Vegetable Farming: Are Vegetable Prices at Risk in 2022?

In this article you will find everything you need to know about the impact of cost of the availability of vegetables in the homes of US citizens and price rates. It provides the necessary introductory information about Vegetable Farming and it also takes an in-depth look at the current occurrences found within the industry. Also in this article is elaborated the analysis of the industry’s key external drivers, their exact statistical percentages, as well as the industry’s first and second-line suppliers as well buyers. You will find detailed research on the overall industry structure as well as on the established key industry trends and possible future predictions. Based on all of the statistics and knowledge provided, the article follows up with an informative industry summary that focuses on the current events established within the Vegetable Farming industry in these last five years. Finally, this article ends with the potential future predictions that can be expected to be faced for this industry in the five years that are to follow and specifies some of the factors that have the potential to influence the success of Vegetable Farming industry.




The Vegetable Farming industry in the US is an important source of food which consists of vegetable and melon farmers who grow a wide variety of vegetables and melons in open fields and in green houses. Vegetables are used in countless ways, as a main course or as a side to meat, fish and cheese, and also as an ingredient to stuffed food and finally, less often, as a sweet ingredient.

Increased health consciousness prompted consumption to shift from processed vegetables to fresh products. In 2020 vegetable prices increased quite significantly, as a result of increased demand due to the global outbreak of COVID-19 (corona virus), as customers purchase more fresh vegetables to maintain healthy immune systems. It should also be noted that the COVID-19 (corona virus) outbreak has increased volatility in 2020 as bottlenecking of the supply chain has exacerbated price swings. In 2021, prices are expected to fall after a run up in 2020.


It is essential to mention that all of the information provided and summarized within this article is solely based on the findings of the well-known industry research organization IBISWorld, stated within their already conducted Vegetable Farming industry analysis report.


Industry Overview


Referred to the IBISWorld report, in terms of industry key external drivers, it is worth noting that the one carrying the highest percentage is found to be price of vegetables, equating to 1,6%, while the lowest percentage of -0.6% is accounted to average annual precipitation. The mentioned statistics, as well as the additional percentages of all of the other stated key external industry drivers, are visually presented in the image below.


Vegetable Farming Industry Key External Drivers 2016 to 2021
Vegetable Farming Industry Key External Drivers; Source: IBISWorld

When taking a closer look at the supply chain of Vegetable Farming industry in the US, the aspects and factors to be mentioned include the industry’s key external drivers, as well as its first and second-line suppliers and buyers. With that in mind, the key external drivers for the Vegetable Farming industry include price of vegetables, per capita fruit and vegetable consumption, demand from fruit and vegetable wholesaling, trade-weighted index, as well as average annual precipitation.


In addition, the first-line suppliers of the Vegetable Farming industry include Fertilizer Manufacturing in the US, Commercial Building Construction In the US, as well as Coal& Natural Gas Power in the US. Moreover, the second-line suppliers of the industry include Crop Services in the US, Tractors & Agricultural Machinery Manufacturing in the US and Water Supply & Irrigation Systems in the US.

On the other hand, the first-line buyers of the Vegetable Farming industry are Canned Fruit & Vegetable processing in the US, Fruit & Vegetable Wholesaling in the US, as well as Warehouse Clubs & supercenters in the US.


Lastly, the second-line buyers of the industry are Supermarkets & grocery stores in the US, Fruit & Vegetable Markets in the US and Specialty Food Stores in the US.


Supply chain map for Vegetable farming industry
Vegetable Farming Industry Supply Chain Breakdown; Source: IBISWorld

As is the case with any other industry, the specific structure of Vegetable Farming Industry is reflected in the industry’s positive, mixed, and negative impact. That being said, the positive impact of the industry can be regarded as the present growth within its life cycle, its low concentration, as well as its low capital intensity.


The Vegetable Farming industry’s mixed impact is its mature life cycle, medium and steady regulation & policy, as well as its medium technology change, medium and increasing industry globalization, it’s medium and steady industry assistance as well as its medium and steady competition.


Lastly, the negative impact associated with the Vegetable Farming industry is its low and steady barriers to entry, its high revenue volatility, as well as its high capital intensity.



Factors that have a positive, negative and neutral effect on vegetable farming industry
Vegetable Farming Industry Structure; Source: IBISWorld


The noted key trends of the Vegetable Farmer industry, as stated by IBISWorld in their conducted report are as follows:

  • Despite stronger revenue and price performance, revenue has still declined. Also increased health consciousness prompted consumption to shift from processed vegetables to fresh products,

  • A factor behind the rise in imports is the tendency of vegetable processors to purchase produce overseas,

  • International trade conditions are expected to reverse in line with the projected depreciation of the US dollar,

  • The growing trend of local, organic produce will likely further raise industry profit,

  • As for the future, as larger farms continue to grow, the industry's overall level of capital intensity will likely grow,

  • Rising per capita fruit and vegetable consumption has aided the industry.

The main products and services involved within the Vegetable industry include tomatoes, potatoes, carrots, lettuce, onions, as well as dry beans. The highest percentage within the products and services segmentation belongs to potatoes, equaling 19.6%, while the lowest one, being 4.4% is accounted for dry beans. The percentages for all of the products offered within the Vegetable Farming industry are graphically represented on the pie charts below.


Product segmentation and their weight
Products & Services Segmentation: Vegetable Farming; Source: IBISWorld


Industry Performance Data 2016-2021

Though this industry may be small compared with others, it plays it's major role; vegetables are traditionally considered a light , tasty food, rich in water and nutrients, that are able to fill with few calories and to provide our body with all the protective substances contained in them. The kind of vegetable grown is mainly determined by consumer demands, which can be defined in terms of variety, size, tenderness, flavour , freshness, and type of pack.


Over the last five years to 2021, the farming industry has contended with mixed conditions, benefiting from rising demand, production and consumption but suffering from volatile returns at the farm gate which has depressed industry revenue, falling an annualized 2% to $19,3 billion.


Throughout these last five years large retailers such as Walmart Inc. and Safeway Inc. have sourced their produce directly from farmers to cut purchasing costs, thereby avoiding wholesaler markups. Additionally, this has put some downward pressure on prices because large retailers have substantial bargaining power. Overall, the fresh segment has increased marginally in 2021, though is well within normal.


In 2021, IBISWorld estimates that industry profit (measured as earnings before interest and taxes) accounts for 6.7% of revenue, which is more normal than the highs exhibited in 2016 due to the commodities run-up, however industry profitability is hold steady in 2021 amid pandemic conditions due to rising demand for fresh vegetables.


Over these five years to 2021, import values have grown at an annualized rate of 1.3% to an estimated $10.3 billion. The main sources of imports into this industry are Mexico, Canada, Peru and Guatemala.


The vegetables most commonly imported include: tomatoes, cucumbers, squash and peppers.


On the other hand, regarding exports, studies show that the biggest contributors to industry are lettuce, potatoes, onions, cauliflower and broccoli. Due to the difficulty of transporting 71.7 % of exports go to either Canada or Mexico.

In relation to wages in 2021, studies show an increased revenue by 0.1% from 2016 (10.5%) to 2021 (10.6%). Since industry employment is often seasonal in normal economic conditions and rising capital intensity has reduced labor needs to a degree, as evidenced by a declining number of industry employees. Therefore, in 2021 wages appear to have increased.



Historical performance of the industry from 2016 to 2021
Historical performance. Source: IBISWorld

However, the global outbreak of COVID-19 (coronavirus), has been a boon to the industry. Overall consumer demand for fresh vegetables to maintain healthy immune systems has surged in line with fresh vegetable prices.


Demand for vegetables is sensitive to large price changes. Large increases in the price of industry produce (as in 2020 ) will often constrain demand and encourage consumption of alternative foods. Referring to the IBIS World report conducted in June 2021, the price of vegetables is expected to fall by these last months of 2021, posing a potential threat to the industry. Demand from fruit and vegetable wholesaling and per capita fruit and vegetable consumption, are also expected to fall.


Key external drivers chart


Industry Outlook 2021-2026


According to the IBISWorld’s industry report the upcoming 5 years will have a higher percentage of vegetable usage by the US population. In view of the fact that health awareness is predicted to increase , we expect to see an improvement in eating habits thus people will consume a lot more vegetables. However prices will continue to rise at a rate of 0.6% to $19.8 billion over the five years to 2026. Profit may rise slightly due to rising prices of industry goods, which are anticipated to result from lower domestic availability due to rising export volumes. As a result, the value of exports is anticipated to increase over the five years to 2026, while the value of imports is expected to fall during the same period.


The life cycle stage of this industry is mature as it holds a permanent place in the economy, industry major markets are largely stable and established and product groups are clearly segmented and wholeheartedly accepted by the market.


Vegetable Variety

The industry currently grows more than thirty different varieties of vegetables and at least three varieties of melons on a large commercial scale.They can be cultivated in a wide range of climatic conditions. However, commercial production, especially for the fresh markets, tends to be concentrated a lot more in temperate climates that produce the best quality and highest profit. Each variety attracts a unique price depending on specific demand levels and availability.Consequently, farmers of different produce will have different cost structures, output volumes and prices. On this wise farmers have free will to grow one vegetable over another represent an opportunity cost that also must be managed to remain competitive.


Key success factors


In order to reach high success rates the farming industry needs to work on different areas regarding their work. Such as:


  1. Spreading fixed costs over larger production volumes in order to enable farmers to widen profit without raising prices.

  2. Finding buyers in the fresh produce market which happens to be the one with the highest prices

  3. Creating the balance between different food crops therefore they will be able to change their production mix to maximise farm returns

  4. Securing more fertile soils and other appropriate growing conditions including the highest water access so as to achieve good quality products.

Conclusions:


Based on the analysis provided above, it is obvious that vegetable prices are expected to fall by the end of 2021. It is also expected to be a decline in demand and per capita consumption of vegetables.


Furthermore, this article introduces you with the historical data performance, as well as the outlook of it, for the upcoming 5 years on the vegetable farming industry.

It is stated that through 5 years (2016-2021) the production remained steady and no drastic changes have occurred within the years, but vegetable consumption is expected to decline and prices will increase.


Lastly, through the analysis provided above, we are able to build a more comprehensive understanding of the farming industry and its components.

In that matter we can have a deeper understanding of the farming industry itself , while being fully aware of the risks and challenges that it faces through the years