Fresh Produce Supply Chain
The supply chain for fresh produce starts with the grower/farmer who sells their produce to primary processors that process the products before they are packed and sent to distributors. From the distributors, products are stored in warehouses before they are repacked and sent to retailers and service providers who sell the produce to consumers or utilize the produce to provide a service to consumers. An in-depth overview of the fresh produce supply chain, as well as a breakdown of the food dollar, is available below.
FRESH PRODUCE SUPPLY CHAIN
- Agricultural products are grown by farmers before being sold to handlers or primary processors.
- In 2017, there were 230,755 farms in the United States covering about 9.8 million acres of land. The market value of US fruit & vegetable production was US$57.2 billion.
- Farmers can drastically reduce the miles that their produce travels, as well as increase their share of the food dollar, by opting to process their produce in-house and participating in direct-to-consumer marketing channels such as farmers' markets.
- Handlers or primary processors aggregate the produce that they receive, store and process them before they are shipped to distributors.
- Fresh produce is processed in various ways such as by being peeled, cut, or diced. Processors must then ensure food safety, proper packing and storage of fresh produce that they receive before being brought to the next step of the supply chain.
- Part of food safety is the proper washing, grading, and sorting of fresh produce before they are stored and eventually sold to wholesalers.
- Wholesale produce companies or distributors store fresh produce in a network of warehouses and then sell and distribute these to retail stores and service providers such as supermarkets and restaurants through an extensive transportation infrastructure.
- Fresh produce distributors ensure that they only receive fresh produce from approved suppliers/processors to further ensure food safety. They keep a list of approved suppliers, together with dates of delivery of produce and packaging supplies to maintain traceability of the produce that they store.
- Produce are marked with dates so that a "first in; first-out" (FIFO) stock rotation can be observed. This means that produce received earlier should be the first ones shipped to the next step of the supply chain.
- Produce are repacked into appropriate food containers before being transported to retailers or service providers.
- Fresh produce is ideally transported via trucks with refrigerated storage to maintain their freshness.
- Research has found that over US$7 billion worth of fresh produce in North America spoils in the back of trucks while in transit or warehouses before they are even received by consumers. Temperature control and monitoring is utilized to lessen produce spoilage, however, it has been suggested that an evaluation of actual shelf life with the use of technology will do better to mitigate the risk of spoilage of produce while being transported.
- RETAILER/SERVICE PROVIDER
- This part of the supply chain includes establishments that either sell fresh produce (like supermarkets or grocery stores) or uses fresh produce to provide a service for consumers (like restaurants).
- Overstocking is a problem often encountered by retailers of fresh produce. This leads to eventual food waste, and lower margins and product freshness.
- Ordering too much produce can be prevented by utilizing efficient forecasting techniques. This can be done by rationalizing stock keeping units (SKUs) and integrating customer demand data and supply indicators from their suppliers. This allows retailers to order the right produce at the right quantity to meet customer demands and seasonal spikes.
BREAKDOWN OF FOOD DOLLAR SPEND ON PRODUCE
- According to 2017 data gathered by the USDA Economic Research Service, for every $1 spent on food by US consumers, 7.8 cents goes to farm production. This is the share of the food dollar that goes to farmers. Together with the 2.1 cents that go into the Agribusiness industry group, a total of 9.9 cents goes into the first step of the fresh produce supply chain — the grower.
- 17.3 cents of the food dollar go into the "processor" step of the fresh produce supply chain. This accounts for the food processing (15.0 cents) and packaging (2.3 cents) of the fresh produce.
- 12.6 cents of the food dollar go into the "distributor" step of the fresh produce supply chain. This accounts for the wholesale trade (9.1 cents) and transportation (3.5 cents) of the fresh produce.
- Most of the food dollar goes into the "retailer & service provider" step of the fresh produce supply chain, receiving 49.3 cents of it. This includes the retail trade of fresh produce (12.6 cents) and foodservice (36.7 cents).
- 10.9 cents of the food dollar is likely shared among all parts of the supply chain as it accounts for energy (3.8 cents), finance and insurance (3.2 cents), advertising (2.6 cents), and legal and accounting (1.3 cents) costs which all parts of the chain utilize.
In order to complete this research, we leveraged on various articles and reports from credible sites such as the USDA for insights into the fresh produce supply chain and food dollar breakdown. We also consulted various materials, both marketing and information documents, for those involved in the fresh produce supply chain such as in processing and distributing to better understand what is expected of companies participating in the supply chain and how the different parts of the chain work together to deliver fresh produce from the farm to the consumer.
We have broken down the food dollar according to where each of the expenditure fits in the supply chain. The source that supplied the breakdown of the food dollar also contained definitions of the industry groups that receive part of the food dollar. We matched these industry groups to where they likely fall in the supply chain according to the previously identified definition of each step in the supply chain.