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Brokers and dealers move up a notch in the global frozen commodity game.

Brokers and Dealers Move Up a Notch In the Global Frozen Commodity Game

The market for basic commodities looks set to be fed by non-traditional suppliers from parts of the world where low-cost production leads to high margins in the larger markets.

By the time this report is published, the pea harvests of the world will be more or less over, and the brokers and dealers will be counting the benefits. This year there has not been a U.S. drought to set the scene for commodity trading, so brokers are looking elsewhere for the margins they enjoyed in 1988.

I know from personal experience that a number of brokers were hoping for a repetition of last year's margins right up until the start of the season. As a matter of fact, some were asking me to find suppliers for them in Europe and then ran away from their obligations when they realized the buyers were few and far between.

One Minnesota broker has particular reason to blush, but then careful homework does not distinguish a good deal of the present generation of frozen food traders! In England a few years ago the pea season was almost a religious festival characterized by executives talking mystically about tenderometer readings, size grading and yields as if the Eucharist had just been passed around. If you owned a fleet of mechanical harvesters you were clearly a higher order of being capable of commanding a premium for your peas on the world markets.

Nowadays, vegetable executives vanish at the start of a season to the production plants of Australia, New Zealand, Spain and Eastern Europe, searching not only for speculative supplies but for quantities required by the bigger processors who no longer want factories for one commodity, but sacks of frozen peas for their cold be opened later for packing as the supermarkets need them.

The bigger the company, the more it needs the flexibility to react to the needs of the market.

The news from Campbell Soup Co. last month offers a good example. Announcing a worldwide restructuring program "to improve the focus, quality and efficiency of operations", the company made known plant consolidations that will result in a decline in the overall work force of about 2,800 employees and a one-time, non-recurring charge of approximately $344 million, or $2.01 per share, against earnings for the 1989 fiscal year which ended July 30.

In the official press release from Camden, N.J., headquarters there was a list of production relocations in the U.S.A., but there was no word about England or Europe. However, a spokesman was prepared to say that no English frozen food plant would be affected by the present restructuring.

One thing that seems clear, though, is that the purpose of this shakeup is to allow Campbell to reflect changes in an international marketplace which no longer requires production emphasis on commodities. In its strategy to become a world-class manufacturer the company has, since 1986, phased out canned food manufacturing in Chicago, closed a pickle plant in Memphis, Mich., a Mrs. Paul's fish processing facility in Doylestown, Pa., and a meat processing plant in Pottstown, Pa.

In addition, earlier this year Campbell sold off its Mendelson-Zeller fresh produce subsidiary, and has divested itself of ingredient plants in Center and Nacogdoches, Texas, Clayton, Del., and Cairo, Ga. In recent years the company has sold its pet food, physical fitness equipment and Canadian and U.S. apple juice businesses as well as several international operations.

But then there were a number of interesting acquisitions in England, which the official press release does not mention. Namely: Freshbake, FroQual and the rest, or the new factory in Salfords out of the old Unger Meats business.

Changing Consumption Habits

People's food habits do change quickly; and in the food market there is an increasing recognition of world cuisines that creates an "experimental" attitude and a willingness to try new ideas. If the food production facilities cannot keep up with those new ideas then they will close, as several large companies in Britain have really learned to their cost. Where are the major pea factories now?

It was an American friend who reminded me recently that British cuisine has no reputation abroad (apart from steak and kidney pie and fish and chips). And it was a member of a French company four or five years ago who asked some of us in the food research business to find out how many vegetable names were known in Britain and who was doing what to promote vegetables in the U.K.

It has to be said that the greatest boost to vegetable consumption this century was the shortage of other foods during and after World War II. Since then consumption has slipped and British families appear to have little interest in vegetables other than chips (French fries for the American reader). Research in 1984 discovered that everyone had heard of aubergines, red and green peppers and courgettes. Three quarters recognised fennel, artichoke and Chinese leaves. And half had seen celeriac and salsify written about in books and magazines, but didn't know how to pronounce them. Fewer than half had heard of kohlrabi, while only one in ten was familiar with mangetout.

Small wonder that peas and green beans remain so popular and are only now being represented in stir-fry and other vegetable mixtures, including vegetables with pasta. Some companies, in the interests of avoiding premature plant closures, insisted that public tastes were not changing. Smarter outfits reacted to public tastes and worried less about maintaining old production facilities.

So it is now throughout the world as a new breed of international executive is in the making, ready to jump on a plane for a 5,000 mile hop in search of vegetables which their local market wants. They will be aware already that in the U.S. production of green peas on contracted acreage was forecast in July at 501,000 tons, a 6% jump from last year and 15% above 1987. Area for harvest was estimated at 324,000 acres, up 41%. So there was little need for imports.

For those who collect this kind of data, it should be recorded that wet weather delayed planting in the Atlantic coastal states, while high temperatures at bloom further reduced yield potential. Harvest in July was active in the North Central states, where warm weather hastened maturity: Oregon and Washington areas reported active harvests and favourable yields.

Yields in Europe were unexceptionable too, so there's not much action for vegetable brokers. What they will turn to instead will soon affect what's on the shelves.

Most significant is not that the U.S. industry did not expect to reach budget pack and that it was up on last year, but that less than 1% was grown speculatively. Similar reports come from Europe, which suggest that growers and packers did not anticipate a U.S. drought in 1989 and were not expecting to experience surges in demand from brokers and middlemen in search of a quick profit. In 1988 imports of all green peas into the United States were up to 7,410 metric tons from 2,212 metric tons in 1987, but even so were less than 5% of total available supply.

Nevertheless, the old order changes and the market for basic commodities looks set to be fed by non-traditional suppliers situated in parts of the world where low-cost production leads to high margins in the larger markets of the world. So it comes as little surprise that the traditional suppliers now plan their production schedules globally.

International standards will have to follow. At present, the U.S. uses for pea standards test methods based on brine separation and appearance; England uses a combination of tenderometer and palate; mainland Europe confuses the issue by size grading; New Zealand and Australia use hybrids of all these methods. Small wonder brokers get lost in sorting it all out.
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Title Annotation:More News from the United Kingdom
Author:Kemp, Graham
Publication:Quick Frozen Foods International
Date:Oct 1, 1989
Previous Article:Processors eye catering for expansion as sales soften in supermarket sector.
Next Article:Expect year-end profits to set records for many companies that 'sizzle' in '89.

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