Managing the introduction of the new National Living Wage will be the largest challenge and the most significant cost pressure for UK salad and vegetable growers this season and in the years ahead, says Matt Jones, senior buyer at Reynolds. At the same time, less favourable year-on-year exchange rates and haulage cost increases will impact salad imports from Europe, while the warm winter period will mean a larger reliance on vegetable imports this year, particularly during the spring. In this article, Jones offers his run-down on the likely supply challenges this season
The Spanish leafy salad season will finish early this year, so a prompt start to the UK harvest will be required. The season has been running ahead of schedule throughout the winter period, driven by unseasonably warm temperatures. At times, production has been accelerated by as much as 20 days. The resulting oversupply, of iceberg lettuce in particular, has even led to the destruction of some crops, with growers attempting to heighten market prices, which, at times, have been significantly below the cost of production.
However, the spiking of crops invariably leads to a shortage of supply further down the line and, from March onwards, Spanish volumes will not be sufficient to meet demand at times. Estimates suggest that overall volumes during the latter part of the season will fall by more than 30% compared to last year and an early finish to Spanish production is inevitable. In addition, individual head sizes are expected to be smaller than usual, as milder temperatures slow down plant development.
An early transfer to domestic leaf crops will therefore be required to ensure consistent availability and quality, so plantings have commenced slightly earlier than usual. As always, crop development is very much weather dependant, but soil conditions at the time of planting have been fine due to relatively warm temperatures and good moisture content.
In addition, by ensuring our crop programme has a wide spread across the country, it is possible to minimise the risk of any localised adverse weather conditions, whilst still being able to select the best quality product available at any one time.
As lettuce farming is very labour intensive, the introduction of the National Living Wage will be the most significant challenge for UK leaf growers from April. Inevitably, greater emphasis will be placed on reducing the reliance on labour throughout the production process. The mild UK winter will increase the likelihood of heightened aphid activity, which has the potential to influence leaf quality and the risk of foreign bodies. On a positive note, reduced year-on-year fuel costs will help to mitigate some of the increased cost pressures.
The unseasonably warm Spanish winter has left hard salad plants tired and stressed, which will result in an early end to the cucumber and pepper seasons. Cherry and plum tomato availability is also likely to reduce significantly and a noticeable dip in supply is expected in May.
An early start to the UK and Dutch harvests are therefore required and a bullish market is expected during the shoulders of the seasons.
Poor returns for hard salad suppliers, partly at least driven by increased retail competition, are being blamed for a reduction in plantings in the European season ahead, in both the UK and Holland. With little sign of optimism within the category, many growers are reviewing their investments, especially regarding cucumbers.
In the UK, Luke Hibberd, chairman of the Cucumber Growers’ Association (CGA), commented: “There is major concern as to why cucumber seems to be the ‘new banana’ in price wars. In fairness, the major cuts in margin have been taken by the retailers, with the growers being semi-protected from the cuts by their marketing companies. However, given the low margins already in place, further strain is being put on this iconic British crop. There has been much talk recently about the crop becoming unsustainable and a small increase in returns to growers would renew confidence and allow shelved re-investment plans to be progressed.”
Retail competition aside, the compulsory National Living Wage will prove to be a significant cost pressure for hard salad growers in the UK this season and in the years to come (see issue focus for detail).
According to Lee Stiles, of Lea Valley Growers’ Association: “Current price levels are unsustainable, and this, combined with the increase in input costs brought about by the National Living Wage and pension contributions, has already seen a move
away from cucumbers in respect of new glasshouse developments in the Lea Valley, with all 50 acres under development earmarked for peppers and tomatoes.”
Labour costs are also an ongoing issue in Holland, but increased haulage fees are the most significant factor affecting exports to the UK. With regular disruption to transportation links still commonplace in Calais, hauliers are charging in the region of an extra €35 per pallet, year-on-year, to cover additional costs, including security charges and heightened fares. This figure has increased gradually over the last 12 months and is unlikely to reduce in the short to medium term, despite reduced fuel prices.
With the majority of European hard salads grown inside glasshouses, crop performance will depend predominantly on light levels. Whilst it is too early to comment on likely weather patterns, reduced plantings in Holland have been reported, driven by reduced margins and sluggish demand. In particular, volumes of Dutch round tomatoes, green peppers and cucumbers available on the open market are highly likely to fall, by 10-15%. Meanwhile, increased Dutch production is likely to be seen for red, yellow and orange peppers, together with vine speciality tomatoes and aubergines.
Varietal developments continue to shape production levels in some categories. Specifically, within the pepper category, fruit sizes are increasing and volumes of Class II fruit are diminishing.
The potential impact of the National Living Wage
From the 1st of April this year the new National Living Wage comes into force. For farming businesses this means that the minimum wage for employees over 25 will rise from current £6.70 per hour by 50p to £7.20 per hour. The Government’s intention is to raise the minimum living wage to £9 by 2020.
This is a cause of great concern for growers, hampering their ability to remain competitive. For labour-intensive crops such as hand-picked fruit and vegetables, where labour costs can be as high as 70% of turnover, this is particularly worrying. A recent report, commissioned by the NFU, highlighted the danger that production could move abroad over the next three to four years.
As David Long, a strawberry and pear grower in Kent, commented in the report:
“It’s hard to see what more we can do – we’ll cut overtime right down and try to look at more mechanisation in the packhouse and whether we can further improve harvesting efficiency with field layout to minimise walking and down time. Ultimately we have to reduce the numbers of people we employ. Until we see the full impact of NLW on profitability, we are not planting any more crops. Strawberry profitability looks very badly affected by this new wage rate.”
Whilst the UK planted area for potatoes fell by an estimated 8% in 2015, average yield was a record high due to an improvement in late summer growing conditions and stocks are reported to be slightly up on last year.
However, whilst volumes of stored potatoes are reported to be satisfactory in number, the overall quality of the product is concerning. Reports of rot are becoming more commonplace as time goes on, a legacy of the high temperature and high ambient humidity during the winter, which led to a protracted drying period.
“The industry cannot continue to stand the storage losses it’s seen this season,” commented Simon Alexander, renowned Norfolk-based potato consultant at the annual AHDB Potatoes’ Storage Forum on 1st March 2016.
With demand for potatoes declining overall in the UK, main-crop plantings for the season ahead are expected to be broadly in line with last year’s reduced figure. The majority of 2016 plantings have been delayed by a week or two, mainly due to the wet weather experienced across the UK in February. However, with soil temperatures generally favourable, the season is likely to catch up resulting in a timely harvest.
The Jersey new potato season is thought to be slightly ahead of schedule, with few problems anticipated. Meanwhile, demand for sweet potatoes continues to increase.
As we approach the end of a tricky period for UK ambient-stored onions and move into cold-stored crop, the outlook for the end of the season looks better than in recent months. Growers generally put their best crops into long term storage and stocks of domestic red and brown onions are expected to last until early July – just before the new season is planned to commence a few weeks later. Minimal New Zealand crop has been ordered with suppliers to meet any shortfall and contingencies are in place with early Spanish crop to cover the import gap.
European market prices have been firm over the winter period, despite a very good Dutch harvest, and are likely to remain strong in the coming months, buoyed by strong global demand.
For the forthcoming domestic season, plantings of spring sets are on track, with volumes expected to be slightly higher than last year, which is common after a season with high prices. However, given varied forecasts in other producing nations across the globe, prices are unlikely to ease dramatically.
Following a shortage of large carrots at the beginning of the 2015/2016 season, many growers have been pulling crops forward in an attempt to keep up with strong demand. The warm weather over the winter period also encouraged carrot crops to mature early, alongside parsnips, turnips and beetroot, which will inevitably lead to supply issues further down the line.
Root supplies are therefore tight as we move towards the end of the current season, especially for carrots, and particularly in areas such as Norfolk, Cambridgeshire and Nottingham, where a virus which stunts crop growth has taken hold. Yorkshire and Lancashire have fared much better, with good yields and are expected to
last the full season. Meanwhile, crops that normally see us through the later part of the season in Scotland are rumoured to be potentially low yielding and have suffered from flooding.
Consequently, an extended import season will be needed for both carrots and parsnips to ensure continued availability, which is likely to last around three months. France, Spain and Israel will provide the majority of product, potentially supported by Portugal, Italy and even China.
Clearly market prices will be affected during this period and, with demand for UK product likely to be high when the new root season commences in August, growers will be looking to harvest early once again to capitalise on a bullish market. Seed house statistics suggest that the volume drilled for the new season is similar to last year, but overall UK production will be down due to the regional flooding and water logging seen earlier this year which will have destroyed some crops in their early stages of growth.
According to the Met Office, the UK has had the third warmest winter since records began and consequently the brassica season has been running between four to five weeks ahead of schedule at times. Major flushes and periods of oversupply have been commonplace, including for cabbages, cauliflower and kale. To compound issues, the warm weather has reduced overall seasonal demand.
This winter has also been one of the wettest on record, which at times has impacted produce quality and reports of disease including mildew and Botrytis, have been commonplace.
The legacy of the early harvesting is that UK brassica availability this spring will be very low for almost all varieties and imported produce will be required to fill gaps in supply. Meanwhile, broccoli will be supplied from Spain as planned, until the end of May when we turn to British origin.
Looking forward to the summer, new plantings are mainly on schedule, so growers are hopeful for a period of stability from around the beginning of June. However, growers will be looking to harvest as early as possible to satisfy demand for UK produce, which could lead to periods of short availability as we move through the season.
In 2015, the area of brassicas planted in the UK fell by 3.3% on the previous year, to 32,500 hectares. Although no firm figures are available, a similar trend is expected to continue in 2016. Overall, demand is expected to remain buoyant for kale, black cabbage, purple sprouting broccoli and cauliflower at the expense of cabbage and broccoli.
With the majority of domestic asparagus grown in tunnels, weather is generally less of an issue than with other UK crops. However, the unseasonal weather patterns in Peru and Mexico, caused by El Niño, continue to affect asparagus output which is likely to encourage British farmers to command a premium this season.
The El Niño weather phenomenon continues to cause unusual global weather patterns, making life very difficult for farmers. In Southern Africa, drought conditions have decimated crops, whilst sustained rains in Central America and East Africa have had very different, but no less devastating effects. Inevitably, the weather will continue to influence supply levels of crops from these countries which are unpredictable by their very nature.
The warmer than average winter in the UK points to an early start to British legumes, including beans and peas, but this will only become clearer as we move into early May.
Meanwhile, year-on-year demand for legumes continues to increase in the UK according to Kantar Worldpanel, growing by around 5%, which poses challenges during periods of short supply. Mangetout and sugar snap peas lead the way with growth levels of 41.6% and 26.2% respectively. Tenderstem® broccoli also continues to deliver excellent annual volume growth figures, reported at 21% in 2015.