The international fresh and processed sectors have changed a good deal in the last 10 years - that is clear and without doubt. And while some of what has happened might, with the benefit of hindsight, look somewhat predictable, some of what has taken place has been astonishing.
If the pace of change carries on at the same rate, the global market will look very different again in 10 years’ time. But by looking back, in order to help look forward, it is possible to develop a view of what the future might begin to look like. We have chosen a few of the key developments that have - and more importantly will, in the future - had an impact on the international market over the next 10 years.
China
A decade ago, China was in effect a closed market, with very little international trade in terms of fresh imports or exports. It was, however, a major exporter of a range of processed products such as canned and dehydrated vegetables and spices. Its reputation in the international market was, at best, variable, with doubts about the quality and reliability of both Chinese products and companies. Imports to China were sporadic, and huge problems existed with both dealing with the legislation surrounding imports of fresh produce and the physical distribution once in the country.
Now, China is a major player in the international produce sector, with huge production of apples - some 35 per cent of the world’s total. With yields still at very low levels compared to other recognised producers on the international stage, production looks set to increase still further. A buoyant domestic economy, fuelled by further massive rural migration to key urban centres all over the country, will see increased demand from the indigenous market.
However, China is also set to become a major player in the international export of fresh produce, with massive investment expected in both the pre- and post-harvest infrastructure. The leading Chinese fruit companies have already got to grips with the principles of management systems such as GlobalGAP, and many more will follow.
One only has to look at what has taken place in the international apple juice market, where China has put severe pressure on existing suppliers such as Poland and Argentina, let alone the US, to see what might happen in the future.
Latin America
Chile has established itself over the last 10 years as the continent’s leading supplier to the international market. Besides the EU market, it has also made inroads into new emerging markets, such as Russia, the Pacific Rim and China. Alongside this, both South Africa and New Zealand have gone through painful deregulation processes, which saw the break-up of the monopolies that existed in each country and saw exports fall significantly as the industry readjusted to its new circumstances. Chile helped fill the gap left by these two suppliers, but in the next 10 years it might not have it all its own way.
Other exporters from the southern hemisphere will also begin to find their feet, and look to emulate what their counterparts in Chile have achieved. Argentina, Brazil, Peru and Uruguay all have the potential to take advantage of EU Free Trade Agreements and favourable climatic conditions, along with a rapidly improving physical infrastructure, to build further exports to the EU and other international markets.
The newfound economic stability in Latin America will also provide the platform for expanding volumes of fresh and processed products to the EU over the next five to 10 years, of a wide range of temperate and tropical products.
Russia
A decade ago, Russia was in economic and political turmoil - trading with the Russian market was only for the most experienced and savvy exporting operations around the world. Import markets lacked any real transparency, and the structure of the import trade was at best very fluid - companies sprung up and closed down on a regular basis, and often took the fruit, and sometimes the money, with them. Everyone could see the basic opportunity in terms of the sheer scale of the potential market and the size of the country - but how to reach all of those consumers in an efficient and commercial manner?
Russia in 2007 looks very different - dedicated import companies have been established, who now trade with the world’s best suppliers and are run in a highly professional manner. While trading in the Russian market still requires a large degree of commercial acumen, the development of a more formal retail system with both domestic and international retailers vying for the local market has seen standards of quality slowly rise over time, and more recognised ways of doing business established. Moscow and St Petersburg still act as powerful forces on the way the overall market operates.
In the next five to 10 years, the challenge for all producers and exporters in Russia will be to build distribution into the regions and build ever stronger relationships with the new retailers that will begin to dominate the food market - as has happened all across the rest of the continent. Could Russia be the single largest market in New Europe by 2015? With 148 million consumers and gradually increasing levels of affluence, do not bet against it.
Ethical trade, organics and food miles
Ten years ago, these were fledgling issues with relatively little attention paid to them. Today, no self-respecting produce supplier is without an organic alternative to offer its major customers. Demand in all major international markets has boomed, especially as supermarkets have now often adopted them as a flagship product, in an effort to differentiate themselves from intense competition
However, organic food generally still accounts for a relatively small proportion of the overall market. In the UK, for example, it is still only just over one per cent of all food that is sold, but the fresh produce sector has been at the very forefront of development. Some categories are now showing that up to 20 per cent is accounted for by organic produce, and this seems set to grow further.
Similarly, the Fairtrade sector has seen strong growth. Some supermarkets have converted entire categories to this - and the sector is moving away from just being focused on bananas at certain times of the year, to a more rounded offer of fresh and processed products, from an increasingly wide range of sources, including Latin America, Africa, the Caribbean and parts of Asia.
All of this is potentially good news for the fresh produce sector, but the issue of food miles, and in particular “air miles”, is an area that poses a potential threat to the traditional pattern of trade that has evolved over the last 20 years; not least for growers and exporters of off-season produce in Africa. The danger is that airfreighted produce gets labelled, over-simplistically, as “bad”, because of consumer concerns over food miles and carbon emissions. This has big implications for an industry that has developed, over time, to meet increasing demand for high-value, off-season produce, and provided huge revenue-earning opportunities for economies starved of foreign exchange and investment projects.
In the next five to 10 years, the food miles issue will be high on the agenda of NGOs, politicians and retailers alike. They will all be looking to square the circle between providing “trade, not aid” opportunities for African farmers - and also being seen to engage in environment-sensitive production and distribution methods. If anyone thinks this issue is going to go away, they are very much mistaken. Only those that engage fully with all industry stakeholders are likely to find an acceptable solution to this conundrum. Growers and exporters will be required to demonstrate high levels of provenance in the way that food is grown and distributed, if they are to reassure retailers and consumers alike.
In a nutshell, this niche sector of the market will grow. There will be more demand for organic produce, more demand for Fairtrade produce and more requirement to show all aspects of food provenance are being adhered to. This will present both opportunities and threats to growers and exporters around the world who are involved in international distribution - but for those that get it right, there will be expanding markets and new customers to sell to.
Supermarkets
Supermarkets across the EU have seen their market share rise over the last 10 years. While the overall share of the food business now accounted for by the top 10 retailers is around 40 per cent, this will increase to over 65 per cent in the next five to 10 years, as further consolidation takes place.
The market in the EU will become increasingly polarised between those retailers who choose to concentrate on added-value products and services, and those that elect to go down the discount route, where price is still of paramount importance. In Germany, for example, the discounters now account for well over 50 per cent of the market, while in the UK they control less than five per cent.
Geographic markets will still retain strong cultural differences, but the contrast between markets, and even within them, will become even more pronounced. Genuinely pan-EU retail operations will be further developed, either through straight acquisition or via joint ventures and strategic alliances. European retailers will also carry on with their programme of international expansion into the new emerging markets of Latin America, Asia, Russia and China.
The supply base will see ongoing rationalisation, as the estimated 50,000 commercial production units around the world look to service what in effect is no more than maybe 15 key retail accounts across the EU. Supermarkets will look to continue their policy of working with best-of-class suppliers. As well as robust commercial business plans, supply organisations will also be required to submit environmental and sustainability models as a matter of course.
Category management
A decade ago, the term category management was just coming into vogue - since then, it has become firmly established in day-to-day use across the supply chain. It has been especially strongly adopted in EU markets, where the leading retailers have followed an aggressive policy of streamlining their supply chains and then passing back to a small number of key primary suppliers the additional responsibilities that go with this role.
For many in the supply chain, the whole process was a painful one, with leading operators falling victim to the annual category review. But for those that have survived and adapted to the new challenges this process created, business has probably never been better - or more demanding. What it has created, though, is an atmosphere whereby producers and retailers can really plan ahead with a degree of certainty that 10 years ago never looked like existing.
So what next? Truly global category managers, working with retailers on a scale not seen to date, will emerge. This will be followed by the emergence of these management techniques in other routes to market - namely the foodservice sector. And finally will come the development of “super category managers”, who outsource the production and distribution function altogether, and concentrate on building their businesses around the application of category management techniques to the international produce and other fresh
food sectors.
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