Study Shows Growers Can Control Pricing, Florida Professor Says

This article by Tracy Rosselle, Eastern Editor, appeared in The Packer, September 11,2000.

NAPLES, Fla. — A scientific study meets the real world.

That's one way to characterize John VanSickle's presentation at the Florida Tomato Institute proceedings September 6 in Naples. VanSickle, a professor in the University of Florida's food and resource economics department, told Florida producers they should re-evaluate some of their commonly held perceptions about who controls the pricing point of fresh tomatoes in the vertical marketplace.

"You control more of your destiny today," VanSickle told an audience of mostly skeptical tomato producers. "You have a stronger position today than you had 20 years ago."

In an age of buyer consolidation and often horrendous returns to growers, those words seemed to come from left field. Figures recently released by the U. S. Department of Agriculture's Economic Research Service, in fact, show sales of Florida tomatoes plummeted 24 percent in 1999. But VanSickle presented findings that contradict the widely held belief of many in the Florida tomato deal, that retailers are exerting power over producers. The findings also suggest previous studies on the derivation of prices are outdated.

VanSickle said econometric data gathered by researchers in his department show pricing relationships between the producer and retail sectors are symmetric. For example, price increases and price decreases at the producer level are passed on to consumers in equal measure at retail. What's more, as the produce industry has moved toward direct marketing — more often bypassing brokers and terminal market operators — producers may have been granted more leadership in the pricing function. Instead of wholesale markets dictating prices to both producers and retailers, as previous research showed, producers now appear able to set prices more efficiently.

Florida's tomato producers historically have been price takers, and now don't fully appreciate the pricing opportunities they have, VanSickle said following the presentation. A more cooperative approach to marketing tomatoes from the supply side could boost returns dramatically, he said.

There's even talk of revising existing anti-trust laws to bring the provisions of the Capper-Volstead Act, which allows competing domestic producers to discuss prices under certain circumstances, into the international marketplace, he said. That potentially would mean Florida tomato producers cooperatively discussing marketing plans with producers in Mexico, the Netherlands, Canada, and elsewhere.

For now, though, suggesting that tomato producers are the ones with market leverage remains a hard sell. Preliminary findings from the on-going ERS study on retail consolidation appear to show Florida tomato shippers are, in fact, shipping less product direct to retailers than in past year. Bob Spencer, sales manager for Palmetto-based West Coast Tomato Inc., said the proliferation of tomato varieties means Florida's field-grown product is getting less retail shelf space than in years past — hardly the stuff of price-setting leverage.