The first onion shipments from New Zealand arrived on time in the second week of March. Initial volumes sent, however, were lower when compared to 2004 because of the large European crop this year, which is very cheap at the moment, making the imported new crop expensive in comparison.
“Lower volumes are arriving because the returns received at the moment are low and not because of problems with quality,” says Gerard Hoekenmanat at Dutch exporter Mulder. “Quality is good and trade should pick up in April for the bigger sizes. There is no demand for small onions.” Mulder on average import 10,000 tonnes in a season from Australia (white onions), Chile (mild onions) and from New Zealand (brown onions).
Normally the UK takes over 50 per cent of all New Zealand’s export stocks, but the dip in supplies means only 50 per cent of last season’s export volumes are available this year, says Freshworld chairman Colin Galbraith. “Exporters are not encouraged to send the smaller sizes in this year’s crop because the demand is for larger onions, which are not available,” he says.
“On top of that, there is increased competition for NZ bulbs with strong demand from the Japanese market. So the scenario at the moment is a 20 per cent drop in total production, smaller bulb sizes and, increased demand for larger onions from Japan which has risen by 100 per cent on 2004.”
In the UK at the moment, the majority of southern hemisphere onions sourced are to fill retail programmes as importers are not keen to commit to extra business and volumes while demand is depressed from wholesale markets and the foodservice sector.
As of March 14, shipments to the UK from NZ had totalled 6,000 tonnes, with the majority going to the supermarkets. The majority of trade is distributed to packers who supply the retailers and the wholesale market only takes five per cent of brown onions and 20-25 per cent of Chilean mild onions.
Reports on bulb quality are good because of the dry weather experienced throughout the growing and harvesting periods. “This season bulbs have good skin finish and are solid, however the dry weather did hinder bulbs bulking up,” says Galbraith.
Hoekenmanat says the crop size for NZ onions is plentiful but with onions being a low price product, it is competing for space on shipping lines with higher value dairy and meat products, and this is also hindering trade. Galbraith supports this and says it is not cost effective to handle southern hemisphere onions at the moment because of shipping costs.
The strain placed on the NZ onion market because of the smaller bulb sizes is not helped by the South African scenario either - there are minimal supplies from the country because of a small crop, strong local demand and unfavourable exchange rates.
Managing director of Allium Alliance, Malcolm Gray says, in general, programmed business has increased for red and brown southern hemisphere onions although this season, volumes for supermarkets are slightly down.
He says: “New Zealand is our main supply base in the southern regions - the market has become tighter with people in the sector now wiser about marketing the produce. Previously money has been lost because the sector wasn’t well prepared. But there has been a change in attitude in the last few years.
“Exporters to the UK have become more professional - they are marketing the produce first and then growing for the market, rather than just growing.”
Gray adds that New Zealand production provides supply continuity for quality cooking onions once the UK season ends. “Chile is also an important supply base to continue with mild onions after the Spanish season ends. Similarly, growers have become wiser and now grow strategically and plan production rather than just growing on specifications,” he says.
However South American market dynamics differ from New Zealand and currently there is a Mexican standoff between UK importers and Chilean onion growers, says Galbraith. He says: “Chilean growers can offer larger onions and are bullish this season. However Chilean trading terms and conditions are limiting trade because UK importers are shying away from exposing themselves to price and demand risks in an unclear UK market.”
Galbraith explains: “Spanish-grown onions in the wholesale markets are trading at 300p for 20kg but the Chileans want more for their produce - £4.50-5.00 upfront from UK importers. This requires the importers to layout funds upfront, but prices need to move a long way for a profit. The risk is that prices may not rise, so it really isn’t a great deal.”
Hoekenmanat says brown onion prices from Argentina, Tasmania and South Africa have remained stable year-round, at £350 a tonne, since people know how to use the produce. On the other hand, the white onion market is smaller and the user base is different - prices are usually double. He adds: “The Chilean mild onion is preferred by the food service sector because of size and taste - this is a growing sector and will take away part of the brown onion market.”
Chilean grower David del Curto has specialised in onion production since 1959, making onions the oldest produce the company offers. In an average season, says company spokesperson Angela Warran, exported volumes are about 60,000-70,000 bags, grown by the group’s network of long standing growers. However this season volumes are down in comparison.
“This season we will have about 40,000 bags available,” says Warran. The variety produced is Valenciana, a light golden brown peel with white flesh - a sweet variety with good long-term storage qualities.
“Typically the main onion size is 90-105mm which make up 50 per cent of our distribution, followed by 105-115mm which make up 34 per cent of our offer.
“For many years, we have been sending our main production to the UK market, through Richard Hochfeld with the historical FOB return per bag at around US$7.50(£4.00),” she says.
“Spanish onions are still available in the UK and selling for around £3.00 at the moment, but they should finish in early April. We expect the first Chilean onions to arrive in the UK by the end of March and current price indications are at £7.00 to £7.50, ex dock,” Warren adds.
In contrast, the Argentinean market is an unknown force says Galbraith, with production very fragmented. “Agricultural methods and techniques have improved but the onion quality does not compare to Chilean. They grow brown, red and white onions and there is sufficient land there to develop production further - Argentinian growers may mirror the Chilean development.” Allium Alliance also uses Argentina as an alternative supply base for mild onions, since the market is at a different stage of development, but exports to Europe are irregular.
Commenting on the current market in the UK, Gray says stock holdings need to be minimised and southern hemisphere growers need to learn to grow to meet sales programmes. There are reasonable quantities in controlled atmosphere stores, which means there will be sufficient onions supplies until June. He says: “Southern hemisphere onions will satisfy the demand here in June and July, which is a slightly shorter window compared to last year.
“UK growers are getting smarter and this export window of opportunity for the southern hemisphere will continue to diminish as the UK season improves.”
The oversupply of smaller onions in European cold stores will last from March to May, says Galbraith. But with low demand, there may be a possibility European supplies are dumped into the market, placing further downward pressure on prices.
“Ultimately there may be a shortfall in the market if no one is taking risks. If the market goes short then prices will increase but who knows when this will happen,” says Galbraith.
Global acreage of onion plantings has decreased, and Hoekenmanat says onion acreage in Australasia, although stable, has slightly reduced by four to six per cent. “The last three seasons have been tough because of more players in the southern hemisphere, which makes it difficult to control production. The sector can’t keep growing more and more, and the supply base can’t expand if it is not matched by demand. If we have another poor year, growers need to rethink their growing strategies.”
Galbraith says retailers will play a vital part to change the mindset of buying on quality rather than size. “Prices have dropped in the UK so naturally you expect onion prices to drop for southern hemisphere produce. But for this to happen there needs to be a change in the market culture and mindset sustaining the low prices in the UK and Europe.
“The other problem for the UK sector is the lack of investment in storage facilities which creates a reliance on southern hemisphere volumes - if you knock out this source, then the UK season needs to be extended. But this is highly risky for growers with the current state of play, which means in the short and medium terms, there is a place for southern hemisphere onions,” he adds.
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