It is a situation that is creating problems for apple growers, producers and exporters the world over, but the surplus of southern hemisphere top-fruit in northern hemisphere stores is causing many in the South African apple industry cause for concern. Growers say they could be in trouble as the full effects apple supply outweighing apple demand in Europe, are felt.
One grower, who wished to remain unnamed, explains that the damage is inevitable and is just waiting for the impact to reach South African growers: “It will hit us very hard in the not too distant future and when reality bites, it’s going to be tough there’s no question,” he says. “Pink Lady has responded in a tough market, but it’s not looking good for the commodity varieties.”
Peter Fine, a grower at Fine Farms in the Elgin Valley, near Cape Town, echoes these sentiments. He says that the season has experienced a variety of problems that are making the grower’s job increasingly hard: “The market is very tough,” he says. “There are people who are really struggling to stay up and the problem is that there are variables that we just can’t control like global warming - we had problems with hail and sun in just one season.”
Fine also explains that the instability in the strength of the Rand has affected profit margins and allowed South Africa’s direct competitors an advantage: “The peso to dollar, peso to euro difference means that South America is now getting better returns for its produce and is now sending it into traditionally South African markets in Europe and the UK,” he explains.
Nigel Mudge, chairman of the South African Apple and Pear Producers Association (SAAPPA) and director of Chiltern Farms in Vyeboom, agrees that the fluctuating currency has only made problems worse: “What has exacerbated the problems of low returns here has been the unstable and unpredictable Rand exchange rate. Coming from a position of extreme weakness in 2002, the Rand has actually strengthened over the last three years, something it had not done in the previous 30 years. While this results in an immediate decrease in the fruit price to the grower, the input cost side did not respond in the same way, resulting in grower margins being decimated,” he says.
But the problems with oversupply in Europe aren’t simply down to an unstable currency as Fine explains. He says the expansion of the European Union in 2000 has just created more competition: “Poland joining the EU has brought a lot more fruit into Europe and they are also getting government subsidies. It’s hard when subsidies are available for our competitors - we don’t have any handouts in South Africa, so competing against countries with government subsidies means they can make profits selling [apples] cheaper where as we can’t.”
The increasingly large role played by technology seems also to be exacerbating the problem. Innovations in products like SmartFresh means that apple harvests can be stored for a lot longer with seemingly little compromise on quality - effectively removing the system of seasons for growers. There is still European fruit in UK stores, which clutters the market. “The use of SmartFresh means apples can be sold the year after they are picked and they will be the same...This means that you could get South African Golden Delicious being sold against French Golden Delicious,” Fine says.
Mudge agrees: “The EU apple crop was a good one...a lot of the 2004 EU apple crop was stored and has held up well in store. The southern hemisphere suppliers also had a good crop. South Africa and New Zealand shipped to the EU as normal, but the South American countries sent more then usual. Demand for apples, on the other hand, did not change, so the classic oversupply situation arose, resulting in very low prices. It is a repeat of what happened in 1993 and 1981, but for different reasons.”
Pieter Dutoit, md of the Dutoit Group, one of South Africa’s biggest farming businesses, says: “The survivors are organisations with good supermarket programmes in Europe, low cost structure and a balanced mix in markets such as Middle East, Africa and South Africa. The 2004 and 2005 crop was negatively affected by a mild dry winter and a severe hot summer. The average yield was down by 25 per cent and fruit size was smaller with packouts lower, but prospects for 2006 looks very promising at orchard level due to a very cold and wet winter,” He says.
The nature of the more inherent problems like weather and competition means that South Africa has faced a slow, general decline in recent years with the number of hectares shrinking by about two per cent each year, but Mudge says it doesn’t constitute a state of emergency:” It can be regarded as a normal adjustment for supply to come into line with demand and should not be seen as a crisis,” He says.
But this steady fall in profits is prompting many growers to abandon ship and look for a more lucrative niche in the fresh produce market as Fine illustrates: “A lot of people are going over to wine grapes. Trees are being pulled out and wine grapes won’t cost as much,” he says.
Mudge also explains that the pressure from multiple retailers is having a negative bearing on the South African apple industry. Growers can often find themselves at the mercy of supermarket prices, which can be dropped to boost sales at the expense of the grower: “Most apples and pears find themselves firmly in the class of commodity...they are sold like carrots and potatoes. The concentration of power at the retail level ensures that commodities are sold at or below cost price,” he says.
Fine concurs. He says demands from supermarkets are a big problem for the industry: “They very much dictate prices so we have no option for what we can get for or fruit. We are price takers not price makers and this has effects right down to employment levels, right across the farm.”
But Mudge is optimistic that there’s a more stable solution available to people working in the South African top-fruit industry if they are willing to work together - and he says he has practical experience of this.
He explains that prior to deregulation, South Africa’s system of communication was efficient because it was centralised under one roof. After deregulation, the country completely lost its capacity to collect information centrally. The 60 exporters that currently make up the apple export industry now act independently and have little access to vital information in the sector.
In response to this predicament, Mudge set up a voluntary workgroup in 2001, called the UK Pome Workgroup, which he says has now rectified the communication problems, but only in the UK. The group consisted of eight apple exporters to the UK and all the exporters were fulfilling programmes to UK supermarkets. Meeting each month, they were able to bridge the communication gap by discussing topics related to the supply side of the industry such as logistics, crop estimates, volumes shipped, quality issues, food safety issues and then transport and shipping issues: “The bottom line is a much improved supply side service to their customers,” says Mudge.
In 2004, this workgroup co-ordinated the first South African promotion of apples since deregulation in 1997. It was targeted at Golden Delicious apples in UK supermarkets and was limited to in-store activities with common fruit and bag labels across all retailers.
Mudge says that given the limited budget for the project - a mere £100,000 - he would deem it successful, having recorded both an increase in sales and an increase in prices.
“The activities of the UK workgroup have demonstrated the benefits that co-ordination can bring. This has also been demonstrated in the citrus, grape, and avocado industries,” Mudge says. “We are now busy with a grower-driven initiative to set up a Joint Pome Marketing Forum which will use the lessons learned in the UK workgroup, and apply them to all of the markets which receive South African apples and pears.”
Mudge explains that the next stage in the Pome Group’s plan is to capitalise on what he perceives as an opportunity to de-commoditise some of its apple varieties. He says that the overseas trade has highlighted that some of South Africa’s apples have sufficiently unique properties to justify being differentiated and the group are working towards this as part of their Golden Delicious promotion this year. The final strategies will depend on the outcome of market research currently being conducted, due out in November.
Overall it seems that the problems faced by the South African apple industry could be substantial and few can blame the farmers converting to grape growing in a bid to stay afloat. But the innovative work by people like Mudge means the situation is not entirely bleak. Perhaps with strategic marketing strategies and a cohesive approach from industry members, South Africa can retain their position at the forefront of the global apple sector.
