The Irish mushroom industry is facing its biggest crisis in years with declining returns and rising costs hitting the sector hard.
Mushrooms is the largest single sector of the Irish horticultural industry, with a farmgate value of €130 million.
However, several threats exist to the industry. Labour costs have risen considerably, with the minimum wage in Ireland now over €7 per hour, a rise of 20 per cent in the last three years. Problems are further compounded by the strengthening Euro against Sterling and all this, combined with the fact mushroom prices have been on a downward spiral in the last few years, has resulted in growers facing a 20 per cent drop in income.
This has resulted in the fact there are now only 240 growers in operation in the Republic compared with 560 growers in 1996 and 900 growers in 1990.
In 2003, the Irish mushroom industry produced 69,000 tonnes of fresh mushrooms of which 75 per cent was sent to its only export market, the UK, accounting for 31 per cent of the UK’s mushroom consumption. The remaining 20-25 per cent was supplied to Irish retailers and the catering sector.
“Despite grower numbers declining, total production of mushrooms has increased,” says Kieran Leddy, executive secretary for horticulture with the Irish Farmers’ Association. “In 1996, the country’s growers produced 54,000t of mushrooms, compared to 2003 where an estimated 240 producers grew 68,927t.”
The now defunct Irish Mushroom Growers’ Association (IMGA) had long been encouraging producer groups to join forces in order to give growers more control over their industry. Most growers are members of producer organisations, the largest being Commercial Mushroom Producers (CMP), which has over 200 members and a turnover exceeding €100m, making it the largest Irish mushroom producer group. With respect to grower turnover, an estimated 25 per cent of growers have a turnover of less than €150,000, 20 per cent are in the €300,000 to €500,000 bracket, while less than one per cent turnover more than €1m.
The mushroom marketplace has changed significantly in recent years and Irish growers are now in direct competition with Dutch growers in the UK market and indirectly competing with the Polish industry.
The emergence of the Polish has caused a major threat to the Irish. Polish production has forced the Dutch out of its traditional mushroom market in Germany, and as a result, they have turned to the UK, adding to the pressures of price by undercutting Irish marketing companies in a battle for market share. The Polish industry, though young, is still evolving. Polish producers have lower labour costs and will soon be growing entirely on phase III compost, which yields higher than phase II compost.
The Dutch industry is at a more advanced stage than the Irish industry; even with higher labour costs, better quality and yields and cheaper phase III compost means that Dutch costs are 15 cents/lb cheaper than Irish costs which stand at around 75 cents/lb.
Irish mushrooms are sold to the UK through five main marketing companies, of which three are based in the Republic.
Leddy says: “This system of marketing operates around satellite producers supplying a central pack-house where mushrooms are graded, packed and transported. Mushroom consumption in the UK is showing slow growth. So there is a need for a major promotional campaign, paid for by all parties in the industry.”
Marketing companies are also involved in the production of mushroom compost and supply chemicals and other inputs to growers supplying the pack-houses. Almost 80 per cent of Irish mushroom growing is mainly based on phase II bag and block growing systems, which is not as effective as the phase III Dutch shelf system.
Only 35 per cent of compost produced in Ireland is phase III. “However,” says Leddy, “there has been considerable investment in Dutch shelving by Irish growers in recent years. In 2002 only five per cent of growers used Dutch shelving in comparison to today where that figure has risen to 16-20 per cent.”
The failure of compost yards to invest in phase III productions over the last 10 years has resulted in the industry’s progress remaining stagnant, according to the Goodbody report commissioned by the IFA.
Further investment in computerised atmosphere control, using cooling and humidification, will also help growers to increase yields and supply the quality required by the retail multiples.
Key changes are needed to ensure survival of the industry; compost quality is key to the success of a mushroom growing, as poor quality compost can reduce yields up to 50 per cent. Many growers are tied to their compost producers, as they are also the sellers of their produce. In effect, if a grower refuses to take compost, a marketing company can also refuse to take mushrooms from the grower.
Grower competitiveness needs to be addressed, as the average yield in the Irish mushroom industry is just over 520 lbs a tonne for phase II compost and 600 lbs/t for phase III compost. In comparison, the Dutch industry yields on average 700 lbs/t using phase III. Leddy says that for the Irish industry to remain viable, growers will need to switch production.
It is estimated that it could cost a grower €150,000 to fit out a five-house unit with Dutch shelves, and to makes these changes growers will need considerable financial assistance. The IFA believes a grant system should be made available to help growers make the change.
Only two compost yards have the capacity to produce phase III compost and significant investment is required. The Goodbody report into competitiveness in the industry confirmed that the marketing side of the industry has major inefficiencies that need to be addressed.
It costs 35 Euro cents to get mushrooms from the farm in Ireland to the supermarket shelf in Ireland. The three marketing companies in the Republic of Ireland have seven mushroom pack-houses in operation.
Packing, grading and overhead costs account for 41 per cent of the cost of getting mushrooms to the market place in the UK. “If marketing companies expect growers to cut costs and become more efficient, then they must do the same and pass the savings on to growers,” says the report. Grading of mushrooms has also been a contentious issue as growers feel that mushrooms are graded to packhouse orders rather than on quality. The industry is very labour intensive with labour costs accounting for one-third of the production costs.
The Irish mushroom industry is in crisis and at a cross roads regarding development. Constant undercutting by Irish marketing companies, as they battle for market share, has resulted in major price cuts. Sufficient grant aid is needed to help growers modernise and cut production costs and secure a reliable supply of cheaper, quality phase III compost. Growers need to modernise growing systems to help cut production costs and further consolidation is required in mushroom marketing and compost production sectors, to improve competition and to ensure growers receive a fair price for their product.
The opportunities are there, but it is down to the industry to work together if it wants to survive.
MONAGHAN EUROPE’S LARGEST
This year’s merger between Monaghan Mushrooms and Carbury Mushrooms created the largest mushroom producing company in Europe. Completed in June 2004, the merger was a response to intense competition on the UK market from both Dutch and Polish mushroom production. Majority shareholder and ceo of the new entity, Ronnie Wilson, has promised that the company will be the most competitive producer and marketer in Europe.
In an era where food safety, quality, traceability and service are paramount, Wilson believes that Monaghan’s direct production units in the UK and Ireland have the edge in providing what the customers want. “This transaction is a welcome development for the Irish mushroom industry as operating efficiencies and savings will benefit all stakeholders within the industry,” he says.
The merged company will continue to trade under the name Monaghan Mushrooms, remaining the largest producer of UK mushrooms.
The net assets of the merged entity are valued at approximately e11.4 million and new Monaghan shares were issued to Carbury shareholders in exchange for their Carbury shares. Carbury shareholders own 40 per cent of Monaghan with the remaining held by Donegal (23 per cent) and Connacht Gold (17 per cent).
The new company will market 40,000 tonnes of mushrooms a year in Ireland and the UK, employing 1,500 people in its six operating locations in the UK and seven in Ireland.
Mushroom production is currently 300 tonnes a week from the Langford plant near Bristol, the Whitley plant in Yorkshire, and the Fenton Barns plant near Edinburgh. The strategic placement of these plants, combined with the groups’ Irish units allows Monaghan to service its UK customers with short lead time response.
Monaghan Mushrooms now markets 800t of mushrooms a week into the UK - 550t are grown directly and specialised contract growers produce the rest. The varieties grown and marketed include white closed cup and variations, flat mushrooms, brown chestnuts varieties and can source exotics as part of a sole supplier package. Mushrooms are supplied mainly to retailers - 80-90 per cent - the remainder going to the food manufacturing sector (washed products, whole, sliced or diced) and - a small percentage - the foodservice sector.
High on the list of Wilson’s priorities is the need to have excellent production on each of his plants. The group is the largest compost producer in the UK and Ireland and this key area has been the first to receive attention. Substantial investment has been made in cooling and other process control equipment to ensure that yields compare favourably with anywhere else in the world. Similarly, the growing plants were upgraded with extra cooling capacity and improved computer control of growing conditions. More than £1 million has been spent on this aspect of growing in the past six months.
The major change in direction undertaken by the merged entity, however, has been to replace growers who are exiting the industry with the company’s own direct growing. This has been particularly true of the Carbury farms in Kildare and Mayo in Ireland. These have been equipped with shelving , while sophisticated environmental-control techniques and an under-utilised 40 house-growing unit in Armagh have been modernised and brought into the equation.
It has been Monaghan Mushroom’s experience that as the industry comes under pressure from low prices, it becomes necessary to have a substantial proportion of direct growing to fully service customers. Many contract growers have in addition invested heavily for the future and are committed to the company, while a minority have expressed difficulty in seeing the need to produce in times of low prices.
With the Carbury merger, Monaghan will have almost doubled its own growing capability. This has enhanced its capability to service customers 365 days a year. With respect to overseas investments, Wilson is still undecided about Poland and whether he should invest there. “My main interest in Poland is in relation to developing markets in Eastern Europe,” says Wilson. “Apart from a few lines, I cannot see a future in shipping a product over a 30-hour journey to the UK, when it is in plentiful supply from our own farms.”
Wilson sees the Dutch market as a continuing, though weakening threat. He says that they are excellent competitors and have exploited technology to the fullest, but the Polish have forced them to develop new markets in countries such as the UK and France and has undermined their traditional market in Germany. This has added price pressure to the overall mushroom marketplace, offering unrealistic prices to obtain market share. “This can only work if they can knock out the indigenous industry”, says Wilson, “and Monaghan for one is not for knocking out.
“In addition, I believe the Polish assault on the UK market is a short term phenomenon”, says Wilson. “The Zloty is linked to the dollar which has depreciated hugely against the Euro and Sterling in the last two years, and there seems little long-term logic in shipping a low cost commodity, such as mushrooms, from Poland half way across a continent to the UK.”
Wilson adds that increasing prosperity in Poland from joining the EU will eventually lose its advantage of low labour costs. “The better Polish farms will concentrate on supplying the growing local consumer market and other eastern European countries such as Russia.”
Wilson lists the efficiencies that have been achieved since the merger - streamlined packhouses, further investments and restructuring supply chain management. “We have done a massive amount of work to ensure we are focusing on compost and production units in order to be world class producers. By introducing direct growing, we have greater control over the crop - when and how it is grown, and what we need, when we need it.”
The group already has greater yields from better composting and growing, and by doubling the direct growing capacity, service levels and efficiencies have improved.
The company’s Gateforth site has become the main distribution hub and mushroom processing centre. There has been a restructure in the workforce, including more than 100 redundancies, and a complete revamp of work practices to cater for the seven-day demand of the company’s customers.
With prices still falling, Wilson sometimes admits to feeling that he is “running faster to stay still,” but he is confident that with further investment and reorganisation “nobody in Europe will be able to keep up with us”.
CAMPAIGN TRAIL
“Every day low pricing strategies from the retailers are great for driving loyalty to individual retailers but in the long term, it does not help growth of the individual categories themselves,” says sales and marketing director for Monaghan Mushrooms Andrew Middlebrook. “There has been a stagnation of growth in the sector and we are experiencing only one per cent growth in volumes per annum, if we are lucky. There is a need to try and do something over and above just selling mushrooms to try to drive growth another step forward. The biggest issue is the frequency consumers pick up mushrooms and that would be a major focus - getting people to pick up mushrooms several times a week. We know 80 per cent of people buy mushrooms on an annual basis so it is trying to get them to buy on a regular basis.”
A successful campaign requires co-operation from Ireland, UK and the Netherlands in order to maximise the potential funding available from the EU. “These countries are the dominant suppliers to the UK market - 25 per cent of UK retail supplies come from the Netherlands. The three countries form the competitive supply base into the UK market now. It will not be an easy task to get the main suppliers from these countries to financially back the campaign. Current funding has been committed by Monaghan, Walsh Mushrooms and CMP to do the groundwork for market research.
“Our first opportunity to apply for EU funding is January 2005 and that is the initial target, otherwise it will be in June 2005. Bord Bia will manage the campaign, and this week all parties will meet to discuss what the focus will be and decide on the campaign strategy that is most likely to be successful.”
WALSH THRIVES ON EFFICIENCY
Walsh Mushrooms, based in County Wexford, has been trading for over 25 years and is one of the largest Irish suppliers to the UK marketplace.
“We have been the most successful supplier over recent years in terms of controlling our costs while building volumes to our major accounts such as Tesco, Safeway/Morrisons and the Co-op Group and to major food processors,” says sales and marketing director Brian Cartwright. “This success has been a result of working hard to stay competitive, by taking costs out of the business and making technological advances in compost making.”
Walsh’s production in Ireland has increased by over 30 per cent as a result of multi-million pound investments over the last few years in phase III compost for its 50 plus growers, enabling them to produce higher yields of higher quality. “We lead the field in Ireland of phase III production and facilities. Individual growers have also invested heavily in moving growing facilities to advanced shelf systems.”
Alongside these developments, immense efficiency improvements have been made within the group by centralising grading, packing and distribution to two major sites - Athlone in central Ireland and Evesham in the UK - versus five sites previously operated. “Over £3m has been invested in the two centres. This has allowed us so far to live with the downward price pressures in the UK retail sector, our principal market,” he says.
“With no let up in price pressure, the only way we will be able to continue this course is by having extra sales volumes to counter inevitable inflation and unit costs, particularly in the face of significant imminent oil price rises affecting plastic packaging costs as well as fuel and distribution charges.” Walsh has been advised by packing companies to expect a 5-10 per cent increase in the cost of packaging.
Of concern at present to Cartwright is the increasing incidence of continental suppliers “buying their way into” the retail sector with “loss-leading prices” that it is difficult to match and therefore hindering growth and possible further investments in the sector.
“We already have seen the last major UK grower put out of business in the last year, Blue Price Mushrooms, due to cheap Dutch imports into its retail customers and a failure to reduce production costs,” he says.
Cartwright stresses the importance of the need to be confident that all companies are on a level playing field with continental competitors. He says: “We are closely monitored for quality service levels and records - always a weakness on the continent - and for positive release and traceability. It is vital for the future of the Irish industry that no leeway is given to others in these areas and that they are audited throughout the supply chain as regularly and thoroughly as we are.
“The foreign interest in the UK market is a result of cheaper eastern and central European product, on the back of low labour costs, taking their traditional markets. Their routing quality levels would have not met UK retailer quality aspirations in the past,” says Cartwright. “As far as new Europe and Poland in particular is concerned, one probable exception is the existence of proper and accurate traceability records and recorded HACCP systems are limited in the extreme. So we don’t think UK multiples are able to view them as serious alternatives at this stage.”
The company has also invested heavily in equipment and systems at its UK plant to increase capabilities and output of prepared product for food processors. “Particularly in niche products such as size-graded, destalked mushrooms for stuffing, quartered and halved mushrooms for special recipe dishes, as well as the more conventional washed, sliced and diced lines.
“This sector of the market has grown steadily for us alongside our retail business. Combined, these sectors now produce sales approaching 1m lbs a week. We have to ensure that the millions we have invested in the past few years bring benefits to our growing group and work for us, as well as our customers.
“At present, some UK-based suppliers and major multiples are investing little or nothing in the industry, but are trawling Ireland, north and south, for mushrooms produced on phase III compost, which is available only due to Walsh’s capital investment. We intend to address this anomaly in the future.”
He believes there is a genuine need to increase the generic promotion of mushroom on a nationwide basis to generate increased penetration and convert non-users for the future.
“With little or no chance of the major multiples contributing themselves, Walsh and our main colleagues in Ireland, are working closely with Bord Bia to generate interest in a major promotion for 2005 with all major supply sources to the UK market. Board Bia has invested considerable funds and time in this to date.
“The response from leading Dutch suppliers, now enjoying the fruits from previous promotions in Ireland and UK appears so far to be disappointing - a point hopefully noted by the UK customers. This has drastically reduced UK production levels available to fund on a levy basis, and it looks as though Ireland will have to consider spearheading the well-being of the UK market again through individual grower contributions.
“They will, and have a right to expect future loyalty in growth from UK retailers if they do. The alternative longer term will be reduced investments and increased unit costs.
“Our recent withdrawal from the Mushroom Bureau, contrary to comment in the Journal’s first mushroom feature this month, had nothing at all to do with the retail price pressures on us. It had everything to do with our view on the effectiveness of the Bureau’s activities and its failure to get our main competitors to contribute. We have already committed major funding to national promotion in 2005, if it can be put together. In any event, we have put up £50,000 initial project funding together with two other Irish participants.
“With regard to the hypothetical views expressed in the Journal’s second feature, as to why we are “so committed” and “we’ll hang on to the bitter end”, they just illustrate a lack of knowledge and experience on the part of the interviewee. We continue to be here because relative to our competitors we have, by very hard work, been successful.
“Undoubtedly, we face tough times in the near future, as does the industry as a whole. But we believe that provided we can continue to invest in people and technology we will continue to control costs and build volumes with our customer base, assuming they realise that without some return on investment no one could stay in business indefinitely.
“Ireland has played the major role in building the UK retail mushroom market to its present size and value and it will continue to do so.”
No comments yet