Comment: Middle East conflict threatens European exports

The conflict in Iran is very bad news for the European fresh produce business, which usually exports more than 350,000 tonnes of fruit and vegetables to the Middle East region every year.

Saudi Arabia, Israel and UAE are the lead destinations, but these exports also extend to smaller but important destinations such as Qatar, Kuwait, Oman, and Bahrain. 

In trade terms, these Middle East markets represent business worth more than €500mn.

The EU’s key export products include apples, citrus, kiwifruit, pears, plums, and onions. The lead origins are Italy, Netherlands, Spain, France, Poland, and Greece.

All of these are now under threat. The instability in the region is multi-faceted and affects business from several Member States, different products, and destinations.

In the EU export calendar, March is usually the biggest month in terms of volume, with more than 40,000 tonnes usually channelled to the Middle East.

Apples are the the main export category, and volumes to the region were booming this season. Up to the end of February, 70,000 tonnes (+25 per cent) had been sent to Saudi Arabia, 35,000 tonnes (+45 per cent) to Israel, 31,000 tonnes (+45 per cent) to the UAE, and 16,000 tonnes (+30 per cent) to Jordan.

The main EU export destination for apples remains Egypt, with 128.000 tonnes (+36 oer cent), and it too could face collateral logistics or market turbulence.

Indirect consqeuences

As we have seen already with the recent closure of the Suez Canal, there are also indirect consequences.

That channel is important for exports from countries outside the EU, like Egypt or Turkey, which might shift their export focus to the EU. A lot of their exports, which were going to the Middle East or to south-east Asia, are not moving any more.

It is difficult to predict how long the insecurity will last, but its logistics effect will probably be for several weeks, with persistent greater risk for shipping companies causing route disruptions, higher freight rates, and insurance hikes.

The impact is also indirect for other regions, as many shipments – both for EU imports and exports – will have to go around Africa, with higher costs and longer transit times. For Indian grapes, now in season, that is ten days more, which is not ideal. The same could also be true for exotic products that might come from south-east Asia to Europe, and likewise for European exports to Asia.

Then we have the new situation with the Strait of Hormuz. This is more a challenge for oil and gas, but there might have been some vessels that were going there for direct access to markets along the Persian Gulf.

Shortages, delays, higher costs

A number of vessel operators have stopped taking bookings for the moment. Some have simply stopped shipping to some destinations. Others have significantly increased the cost per container.

Within the EU, that could possibly affect Cyprus, which is not so far away. Going into that region could face increasing costs and additional surcharges per container.

Vessel fleets are calculated, more or less, to be in balance under normal rules. But if you take the journey between Europe and Asia and you have to add 10-15 days more to go to Asia, and 10-15 days more to come back to Europe, it means availability for rotations will be less. There will certainly be a shortage.

We are also right in the moment where we shift also to some Southern Hemisphere produce flows. So, what will happen with South African exports to Europe or other affected destinations?

Another energy crisis?

What also remains to be seen is what this will mean for the cost of energy, which will probably increase if there is a shortage.

The international trade in oil and gas depends on the Hormuz Strait, so if there is a restriction, the price will go up.

That means increases, obviously, for transport, but also for those who need lighting or heating in greenhouses for instance. That will adversely affect competitiveness.

Currency shifts, for example in terms of the Euro-US dollar exchange rate, might also have a depreciative effect on trade.

And because a lot of the energy which Iran sells goes to China, this might have an indirect impact on the Chinese economy, which could in turn influence the fresh produce market.

Alternatives come into focus

The whole situation in the Gulf underlines how important it is for fresh produce exporters to develop alternative market options.

Last Friday, the European Commission announced the provisional application of the EU-Mercosur agreement, after Argentina and Uruguay fully ratified the treaty.

For Freshfel Europe, that’s’s a positive step forward and allow to diversity market opportunities.

All of the consequences of the Middle East conflict prove very clearly that, within the fresh produce sector, we are in a very fragile global situation. So it’s good to have different doors open for export.

In this context, the EU-Mercosur agreement is probably very good news for European exporters. And certainly more for fruit and vegetable suppliers, who maybe don’t hold such a defensive position.

What we hope at Freshfel is that it will encourage Mercosur countries to help us finalise market access protocols which are pending.

That’s the weird thing about the Mercosur agreement. In the end, those countries have negotiated access to 27 markets EU under the same rules. But we still need to negotiate – member state by member state, sometimes product by product, or even variety by variety – with each individual Mercosur country individually.

But we hope the philosophy will be different and the process will be a little faster and easier.