Rising costs and falling markets are squeezing Philly’s fruit and vegetable sellers

Fruit and vegetable distributors based in the Philadelphia Wholesale Produce Terminal have been feeling the squeeze this summer. Their prices have gone up, even as consumers are reluctant to pay more.

Inflation over the last year has boosted food and fuel costs the most since the 1970s.

“All the inputs into the farm are up — diesel, fertilizer, tractors, labor, loading equipment. Just the cost of cardboard for boxes is up 50%,” said Tom Kovacevich, owner of TMK Produce. “But now demand is getting light, because of everyone paying higher prices.”

His firm is one of the largest of the fruit and vegetable distributors who share the vast, high-ceilinged, drive-in, refrigerated terminal on Essington Avenue in Southwest Philly.

“Everyone is trying to raise prices in general to offset labor costs, pesticides, chemicals,” but stores can’t afford to increase too much or too fast because customers have made clear they won’t pay more, said Michael Lombardo, a partner in Pinto Brothers at the other end of the market.

You might think higher prices would boost farm incomes. But U.S. growers are planting less, not more, as they typically do when profit margins constrict or vanish under pressure from higher costs, weak demand, or the bad weather that can end growing seasons and create shortages months later, said Lombardo’s partner, Todd Penza, citing reports of farm shutdowns.

The Department of Agriculture said U.S. farmers planted less of 17 of the 26 major vegetables it measured last year, compared with 2020.

“We’re assuming it’s because of the higher costs,” Penza said. “It’s just too much for some of them to handle.”

An obvious sign demand is down: Short-term shipping rates from California to the East Coast, which soared as diesel fuel prices spiked higher last winter, have collapsed back to last year’s levels, faster than diesel prices have retreated from their recent peak of nearly $6 to around $5 a gallon, Kovacevich said.

“Demand for consumer goods in general has dropped, and there’s been just too many truckers to haul the goods,” after small operators flooded into the business during the pandemic, said Sid Brown, chief executive and co-owner of Camden-based NFI Industries, which operates 4,000 trucks from its terminals around the United States.

“The spot market” for immediate trailer rentals, “which went crazy last year, has dropped precipitously this year,” Brown said. With diesel prices still significantly higher than a year ago, “these guys can’t make money anymore. They are parking their trucks and getting out.”

NFI, with larger corporate clients and long-term supply and labor contracts, boosted prices twice last year to help cover their costs and is considering a second 2022 increase — a reluctant option for a big outfit like NFI and only a remote possibility for smaller truckers who depend on short-term deals.

These problems go beyond the region, or even the United States.

Among visitors to Kovacevich’s produce display on Tuesday was Daniel Newport, an Australian who comes to Philadelphia late every summer as export manager for Pinnacle Fresh, whose products include red-fleshed Dracula blood oranges.

The oranges, raised in the California-like climate of southeastern Australia, arrive in the two months before Halloween — that’s the Dracula connection — to the East Coast fruit ports of Philadelphia and Savannah, Ga.

The red-fleshed citrus are already “on the boat to Philadelphia,” Newport said. “They’ll be here next week.”

But since last year, “costs for chemicals, fertilizer, and shipping have doubled,” he said. “Packaging is up 50%” — a smaller increase, but it hurts more since it’s a larger expense.

To ensure the oranges arrive in good shape, “we used to buy those plastics from China, but shipping delays from there have become extreme. So we’re going to local packaging,” cardboard made in cities near the farms in Australia — at extra cost.

“But we can’t double the retail prices,” Newport said. “We have to talk about how we and the farmers can eat these higher costs.”

This year they are boosting the price to wholesalers 15%, to $40 for a 20-pound box, from $35 last year. They are selling American distributors like TMK a total of 50 cargo containers — each with 1,000 pallets of 117 20-pound boxes each.

Add grocers’ markups, which cover expenses, risk, and retail profit margins, and blood oranges have become a luxury item.

“If we could get it down to $20 a box” — a dollar a pound — “we’d sell hundreds of containers,” Newport said.

Distributors worry producers and shippers will lose enough money that they will stop sending product, shut down, or switch to cheaper products and closer markets, as some marginally profitable farms have done.

Consumers have noticed some summer fruit prices have stayed higher than in previous years even when they’re in season — blueberries and watermelons, for example.

Lombardo, whose firm Pinto Bros. specializes in East Coast produce, said those trends may reflect this year’s weather more than long-term inflation. For example, cool temperatures last spring have cut sweet-corn yields, and Northeastern apples this fall will likely show a similar shortage from “blossom drop” caused by low temperatures last spring.

To be sure, “it feels like we are having a lot more weather problems” in recent years, Kovacevich said. “Droughts. Floods. Late harvests. Damaged harvests. It all combines” to drive up prices or cut into profits.

Yet Lombardo noted that a healthy Jersey tomato summer drove prices down right on schedule. In the week around July 4, as growers rushed the harvest to local markets, the big red berries fell from $35 to $40 per 20-pound box to $15 to $20.

“It’s the same price from 25 to 30 years ago,” he said. “You’d think it would finally go up.”

The produce business is also still adjusting to the aftermath of the 2020 pandemic shutdowns, when suburban caterers and restaurants set up local delivery services, said Patrick English, an owner of Ed’s Produce in Harleysville in Montgomery County. He was at the terminal buying New York green squash ($10 a case) and yellow squash ($14 a case) at Pinto Bros. on Tuesday.

Weddings delayed by COVID shutdowns kept him extra busy in the spring and summer, but he is bracing for a slowdown, leaving uncertain demand for items like avocados, for example, whose price has lately jumped to $90 for a box of 48, from $55 last year. Young professionals in love might pay what the market demands for guacamole at their Mexican-themed rehearsal dinners, but once the wedding rush is over, weekly grocery shoppers will likely buy fewer, if it means paying nearly double last year’s price.

South American fruit shippers are suffering significant delays due to labor and trucking problems, with produce companies in Chile, the continent’s largest exporter, writing off grapes that take too long to reach the Delaware River fruit ports, kiwis to Europe, and cherries to China, according to industry reports.

And shortages extend from produce, to packaging, even to truck parts, said NFI’s Brown.

”We can’t get parts for our trucks lately,” he said. “We have 4,000 trucks. Normally we may have 20 sitting at dealerships waiting for parts. Right now we have 70 or 80.”

Like the Australian orange shipper, Brown blames supply problems on manufacturing and shipping slowdowns in China and neighboring East Asia countries, whose cheap products the United States has come to overly depend on, in his view.

“You know the history,” he said. “When we were kids in the 1960s, the factories were in the Northeast. They moved to the Carolinas, then to China, and Southeast Asia.

“Those moves took many years. They won’t get reversed overnight. And where are you going to get the people to operate these factories? We are at full employment. We need a [few] more immigrants. And automation.” Maybe some of the long-awaited self-driving trucks?

At the same time, Brown sees signs this summer — as the Federal Reserve raises interest rates to try to slow inflation — that price increases may finally have crested.

“Over the last 90 days we’re starting to see commodity prices go down,” he said. “A year ago it was almost impossible to hire anybody. Now you can find some people. You are starting to see a deceleration.”