There’s a big reason behind those inflated prices you see in the fresh produce section of the supermarket. Blame it on gasoline prices 40% higher than a year ago, along with a nationwide shortage of truck drivers, among other factors driving up prices.
“The demand for trucks is so high, that there’s not enough trucks to cover the needs,” fruit and vegetable importer Jay Betancourt tells Yahoo Finance.
The Philadelphia-based produce-industry veteran says that this time of year, he would typically be paying anywhere between $6,000-6,200 to transport an entire truckload of fresh produce from southern Texas to the Northeast.
“Right now, because of the cost of fuel and shortage of drivers, we’re paying anywhere between $9,100- $9,300 for that same truck,” he said.
The importer notes he hears an earful from his customers all around the county over the higher prices.
“Every single day they’re balking,” he said. “The production [growing food] doesn’t stop. But the amount of business that the industry has lost because of inflated prices is astounding.”
Unlike processed or canned goods, fresh foods have a relatively quick shelf life — and unsold fruits and vegetables equal losses.
“Our motto is sell it or smell it,” said Betancourt, adding customers are buying what they know they will need any given day.
“You don’t want to gamble, you don’t want to incur the shrink,” said Betancourt. Fresh produce is like “sitting on a time bomb, the longer you sit on that time bomb, it’s gonna explode. And when it explodes, it’s only going to go in the dumpster.”
‘They can raise prices with impunity’
Consumers are likely to see multiple bouts of price hikes for food at home and away from home this year, Burt Flickinger, Strategic Resource Group managing director recently told Yahoo Finance Live.
“Typically, there’s one price increase every fiscal year, every crop year,” said Flickinger. “Last year, there were two price increases. This year, there will probably be three price increases. So the brand manufacturers know with a short supply of packaging and product, they can raise prices with impunity because they focus on margins.”
Food companies and restaurants know they have the ability to raise prices, even if they do so cautiously.
“We still feel like we have a lot of room,” Chipotle Mexican Grill (CMG) CFO Jack Hartung told Yahoo Finance Live earlier this month after a better-than-expected quarter. “And what I mean by that is we hope to never find out. We’ve never had resistance when we raise prices, and we hope to never find out that we went a little too far.”
With 30+ years in the produce industry behind him, Betancourt says sustained higher prices is not good for his industry or food shoppers.
“Yes, the consumer will pay the higher price. However, it slows the overall movement and volume. Eventually, they stop buying the item or switch to a lesser priced item or simply do without,” he said.
This also leads to restaurants taking over-priced items off the menu or reducing more expensive items’ portions on plates.
“If tomatoes get above a certain price, a restaurant might take tomatoes off the salads.”
Ines is a markets reporter covering stocks from the floor of the New York Stock Exchange. Follow her on Twitter at @ines_ferre
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