Two key forces for change will impact on the leading stonefruit producers and create fundamental change in the sector over the next five years and beyond: the changing pattern of global trade and the development of new consumer types.
The EU stonefruit sector will follow a key macro trend in the international market, whereby three key producing and trading areas will emerge over the next five to 10 years as result of powerful forces for change in the global market, on the basis of:
• population change at macro level
• market regulation
• consumer behaviour
There will be massive population growth in the Latin American and Asian markets over the next 10 years, with the doubling of the number of affluent consumers in these markets. In contrast, the population in Europe is going to remain relatively static. On the policy front, with the gradual reform of the Common Agricultural Policy (CAP) and impact of WTO negotiation, there will be a move towards agricultural and horticultural production taking place more on the basis of comparative advantage.
This has implications for the stonefruit processing sector in particular, where a number of production and processing aids have produced significant distortions in the international trade of canned fruit. Producers such as Turkey, Mexico, Argentina and even some of the Middle East based processors such as Iran, all of whom have fast-increasing production, have the potential to put the more traditional high cost producers such as the US and EU under increased pressure.
At the moment, due to the distortions in the market caused by the CAP and other domestic support measures, there is a situation where the global market sees almost anyone trade with anyone, provided the basic price is right: classic commodity trade (figure 1).
Despite ongoing globalisation of the retail and foodservice sector, over a period of time we see a number of brakes being applied, including the debate over food miles, issues such as corporate social responsibility and the development of the so called “concerned consumer”, as well as continued protection in agricultural markets. This will see the consolidation of key trading blocks.
The EU markets will in effect become a self-contained producing and trading block, although we would expect eventually to see production gradually move both south and east to North Africa and the Mediterranean Basin. This is not to say that producers in Latin America and other parts of the world will not target high value EU markets, but it will be likely that they will also concentrate on their more logical markets in North America and Asia (figure 2).
While production has been increasing at a macro scale, the net returns to the stonefruit sector have been falling, and the response to this has been the attempt to “grow your way out of trouble”. Better marketing and more control of produce has to be a stronger feature of the stonefruit sector in the future. As with other sectors, better promotion of fruit is going to be needed, with more understanding of the routes to market and how these will change in the future.
It is clear that the global fruit market is undergoing a profound change. This is particularly the case in the developed world, where the organic growth of the overall fruit market has been slow at less than one per cent annually. The situation is further compounded by the increasing bargaining power of retailers, depressing suppliers' margins even further.
Much of the change currently enveloping the fruit marketplace stems from two key factors:
• Economic development entering a fundamentally new stage of progression from the industrial economy to the service economy (in most developed countries, service output represents more than 65 per cent of their respective GDPs). This brings with it new employment patterns, time-usage attributes, consumer segmentation and eating habits, all having an impact on food consumption.
• Consumer evolution from a rational, loyal and somewhat predictable entity into a mass of individuals with their own agendas, ëmodes' and behavioural patterns. In fact, we are witnessing the emergence of a totally new PASE consumer, one which is polarised (in terms of income, time and opportunity), antithetical and contradictory in the product he/she buys, highly selective in what he/she buys, and eccentric (unpredictable) in buying patterns.
These factors are having a most profound influence on the fruit industry, through the market transformation that these changes invariably cause. As a result, a number of consequences emerge for fruit suppliers, most notably the demise of the mass market, and the changing role of food and food consumption. Fruit suppliers need to readjust to the new environment. The advent of the new consumer will have (and is already having) a considerable effect on food supply. Some of these effects will be more profound than others, yet all of them will take their toll on the food supplier. The implication of the changes can be summarised as follows:
• The role of the fruit supplier will change ñ while the provision of a product will still be important, it will be the service associated with the product that will clinch the sale.
• The essence of supplier brand will have to be revisited ñ just having a brand will no longer be sufficient. In fact, brand concentration will mean that just a handful of brands will act as ëbeacons', with many others disappearing or folding into own labels.
• Production volumes will need to be revisited ñ the market for mass products is slowly being eroded. Instead, we are seeing the emergence of an ëhour-glass' market structure with a fragmented top (value) part, and a very consolidated bottom (volume) one.
• The function of food is changing ñ it is less about the meal and more about what it does for the body. With the advent of high-tech foods, it may not be traditional fresh food producers who will supply these foods.
• Innovation will be the key ñ new products will have to fit with consumers' needs, lifestyles and incomes. Current R&D expenditure will have to be increased in order to keep up with the PASE consumer.
• Pricing strategies will have to be revised ñ current market pricing vis-à-vis an existing benchmark will stifle all-important innovation.
Against this background, EU production of stonefruit has been increasing steadily in most commodity areas over the last five years. However, Spain is now exercising more and more control over the total supply to the EU market, with production of peaches and nectarines increasing from 900,000 tonnes to over 1.2mt, cherries increasing from 60,000t to 90,000t, but with apricots remaining more stable at around 150,000t.
In terms of volume, only Italy can come anywhere near challenging the Spanish industry, with more modest production also taking place in Greece and France.
But whereas the Italian sector in terms of exports is still largely focused on the German market, the Spanish sector has a more varied export customer base, with significant sendings to the UK, France, the Netherlands and Germany. In terms of future investment needs and requirements, in order to meet with the future challenges in global trade patterns and consumer change, stonefruit producers and exporters will need to switch from a production-based focus to more investment. This will mean more attention given to areas such as investment in routes to market, and in understanding PASE consumer behaviour (see diagram above).
It is likely that the future development of the Spanish sector will be dependent on the continued penetration of the main West European markets ñ although the opening up of the East European markets will present a degree of opportunity for the industry.
However, with more locally available supplies from sources such as Bulgaria and Greece, these might be more limited than has been expected. But production for the sake of production will have to become a thing of the past. Stonefruit producers and packers are forced to face the new reality of global forces for change at both macro trade level and amongst the consumer base.
John Giles is a divisional director with Promar International, a leading agri-food consulting and business development firm operating right across the value chain. Based in the UK, Promar has offices in the US, Mexico, Japan and New Zealand, and has carried out a considerable amount of work in the processed fruit and vegetable sector, including work in the UK, Continental Europe, Eastern Europe and the FSU, Middle East, Latin America and Asia. Giles can be contacted at the following email address: jgiles@promar-international.com
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