The hot topic of the Living Wage has been occupying many conversations since George Osborne’s surprise announcement last year.
One by one the retailers have made announcements on hourly increases to match or surpass the Living Wage trajectory between now and 2020. The theory is simple – higher wages mean more disposable income, more expenditure and therefore a stimulated economy, ultimately resulting in more money in the Chancellor’s coffers.
In particular in relation to soft fruit, the possible downsides for the growers are considerable. Is there a more graphic example than the soft-fruit industry, reliant on seasonal labour in the field and packhouse, accounting for up to 50 per cent of the cost of fruit?
Applying this equation to the Living Wage guidelines, this will mean an immediate increase in cost of around seven per cent by April 2016, rising to nearer 35 per cent by 2020. A small amount of inflation in any supply chain has long since been welcomed, but double digits give rise to concern. Add to this limited volume growth and extreme price pressures, exerted through the rise of the discounters, then you potentially have an unfathomable equation.
Retailers are intensifying their understanding of the value chain; the intelligent mitigation of costs might go some way to offsetting the increase, but the soft-fruit industry has been active in this area for some time. Table-top production, covered systems, recycled water and improved varieties have all been necessary to manage no inflation in the price of berries over the last decade. If the assumption is that the ‘easy wins’ have been largely covered, then what is left involves, in part, the post-harvest value chain, largely based around packing.
Today the vast majority of soft-fruit growers pack their own product, often running facilities for short periods. In other categories, notably vegetables, growers have consolidated packhouses, driving an increased volume through a fixed cost. Will this inevitably come to soft fruit?
Varieties are another area that may have to be re-visited. The constant quest for improved eating quality, dictated by higher sugars, has led to varieties that are low yielding and expensive to harvest. This may in turn result in a re-orientation of breeding programs to focus not solely on flavour but also yield.
The concern is that the effect of the Living Wage is not properly understood and that a lagged increase in prices will mean a number of growers will conclude that soft fruit is too marginal. UK strawberries grew by eight per cent in volume year on year in 2015, and is the single most important SKU in the produce department for much of the summer. Any material threat to this hero category is worthy of discussion and understanding, and the Living Wage will continue to force this debate.
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