Letter Re: Some Changes in American Wholesale Food Distribution

Hi James
You’ll recall hat I wrote to you a while back, forewarning of increasing prices for canned tuna, as I am in the import food business.
I read Buckskin’s message with interest, as I sell to food distributors, of the type that he is referring to. What many of your readers may or may not know, is that a huge amount of our food
products are imported. I don’t have exact figures on it, but there are certain categories of food products that are almost exclusively imported, as they either cannot be produced here at all or cannot be competitively produced here. An example, is organic canned beans. While they are packed in the U.S., most of the organic beans are actually grown in China, Peru and other countries. You would never know this when buying a can of beans that is packed by an American company. Another good example is frozen vegetables. There are companies here that import frozen vegetables from other countries, then mix them in blends and sell them. They don’t necessarily say on the package that the vegetables are imported because they are further-processed here in the U.S. In addition, many of the ingredients for foods produced domestically are from imported sources. Chinese milk powder is used extensively by American food producers.

My main point is that, while I am in a different part of the distribution chain than Buckskin is referring to, I do sell a lot of imported products that go to food service (restaurants, prisons, hospitals, fast food, etc.). What I have been observing over the last couple of months is that as demand slackens in the U.S., prices have been going down. The U.S. is one of the largest food consumers in the world and as a result of the economic implosion, people are eating out less and while they are cooking at home more, they are trading down at the supermarket. Chains like Whole Foods are suffering as a result of this, as well as the larger supermarket chains.

Earlier in the year, a lot of my suppliers overseas started increasing prices because of increased raw material costs, increased tinplate costs, increased fuel and energy costs, etc., coupled with increased freight costs to the U.S. However, as demand started waning here, my customers refused to accept the price increases, as their sales volume has dropped off and in many cases, their inventory started backing up. Now, prices are going down. Canned tuna, for example, has dropped about 20% and will probably drop further. This is certainly not happening to all products that we sell, but I expect to see more price declines in the future. Another reason for this is that raw commodity prices have collapsed and this has had an impact, too. Oil is way down and this has reduced transportation costs. One more factor is the recent strengthening of the dollar against most other currencies, which means that a dollar buys more overseas than it did earlier in the year.

Although I expect this decline to continue for some time, it may or may not have a big impact on food prices in the U.S. This depends on whether or not the price decreases are passed
along down the distribution chain.

One thing to keep in mind is that in the long term, the dollar is toast. When all of the bail-out money and other giveaways that the government has printed money for, hit the economy,
the dollar is going down and all imported products are going to get a lot more expensive. All the best, – Kurt