actively monitoring market conditions, and sharing what he’s learned with growers across the state. This article presents Brad’s thoughts, in his own words, on the issues that will drive the fruit industry in 2014.

What are two to three issues or concerns that could make or break your success as a grower in 2014?

• Failed Immigration Reform coupled with an increase in regulatory enforcement. Labor supplies have been rather tight and regularly verging on insufficient during the past two to three years. Only because we have a high rate of return among our seasonal workforce combined with a stable, full-time team have we been able to sneak through. ICE raids in our area during the past two years have affected a few of our major growers resulting in crop loss in the middle of apple harvest. The equation is fairly simple in an industry that requires a lot of hands to accomplish the work: insufficient labor supply = crop loss and lower profitability.

• The Costs of Regulatory Compliance. I’d include three major categories here:
1. Labor Rules. Agriculture has the luxury of coming under most of the labor provisions of all employers combined with its own special set of regulations. This “double-dip” regulatory imposition makes compliance tricky and expensive.
2. Food Safety Regulations. Food safety regulations driven in recent years by the retail industry for GAP compliance are now compounded by the upcoming Food Safety Modernization Act regulations that are still under review. Depending upon the final outcome of the comment review by FDA, producers could face substantial additional compliance costs. In the East, where many of the farms are of moderate size and operated by multi-generational families, there is rarely enough profitability to add the additional staff required to oversee compliance. So, most of that work falls on the shoulders of current owners who already have a full plate. These rules could create genuine profitability issues for many small companies and will place substantial overhead costs on all producers.
3. Health Care. The Affordable Care Act cloud looms over us all. Our health care consultant (through the Pennsylvania Chamber of Business & Industry) has been struggling to interpret the rules as they have rolled out during the past 12 months. “Seasonal Employee” was not even defined by the regulations until late this year. Premium costs are already increasing dramatically for renewals. And, in many cases, the old programs are being dislodged by health care providers who must comply with the new law.
The impact on agriculture remains to be seen. However, depending upon “full-time equivalent” (FTE) calculations for the “standard measurement period” (SMP), employers could suddenly be faced with substantial health care costs for their seasonal work force. The one-year delay for business compliance is only a temporary relief. But the underlying system has already been remade, and we’ll have to face the consequences in due time. This one regulation will be a formidable challenge in the future.

• The Economy. Although we have seen indications of strengthening for certain aspects of our economy, that positive influence is constantly at risk due to the federal money policy that has been in place for the past few years. It is almost inevitable that we will face dramatic inflationary costs at some point when the Fed finally alters its monetary policy. In addition, the national debt looms over us like a black cloud. A dysfunctional administration and Congress have failed to drive out a decisive plan to curb the debt and cut spending even to a level that just stops growth of our deficit. We may face significant economic challenges as we continue to struggle with an uncertain economy. The Dow peaking at just over 16,000 for the first time in history is at the same time remarkable and scary. Time will tell. At the least, people must eat. And hopefully producers will still have a market for their product despite wavering economic conditions (assuming we solve the first bullet point!).

Looking at the big picture, what is the biggest opportunity that lies ahead for the fruit industry in 2014, and what must be done to take advantage of it?

For the entire fruit industry, one of the biggest opportunities will continue to be to manage not only our total production, but also the relative quality of that production so that the fruit that is available to market includes the best varieties, the highest quality levels, and the best flavored fruit so that our products are most attractive to our customers. As we face the roller coaster of varied weather conditions and generally increasing production in the U.S., growers must abandon blocks and varieties that are only marginal in terms of profitability. We cannot overwhelm the American consumer with too many variety selections, but we must be persistent in teaching consumers to enjoy new varieties that are superior in quality to some of the old standards.

Perhaps from a more localized perspective, direct marketing has become a key component of the business plan of many Eastern growers. Attending city farmers’ markets has proven to be a profitable diversification and has been instrumental in moving many operations forward in terms of their variety selections and planting systems. This type of opportunity has seen a ground swell of involvement in recent years as a result of increasing consumer interest in the “Buy Local” concept. Although this type of marketing is not possible for all growers, finding appropriate niche markets has proven to be a successful way of sustaining many small operations. Learning how to optimize these opportunities will be the key to continued success for those growers.

Unfortunately, in the face of great opportunity, we also face great challenges as has been noted in my remarks above. Damaging weather, insufficient labor supplies, or suppressive regulations can all combine to eliminate the potential to succeed for any grower or grower region in the U.S. As the Legislative Chairman for the State Horticultural Association of Pennsylvania, I have to add that, in order to capitalize on our opportunities, growers must remain highly engaged in the legislative process and continue to communicate with our representative at the state and federal levels so that American agriculture can be sustainable into the future.

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