After three years of growers making meagre returns, rounded off by last year’s disaster, the apple sector around the world had little choice but to rethink its options, says Steve Maxwell, marketing director at Worldwide Fruit. “Returns last year were not sustainable and none of the European crops are blasting out this season,” he adds. “Some growers have undoubtedly recognised that they had too much fruit in the ground and reduced that. The weather conditions have definitely played a part, especially in areas where the trees needed to recover. And to a degree people are simply choosing not to come to the UK with their fruit.
“In a big crop year, some growers and marketers panic and will almost take any sale, but when growers can pick and choose a bit more, some pull back from the UK due to diligence demands compared to continental retailers.
“People are hoping that, as there is no southern hemisphere overhang this year, prices will begin to realign themselves to a more realistic level. Everybody knows there are still too many trees in the ground that could produce too much fruit and that there needs to be less sent into the market. The problem is that nobody wants to be responsible for removing trees.”
English Apples & Pears ceo Adrian Barlow says there are also other strategic and political factors at hand: “It is a tribute to the efforts of WAPA and the leaders of the European industry that we have recovered the situation in the last few months. It was made clear to the southern hemisphere exporters why the large volumes, well in excess of initial demand, that were exported into Europe were so damaging to the marketplace and to growers all over the world.
“Through WAPA, the industry shared its experiences and decided that this scenario could not be repeated. Exports this season reflect that. They have been far more realistic. We have not seen the bumper crops of last year, admittedly, but I do think people would have exported with more realism anyway.
“Sometimes, less is more - in this case, less apples, more returns,” he says.
“WAPA has provided a platform for discussion for people from both hemispheres,” says Philippe Binard at the World Apple & Pear Association secretariat in Brussels. “There are a wide range of factors that have made the marketplace better at this point of 2006 than at the same stage in 2005 and WAPA has played its part.
“We can’t directly influence the climate, the exchange rates, the partial lifting of the ban in Russia or the overall balance of the market. But we have given the industry access to reliable information and that has been appreciated by a lot of people.” The data collated by WAPA through its membership has provided a weekly update on arrivals in Europe and regular revisions of crop volumes around the world, whereas European Commission data moves in six-weekly cycles. “We have much more accurate data now as all countries are collaborating,” says Binard. “There is still room for improvement; we could have more qualitative information and not just quantitative for instance, but the transparency we have seen this year is good for everyone.”
The import licence system introduced late last year has also been of major assistance in giving exporters and importers a clearer picture on which to base their planning, says Barlow. “The import licence system has played a part in altering exporter attitudes. It has also created a mechanism that can accurately monitor volumes of apples entering Europe. Official EU statistics under-estimated the volume in the market by an astonishing 200,000 tonnes last year.
“The New Zealand and South African industries are very fragmented and often there is nobody sitting in the middle monitoring things. It is vital that each country’s industry recognises the importance of having the stats that allows its left hand to know what its right hand is doing. Brazil appears to be organising itself well, which will be highly beneficial for growers in Brazil and everywhere else,” he says.
New Zealand took a large part of the blame last year, as huge quantities of its fruit clogged up European stores well into the northern-hemisphere window. While the issue was undoubtedly a two-way problem, the NZ industry has taken it upon itself to ensure there is no repeat.
Chairman of Pipfruit New Zealand Ian Palmer says that his industry has responded well, after having many fingers pointed in its direction. “It is extremely pleasing to see the various markets perform with discipline this year. There are several reasons for this but the one I will comment on is the Market Panel that has been in place this year.”
Its formation and development has had a significant effect on this year’s results, he says. “There were clear examples of the panel protecting price erosion in a particular market very early on in the selling season…this was growers’ money that was not lost in the market,” Palmer adds.
“Yes, I acknowledge that the European market was more stable than expected, but our discipline in that market helped a significant rebound in the FOT price, which did not have a death spiral this year.”
The real successes of the panel though, have been getting regular, active dialogue going between exporters, and funding the collection of market information that has given the industry a greater understanding of its situation. “The old saying ‘information is power’ is so true,” says Palmer. “Our exporters this year have had a complete picture of the market conditions and the shipped volumes from our southern hemisphere competitors. This allows all to participate in the market with a bit more certainty.”
In Chile, the approach was somewhat more circumspect too. “After last year, [the Chilean industry] started the season very carefully,” says Alexis Cordero, who heads up Copefrut’s European office in Rotterdam. “But then, so did every other southern hemisphere country. Chilean exporters sent less fruit, but so did Argentina. Brazil’s internal market was so strong that they sent hardly any fruit and the South Africans and New Zealanders were also cautious. That’s why we have ended up with such a favourable marketplace at this point.”
EAP’s Barlow says: “It could not be more different than 12 months ago. There is no southern hemisphere overlap, which has led to stronger prices. Those two factors alone should lead to an improved performance in the next few months. The European crop is five per cent down and we are looking at a much more robust marketplace.”
Jacques Vanoye, French apple marketing commission president, is certainly more optimistic for this season, but says there are plenty of factors likely to have an impact.
“In Europe we’ve got the smallest harvest in 10 years and there are fewer southern hemisphere apples in stock so things have already gone better than they did last year,” says Vanoye. “I hope we are all able to meet together like we did last year, in Chile, to draw conclusions on the changeover. Having a destabilised market is no good for anyone.”
Looking across to China, Vanoye sees a crop that is not particularly high, but with a forecast increase in exports that is likely to lead to more global competition.
“And in the US it is really Washington that determines the market and growers there have had some significant hail damage so volumes will not be as large as forecast,” warns Vanoye. He is hoping this will help bring a “normal year” for the global apple market. “Prices of apples being exported even by the US are higher than last year,” says Vanoye, referring to pricing in the Far East and Latin America. “But just because the season starts well, does not mean it will run its course smoothly,” he warns.
“France had a very bad year last year, and growers are therefore likely to want to sell their fruit fairly quickly to be able to reinvest. It is of course the market that creates the demand but we are more optimistic.”
Another potential fly in the ointment is the exchange rate differential between a cheap dollar and a pricey euro. For the French this will mean treading a difficult path as senders seek to maintain standing in overseas markets while managing a short crop situation in Europe. “That will put the brakes on for us a bit,” explains Vanoye. “We are already exporting outside Europe this season, but we don’t know how that will go for the rest of the campaign. Gala is lovely quality and markets in Asia and the Middle East have been very satisfied, but the prices are quite high for them because of the strong euro.”
The next big potential flashpoint is inevitably the switch from northern to southern hemisphere supplies next spring. The maintenance of strong pricing in Europe will be advantageous for southern hemisphere senders when they start their campaign in the new year, Vanoye points out.
Cordero adds: “The European crop is obviously lower. I have spoken to people in Spain for whom the spot market is already finished this season. They have stored fruit for their programmes, but everything else is already sold. That is a good situation for them and it creates a good situation for us when we think of our next season.
“I would expect next season to be a good one in Europe. The key factors are all in our favour at this stage for 2007 to be successful. Obviously we don’t know what Brazil will do yet, or whether Chileans will remain cautious or send a lot of fruit into Europe after this year’s recovery. But without any doubt, people are taking a conscious decision that they no longer want to play the free market blind.”
Chileans tend to play the market according to the situation prevailing in it, says Cordero. The preferred route is to assess what is happening in the marketplace and then decide where the fruit is going to be shipped. “There will not be much fruit arriving here that does not already have a home,” he predicts. “If you aren’t sure about that, you are taking a big risk.”
Everything is all well and good in NZ as the industry follows a crisis year, but will the collaboration continue? Palmer says yes. “The Market Panel members are happy to continue the process begun this year. This is a vital part of our ability for NZ to be a real force in our markets. We are just not big enough (or cheap enough) to take on the market as a disorganised group of individuals.
“We all want - expect - premiums from the market, but we have to earn them. Exporters cannot leverage the maximum return from the market if the product is not of better quality or differentiated in some way. Our competitors are producing fruit that is good, if not better at times, than ours and they can do it much cheaper.”
Palmer calls on his country’s growers to lose any complacency and reignite their “Kiwi ingenuity”, and says the only way to achieve the premiums growers aim for is to refocus on what the consumer wants - “a good eating experience”.
That is an aim which applies equally to UK growers. But the lack of profitability in the marketplace is an obstacle. “Another year such as last year would result in a large number of people quitting the UK market and we cannot afford that to happen,” says Barlow. “There has been very little grubbing in the UK so far, which is a surprise to me, but a good sign nevertheless. Our growers are resilient, they were not put off by a bad year and they are taking a long-term view.”
Maxwell says the long-term view needs to spread right through the supply chain. “For a supermarket, apples are the biggest selling product they’ve got infruit -it is a huge profit-driver.In the autumn, when UK apples launch,apples can be the driver of the fresh produce category and of category profitability.
“Supermarkets need the apple category to be strong. On marginsas high as 40 per cent, if theretailprice goesup by 10p a kilo, they’d make another 4p. Just as importantly, there is another 6p going back down the chain, around six per cent of that will go to a marketing desk and the rest is for the grower. That extra 6poftenrepresents the difference between sustainability and going under, it’s as simple as that. What we want is a grower base able to invest in the future, continuing to supply great tasting UK apples to UK consumers.”
WAPA expects to add its own brand of value to the industry for years to come. “The progress made within the frame of WAPA in the last two-three years has been significant. Information sharing is just one part of that, but it is helping the industry to control itself. Of course, we need to see what happens in another year when the environment is different, but I believe that the industry is more wary now of the importance of balancing the market.
“Even if Europe remains a very attractive market for the southern hemisphere producers, the indications are that people feel this northern hemisphere season will develop relatively well.”
If WAPA’s members continue their practice of providing accurate information on a weekly basis, the transition between seasons should be less of a problem in years to come, assuming of course that the trade acts on the information put in front of it.
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