Facing extremely challenging domestic market conditions and the ongoing ban from trading in Russia, many of the larger EU fruit and vegetable distributors have now developed strategies to enter and develop other markets in regions of the world such as Asia, the Middle East and Africa. If EU packers and exporters can harness this opportunity, it should drive demand back up the supply chain to support an increase in horticultural production in the leading growing countries across the continent.
One of the fundamental prerequisites of entering international markets is the basic level of competitiveness to do so. Unless companies can supply products and services to the market at a competitive price, the chances of any real meaningful success are likely to be very slim.
Europe has an ace card and it should play it now. Structural, political and economic difficulties within the eurozone have weakened the strength of the euro against most major currencies, including the US dollar and Chinese yuan. A weak euro makes European exports more competitive in international markets. And with little prospect of an improvement in the eurozone economy on the horizon, Europe’s currency advantage may last for some time yet.
This is good news for price-sensitive buyers in Asia, Africa and the Middle East, who are looking more globally to source horticultural products at a more competitive cost. This became even more apparent, during a recent trip to Asia, where I saw European suppliers beginning to make inroads into produce markets that are typically dominated by supply from the US, Australia and New Zealand. It is impossible to predict how long Europe’s window of opportunity may last. Therefore, it makes sense that exporters should take full advantage of its competitiveness in the short term, while also taking the opportunity to get closer to the market and buyers, in order to lay the foundations for more sustainable medium to long-term opportunities.
A stronger economic recovery in the UK has led to a 15 per cent rise in the value of sterling relative to the euro in the two years to September 2015.
The most obvious impact of the change in the exchange rate will be to trade between the UK and Europe. Europe is, by far, the biggest trading partner for the UK, with the UK exporting £19 billion worth of agricultural, food and drink products to Europe in 2014 and importing £39 billion.
In the same way a weak euro will favour European exporters in global markets, it will also provide a temporary increased advantage here in the UK. Exporters from the continent will see the UK as an even more attractive market based on this. The current pound-to-euro exchange rate will help suck in additional imports from the likes of France, Italy, Spain and the Netherlands.
To a greater or lesser extent, the same effect will be felt across all product categories, not just in horticulture, but also in other agri-food sectors such as dairy, pork and a range of processed foods. This will be a major test for all in the UK food chain.
No-one really knows how long the current state of affairs will last. However, what is far more certain is that the longer this situation exists, the more pressure the UK horticultural and the wider food industry will be under.
This will require UK growers and packers to assess their position in the market and use a wide range of technologies to reduce wastage in the supply chain and increase efficiency of production, as well as developing rock solid relationships with customers, and in some cases, direct with consumers.
Matt Incles is a senior consultant with Promar International, a leading agricultural and horticultural value chain consulting company and a subsidiary of Genus plc. He can be reached on matthew.incles@genusplc.com.
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