Owner, Chilfresh
Your company is a relevant player in the Cherry industry, currently one of the most attractive fields in agribusiness. How has been the evolution of this crop around the World, and how do you explain its current boom?
Cherries do arrive in China just before their most important holiday, which is Chinese New Year. It is a custom to give each other presents at this time, and fruit is one of the most cherished gifts. Cherries' red color, which implies happiness and good luck in Chinese culture and the good taste of the cherries from Chile make it a preferred new year gift. In Europe and the US, the great majority of the shipments arrive after Christmas, when people's stomachs are full and their wallets are empty, explaining why 90% of the Chilean cherries are exported to China.
Regarding that, how would you describe the market of Chilean exports of cherries? Are you optimistic for the future?
We have to consider that many companies, especially in Maule region, who also produce apples, pears and wine grapes, are alive today due to the success of the exports of cherries. A question I often receive is: “André, when is this industry going to collapse, I remember the same happened with the kiwis: at first it was incredibly successful and then demand dried up and prices did not cover costs”.
In order to understand why these two species have fared so differently, we need to understand what is the theory behind the success and failure of each, and the theory of the "Tragedy of the Commons” goes a long way in explaining this.
“In economics, the tragedy of the commons is the depletion of a shared resource by individuals, acting independently and rationally according to each one's self-interest, despite their understanding that depleting the common resource is contrary to their long-term best interests”.
Over the years, the Chilean fruit industry has acquired the fame of producing possibly good-looking, but often bad tasting fruit. The reason for these phenomena can be traced back to the “Tragedy of the Commons” as defined above. The growers realize that it is in their long-term interest to grow a product that is preferred by the consumer, but at the same time their short term interest is to produce the highest possible yield per hectare. In New Zealand, the interests of kiwi growers are aligned with those of their marketer Zespri, because they are paid for the percentage of dry material, which ultimately defines the sugar level of the product at the time of consumption. In Chile, there is no minimum sugar requirement and also none or little incentive from the market to produce better eating kiwis. Growers are paid based on the size of their fruit and their profitability is closely related to the yield per hectare. As a result, kiwi growers who do not abuse fertilizers and hormones, producing smaller fruit with considerably lower yields per hectare, generally get paid the same price as the ones who have very high yields and resulting bad tasting fruit. This is however not the fault of the grower, but the way our system is set up and for them, it’s the only way to survive.
What explains that Chilean cherries have been so successful?
Simply because with cherries it's hard to cheat the consumer as it accuses any abuse immediately: if you harvest cherries too early, the fruit is pink; if you leave too much fruit on the trees, the size remains small and the fruit shows pitting; if you commit a mistake in the cold chain, the stem dries up.
Besides, the beautiful thing about the Asian market, and especially China, is that each label has a different value, even each container of the same exporter with the same label is judged each time a pallet is lowered to the floor in the wholesale market. This gives an enormous incentive to the grower/exporter to do a good job. In the US and Europe, the importers sell kiwis from New-Zealand, kiwis from Chile, where Chilean kiwis can have slight variations in price, but even the best quality will only most of the time only have half or even one third of the value of New Zealand kiwis.
In this case, cherries are very well suited for the Chilean commercial system, while kiwis are not. In my opinion, the challenge for us to sell more cherries in China is in Chile, not in China.
China is one of the main destinations for fresh fruit, and now its economy is under heavy pressure. How is this affecting your business?
If we look at what has happened during the crisis in other markets, we have found that demand for fruit holds pretty steady during the crisis. People will not buy a new apartment or a new car, but will still spend money on food.
During and after the Pandemic, farmers faced huge challenges in the logistic chain. One of the biggest problems was related to shipping costs, which rose drastically because of the contingency. How did the situation evolve? Did the prices return to normality?
Even though shipping costs increased significantly, they are still a relatively small portion of the total costs when exported by boat. The most dramatic problem were the logistical issues, where containers sometimes were waiting in the ports in the destination for two or three weeks before they could be taken out to the market. Cherries are especially perishable, and this waiting time contributed to the deterioration of the product, followed by loss of confidence of the buyers, decreased demand and collapsing prices as a result.
How is technology disrupting agriculture? What are the main innovations that already took place, and what do you think is coming next?
Automation, please! We are fortunate that the technology related to processing has advanced with the speed as it has, with enormous gains in productivity per person in the last 25 years. We are waiting for robots to harvest our cherries; it's not a matter of “if” but “when” and this cannot come soon enough. Imagine robots harvesting at night, when temperatures are cool? Quality will improve dramatically as one of the big challenges today is to work with an unruly labor force that often treats the cherries with an extreme carelessness.
How is sustainable development defining agribusiness? Is there a reward for being considerate with the environment?
The European market is certainly the front-runner in sustainability, with the US being a sluggish follower, while sustainability is pretty much at the bottom of the list for Asian customers.
Considering a global scenario, what is your opinion about growers from different countries uniting as a consortium to offer a wide range of produce to supermarkets?
Historically, it has been the job of the importer to organize the supply of the supermarkets. Supermarkets like the idea of buying directly from the grower, but don't like the work that it entails. This said, considering the enormous power supermarkets wield, it would be in the benefit of the growers to organize themselves globally to complement each other and offer a complete range of products with similar quality specs. This offers the benefit to the supermarket buyer that he (can tell his boss he) is working directly with growers, while at the same time reducing time-consuming meetings with many different suppliers.
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