Is the Fraser Valley blueberry bubble about to burst?

Posted by Sapan Behar

January 27, 2008

This is a very important question being asked by a lot of investors, speculators, farmers and buyers looking for blueberry farmland in the Fraser Valley. The main thing fueling this question is the huge increase in land values, followed closely by the number of new farmers getting into the business and an increase in the acreage.

The crop is a hot commodity right now. Once the public became aware of the antioxidant benefits of blueberries, the demand increased at a rapid pace. Since it takes many years for a blueberry field to reach full production, supply has not been able to meet this demand. As the number one fruit crop in B.C., there are huge profits in the blueberry business in the Fraser Valley.

However, the high cost of land in the Fraser Valley is starting to drive blueberry producers to move south of the U.S. border. It is also getting more and more expensive to operate a blueberry farm in the Fraser Valley. There is a shortage of farm labour, resulting in increased labour costs and decreased productivity.

Another major factor to be considered is that other countries such as Chile and Argentina are moving into the industry in a big way, bringing competition against our local producers.

The US exchange rate is also causing some financial instability. If the Canadian dollar continues it’s upward trend, it will eat into a blueberry farmer’s profit margin.

So is the blueberry bubble going to burst?

Well, that depends on a lot of factors. The main among them will be long well you have planned and how good you are at managing your finances.

Consider that blueberry prices have been steadily increasing for the last 10 to 12 years. The demand has also been increasing, yet the blueberries are not marketed to some of the largest economies of the world.

Now consider that cost of picking alone is around $0.55 to $.60 a pound. Factor in other operating expenses, excluding debt servicing, and you are looking at a production cost of around $0.70 a pound. In 2007, Fraser Valley blueberries for the fresh market brought in around $1.65 a pound for the farmers, the blueberries sold for process market brought in around $1.55 a pound.

If a farmer hand picked his entire crop, and sold it for process market (the worst scenario), the profit margin was still $0.85 a pound. If the blueberry bubble was to burst and say the price drops a whopping $0.50 a pound, Fraser Valley blueberry farmers are still looking at a profit margin of $0.35 a pound.

While a profit margin of $0.35 a pound is substantially less that $0.85 a pound, know that in the early 90s, blueberries were selling (not profit) for around that much for the fresh market.

To be a successful blueberry farmer in the Fraser Valley, no doubt you would need careful planning. The biggest cost a blueberry farmer has is labour. What if you could reduce your labour cost substantially? How? Mechanical picking costs about $0.10 a pound to pick. All of a sudden, even if the blueberry prices tank, a farmer picking his crop with a mechanical harvester and selling it for process market is looking at a profit margin of $.80 a pound.

However, the above scenario does not consider debt servicing and the cost of land suitable for blueberry farming in the Fraser Valley. At present, a larger parcel of land that is suitable for blueberry farming is around $75, 000 to $90, 000 per acre. This is bare land, you would still have to develop this farm and wait about 8 years from planting for your field to reach full production. You can expect to pay as much as $125, 000 per acre for a blueberry farm that has been producing for about 4 to 5 years.

This high cost of farmland in the Fraser Valley will be a major factor in determining if a new farmer is successful or not. However, this has no effect on established farmers. One effect of this high land value for blueberry farmland will be that more and more new farmers will be looking to buy farms that are in production. You pay substantially more, but the farm income will be able to support debt servicing. If you do have the financial means, buying bare land and developing your farm is still better in the long run.

So to answer the question, I’d say that the blueberry bubble is about to burst for established farmer that fail to adapt to technology or for new farmers that fail to plan well. If you plan carefully, there is still lots of money to be made in the blueberry business and there is no indication that blueberry farming will not be a profitable business in the years to come.

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