There is scarcely a company in British fresh produce that hasn’t been impacted by Brexit in some way, but it has been widely reported that the Irish mushroom sector, in particular, has been hard hit by last year’s referendum result.
The sharp devaluation of the pound, coupled with Irish growers’ heavy reliance on sales to the UK, saw five of Ireland’s 60 mushroom farms go under in just four months following the vote. And last month a Northern Irish producer, Button Farm Mushrooms, was added to the list. It went into administration following the loss of a key customer and increased raw material costs – something that Brexit is more than likely to have contributed to.
A 15 per cent reduction in the pound’s value against the euro has wiped out growers’ profit margins, and as the UK’s single biggest supplier of food and drink, Ireland is set to be the EU economy hardest hit by Brexit. The mushroom sector will be particularly affected since the UK buys around 80 per cent of the country’s entire crop in the product.
Part of the problem for growers, particularly the smaller ones, is that the sector operates at very low margins, G’s Fresh Mushrooms commercial director James Meers explains. “Growers in Ireland have struggled to pass on inflation to maintain a viable margin,” he says. “The industry is dominated by a few key players who compete very aggressively for end supply into the retailers and foodservice sectors. This has meant that, historically, the mushroom market has been disjointed between the costs a grower may incur and the prices that they receive from the big marketing companies who supply the multiples.” In short, companies operating at a large scale could be the only ones with margins big enough to stay afloat.
Unfortunately for Irish producers, the situation could get far worse when Britain actually leaves the EU. “It is possible that we could face tariffs on exports to the UK, and increased border controls could lead to customs checks and potential delays,” says Noel Hegarty, chief commercial officer of Monaghan Mushrooms.
As one of the world’s largest mushroom producers, Monaghan is well positioned to weather such a storm, but Irish agriculture as a whole has major cause for concern – particularly if negotiators fail to reach a deal on Brexit. A recent report by the European Parliament’s Committee on Agriculture and Rural Development forecast a €5.5 billion drop in Ireland’s agri-exports by 2030 if World Trade Organisation rules are applied in a ‘no deal’ scenario.
Paul Parmenter, commercial manager of Walsh Mushrooms, says there will “no doubt” be further casualties – especially as the high capital investment required for farms against a low return makes it less attractive to invest for the long term. “Often, once a farm has closed, it will never reopen due to the high cost of restarting,” he says. In the UK, meanwhile, labour is a major concern, and with fewer workers coming in, there is increasing competition from other industries. This is pushing up labour costs, Parmenter says.
Fortunately for the mushroom sector, continued sales and consumption growth is going some way to compensating for the increase in costs since the referendum. Value sales rose 3.3 per cent to an all-time high of £408.5 million in the 52 weeks to 8 October, according to Kantar, while volume has also grown by 2.6 per cent. Hegarty reports that more secondary supermarket displays are driving incremental purchases, and positive press coverage on mushrooms is creating renewed interest in what has long been a staple product.
Earlier this month, a study by researchers at Pennsylvania State University showed that mushrooms are abundant in two antioxidants that fight ageing and improve health, ergothioneine and glutathione. Eating five button mushrooms a day may help ward off dementia, heart disease and cancer, the scientists claim.
As well as promoting the naturally occurring health benefits of mushrooms, the category has continued its involvement in R&D to boost the nutritional value of the product. The launch of vitamin D-enriched mushrooms by both Walsh and Monaghan in recent times could prove an effective way of bringing new customers into the category, and with more than 20 per cent of the UK population deficient in the vitamin according to Public Health England, the product should fit particularly well with the growing trend for health-conscious eating. “Consumer education is key to get the message across,” says Parmenter, “especially as it is generally an inexpensive option when compared to other vitamin D supplements.”
Besides nutritional innovation, changes to mushroom packaging are in the pipeline. Monaghan Mushrooms says it has trialled “an innovative new form of paper packaging to potentially replace plastic”, while another key industry player says it has been involved in a number of packaging trials this year to “investigate the options around biodegradable pulp versus plastic packaging”.
The main opportunity for future sales growth – and potentially loosening the Brexit squeeze – lies in encouraging consumers to ‘trade up’ from white to chestnut mushrooms, according to an industry source. “Mushrooms are unlikely to get more shelf space so greater returns from the current space will be the challenge and the opportunity,” the source says.
Meanwhile, wild and exotic mushrooms continue to grow in popularity, with consumer demand growing by around 40 per cent in 2016, according to Meers. He says the G’s Found! brand of wild mixed mushrooms has enjoyed steady sales rises over the last few years “as consumers like the access of a cupboard staple rather than a fresh perishable on a product they use ad hoc”. But it is important to remember that the wild mushroom sub-category is growing from a very small base, only accounting for less than one per cent of the total market.
With mushroom producers’ margins continuing to be squeezed by currency fluctuation and rising costs, it seems only large sales rises will be enough to save some of the sector’s smaller players from trouble.
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