“We’re not looking to take any prisoners,” says Gerrit Booyens, chief executive of Citrus SA, the co-operative that is looking to drive wholesale change through the South African citrus sector.
While that may sound like tough talk, Booyens and his team are essentially looking for co-operation, with the aim to improve efficiency right throughout the supply chain and ensure South Africa remains competitive on the global stage.
However, to do that, he is certainly not afraid to challenge a few perceptions and rattle a few cages.
At the moment, the focus has been on the haulage companies, with Booyens and his team rallying the farmers in two areas to ensure they are getting the best rates possible out of freight firms.
To achieve that, Citrus SA, which represents more than 75 per cent of the industry, is establishing alliances, or buying groups.
“When it comes to negotiating with the hauliers, we’re taking no prisoners, but all the work we’re doing is aimed at improving things for the future, gaining efficiencies. We’re not looking to cause conflict,” Booyens says.
Post-deregulation, the industry is extremely fragmented, with a large number of small independent growers all struggling to get their products to market. Citrus SA is starting its work in the major citrus areas of Letsitele, Musina and Tshipise, establishing alliances to get the best deals.
Booyens says: “We’re looking at organising regional co-ordination, rather than everybody just doing their own thing. I’ve seen 20-odd contractors about setting this thing up, but before that, every farmer would have to have seen the 20-odd contractors themselves - what we’re saying is why not concentrate that through one group?”
And the savings are significant, he says, with negotiations so far managing to cut between 60 to 100 rands per pallet.
Not surprisingly, the move is gaining support throughout the industry, and not just from the smaller players either. Capespan is backing the plan, with UK commercial director Martin Dunnett saying: “We are fully supportive of what Citrus SA is trying to do.
“Because it’s such a fragmented supply base, hauliers have been getting better rates than perhaps they should be. There has to be benefits from consolidation, and freight rates are a concern to all, so consolidation can give them the buying power to fight back.”
And it is not just restricted to haulage, as Citrus SA is looking to create efficiencies through the alliances on areas such as the procurement of chemicals and even training requirements.
“We’re establishing training groups, assessing what the individual needs are and then pooling those needs and matching them to the appropriate training organisations,” says Booyens.
What it will mean is that farmers will be able to get effective training at a fraction of the cost than if they were going to go it alone. And with increasing focus on black economic empowerment and the South African government’s yet to be announced AgriBEE requirements, training is likely to become a major issue for the entire industry.
Peter Nicholson, chairman of Citrus SA, says it is starting to see a shift in the balance of power: “The growers are starting to see who writes the cheques.”
As a result, he says the work they are doing is almost like turning back the clock. “In the past we had a single channel marketing system where all the power belonged to the growers because they were in control of the channel.
“Now it’s gone full circle, following de-regulation, growers have gone from competing with each other at every possible level to working out where they should be competing with each other and where they should work together.”
He says there needs to be a clearer focus on which activities are actually adding value to the industry, and which are simply adding costs. “We have to analyse the point where competition becomes effective.
“To us, it’s quite clear that we’re only competing at the point of sale. And that boils down to getting the housewife to choose our product ahead of our neighbours.
“At all other points in the supply chain, co-operation gives us a better cost chain and makes us more competitive as a collective industry.”
Willem Bosman, chief executive of producer and exporter Komati, agrees that alliances could easily be the future for South African citrus: “It’s a very positive development for the industry. As a company, we’ve already established our own alliances, so the benefits of what Citrus SA is doing will not be as great for us as they would for the smaller growers.
“But in the long term, that’s the way we’ll all have to go for us to survive. We will all have to form alliances, even the big companies like ourselves, to be able to negotiate and get the benefits. It’s only through that that we can bring the synergies of buying together.”
And he says it does not have to be a negative experience for the service providers, such as the hauliers, “If they have a group to deal with they have a consolidated situation and increased volume.”
South Africa is a major player in the world market when it comes to citrus, but it has to move with the times if it wants to stay there, says Booyens.
“We’re under pressure from the strength of the rand, so the industry has to make sure its channel costs are as low as possible. We’re focusing on squeezing efficiencies out, and part of that is doing it ourselves or choosing partners in a new way.”
Nicholson agrees, saying while the countries quality of produce is keeping it ahead, that cannot be relied on forever. “The perceived value of South African citrus is 40 per cent more than the South American competition, in the eyes of the consumers. That’s the premium they’re paying for SA fruit, because of the strength of the rand.
“But having a premium is also a danger sign, because it will entice competition to look at their quality and total offering. If you allow that gap in price, the initiative is there for the competition and then you need to give consideration to the cost chain to become competitive again,” he says.
Booyens adds: “The focus now is on cutting the fat out so that if we do have a reversal of the position of the rand, with it weakening, then we’ll be extremely competitive.”
But while the South African industry is focusing on making itself more competitive in the world market, does the UK, once a very strong and important target for the producers, still hold its appeal?
This season, particularly may see the UK having to compete a little harder for produce which it may well have once been guaranteed.
“There’s big demand from the Japanese market this year,” says Capespan’s Dunnett. “they’d normally be sitting on a lot of product from Florida, but obviously, with the hurricanes, that isn’t the case, so a lot of the early grapefruit is being dragged in that direction.”
This means fruit is starting to look a little short on the UK scene. “With the problems in the northern hemisphere as well, we were considering air freighting some grapefruit the other day, the market is that short.” says Dunnett.
Supplies are now starting to come in, but Dunnett doubts there is going to be any oversupply issue this year.
“The UK programmes are clear and those programmes will certainly be honoured. It will be a similar situation to last year, the UK got its programmes, but the continent got itself into trouble, and I can see that happening again.
“I think in general, there is an issue in securing volumes for the UK market which wasn’t there four or five years ago.”
Peter Turner, of Citrogold, says there are greater opportunities for growers: “What’s interesting is that over the last few years, a number of markets are starting to appear for South Africa and growers are now in an interesting position.
“In the past they were very EU focused, but now new options are opening up. What’s happening is that growers are becoming more sophisticated and they’re more aware of what product to grow for which market.”
Citrogold develops and markets new plant varieties under licence around the world, and carries out the kind of work that is key to maintaining the South African industry.
“We’ve pioneered the concept of closed groups. We select growers in the right micro-climates, growers of excellence with the right track record of top quality fruit and all the correct accreditation,” says Turner.
“Retailers are looking to procure more easily from less people, so our closed groups fulfil, and from the grower’s perspective he has a sustainable income.
“It works well if all the players work together as a team. Because this is a big shift, the growers are not used to the concept. There’s some insecurity about the process, but going forward it’s the only way I can see agriculture surviving.”
New developments are key to the industry, and Citrogold is looking to lead the field with that. “We developed Eureka, a seedless lemon and we’re commercialising that around the world, looking to develop 365-day availability for it.”
He says his company was also responsible for Juvalle, a Valencia type variety which has gathered pace over the three years it has been marketing it. “It’s an early type, large sizing with very good juice and eats very well.”
However, Nicholson says, while interest is growing in the variety, it’s been slow to get going: “It has struggled to find its feet, it’s an easier peeler when compared to Navel. However, the market initially handled and treated it like Valencia, and as a result the sales didn’t get up, but when handled like a Navel, the fruit comes into its own.”
Capespan’s Dunnett says Juvalle’s timing makes it difficult to market to the UK consumers: “It’s a strong variety and its eating quality is nearer to a Navel. However, the UK is a Navel market, and when Juvalle becomes available in early July, it has a six-week overlap with Navel.”
He says the fact the fruit also does not tend to have the colour of the more popular Navel means UK consumers are less likely to pick it, although he still intends to market the fruit this year: “There will be a lot more volume this year, and we’ll be bringing it in. New varieties do take a long time to establish themselves.”
Overall, while the season is around two weeks later this year, across all varieties of fruit, quality this year is absolutely outstanding, says Dunnett. “I don’t think I’ve ever seen a better Star Ruby. The brix levels on all the fruit are extremely high.”
In fact, the sheer level of quality is even causing slight difficulties, says Booyens: “The fruit is of such a quality the weight is much heavier, which is causing us logistical problems.”
Colour is also going to be good, says Turner: “We’re having good weather this winter, so we’re expecting good colours particularly on early Navels from the eastern Cape, which has had warm days and cool nights.”
But while quality is high and volumes are looking steady, size is on the small side, most people in the industry have warned.
Bosmen says: “Sizing might be slightly smaller than the market would like, but it’s up to us to manage that issue. Bigger sized fruit will be at a premium.”
Dunnett says: “I don’t think it will be too much of an issue, it depends on how much South Africa can control their export systems. There are still 300 export companies out there, and one or two rogues could do significant damage.”
He expects to be marketing around two million cartons of citrus this year and says Capespan is beginning to gain ground: “We’ve got a high level of loyalty among our growers, and we had a good year last year. Everyone in the industry says they want a strong Capespan and we intend to continue to fulfil that role.”
So with good quality, reasonable volumes and increased co-operation likely to have a significant impact on costs throughout the supply chain, the South African sector at last has a solid base to build from.
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