Looking ahead to the next 12 months, John Giles of Promar International predicts further change in the fresh produce industry due to digitalisation, inflation, trade friction and climate change
At the start of a new year, it is common to look back at what has happened in the last 12 months, before looking forward at what might be to come. Sometimes the longer you look back, the clearer the future can seem.
At Promar, we are involved in a range of assignments covering the full spectrum of the produce industry, both in the UK and internationally. This allows us to have a well-developed view of what is driving the fruit and vegetable supply network.
One thing is obvious: there’s an acceleration of the trend towards the precision-based production of fruit and vegetable crops around the world. This approach is enabling production to become more sophisticated, controlled and exact – and it is now almost impossible to avoid. This is altering the way crops are produced and processed.
Supply chains are becoming more sophisticated. In fact, they’re not really “chains” anymore. They are now increasingly “networks”: complex systems of input suppliers, advisers, farmers, processors, third-party logistics, distributors, and retailers. All those involved are being increasingly bound together by digital connectivity.
Handled wisely, this will lead to a range of better business outcomes, more precise and technical production methods, improved support for customers, and a greater degree of business competitiveness. This will put us in a better position to achieve crucial sustainability goals.
These developments are nearly always driven by defined customer needs – not least from major UK and international retailers. Investments in data, digitalisation and ERP (Enterprise Resource Planning) systems will help companies to set priorities, benchmark, retain and win new customers, implement internal projects, and develop their supply chains.
Over a two-year period, data from various sources including Defra shows that the cost of all key horticultural inputs in the UK has increased significantly. The most significant rises have been in energy and fertiliser. While the increases in these inputs were lower in 2023 than in 2022, they are still on an upward trend. The rising cost of labour in the UK, driven by increases to the National Living Wage and the limited availability of labour, are also highly significant. Labour typically accounts for around 40 per cent of more of a horticultural business’s overall production costs.
As a result, UK producers have become very risk adverse over the last 12-24 months – and are likely to remain so due to the huge uncertainty they currently face. For many UK growers, any major growth or investment plans have been put firmly on hold.
While it is expected that a degree of profitability will return for some growers this year, the last two years have seen many incur significant losses. If increased production costs cannot be passed onto customers, there is a real worry that produce businesses cannot continue as before – even if the situation is a bit more stable than it was a year ago.
More trade friction?
As a matter of course, the UK has imported large volumes of fruit, salads and other vegetables from around the world – in particular from countries such as Spain and the Netherlands, but also increasingly from lower-cost sources like North Africa and Eastern Europe, as well as the Southern Hemisphere. In the past, securing imported produce to ensure year-round supply has not been a major problem. But for several reasons, this has become far more challenging.
In August, the government’s final post-Brexit Border Target Operating Model (BTOM) was announced – for products arriving from the EU. The first stage of the UK’s new border model, originally set for October 2023, was delayed until January 2024, with physical checks and other requirements coming in throughout the year.
This confirmed that fresh fruit and vegetables arriving from Europe will not be subject to pre-notification requirements or UK border inspections. This decision will prevent additional border costs of an estimated £250 million per year being incurred by the horticultural sector. It is also expected that a similar arrangement will be announced soon for fresh produce from other non-EU suppliers.
This decision on the BTOM comes as a huge relief to UK importers who bring in an estimated £12 billion of fruits and vegetables per year – not just from the EU, but also from a wide range of other countries. The significance of this development is clear. Post-Brexit trade friction was stated as an important reason for the supply shortages of salads and other vegetables from Spain and Morocco in February and March 2023. And research shows that the added transaction costs for overseas exporters as a result of Brexit could be as high as eight per cent.
The issue of trade friction could well resurface in the spring of 2024 if new border controls are implemented. While the issue of border controls and their nature is crucially important, I believe it fits into a wider debate about the issues facing the UK market.
There has been much talk about the impact of climate change in the UK, and indeed the rest of the world, for a number of years now. The last few, however, have really bought the message home to growers and other key industry stakeholders that ignoring the impact of climate change is no longer an option. It is here to stay – and is a huge factor affecting crop production.
At the end of the year, COP28 was held in the UAE. It would be nice to think that progress has been made on a global scale in mitigating the impact of climate change. While food issues were higher up the COP agenda than they have been in the past, it seems as though the conference might flatter to deceive again in this respect. Maybe 2024 will be the breakthrough year on this?
The whole issue of sustainability, though, is not one that will go away. Because of it, the nature of relationships between retailers and their suppliers will change. Such is the scale of the issues faced in areas such as water usage, climate change, carbon reduction, and soil management, that genuine partnerships will be needed to tackle them – for example by sharing data and insights on things like production methods and soil health. Collaborative approaches will be required on a much higher level.
One thing is for certain: if we thought 2023 was a turbulent year, 2024 promises to be no different. Issues around climate change and sustainability, horticultural inflation, the development of digital supply networks, logistics, and border controls will all be at the forefront of this.
John is a divisional director with Promar International, the agri-food consulting arm of Genus plc. He has worked on fresh and processed produce assignments all around the UK and in around 60 other countries. He is a liveryman with the Worshipful Company of Fruiterers and a visiting fellow at the University of Reading.