The global fresh-produce market is thriving, but it’s also not without its challenges. ESM caught up with Cindy van Rijswick, senior research analyst with Rabobank Research Food & Agribusiness, to explore the latest trends in the sector. This article first appeared in ESM Issue 6 2019.
Now, more than ever, it pays to be fresh. The global market for fruit and vegetables is booming due to improvements in supply chain efficiency, consumer demand for a wider range of products, and the continued trend towards healthy eating.
At the same time, fresh produce is not without its challenges, with some of the biggest players in the sector reconfiguring their businesses to meet the needs of a changing sector.
Changing Times
Take Belgian fresh-produce giant Greenyard, for example, which recently implemented a strict cost-cutting plan in order to streamline its business. In the past six months, it has shed its operations of a frozen-vegetable plant in Hungary, a distribution centre in Germany, and its UK-based flower business, in a bid to stabilise its sales, which were down 0.5% in the first half of its financial year.
‘However, we are not there yet,’ Marc Zwaaneveld, co-CEO of Greenyard, wrote in the group’s half-year report. ‘We are still in the midst of our transformation period. A transformation is naturally associated with variability and uncertainty, particularly in the initial phases of transformational periods.’
US-based Fresh Del Monte, meanwhile, is seeking to ramp up production in the higher-margin fresh-cut fruit and vegetable segments, which represented $269.2 million (~€244 million) worth of sales in the group’s third quarter – a 6% increase on the same period in the previous year.
“Our strategic focus on stabilising our core business, innovative diversification, and transforming Fresh Del Monte to a value-added company has been building throughout 2019,” Mohammad Abu-Ghazaleh, the company’s CEO, commented in October. “We are emphasising value-added margin growth in all product lines.”
A Difficult Balance
Del Monte’s third-quarter report also indicates one of the core challenges inherent in the fresh-produce category: satisfying the retailer (and consumer) thirst for value, even when commodity and third-party costs are increasing.
More than a third of the group’s sales come from bananas – $385.8 million (€349.66 million) worth of sales in the third quarter alone – which have seen costs go up “in every respect, be it on the production level, on the shipping level, ports – you name it,” Abu-Ghazaleh told an analyst call, “transportation, everything.”
This flies in the face of the retail sector’s demand for low on-shelf prices in the banana segment, he noted – something that is likely to come to a head in the near future.
“This cannot go on forever. I mean the retailers, the buyers, have to understand that unless the prices are adjusted going forward, there will be a time when there will be issues in this industry,” he argued, “and I believe it will adjust by itself as we go forward.”
State Of The Market
According to industry expert Cindy van Rijswick, Del Monte isn’t alone in facing this challenge, and with competition growing in the retail sector, solutions aren’t always easy to find.
“By and large, fruit and veg is in the right place, but, on the other hand, the sector is still facing challenges because of competitive pressures,” she says. “From the retailer perspective, I can understand that if there’s enough supply, there’s no need to pay a higher price because they also operate in a very competitive market. The rise of the discounters and the emergence of new online players is adding to that competitiveness.”
At the same time, van Rijswick suggests that retailers could do more to ingrain sustainable thinking into how they approach fresh produce, particularly when the supply chain is being challenged.
“I expect that, with categories such as bananas, there will be a bit of a change, driven by consumer awareness,” she says. “Retailers will change their mindset a bit and offer more support to growers and their families in places like South America. I’ve not seen the exact figures, but for the retailers that have raised their prices in order to better support the supply chain, it’s had little to no effect on sales. Consumers will continue to buy the same amount of bananas, whether they are priced at €1 or €1.20.”
Creating Added Value
Van Rijswick is a senior research analyst with Rabobank Research Food & Agribusiness, focusing, in particular, on the international fresh-fruit and -vegetable sector. As she explains, value growth continues to outpace volume growth in the fresh-produce category, driven by the rise of snackable, more convenient fresh options, consumer demand for more premium/niche varieties, and even the Instagram factor – fresh-produce solutions that are photogenic and look good on social media.
“Premiumisation has been a trend for quite a long time, and I think snacking, in particular, has now become more important than ever, particularly healthy snacking. Snacking tomatoes, for example, have really taken off in the past few years.
"People are willing to pay more for products if they are more convenient, but with the increase in snacking comes the question of sustainability. A lot of these snacking products use a lot of plastic. I think that the snacking category could suffer from this whole packaging discussion if consumers really change their shopping habits.”
The trend towards greater convenience is also having a bearing on particular fresh categories, which have been less successful in catering to changing consumer demand.
“Sales of oranges have declined in nearly all European markets, and I think that’s because it’s not a convenient product to eat,” says van Rijswick. “Also, there hasn’t been as much innovation with regard to new varieties, compared to, say, the apple category, which has performed quite well.”
Recent years have seen a ramping-up of branding activities within the fresh-produce category – younger consumers, in particular, are more likely to ask specifically for a branded apple, rather than a common-or-garden variant – which are often backed by multichannel marketing campaigns, particularly through social media.
“I think that’s likely to continue,” van Rijswick says of the growing ‘brand identity’ mindset within fresh produce, “but these companies also have the advantage of having more control over their supply chain – they only use selected growers and can organise their marketing in a more centralised and more controlled way.”
Production Issues
It’s been hard to ignore climate change in recent years, both in terms of the seemingly more-frequent extreme weather affecting the planet, as well as the rallying cry from the world’s youth. For an industry so dependent on suitable growing conditions, the fresh-produce industry is taking steps to offset the growing weather-related challenges.
“These days, you have to have more consistency of sourcing,” says van Rijswick. “At the end of the summer, there was huge flooding in Spain, while in some Northern European countries, there was a drought.
“What we have seen in terms of bigger farmers or suppliers is a spreading of production over many different regions, which can provide consistent supply. For smaller producers, you’re seeing the use of hail nets and covers like that, as well as a move towards greenhouses.”
Indeed, in many European markets, the development of a more greenhouse-based agricultural structure has reaped benefits for categories such as fresh berries, which are now available earlier in the year, and for a far longer period than they were before, but, as van Rijswick explains, even this solution isn’t without its challenges, such as opposition from rural dwellers.
“Greenhouses have a high investment cost, but can be more sustainable for some categories, as you have less pest and disease pressure, meaning: you have to use less crop protection, while you can also implement more precise irrigation,” she says, “but, certainly in the UK and the Netherlands, you see a lot of complaints from people about plastic greenhouses popping up in their neighbourhoods. I think a lot of people aren’t really used to how agriculture works any more – they see it as an eyesore.”
Production challenges are also a factor when it comes to sourcing a suitable workforce. In both developing and developed markets, a shortage of workers means that product is, quite literally, rotting in the fields. As the UK’s National Farmers’ Union noted in October, around 1,150 tonnes of apples were wasted during this year’s harvest due to many EU nationals, particularly those from emerging markets, turning their backs on the country due to Brexit-related immigration fears.
“Brexit has put a lot of question marks in the minds of EU nationals,” Ali Capper, chair of the NFU’s horticulture and potato board, told The Independent newspaper, adding, “The shortages have increased every year since the referendum.”
“It’s really a big issue on the production side,” says van Rijswick. “Many of the seasonal workers used to come from Poland, Romania and Bulgaria, and it’s got more and more difficult to find them. Also, businesses are also having to put more effort into training these people, which costs money and can impact productivity.”
Technology is a potential solution (robots have been employed to pick apples and strawberries in some markets), “but, at the moment, it’s not commercially viable,” says van Rijswick. “I think it will take between three to five years before we see some viable solutions in this area, but I think we’ll get there. It has become just too difficult to find pickers, particularly in the north of Europe.”
Big Business
As for whether the merger-and-acquisition trend that has permeated the fresh-produce sector in recent years is likely to continue, van Rijswick believes that activity in the coming years will likely be more targeted. Headline-grabbing acquisitions, like Total Produce’s takeover of 45% of the Dole Food Company in 2018 are likely to be thinner on the ground.
“There’s been quite a lot of M&A activity in the recent past, but I think it’s been quite difficult for some companies to create synergies and integrate their businesses. Greenyard is currently divesting some businesses, for example,” she says. “A lot of the big businesses are suffering from margin pressure, and they’re focusing on streamlining their businesses as opposed to buying more businesses.
“We are still seeing acquisitions happen more upstream, at the farming end of the supply chain. You’re seeing the rise of more cooperatives and more flexible partnerships, and private equity is also getting involved in the farming side, which they weren’t doing before.”
The foodservice segment is also likely to grow in the coming years, and it will absorb more of the fruit-and-vegetable sector, van Rijswick adds, meaning that, of all the macro-trends affecting the industry, supply chain efficiency is likely to come under particular focus.
“I believe a lot of investment will be put into making the supply chain much shorter,” says van Rijswick. That’s something that’s been happening over the past few years, and is likely to accelerate.”
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine
