‘Containergeddon’ cost ag $2.1 billion last summer, and supply chain bottlenecks aren’t over yet
Economists at UC Davis and the University of Connecticut calculated that exports of almonds and other California agricultural products fell short of expectations by $2.1 billion just in May through September of 2021.
Over the past year, one of the industries hit the hardest by supply chain snarls known as “containergeddon” has been agriculture. Now, researchers have attempted to put an estimate to the financial hit the industry has taken so far.
Between May and September of 2021, exports of California’s agricultural goods fell 17 percent below what was expected, according to findings published in a University of California research magazine. The drop represents a loss of roughly $2.1 billion.
“Seeing that there’s a 17 percent reduction in trade, that doesn’t sound like a lot, but if you translate it to all exports of about $15 billion during that period, a 17 percent drop is very significant,” said Sandro Steinbach, an agricultural economist at the University of Connecticut and one of the authors of the article. “This port congestion and…supply chain disruptions are highly detrimental for California exporters.”
The culprit is delays at California ports, driven by rising domestic demand for foreign goods. Increases in disposable income spurred by the pandemic have sparked a steep rise in online shopping, leading to a glut of cargo ships, largely coming in from Asia, waiting to be unloaded and refilled.
“The supply chain bottlenecks actually left over 80 loaded vessels stranded off the California coast in September alone,” said Steinbach, which added days or even weeks to their turnaround times and led many Asian importers to find alternative suppliers for almonds, processed tomatoes, hay and other goods typically produced in California. “If you have to wait 2 weeks to be unloaded…that’s a big concern.”
As a result of those delays, and lower freight rates for the route from Asia to the U.S. than for the opposite direction, it has become more economical for many ships to return to Asia empty rather than wait to be loaded with domestic goods, according to Steinbach and his co-authors from UC Davis and the University of Connecticut. After combing through private databases of shipping container logs from summer and fall of 2021, the researchers found that the share of containers filled with ag products last summer and fall fell by 15 to 34 percent depending on the port.
The financial losses even dwarf those caused by the 2018 trade war between China and the U.S., which involved a growing series of tariffs imposed by one country on goods produced by the other. “The trade war over the first 12 months cost about $500 million in losses to California producers, while if we compare that to the first six months of the supply chain disruptions, which are likely to last a while…then we are going to face far larger foreign sales losses,” said Steinbach.
The research, published in December’s UC Agricultural and Resource Economics Update, estimates the losses in just May through September topped $520 million for California’s tree nuts, $250 million for wine, and $120 million for rice, and also affected many other goods including hay, dairy products, and processed tomatoes.
“It really has completely hampered what we normally try to do. We have no control whatsoever,” said Roger Isom, president of both the California Cotton Ginners and Growers Association and the Western Agricultural Producers Association, which represents processors of almonds and other tree nuts. “This is probably one of the most devastating things that’s happened to the ag industry since I’ve been working,” said Isom, who’s been involved in ag since the 1990s.
Close to 100 percent of cotton and 70 percent of tree nuts produced in California are exported, according to Isom, and disruptions in sales over the last few months have been devastating. “The Christmas market for walnuts in Europe is huge. It may be our biggest market,” he said. “If your shipment gets rolled two or three times and into January, you’ve missed that market.”
As a result, said Isom, suppliers are paying premiums to find creative ways to reach their buyers. Some cotton producers are air-freighting bales to Peru for processing and exporting, while some pistachio processors are shipping their nuts across the country to be loaded onto cargo ships in Houston or on the east coast. “It’s very very expensive, you’re adding at least $1200 a container on top of your normal shipping cost,” said Isom. “You’re losing money, but it’s just to preserve a market.”
The hope is that these work-arounds will be only temporary, but Isom says concern is growing that some foreign markets could be gone for good. “Some of our customers are starting to wonder, ‘is California going to be the solid supplier that they used to be?’ I think that’s a legitimate question right now,” he said.
For now, however, Isom is optimistic that so much public attention, as well as infusions of millions of dollars in much-needed upgrades from the recently-passed federal infrastructure bill and Governor Gavin Newsom’s proposed state budget, will help expand the capacities of the state’s ports before foreign markets permanently sour on the state’s almonds and wine.
But Isom warns that change needs to happen fast. “If this was to last into 2023 I would definitely say, yes, that there’s a problem,” he said.