Pallet Pooling Insider - Navigating the West Coast Agriculture Business
Pallet pooling consultant outlines the market dynamics and regulatory burdens of the West Coast pallet business.
By Andrew Mosqueda
Date Posted: 6/1/2010
Agriculture is a multi-billion dollar industry in the
A pallet is exposed to the extremes from 120 degree temperatures in the Imperial Valley fields to cold storages for weeks at a time in Salinas. As a result, growers need to implement safety measures to ensure the safety of workers and food. Fruit and vegetable exports and imports are increasing and global conditions are factored into risk management plans. Decisions need to be based on numerous factors like vendor management and future government policies and regulations.
You might want to know why stats or trend information about various industries are relevant to a pallet business. As a pallet dealer you need to know your customer’s business. This includes what they grow or produce and what their business needs are.
And Knowing is Half the Battle
Whether you are bidding for new business or servicing existing business, knowledge is power. If you know the different commodities, seasons and pallet requirements of the grower you can offer solutions to their operational challenges. For example, if walnut harvest acreage is unchanged from the previous year, pallet requirements should remain unchanged as well. However, you need to ask questions designed to obtain as much information as possible because product yield does not always equate to increased white wood pallet sales. If acreage and projected yield is unchanged you need to ask questions like:
• Is your projected export sales expected to increase?
• Are you still using produce brokers?
• Are projected sales to brokers higher or lower?
• What market sectors are you shipping into? (Club stores, Grocery, Private Label, etc.)
• Are you shipping on rental pallets?
• What is the percentage shipped on rental pallets?
What is the benefit to asking these questions? First, if the grower is on a rental pallet program overseas exports are not financially viable. In addition, brokers generally do not work with rental pallet companies. If the grower is directing higher volume to these outlets there is opportunity for white wood pallet growth.
Private label is one of the fastest growing market sectors and an area sought after by all three rental pallet companies. If the grower is marketing to private label companies, more opportunity for white wood sales exists as many private label companies are not a good fit for a rental pallet program.
Growers that pack imported products offer year around pallet business depending on the commodity. For example, multiple commodities are imported from Chile. Once the product arrives at the packer it is processed and stored until shipped to U.S. purchasers. However, packers importing fruit from Chile will experience lower sales as a result of the earthquake. Winter time fruits imported from Chile will be down resulting in fewer cartons and as a result, pallets. Exports are not expected to decrease, opening opportunities to gain market share. Information often needs to be pulled from your customer, so understanding the business environment and knowing what questions to ask can help you start a discussion that could lead to new business.
Because of the seasonal nature of West Coast agriculture, pallet companies are faced with a feast or famine scenario in terms of sales. A medium sized grape grower can pick 1.2 million 18 lb. boxes in a two week period. If the grower stacks 90 boxes per pallet, approximately 22 loads of pallets would be required. In the Central Valley, grape growers will begin to order pallets at the end of May and start picking in June through July.
In the Coachella Valley, grape growers will begin to order pallets at the end of August and start picking from September into October. Many growers own crops in both the Central Valley and Coachella Valley and will use hundreds of loads of pallets during the picking season. When the fields are picked, demand for pallets will drop to near zero. Large agriculture companies will grow multiple commodities requiring demand year-round.
While you may never discuss in detail many of the elements that affect an agriculture business, you need to determine what their capacity is. You may not get a direct answer to the overall operational needs of your customer. If you know the answer to some of these questions, you can determine if there is more opportunity not being discussed.
Food safety in the past has been the responsibility of the grower. Due to recent contamination issues, food safety has expanded to the pallet industry.
One recent concern is the potential for Deca-bromine (DECA), a controversial fire retardant used by iGPS in its plastic pallet pool, to leach out of the pallet during the hydro-cooling process.
Hydro-cooling is used on certain agriculture commodities directly after being picked from the field. Some commodities such as lettuce, potatoes, sweet corn, carrots and tomatoes require temperature management from the field to the cooler. There are two types of hydro-cooling processes; shower and immersion. In both cases, water recirculation occurs and proper water management must be applied to prevent contamination.
Hydro-cooling can be applied to vegetables already packed in Reusable Plastic Containers (RPCs) and waxed corrugated boxes or laying loose on conveyors prior to packaging. The RPC or corrugate box is loaded on a wood or plastic pallet. Then, the loaded iGPS plastic pallet is sprayed with chilled water washing off any contaminants such as dirt and pesticides from the load. The recycled water works through the system and sprays the chemical along with filtered water directly onto the fruit or vegetable load.
The question is will Deca become diluted to safe levels during the hydro-cooling process or will it contaminate the load before it is placed in the coolers. There is no direct evidence that the hydro-cooling filtration process is not efficient enough to eliminate dangerous levels of Deca. Some benefits to hydro-cooling are that water contact keeps the product fresh, there is a low capital cost, and it is more energy efficient compared to alternatives such as forced-air and ice cooling.
Plastic pallets are not the only pallet material that can facilitate a contamination threat. Bob Moore, CEO and president of iGPS, has called for wood pallet safety legislation because of contamination danger due to the porous nature of wood pallets. Wood pallets can become contaminated by food-borne bacterial pathogens such as Salmonella, E. coli, and Listeria. Although most cases of produce bacterial contamination result from runoff containing manure in the fields, pallets and other materials handling devices can facilitate contamination through transference.
Despite reports commissioned by iGPS, there are no contamination cases of perishable or food products as a result of pallet contamination. President George W. Bush said, “We believe farmers, ranchers and family business owners can make better decisions about the future than the government can.” Many pallet dealers are small family businesses, and government regulations can make doing business more difficult. I believe that the pallet industry, both plastic and wood, should initiate safety protocols before government regulations and policy do. In the event of government intervention, supply chain cost will raise and add steps to operation management.
Unforeseen Dangers of Government Regulation
Already legislation is in committee to implement a Deca ban on a national level. Several states have already banned Deca in various products, including a pallet ban in Maine. Other states are considering legislation to regulate wood pallets and other materials handling equipment to promote food safety.
If you do not believe government can wreak havoc in the supply chain, you need to look no further than the water debate in California. Farms have felt the impact of the “man-made” drought as thousands of acres have gone unplanted, which in turn reduces demand on raw materials and other businesses related to farming, including pallets.
The debate centers around the delta smelt, a minnow-like fish on the Endangered Species list. Water has been diverted from San Joaquin Valley into the Pacific Ocean to save the species, leaving hundreds of thousands of acres of arable land fallow or scorched.
The Bureau of Reclamation estimates farmers will only get about 40% of water allocations, which is about half of what is needed to maintain current acreage. As the debate rages on, small businesses have to make decisions on whether to obtain loans and contracts without knowing if they will have the resources required for the next season.
Even as I am writing this article the Food Drug Administration (FDA) is proposing placing responsibility of monitoring food safety on the transporter. In late April, the FDA increased safety protocols during transport. Part of the responsibility of the transporter will be to maintain temperature control, closely monitor for pests, ensure pallets are in good condition, and sanitary measures are taken during the loading and unloading process.
I have covered just a few variables West Coast growers must consider when developing operation planning. More than any other industry, the agriculture sector relies on pallet dealers to deliver a reliable product at a fair price. The West Coast pallet dealer servicing the agriculture sector has to be creative and nimble as it is a feast and famine market. You need to be informed and offer customers reasons other than price to give you the winning bid. Do not expect the customer to know the pallet business on top of their own. Know your business, know their business, and offer solutions.
Spotlight on West Coast Agriculture Market
Some of the largest produce companies in the country grow in California including Dole Fresh, Driscolls, William Bolthouse Farms, Grimmway Farms, Giumarra Vineyards, Paramount Farms and many more.
Multiple commodities are grown in California year round including grapes, citrus, melons, avocados, chilies, nuts, berries, onions, potatoes, pears, apples, and kiwi. There are many variables that need to be in place for growers to have a successful season. Variables like weather, acts of God, vendor management, operations management, and believe it or not, honey bee colonies.
According to the USDA’s National Agricultural Statistic Service (NASS) production forecasts for
Grapes are one of the top crops produced in California. Grapes are grown for three markets; wine, table grapes, and raisins. Total pounds produced in California for 2009 was 12.5 billion pounds combined. Total production pounds for the entire United States is 14 billion. In 2009, Chilean imports were projected to play a key role in grape supply making up 11% of winter time supply. The magnitude 8.8 earthquake in
Agriculture exports have almost doubled in the last five years. Total exports in the agriculture sector for 2008 were $115 billion and California makes up 12% or almost $14 billion. Agriculture exports have increased in sales despite the economic downturn. Pallet requirements are stricter due to heat treatment and specification requirements. As a result, rental pallet companies are less competitive in this market.
You might want to know why all this information is relevant to a pallet business. As a pallet dealer you need to know your customer’s business. This includes what they grow and what their business needs are. Some growers on the West Coast export 20% of their crop, of the 80% in domestic sales 40% is shipped on rental pallets. California grows 51% of all fruit, 39% of vegetables, and 79% of all nuts in the United States. Agriculture has had a 10 to 15% continuous growth rate from 2004 to 2009, presenting an opportunity for pallet sales in this market.
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