Production costs appear to be unsustainable for many UK fruit and vegetable growers, and industry leaders warn that this will push production abroad. What should retailers, supply chains and the government do to support British producers?
Supply chain inflation remains high, and the financial pressure on UK fruit and vegetable producers is arguably more intense now than ever. The outlook for the future of horticultural production in Britain is uncertain. And yet, given the severity of the climate crisis, there is a strong argument to increase domestic production.
The mounting cost of energy, labour and multiple other production inputs has forced some smaller growers to exit the sector. In some categories, bigger producers have expanded to pick up the lost business. However, the overall picture in UK horticulture shows production area and volume in decline year on year.
According to Defra, domestic production of field vegetables decreased by 2 per cent to 2.5 million tonnes in 2021, and their value fell by 0.1 per cent to £1.7 billion. Brassica output, in particular, went down, with planted area 5 per cent lower at around 26,000ha. This reflected huge production challenges and low returns for growers. That said, British vegetable production increased as a proportion of total supply, up from 55 per cent in 2020 to 57 per cent in 2021.
The picture in protected vegetables is of greater concern. Production volumes fell for the sixth year in a row, down 2.9 per cent in 2021 to 262,000 tonnes. Planted area decreased by 8.7 per cent to 798ha, although the value of protected vegetables increased by 6.9 per cent in the same year, due to higher retail prices.
In fruit, there was a more significant decline in production volume, down 12 per cent to 576 tonnes. Domestic production accounted for only 15 per cent of total supply, 1 per cent less than in 2020. The total area of fruit grown in the open was slightly lower at 33,000ha.
Difficult growing conditions were clearly a factor in some of these Defra statistics. A cold and wet winter, followed by a frosty April and heavy summer rain in the south-east of England, affected yields in various crops.
Speak to industry leaders, however, and it is apparent that rising production costs and labour shortages, and their impact on production volumes, are of major concern.
Importantly, they say, producers’ profit margins have been eroded because some retailers are unwilling to increase returns in line with inflation. Many suppliers complain that the financial burden they are forced to bear is close to unsustainable, and they are unable to plant as much.
In response to such criticism, Andrew Opie of the British Retail Consortium – whose members include all of Britain’s major supermarket chains – says: “Retailers have long-standing, established relationships with their suppliers and know how important maintaining these are for their customers and businesses.
“Supermarkets source the vast majority of their food from the UK and know they need to pay a sustainable price to farmers, but they are constrained by how much additional cost they can pass onto consumers during a cost-of-living crisis.”
Due to the huge energy costs involved, it is unsurprising that glasshouse growers have been especially hard hit by the ongoing inflationary crisis. Last year, it was reported that huge areas of glasshouse production in the Lea Valley, one of Britain’s biggest salad hubs, would be replaced with housing estates as growers exited the sector and cashed in the value of their land.
“The cost of energy, labour and inputs is on an ever-increasing spiral and retailers need to take a longer-term view on pricing if they expect British produce on their shelves,” says Lee Stiles, secretary of the Lea Valley Growers Association, which mainly represents producers of cucumbers, tomatoes, peppers and aubergines.
The Lea Valley Growers Association has 80 grower members 450 acres of glasshouses. According to Siles, 10 per cent of the area’s growers stopped growing last year, and the land is now proposed for housing or light industrial use.
“Since 1960, four or five growers stopped per year,” he told HortiDaily in late January, “and in 2021 and 2022, this number grew to 10 per year.
“This has really impacted the area used to grow food and will seriously affect the country’s food security. We are seeing more and more imports, not only from Spain and Holland but increasingly from Turkey, Morocco, and Egypt. Produce coming from these countries takes a week by road.”
While some glasshouse growers have had to throw in the towel, many of those that remain have had to plant later this year, and in lower volume, to keep down production costs. Normally, UK cucumber growers plant in early January, but this year the majority will not do so until late February or early March. Some will even wait until April, according to Stiles. As a result, the season will run until September.
‘Constant battle with suppliers’
Fresh produce growers are understandably reluctant to criticise their retail customers. So it can be hard to get an open and honest assessment of their dealings with supermarket buyers. But the current challenges have led to anonymous criticism from leading industry figures about certain retailers’ “intransigeance” on price – notably in light of the demise of Orchard House Foods in January.
One source says some retailers make a 40 per cent gross margin on certain fresh-cut lines and cites this as evidence of “a fundamental industry problem”.
Trade leaders unsurprisingly are more vocal on the matter. Ali Capper of British Apples and Pears (BAPL ) says comments from Tesco boss Ken Murphy, who told The Grocer that the retailer was in a “constant battle” with suppliers to keep down prices, were indicative of what she calls “the problem”.
However, she also points to the complexity of supply chains and inflationary pressures felt by all businesses. “The bottom line is that grower costs have increased by 23 per cent whilst average returns are static, up just 0.8 per cent on the previous year. This is an unsustainable position and explains why growers are removing trees and cancelling tree orders. They are losing money and cannot afford to reinvest in orchard renewal.”
In January, BAPL published the results of a grower survey which revealed that 150,000 new apple and pear trees have been cancelled this season. Growers’ intention had been to plant 480,000 new trees, but the survey showed that a third of those orders have been cancelled.
“This is the clearest indication yet that the future of apple and pear growing in the UK is seriously in doubt,” said Capper in reaction to the findings. “The industry is on a knife edge. Without long-term investment and new tree planting, orchards will quickly go into decline. That’s not something any of us wants, least of all the British consumer.”
BAPL is on a mission to increase the proportion of British apples on UK supermarket shelves to at least 60 per cent by 2030. Currently only around 40 per cent are UK-grown. Last year, the association released a damning report that showed 48 per cent of apple packs on shelves in October and early November were imported. This despite the autumn being the start of the British apple harvest with plentiful supplies and pledges from the major supermarkets to support domestic farmers.
At a time of peak British apple availability, BAPL complained that none of Britain’s six largest supermarket chains had more than 65 per cent British packs on offer. According to the survey, Asda only managed 23 per cent British, and just 53 per cent of Morrisons’ apple packs were British.
In terms of the level of support for British apples offered by different retailers, Capper says it is a “mixed picture”. But she stresses her belief that all of them “have an obligation” to back British.
“Apples are a long-term crop, it’s a long-term investment, and it’s high-risk. If the supermarkets want British fruit on their shelves, they need to commit to long-term contracts and fair prices.”
Beyond retail pricing and demand, another well-known challenge for the apple sector is labour cost. Capper emphasises that this pressure will only intensify following increases to both the National Living Wage and the minimum wage guaranteed to workers under the seasonal workers scheme. When it comes to labour availability, however, the industry has welcomed the scheme’s expansion to 45,000 as a positive step forward.
“Today, for apples and pears, 40 per cent of turnover is labour cost,” Capper points out. “When you have such a high ratio relating to just one cost and it’s inflating beyond what the market had expected, it makes life very difficult.”
In spite of this, she stresses there is no reason why UK apple and pear producers cannot reach a market share of as high as 80 per cent in the coming years, with the right retail support. “We have the varieties, the technology, the skill base, and the expertise, so we’re ambitious.”
In field vegetables, the picture is equally challenging. Jack Ward, chief executive of the British Growers Association, reports that some producers of vining peas, carrots, brassicas and other crops have started growing wheat instead because it’s “much simpler and much less risky”.
Meanwhile, Ward says others scaled back plantings this season to minimise their financial risk. He also notes that producers who require electricity to store their crops – for example, onions, apples and potatoes – are especially vulnerable amid soaring energy prices.
“It’s a difficult moment for fresh produce,” he concedes, “and there is a long-term question mark over labour, but the important thing is that these things are cyclical. In terms of the contraction of UK production, I think we’re roughly at the bottom of the trough, but if we’re not careful we might start to find continuity of supply is a bit of an issue.
The role of government
Is it time for the government to step in with greater financial support? Ward is sceptical. “It’s all about grower returns,” he says. “Government contributions can oil wheels but the government’s involvement in fresh produce is very different to its involvement in cereals, beef, sheep and sugar. The Basic Payment Scheme (BPS) often doesn’t apply because there’s a lot of rented land involved in fruit and vegetable production, and in many cases the BPS goes to the landowner rather than the grower.
“The majority of growers would prefer to be able to do business at a viable level rather than going cap in hand to the government every year for a top-up. What they want is a fair price for what they produce.”
Capper feels differently. She is adamant that the government has contributed to declining food security, and accuses them of failing to protect and support UK growers. “We’ve got a food policy environment – and it’s been like this for at least a decade – where the government has delegated a cheap food policy to the market,” she argues.
“We see that in the new trade agreements that are coming forward where there’s no protection at all for homegrown produce. Let’s not forget that we are competing in an international market. The government wants to put as little barrier as possible in the way of retailers buying cheap food from anywhere in the world. Retailers are simply doing what the policy environment has allowed them to do.”
Instead, Capper wants to see more government incentives to buy British produce. She gives the example of apple juice and cider makers in New York State, who receive a tax incentive to buy locally grown apples. Meanwhile, there are certain countries in Europe where retailers are not allowed to sell produce below the cost of production – a practice that many feel devalues products in the eye of the consumer.
“The government could review competition law; it could create a legal framework around fair pricing; it could create tax incentives for retailers, catering, foodservice and hospitality to choose British; and it could invest more in robotics and other innovation,” says Capper. “I don’t feel like this industry is being championed by the UK government. It feels like we are more of a distraction and an annoyance, which is a shame.”
Whatever the solution, representatives from across the British fruit and vegetable spectrum are clear: something must change to ensure UK producers are more fairly rewarded for the invaluable work they do to keep the country fed.
“We shouldn’t forget that there’s an economic value to domestic production, which benefits the UK,” concludes Ward. “For every large growing business, there’s a very large wages bill, and if we keep pushing production abroad, all that expertise disappears.
“These are almost exclusively rural businesses, providing good quality jobs in rural areas. And in the majority of cases, British production provides a more secure supply base than scouring the world when things are short.”