Over the last three years there has been an increasing degree of interest across the supply chain in the demand for locally produced fresh produce.
The soft-fruit sector in the UK in some ways epitomises this with strong connotations of production in Kent and other parts of the UK. Many are now asking the question: “how far can this market go?”, and “what sort of opportunity does it present?” to UK producers who want to extol the virtues of products with a strong local dimension to their image and other product and marketing attributes.
As with the development of any new market opportunity, there is often no clear consensus as to what might happen in the future, and what the implications might be. Setting out some of the key issues in an unambiguous fashion can often help, and looking at the experience of other sectors can also provide a useful pointer.
LET’S LOOK AT SOME OF THE FACTS:
Local foods are nothing new: Attempts at regional branding and differentiation in the UK go back 40-odd years, and in some cases even more. Welsh lamb was first promoted as a speciality food product in the late 1950s, and over the intervening period the Scottish and Irish food sectors have played on the localised nature of their food production and processing sectors. Other products such as top fruit as well as soft fruit have always had strong connections with certain parts of the UK. And this sort of development is not the preserve of the UK agri food sector: other countries such as France, New Zealand and Denmark have always strongly promoted their agri-food sectors around the identity of the source of supply.
What are local foods, and how local are they? The definition of local foods varies from organisation to organisation, but in most cases it is seen as a product that has been produced by smaller scale producers and is being marketed on a more local basis, or is playing to a particular regional image. Cumberland sausages, Lincolnshire vegetables, Welsh dairy products and Scottish beef as well as Kentish produced soft fruit are all good examples. But how local are they in reality? I recently visited a well-known producer who had developed part of his business around supply of produce to local markets. We talked about this at some length, and he pointed out that the seeds he used came from the Netherlands, the irrigation system was Israeli, the labour used to harvest the crop came from Eastern Europe, the packaging came from Belgium and the labelling systems came from the other side of the country. For transport he used a truck made on the Continent, and his driver came from Ireland. At the end of our conversation, he asked the question: “so how local does that make us?”. A good question indeed!
How big is the market and how will it grow in the future? At the moment, the size of the local food market in the UK is estimated to be about £4 billion per annum, which makes it about four per cent of the overall UK food market. It is still a niche area, and so in market development terms is an opportunity for some - but not for all. It is growing at a rate of between five and 10 per cent a year.
While this presents the basis of a future opportunity, it has to be put in context against other areas of the food market such as the foodservice sector and conventional food products, which are worth about £30billion and £80bn respectively.
However, the regional food market is already considerably larger than the organic sector, which has just topped the £1bn mark, and some industry observers already believe it is showing signs of slowing growth rates.
How will the market develop? It is clear that the leading supermarkets have identified the area of localised foods as being a future growth area, in the same way they have done with the organic food sector. Some producers have expressed caution regarding the desire of major retailers to increase the procurement of local food products, not least based on previous experience of dealing with them. This caution might be well founded in some cases, but when you have the world’s biggest food retailer openly stating that it wants to increase procurement of UK food products in key areas such as fruit, vegetables, dairy and meat by over £100 million per annum, then this has to present the basis of a sizeable market opportunity. Fresh-fruit suppliers need to decide what they are going to do about this challenge, and act accordingly. Why are retailers so interested in what might appear to be such a small market? There are a number of reasons which taken on their own might fuel the cautious attitude some producers have shown, but when taken together create a strong argument:
• The major retailers are aware that many areas of their food business are flat in terms of future growth: when they see an area of growth, they go for it, and see it as an opportunity to add both volume and value growth to their overall business;
• They see a growing interest among some (but certainly not all) consumers in where fruit and other foods have been produced, how it has been produced, how it arrived in store and who produced it. Retailers love to see themselves as being responsive to consumer demand, and this desire is accentuated by the breakdown of the mass middle market on which they have built the bedrock of their business over the last 20 years;
• Supermarkets love to differentiate themselves from their competition: this is very difficult to do in many of their standard food lines, but the regional food sector presents a real opportunity to do this;
• Economics: in some cases it makes sense to procure produce from local supply sources rather than bring it in from other parts of the UK, the rest of Europe or even the other side of the world. Supermarkets are very aware of the economics of food supply, and are always looking to simplify supply chains if at all possible;
• Government support: landmark reports such as the Curry Commission offer strong support to the development of more localised food supply chains, and there are many (perhaps too many) public-sector organisations all looking to encourage the development of local food-supply projects. In the area of public-sector procurement strong emphasis is being given to the procurement of local-food supply, although this is often easier said than done;
• Politics: supermarkets are very aware of the politics of the day. They know that it makes sense to be seen to actively support local, UK fruit farmers;
• And not least, it is now written into their corporate plans: when it is set out in tablets of stone, then something has to happen, and resources will be allocated accordingly to make it happen. Most of the major retailers now have dedicated teams in place to procure locally produced fruit and veg and work more closely with regionally based suppliers.
However, to take advantage of the local fruit supply market, producers will have to meet exacting standards. Retailers will not accept produce that is not of the highest quality. They will want to work with suppliers who can play within the normal standards of commercial and technical discipline that they operate in. They will want to work with suppliers who can demonstrate adherence to management control systems such as HACCP and ISO, and have signed up to environmental schemes, such as LEAF. They will want to develop relationships with suppliers who share their vision of food retailing in the future, and can contribute to this in a constructive and profitable fashion.
The organic fruit market received a significant shot in the arm when the major retailers decided to come on board. Local fruit demand could well receive the same boost and see the market driven forward, but at the same time SME local producers should recognise that retailers have demanded the same sort of technical and commercial service from organic suppliers, and they expect the same from localised food suppliers too.
The other area of market growth will be in the foodservice sector: this is an area which many UK fruit producers have struggled to fully understand in the past, and more attention is required to understand the supply chain dynamics if the real profit opportunity is to be realised. But in macro terms, the foodservice sector is set to grow while conventional retailing is about to approach saturation level. It has to be part of the mid to long-term picture, and so to ignore it would be dangerous. It is also why some of the leading retailers have decided to place more emphasis on diversification into non-traditional and emerging routes to market. Opportunities exist in other routes to market such as farmers’ markets and farm shops, and while these again might offer opportunities for some, the sheer scale of the market means that from a macro opportunity this will have an obvious limit.
Do you get a premium for being “local”? The answer to this is “not always”. What you do get a premium for is being totally professional in all that you do, whichever route to market you are following. Indeed, in some instances where products are being moved over shorter distances, it might be that distribution costs are going to be lower, and so process costs should be below the norm.
In summary: The “local” fruit market in the UK is set to grow, but anyone operating in this market needs to be aware of the overall size of the market and how and why it is set to grow. Supermarkets will look to exercise more control over the market per se, and the foodservice sector will also be an important part of market growth.
Fruit suppliers have to understand the market if they are really to take advantage of what is happening in the UK. To be successful, the standard rules apply: be good, be professional in all that you do, and understand customer needs. Business size and scale then need to be adjusted accordingly. Working with others in the supply chain will be a prerequisite, and this is an area where many in the UK food-supply chain have struggled in the past. Overcoming this barrier will be critical if success is to be achieved, and suppliers must look forward rather than raking over the past.
This might sound as if we are simplifying the challenge: maybe we are, but it might not be quite as complicated as others are suggesting. Implementation is always going to be the more difficult element, but the opportunity is there for those who are brave enough and bold enough to seize it.
Promar International is a leading agri food consultancy working across the value chain, and a subsidiary of Genus plc. John Giles is a divisional director with the Strategic Consulting unit based in Newbury. He has more than 18 years’ experience and has worked throughout the UK, Continental Europe, Eastern Europe, the Middle East, North and South America, Africa, China and Asia. He can be contacted at the following email address: jgiles@promar-international.com
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