Fruit and Vegetable Price Volatility

Article   28 January 2020

european fresh produce market

European Fresh Produce Market Overview

Stable uses thousands of indexes to offer price insurance across a wide spectrum of industries and nations. For fruits and vegetables, we have several sources supplying us price indicators from avocado import prices in Europe to zucchini from the US; one source, the European Union Commission, offers hundreds of indexes for produce grown within Europe. Below is a survey of these indexes and a look at the markets and their price volatility.

The EU price indicators, are monthly averages of domestically produced products. The prices are reported daily by the member states, which generally pull the data from the local wholesale markets. The EU average price is a weighted average of all the available member state data. Given the seasonality of fruit and vegetables data is either available only during the particular growing season of that product, or if there is production throughout the year (or storage is possible) the price series can exist throughout the year. Figure 1 below illustrates the availability of data on a seasonal basis using apricots as an example. The apricot price series shows regional differences (in general French apricots are the most expensive) and the inter-seasonality trend (prices start high and tail lower as production ramps up).  Apricot prices are generally only available between April and September (though during the other months another source can be found recording imported product prices).

 

Figure 1: EU apricots monthly price series demonstrates strong regional differences and inter-seasonality trends

EU monthly apricot price trendsSource: EU Commission Monthly Price; Apricots

 

In contrast to seasonal prices there are also fruits and vegetables with a full year of data available, figure 2 shows EU produced lemons, which generally has 12 months of price data. Due to production cycles there is price seasonality in the markets; illustrated in figure 3.  Looking at ten years of lemon prices in the EU indicates prices generally peak in September with market lows in January or February; though there are examples when prices did not adhere to this trend.  The EU average price for lemons has ranged from EUR48/100 kg in 2012 to EUR173/100 kg in 2016, a staggering 260% increase in four seasons.

 

Figure 2: Dramatic increase in average monthly price for EU produced lemons

EU monthly price lemonsSource: EU Commission Monthly Price; Lemons

 

Figure 3: EU lemon price seasonality due to production cycles

EU lemons seasonal monthly pricesSource: EU Commission Monthly Price; Average EU Lemon Price by Year 

 

In the EU Commission reported prices there are 44 fruits and vegetable indexes with significant data covering 18 EU nations. The most volatile of these price indexes is the Asparagus market. A price spike in 2010 (figure 4) has skewed these results.

 

Figure 4: Asparagus is the most volatile fresh produce price index in the EU

EU Asparagus Monthly Price TrendSource: EU Commission Monthly Price; Asparagus

 

Beyond the asparagus market, the top ten EU fruit and vegetable markets by volatility (as measured by the coefficient of variation, or the ratio of the standard deviation to the average) are in Table 1 below.

EU Average Fruit and Vegetable Price Coefficient of Variation by Product

Major price spikes are common in these markets as demand is inelastic and when supply is restricted, by weather or other factors, the price reactions are significant. If we compare these reported prices with a futures market it is clear the levels of volatility in the fruit and vegetable markets far outstrip those of the local wheat futures market in Paris. There are several reasons why the produce prices are more volatile than the grain values; wheat allows for storage and distant transport reducing price spikes with arbitrage opportunities and inventories, while fresh products have a much more limited storage capacity and some products do not transport well. A futures market allows speculators to trade which also reduces the price volatility in the market.

 

Figure 5: Coefficient of Variation EU Fresh Markets and Futures Markets

Coefficient of variation fresh produce markets and futures marketsSource; EU Commission/Bloomberg

Table 2: EU Commission Reported Products

EU Commission Reported Fruit and Vegetable Price Indexes

Globally there are thousands of price indicators for agricultural products all along the supply chain. These indexes can be used as a benchmark for the market as generally a futures market or auction does not exist. The EU fruit and vegetable indexes highlighted above are an example of this; they are at times the only freely available source for valuation for these markets. This allows buyers and sellers a point of reference when making decisions regarding production, trade and demand. It also allows Stable to offer price insurance on these indexes, a way to mitigate the high levels of volatility existing in these markets.

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