Peter Beemsterboer

"Parallel between financial bubble and the onion market"

Last weekend exporter Peter Beemsterboer read an interview with Nobel Prize winner Dr Robert Shiller. He was asked when a financial bubble can be defined and how you can tell when there is a bubble. He repied as follows: "The core of it is that a bubble is a kind of mental illness. It has to have story: a price goes up, possibly speculatively, which draws attention, people wonder why the price is going up. Then others try to use this. They try to get people interested in the product, and so chase the price up even further."

Peter saw parallels with the onion market:

In August everyone was very optimistic, the market was empty, planting onions were selling exceptionally well. The Dutch harvest was disappointing and there was going to be a shortage of onions in the world. The traders, sorting companies and growers talked the onions into high prices and especially the sorting companies tried to cover what they expected to need. Then the tides turned and the onion market turned out very differently.

The West African market was empty and people ordered far too many onions in August, which meant that the market was over supplied and the importers lost a lot of money. Our onions were far too expensive for the African consumer. Besides buying the onions, packaging and transport they have to pay around 40% importing rights. 80% of the income is spent on food, so the consumer ate less Dutch onions over the last few months. There were also onions from North Africa available on the market for much lower prices.

Peter Beemsterboer with his son Jan during Fruit Logistica this year

The Far East should have imported a lot of onions: our largest competitor India had a bad harvest, and due to the high internal prices there was an export stop. The expectation was that the largest country of import, Malaysia, would import a lot from Holland. The price of the Chinese onions was lower and so the extra demand for Dutch onions never came. India has multiple harvests per year in different areas. Now, three months later, there are enough onions again and India is once again our competitor in the Far and Middle East.

Brazil imported 40,000 tonnes of onions from Holland in 2012. 80% of this import was between September and December. This year Brazil has yeat to buy a single kilo, which is partially due to the high price. The demand from other Central and South American countries is also limited.

The onions are in: the harvest is better than was expected in August. The market is on lock down: the growers have made their costs and aren't prepared to sell at the current level. Their expectations are also very highly strung. The East Block countries, Russia and Ukraine in particular, are expected to have a bad harvest and it is expected that they will join the market later. Whether this will happen is impossible to guess. Besides the normal workings of the market we also have to deal with possible political decisions with Russia, such as tightening the phytosanitary requirements so much that we can't meet them here.

Despite the good price that the growers could make for their onions the supply was very limited. As a trader I don't understand this, profit doesn't make you poor, and I would sell a least a part of my onions that were about the cost price. Storing the onions makes the cost price higher and there is a quality risk.

The figures of the past month will be disappointing. The demand was limited and the market was calm. Yet we don't have to be negative on this market, if the prices stay at the current level. A new bubble due to speculation, however, won't benefit the market on the long term.

For more information:
Peter Beemsterboer
Handelsmaatschappij J.P. Beemsterboer
Stationsstraat 17
1749 EG Warmenhuizen
Tel: 0031 226-396403

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