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Fresh Produce Prices Top Volatility Rankings, Gro Model Shows

07 May 2020

Given the confusion caused by endless headlines about food and food prices, we used data on the Gro platform to quantify how much of the recent volatility in fruit and vegetable prices is caused by COVID-19 and how much is due to normal fluctuations.

Our model shows that prices for fresh produce in the US are more volatile than for almost any other commodity or financial market, even when the country isn’t facing a pandemic. COVID-19 has had a major impact, but the data suggests that fresh produce supply chains were fragile to begin with.

While fresh produce markets face unique issues such as seasonality and perishability, the data shows us that there are several other inefficiencies that contribute to price volatility that need to change in order to build more resilient supply chains.

A Gro analysis of historical volatility, which measures both positive and negative fluctuations in price, shows that retail prices for 500 of a sample of 640 fresh produce items have annualized volatility greater than 100%. Prices of iceberg lettuce, for example, jump around by 457% over the course of a year, and cucumber prices swing by 465%. That’s far greater fluctuation than, for example, crude oil—now one of the most volatile exchange-traded commodities—which has annualized volatility of just 41% and the S&P 500 Index which trades with annualized volatility of 21%. For corn and soybean futures, volatility is 16% and 15%, respectively. We calculate volatility by taking the standard deviation of weekly percentage changes over the past three years and annualize that value, a metric which gives us a good sense of volatility while accounting for inherent seasonality that exists in fresh produce prices.

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Fresh produce markets are extremely complex, exhibiting big regional and varietal differences in prices. Even within a single crop there are multiple cultivars, growing practices, sizes, relative freshness, and packaging types. Our analysis of fresh produce, using Gro, employed historical price volatility on an annualized basis, which is a standard financial-market metric, to determine how much prices fluctuate in a normal year and thus to isolate the impact on prices from COVID-19.

In the case of green asparagus, to take one vegetable as an example, annualized price volatility is 98%, meaning that prices jump around a lot even in a normal year. For just the past 12 months, volatility rose to 119%, indicating that COVID-19 is likely responsible for only a small increase in price volatility. On April 10, during what is typically the weakest season for asparagus, the average price fell to $1.64 per pound, 38% lower than the same time last year and significantly below the vegetable’s 10-year price range. Asparagus prices have since rebounded to $3.36 per pound as of May 1, well above the 10-year range.

By contrast, tomato prices, despite rising sharply this month, nevertheless haven’t broken out from their 10-year range. For the past 12 months, tomato price volatility is 190%, compared to historical annualized price volatility of 171%, according to Gro’s calculations.

To further underline the heterogeneity of fresh produce, prices of some products that are typically less volatile have seen much greater fluctuations this year. For example, cranberries in 12-ounce bags have a typical annualized price volatility of 76.2%. Nevertheless, packaged cranberry prices have risen 99.3% in the last 12 months; adjusted for volatility, that price increase is even greater, at 130%.

The following chart highlights the fresh produce items in our sampling that have seen the biggest price moves, adjusted for volatility, over the past year. At the top are the 10 items that have risen the most in price, and at the bottom are the 10 items that have fallen the most.

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Gro has extensive retail price data along with data on shipping point prices, terminal market prices, producer prices, and more, for fruits and vegetables in the US and Mexico, as well as retail and wholesale prices in other countries. We believe that a systematic understanding of the nuances and breadth of the fresh produce market is required if we are to stand a chance at building resilient supply chains. Gro Intelligence will be addressing many of those issues in a series of notes in the coming weeks. In this Insight, we simply laid the groundwork by analyzing volatility in fresh produce prices in the US, which is arguably the most efficient produce market in the world.

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