Opinion

How can we address commercial indifference towards the European market?

01 May 2015

Tommy Leighton - PBUK

I was in Rotterdam at the Produce Marketing Association’s (PMA) Fresh Connections: Netherlands event this week and enjoyed very much the eclectic mix of people in the room. As with all events, I tend to find that it’s the quality and substance of what you experience that wins the day every time – and I came away having learned a lot.

It was the very first session of the day – on geopolitics and shifting global trade patterns – that I’d like to focus on as between them speaker Julien Marcilly, chief economist of French credit insurance giant Coface and panellist José Antonio Gómez Bazan of Peruvian exporter Camposol for me summed up the dilemma that Europe faces as a market as the world develops around it.

Marcilly pointed out that the global economic situation is improving, particularly in Europe, and suggested the fact that oil prices are being kept low because global supply is persistently exceeding demand will keep us on this upward curve for some time to come. Lower oil prices, he said, mean lower inflation in both the developed and emerging worlds, which in turn can bolster household spending power, even if unemployment is high – as it is in a number of European countries.

Good news so far.

In Europe, while France struggles, GDP growth in Germany is set to see Europe benefit from German spending, rather than continuing to contribute to the German economy, he said, and the recovery in Spain has been far quicker than expected, which also helps to underpin European stability. Across the continent, the general trend is that monetary policies have loosened a little, house prices and building permits are recovering towards their pre-crash levels, consumer spending is rising gradually and corporate confidence also continues to rebuild steadily.

Still OK.

In the Coface country assessment model emerging countries don’t come out so well, particularly Brazil and Russia. The former is blighted by sky-high inflation, corruption, political instability and significant infrastructural problems – such as power shortages, which constrain both the supply and demand sides of its market. The latter had already experienced a slowdown in its business environment before the on-going political crisis, and while consumer spending has remained defiant until now, Marcilly believes that will not last for much longer.

China’s growth has slowed, but its GDP still expands at roughly 7% a year, which is certainly no disaster and Coface remains optimistic for the world’s largest population, despite the country’s production being in deflation for the last three years and some sectors being over-indebted due to over-investment followed by a fall in demand. Household expenditure is robust though and the oft-reported burgeoning of the Chinese middle class – a trend replicated in India – shows no sign of stopping yet.

Marcilly also said that some of the smaller emerging economies – Sri Lanka and Vietnam for example, are also a cause for much optimism and that their markets, just like India and China, will also expand from a consumption point of view in years to come.

Therein, I guess, lies the rub.

Camposol’s Gómez Bazan was frank in his assessment of the situation from the Southern Hemisphere’s point of view. He is pleased, of course, to see GDP growth in the US and Europe, but says the global picture has changed. The flow of trade, he said, is changing rapidly, and although he said “agriculture happens where it makes sense”, what he said next could be translated as “commerce happens where it makes sense” too.

“There will soon be 350 million middle class Chinese consumers, which means a small shift in their consumption behaviour will have a big impact on the trade flows around the world,” said Gómez Bazan. “There have been changes in Europe too and the currency is harming the incentive for the southern hemisphere to come to Europe. This could be good for Europe, because it could increase production of local food, but prices have to rise for that to be possible. We are getting 30 [Peruvian] soles less per kilo this year for our product in Europe and that is a real incentive not to go there.”

It’s true to say that there are plenty of people who on the surface would welcome an increase in ‘local’ production in Europe, and if it was against the backdrop of a growing marketplace for fresh produce and a similar influx of high quality competitive product from outside this market, then I too would think it a good thing to happen. But the UK and Europe cannot afford to allow this situation to develop too much further; our future depends on this marketplace to continually develop and it can’t do that without being competitive on a global basis.

Besides all that, this continent would be a far poorer place for consumers if we were denied our choice of the best produce from the Southern Hemisphere during our winter months as that was diverted to markets either less demanding or willing to pay more.

A British industry veteran with plenty of reason to support his national producers told me just this morning that the problem we would face as a nation if competition effectively disappeared from the market is that the local production system would quickly re-establish the soft underbelly that saw it diminish and threatened its very existence during the 1980s and 90s. The English top-fruit industry is a case in point – it has flourished since it eventually grew a pair (rather than just a pear) and faced up to the challenges it faced from the justified influx of high-quality, competitively priced imported product.

Astute investment, clever strategic PR and promotion and most importantly a vast improvement in the variety and quality of the crop has reversed what many thought was irreversible. The French top-fruit industry has still to completely overcome the same issues, though a lot of them were raised by its inability to compete in certain export markets (including the UK) it had once dominated.

Competition is the lifeblood of the produce industry. Any wholesaler or retail buyer worth their salt who ever complained about high prices must surely still have recoiled at some of the rock-bottom prices offered by panicking European producers when the Russian embargo first hit. Yes, there are ways to take advantage if you’re selling that fruit, but it is no way to build a sustainable business or to please consumers. More to the point, while the people selling that product did so in desperation, it’s incredible to me that they couldn’t see (or didn’t care about) the long-term deflationary implications on the market of doing that.

Once the navel gazing stops, the produce industry at every level is very good at finding solutions.

On a wider level, it’s hard to escape the feeling that we’re seeing the beginning of another exciting retail revolution in this country. It took the ultra-competitive price and cost structures of the discounters – as well as the resurgence of the premium retailer – to show the rest that the competitive grocery retail environment they had all banged on about for a decade and more was in fact not that far removed from a cosy cartel.

Now it’s been recognised that serious change is required, we’re in for some real fun. But what the fresh produce industry needs to see from this new broom is some newfound respect for the supplier base and its value. While sustained, real support for local growers and suppliers is of course paramount, particularly in the case of the UK, this has to be allied to real and sustained support and understanding of the realities facing the international supply base too.

For so long, the UK has been privileged to attract some of the very best produce from around the world. Supermarket chains have built their reputations on the quality of their year-round offer, the wholesale markets have survived and thrived off the back of that to a certain extent, but also plugged in nicely to the foodservice boom that was definitely pushed along by retail innovation.

To convince Camposol and not only their Southern Hemisphere counterparts, but also suppliers across the Northern Hemisphere that the UK is a worthy destination for their product, it’s time to accept we’re not a ‘preferred’ customer anymore and be prepared to stand up and be counted in the global market.

The same applies to markets across Europe. Generally, our demands are excessive, our standards have become erratic and there is a feeling around the world that it’s easier to go elsewhere. For the first time in the history of the commercial world, that’s no longer their problem – they have alternatives and it’s become Europe’s problem to deal with.

The old continent, as we’re commonly known, is a relatively avuncular expression to describe a continent that for long periods has ruled the world. We may be mature and robust, but we no longer possess the power that we used to and if we’re to continue to feed our people with the quality of food they are accustomed to, we need to stem the flow of trade circumnavigating this part of the world by making ourselves better trading allies.

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1 comment

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  1. Bryan Silbermann | May 20, 2015
    Excellent summary Tommy and great analysis too.  Spot on!  Thanks for your support and your added insight.

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