Cherrific

Chilean cherry production grows but margins squeezed.

Chilean cherry growers have enjoyed a bumper decade fueled by demand from China (90% of total exports) but with growing supply there is downward pressure on prices and margins.

A cherry grower we spoke to explains, “The supply of cherries has increased enormously in Chile, driven by growing demand from China. This greater supply is pushing prices down. The ROI on cherries has been extraordinary over the past few years but more normal returns are now expected.” The source went on to mention that, in recent years, million-dollar investments were recovered in two or three years.

“The ROI on cherries has been extraordinary over the past few years.”

Cherry grower, Chile

An executive at a major cherry producer adds that there is enormous diversity in costs between different producers. In part, these differences are explained by the technological and management capacities of each producer, but also by the geographical location: in the colder and wetter south more investment is required than in more temperate zones.

The executive continues, “We are forecasting a decrease in prices, only those producers who manage to keep their costs low will survive, as has happened in Chile with other crops that enjoyed an initial boom to later see huge increases in production that reduced returns.”

“We are forecasting a decrease in prices, only those producers who manage to keep their costs low will survive.”

Executive, cherry produced, Chile

According to a senior official from the Ministry of Agriculture, the government is not in a position to intercede for two reasons, “Firstly, the current government is composed of business people who generally want to avoid state intervention. The second is that this government is politically very weak and does not have enough support to favour one particular industry.”

However, this official is confident in the Government’s ability to energetically support the search for new markets and trade agreements that facilitate increased exports of cherries to other countries. “I am optimistic about the ability of Chilean producers to increase exports to Europe and the United States, markets that for now are smaller compared to China. It is fundamentally a matter of price; there is potential demand, but at prices lower than those from China.”

In the same sense, one of the main exporters of cherries assures that 90% of the cherry exports are directed to China because the prices paid there are much higher than those of other markets. However, this source does not see major disadvantages to exporting to Europe, “Although margins are lower, they are still much higher than production costs. The business is still viable although the extraordinary returns currently observed in China are not possible elsewhere.”

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