P R O D U C E B U S I N E S S • J U N E 1 9 8 88

At The Auction

In this issue we print an important letter from Jan van Meer-vald, managing director of Dole Europe. The letter points outthat auction sales in Rotterdam have been causing the indus-try problems this year. Many blame the auction system forcausing losses and low returns to shippers who have shipped

to Europe. And indeed, some exporters from the United States and other

areas have been taken to the cleaners by disreputable people whorepresent themselves as marketing agents, charge a high commis-sion, and then do little more than consign the shippers' produce toauction. But the real lesson here is the importance of shippersinvestigating who they will be dealing with, After all, even if noauctions existed, marketing agents could consign produce to a bigwholesaler just as easily as they can consign toan auction.

Yet Mr. van Meervald is a very sharp manand exceptionally knowledgeable about theindustry, and when he says that the trade inEurope could move the same volume of fruit ata price $1 or $2 higher per box if no auctionexisted, he certainly knows what he is talkingabout.

However, this is not the complete story. Intimes of surplus, auctions tend to depressprices. In times of shortage, auctions tend todrive prices higher. The reason is simple: Auc-tions remove the element of personal relation-ship from the transaction of a sale.

No seller ever gets more for fruit than whathe asks for, and a sales organization, looking tokeep its customers and maintain good relation-ships, will not want to seem abusive by raisingprices excessively when a market is short. Theywill raise prices, but nothing like what an auc-tion can do when supplies are scarce. Equally, a marketing organi-zation anxious to keep its shippers in business is unlikely to dropprices as quickly as they would fall at an auction. In addition, buy-ers are likely to fight harder against rapid price increases and bemore tolerant of slow price declines when dealing with the samesales organization week after week. At an auction, however, cloaksof civility fall aside. The most loyal buyer will ram a knife in theheart of his best supplier and still point out that he paid a nickelmore than anyone else.

It is interesting to consider the advantages of auctions so mar-keters can learn how to better serve their shippers. First, an auctionprovides shippers with a firm price within hours. To shippers whohave to pay their own growers, having quick accountings of exactlywhat the produce brought is worth a lot. Second, at an auction thereare virtually no claims. What is sold is sold, and the shipper doesnot have to worry about hearing buyers' pleadings for help twoweeks later. Third, auctions generally pay very quickly and offerfew credit problems. Finally, an auction allows the shipper to sellwhat he wants to sell, whereas a marketing agent usually has cer-tain demands: He doesn't want this size plum or that variety of

apple.The prime thing that killed the auctions at the receiving point in

the United States was the decline of the railroad car. Once a directbuyer didn't have to buy in railcar quantities, ordering directbecame a lot easier. The universe of potential buyers expandedenormously and real economies of direct buying began to presentthemselves.

If a wholesaler needed oranges, it saved money, time and han-dling to ship them directly to the wholesaler. In addition, the natureof the auction was transformed by the decline of the railroad. Whenthe produce was virtually all coming in by railcar to a central loca-tion, with the railroad giving the auction free rooms to operate from(as in New York), the auction could operate very inexpensively. But

once the railroad stopped being the center ofthings, and the auction had to rent a place,receive the fruit, etc., the auction started hav-ing expenses like those of any large wholesaler.This made it very difficult to compete withdirect buying.

The development of good communicationssystems with inexpensive telephone, telex,computer and fax communication all made it alot easier to buy on the F.O.B level.

Finally, on imported shipments, the diversi-fication of receiving points and the develop-ment of containerization both chipped away atthe supremacy of the auction. If you are bring-ing in produce on a break-bulk basis, it makessense to have it all sold in one place at onetime as with an auction. On the other hand, ifyou are bringing produce in containers, theproduce is now on wheels. It only makes senseto have it sold without unloading the contain-ers so that you can deliver the containers

directly to their destination.The reasons the auctions in Rotterdam have survived may be

related to the port's role as a central distribution point for Europe,as well as the large amount of break-bulk cargo that arrives there.

As chains and selling organizations have grown, many segmentsof the market are demanding a more consistent selling and buyingapproach. But for many buyers and sellers, this consistency deniesthem their vital marketing edge. These organizations - often nomore than one man and a telephone — can move more quicklywhen an opportunity presents itself. For these people, their edgelies not in stability but in change and their ability to capitalize on it.

When I think of these people and I think of the auction, with cap-italism at its purist, I think of my grandfather, president of the Unit-ed Fruit Buyers' Association, Inc., for many, many years. Hethought auctions were an ideal way to move produce, mostlybecause he believed that since auctions were so public and openand obviously fair, they encouraged good feelings and cooperationamong the trade. He took pride in his ad that appeared in everyissue of the New York Daily Fruit Reporter and read, "Harry Prevor,Auction Buying Specialist." pb

By James Prevor President & Editor-in-Chief

THE FRUITSOF THOUGHT

The cloaks of civilityfall aside at an auc-tion. The most loyal

buyer will ram aknife in the heart ofhis best supplier andstill point out that he

paid a nickel morethan anyone else.