Price pressure and competition for market share may push out UK growers
The NFU claims British cucumber production in particular is under threat of extinction

Price pressure and competition for market share may push out UK growers

Gill McShane
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A culture of intense price pressure and competition for market share means UK fresh fruit and vegetable growers may be forced to cut production in the future. That’s the stark warning given by the National Farmers’ Union (NFU) in its updated Catalyst for Change report, Catalyst Revisited, prompting the association to call on UK retailers to pledge their long-term commitment to British horticulture by signing up to the Fruit and Veg Pledge

Launched three years ago, the NFU’s Catalyst for Change report highlighted a culture of poor practice in the fresh produce supply chain. The organisation warned that if allowed to prevail, these practices would lead to higher levels of imported fruit and vegetables on supermarket shelves as British growers cut back. To address the situation, the NFU set a blueprint for best practice – the Fruit and Veg Pledge.

Although the NFU says progress has been made against the report’s initial recommendations in 2012, the association claims serious problems continue to plague the fresh produce supply chain.

In particular, the report indicates that UK self-sufficiency in vegetable production has fallen 3.3% to 58% since 2010, while in fruit production the rate has dropped by 1% to 11% self sufficiency.

Over the same period, the value of field vegetable production has contracted by 14% to £885 million; with the largest drop in value occurring in the last year. And in 2013 the total area of land used for growing outdoor vegetables fell by 7,000ha.

At the same time, imports of fruit and vegetables to the UK were 18 times higher than the volume of exports in 2014. Britain imported 5.79m tonnes of fruit and vegetables in 2014, an increase of 664,000 tonnes compared with 2010. The value of imported produce is also increasing, the report found; creating a UK trade deficit of £4.7 billion in fruit and vegetables in 2014.

According to Defra’s horticultural statistics in 2015, there is long-term downward trend in home production, driven by rising imports. Such is the extent of the problem that NFU goes as far as to suggest that British cucumber production in particular is under threat of extinction; having fallen to under 100 hectares for the first time in history.

Price and competition pressure

According to NFU horticulture board chairman Guy Poskitt, growers say they face a culture of intense price pressure and competition for market share, which may force the industry to reduce the amount it produces.

Poskitt explains: “A lot of progress has been made since we launched Catalyst for Change three years ago; Aldi has become the first retailer to endorse the NFU’s Fruit and Veg Pledge – our charter for best practice in the supply chain; there are some encouraging signals from other retailers seeking a longer-term deal with suppliers; and the Groceries Code Adjudicator is proving effective in curbing abuses of the Grocery Supply Code of Practice.”

Indeed, the NFU says Tesco is also set to launch a pioneering fresh potato supply contract, which will offer growers a longer term deal and transparency on price.

Price wars and promotions

Even so, the need for buyers to be clear with growers about the price they will be paid for produce, and commit to it in advance remains a top priority, explains the NFU in Catalyst Revisited.

“Average incomes on horticulture farms have been extremely variable in the last seven years, making it harder than ever for growers to achieve a sustained profit margin,” the report notes.

“Fierce competition between major retailers to hold onto market share under the unwavering rise of the discounters means that lower food prices are now a reality of business. Yet, the impact of the supermarkets’ race-to-the-bottom on price is causing growers to cut back on production to minimise their risks. Cucumber production in 2015 provides a case in point.”

The report also claims it is possible for retailers to offer good value to consumers, without damaging the supply base or compromising on quality.

“Prices that are negotiated before the grower has made any commitment to the crop and are unaffected by subsequent promotional campaigns can reduce financial risk, improve productivity and give growers certainty that a margin over costs will be achieved,” the report explains.

“In turn, by working more collaboratively and responsibly with growers, retailers can help eradicate inefficiencies in production with all parts of the chain sharing the benefits.

“We reinforce our call for promotions to be planned jointly with growers, for the cost of any promotional activity and associated materials (labels, packaging, design costs) to be factored into the initial price negotiation, and for promotions to be production led as far as possible (e.g. triggered by periods of strong supply or poor demand).

“Such an approach to scheduling promotions would assist growers and retailers in managing supply and demand fluctuations and reduce cost and wastage in the process.”

Growers fear retailers are regressing to short-term thinking

Despite the progress made since 2012, Poskitt warns the job is “ far from done”. “Growers are fearful that, under intense price pressure and competition for market share, retailers are regressing to short-term thinking,” he points out. “All of the recommendations we made in 2012 still apply today – and are captured by our Fruit and Veg Pledge.

“The supply chain now faces a choice. Growers have the choice to grow less produce to manage their exposure to risk; retailers have the choice to do things differently, and we’d like them to choose to pledge their longer term commitment to British horticulture by signing up to the NFU’s Fruit and Veg Pledge and be part of the sector’s success as it fulfils its great, and growing, potential.”

What’s at stake?

NFU says several factors are likely to impact on the horticulture sector’s future prospects but it claims British growers can and should prosper in this environment. However, the industry’s resilience and adaptability to change will rely heavily on the choices and actions of the supply chain.

  • The British horticulture sector could start to see negative consolidation if it continues to contract and lose market share.
  • Demand for food will be greater and the UK may not always be the destination of choice for exporters.
  • Consumer tastes and purchasing trends will alter; British companies have the opportunity to innovate and seize a greater proportion of the processed fresh market.
  • The value of the foodservice sector will continue to grow, which opens up huge opportunities for British growers to tap into an expanding home market.
  • The supply chain will be shorter and retailers will increasingly seek to deal directly with growers.
  • Bilateral trade agreements will open up new opportunities for EU trade, which could threaten security of supply for those buyers who rely on imports.
  • Production will become more automated, which could potentially lessen the UK’s reliance on seasonal workers for harvesting.
  • Extreme climatic events and unpredictable weather patterns will become more frequent in Britain and throughout the world.
  • The length of the British growing season and the variety of crops produced will increase and it may be possible to produce a wider variety and volume of crops than has previously been suited to our climate.
  • There will be more investment by British companies overseas and this may open up greater export opportunities.

Key findings in the report

  • The UK is 58% self-sufficient in vegetable production, a fall of 3.3% since 2010 and 11% self-sufficient in fruit production, a fall of 1% since 2010;
  • The value of field vegetable production has fallen 14% (to £885 million) since 2010; the largest drop in value occurred in the last year;
  • In 2013 the total area of land used for growing outdoor vegetables fell by 7,000ha;
  • Imports of fruit and vegetables to the UK were 18 times higher than the volume of exports in 2014;
  • The value of imported produce is increasing, creating a UK trade deficit of £4.7 billion in fruit and vegetables in 2014;
  • Britain imported 5,790,000 tonnes of fruit and vegetables in 2014. An increase of 664,000 tonnes compared to 2010. The increase alone is enough to fill almost 6000 Boeing 747-400 freight planes or 25,000 standard cargo ship container crates, which if laid end-to-end would stretch from Big Ben to Dover.

Read NFU’s Catalyst Revisited report in full here.

NFU Catalyst Revisited trade-deficit-and-imports

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