Chilean Earthquake's Tremors May Be Felt in American Consumers' Stomachs

After Chile's 8.8-scale earthquake on Saturday, one big unknown is the disaster's likely impact on U.S. consumers. Chile is Latin America's largest economy, and the U.S. its biggest export market. The country is a major supplier of our wine, fruit and seafood, and supermarkets this time of year are stocked with Chilean grapes and salmon (although interestingly, Chilean sea bass is neither Chilean nor bass).

But due to the quake, fewer varieties of Chilean apples, pears, and plums will be harvested this year, says Chile-based market analyst Isabel Quiroz of IQonsulting. And although the Chilean harvest is not over -- it's now the end of summer in the Southern Hemisphere -- the damage done to Chile's roads, irrigation systems, electric grid, packing houses, and other infrastructure will hamper the task of getting the fruit to market in the coming weeks.

"The growers' ingenuity and resourcefulness will be severely tested," Quiroz noted in a report to clients. "As hard as they might try, the laborers in the orchards and packing houses cannot recover the high season rhythm immediately, even though the markets are eager for fruit. Many will not be able to be present due to damage to their homes as well as both physical and psychological injuries they have suffered."

Expect Rising Prices

U.S. supermarkets are assessing the quake's impact on consumers accustomed to getting the food they want when they want it. Over the past 16 years since the North American Free Trade Agreement took effect, fruit exports from Chile to North America have increased more than 700%. U.S. Department of Agriculture statistics show that Chile exported $1.3 billion worth of fresh fruit in 2003, and $1.5 billion in packaged food exports in 2008. In the U.S. winter, Chile is the primary supplier of table grapes.

"While we are still assessing the long-term impacts of this event, in the short-term we have seen shortages of seedless grapes, blueberries, and some stone fruit," says a representative of Supervalu (SVU), the second-largest supermarket company and owner of such chains as Albertsons and Shop 'n Save. "Consumers should expect to see rising prices on these items due to sourcing constraints."

But the earthquake's occurrence near the end of the summer harvest may temper its impact on the market for fresh fruits and vegetables, says Myra Gordon, executive administrative director of the New York City Terminal Produce Co-Operative Market in the Bronx, the world's largest wholesale fruit and vegetable market. "There is no impact at this time," Gordon says, but "it may have an impact in two or three weeks."

The Chilean Exporters Association issued a statement urging consumers not to panic, and saying that early indications show "minimal" damage to the fruit industry. Officials at the ports in the Philadelphia area, where most of Chile's fruit arrives, no doubt hope that optimism is accurate. William H. Kopke Inc., the largest Chilean fruit importer in the U.S., expects shipments to be "curtailed" in coming weeks.

Seafood and Wine

The quake destroyed many Chilean fishing boats (and fishermen's homes), and one union official told the Associated Press that the disaster ruined the fishing season, which had just begun. The salmon farming industry was largely spared, though transporting the fish is proving difficult. "The fresh Chilean seafood business is going to be disrupted," says John Sackton, president of market-research firm Seafood.com.

And it struck at the heart of Chile's wine business, which exported $1.9 billion worth of product to the U.S. last year. Producer Vina Concha y Toro SA (VCO) reportedly sustained "serious damage" to a major facility, which will halt production for at least a week, according to Dow Jones Newswires.

Pulp Friction

Another major export to the U.S. that could see a shortage: wood pulp, used to manufacture paper.

The Office of the U.S. Trade Representative says America imported $658 million in Chilean wood products in 2008.

Norweigan paper company Norske Skog said it expects its Chile operations to be offline for "some time," and two rivals, CMPC and Arauco, have also reportedly halted production.

As supplies become constrained, one analyst estimates that global paper prices could jump roughly 5%, to $40 per ton.

Note: This article has been updated with newer information.

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