This is a tricky time of year for the grape category, but the last three months have seen the shape of the market change as supplies from key sources of white fruit have been squeezed while stores of red fruit are substantially higher than they were this time last year.
One insider maintains that there has been a “dramatic” change in the market for white grapes, following low keeping quality from Greece and rain slashing Brazilian volumes by up to a quarter ahead of the start to South African supply.
“There has been a tight supply situation over the last three months overall,” he tells FPJ. “Many were anticipating that we would be airfreighting white grapes from South America and Namibia, but it hasn’t got to that level because the high prices have choked off demand in the last month or so.
“On the other hand, the market for red fruit is not as strong as there has been good availability.”
In fact, US volumes of stored red fruit including Crimson and Red Globe are significantly higher than they were at the same time last year, which is making rival sources nervous. According to US department of agriculture figures, stored volumes from California reached 11.5 million cases as of 15 November, up 4.6m cases last year. Of this increase, Red Globe made up the highest rise at 850,000 more cases and Crimson represented 600,000 more cases, while other red varieties including Autumn Royal, Scarlet Royal and Autumn King accounted for one million extra cases.
Exports from California to the UK have remained consistent at 9,000 tonnes a year from 2007-09, representing around four per cent of the total market share. California was the eighth-largest supplier of grapes imported into the UK last year, while total UK table grape imports from all sources declined by 10 per cent versus the previous year.
“There has been good, consistent supply of California grapes this year, but the season started approximately two weeks late,” says a source. “The latest data we have is through September 2010 and exports through that time period were six per cent lower than the previous year, but the late season start could be the main cause.”
The stored numbers will be daunting for Chilean growers and exporters in particular, as the US is a key market for them. However, the Chilean Flame harvest is running two weeks late, so this should give Californian growers more time to clear their inventory and according to one insider, they are likely to “price their product to sell” in a bid to shift as much as possible in the window they have.
South Africa is also coming in, but there is expected to be good availability of white fruit in January and February while red fruit is predicted to be more problematic, though any congestion is likely to sort itself out after Christmas.
In the UK, the grape market is worth £557 million, having jumped 5.6 per cent in the last year. This is as a result of price rises, because fewer shoppers actually bought into the category in comparison to the previous year. In fact, sales volumes have declined by 3.5 per cent year on year and the number of shoppers buying grapes has fallen by almost five per cent.
How the Christmas market will develop will depend on availability, as retailers traditionally find it hard to set up grape promotions over the festive period as there is always a question mark over how volumes will shape up.
The retailers will be expected to track the market on prices until weeks one and two of 2011, when grapes are traditionally promoted just as shoppers start their New Year detox. However, the exchange rate will make it difficult to achieve prices low enough to trigger impressive volume sales.
“The UK is still a big prize for most growers,” says an importer. “We pay good prices, but these prices have been inflated and that will continue. There have been chances taken by some retailers. A lot of them are coercing their suppliers into their retail strategies, so we are looking at a cost-plus environment rather than a retail-minus one. The price-setting mechanism is moving towards the grower - if they are looking for a price and don’t get it, they won’t export. I don’t think choosing the likes of Tesco or Sainsbury’s business at any price is what growers want anymore.
“Growers are sending more of their fruit to the Far East - China, for example, is absorbing huge volumes of grapes. There are other options out there.”
NEW MARKETS PROVE TEMPTING FOR SOUTH AFRICAN EXPORTERS
With South Africa in the enviable position of having a range of new markets vying for its custom, Michael Barker visited the Orange River region to gauge the mood of grape producers as the new season kicks off.
South African grape supply is coming into its own at this time of year. A key supplier to the UK market, South Africa is long-established as a preferred partner for the major supermarkets.
Producers might be confident that returns will be better this season, but speak to growers in the country and you can detect more than a whiff of change in the air. All the talk at present - beyond the issue of currency exchange, that is - is about the opportunities presented by the growing and increasingly accessible markets in Russia, the Middle East and the Far East.
The South African Table Grape Industry’s (SATI) executive director Elaine Alexander says there is a gradual but significant move in exports being directed towards the Middle East and Far East. “SATI’s role is to provide choices to the farmers,” she points out. “Our traditional markets are important but we must understand there is a move eastwards in terms of economic power. They can choose the way they want to go and spread their risk. Younger farmers are thinking that way and the traditional exporters are changing and definitely making a move towards the east.”
The change in attitude is borne out of a frustration with the poor returns being seen in traditional European markets. “Retailers can’t keep telling the consumers about low prices every day,” Alexander says. “I’m seeing farmers removing production and selling up or putting their land into other products. You can see that across all commodities. The traditional markets demand a lot and are also very price sensitive, and it all costs more. At what point does it stop? You’ve got to deal with reality - there are a lot of farmers struggling.”
The grape industry has pulled out of the integrated Beautiful Country, Beautiful Fruit campaign for 2011 as it looks to prioritise focusing on new markets, though Alexander doesn’t rule out rejoining the campaign in future. In its own marketing, SATI has made a shift in its strapline from “Preferred country of origin” to “Preferred country of taste” as it looks to highlight the pleasure element of eating grapes.
André de Klerk, marketing director of the AfriFresh Group, says that growth in the European market is likely to come through black seedless as well as Crimson, which still needs greater volumes but has been well received in the market. He is upbeat that the season will start well, particularly in view of the lower volumes and stronger domestic markets in South America. However, he too is concerned that supermarket pricing is having a serious impact on the dynamics of supply and demand. “Retailers are really pushing the price issue,” he says. “The UK still requires high quality specs and lots of audits. Smaller growers are pulling out, especially with the weaker sterling. This is causing the UK to lose its market share on grapes. There are more alternatives now and people are asking if it’s worthwhile to supply this client.”
De Klerk suggests suppliers to the UK have got “audit fatigue”, adding that a single harmonised standard on the UK high street would significantly help the situation.
Pieter Karsten Jnr, marketing director at grower and exporter Karsten Group, says that low margins over the years have brought a situation where demand globally outstrips supply, putting growers in a better position now. There is also a clear correlation between quality and sales, which helps companies that are able to invest to stay at the top.
The company is considering new product lines such as pomegranates, seed potatoes, cherries and organic vegetables, as well as continuing its strategy of growing sales in the Far East. “Grapes is a high risk business so we need to diversify to make sure we are sustainable,” he says. As the UK is a mature market, growth is likely to come in other parts of the world, and the Far East in particular, Karsten says.
The company, which has seven farms around the Orange River, operates an integrated supply chain that helps keep costs down, but like other businesses the strength of the rand and weakness of sterling has made life challenging.
Piet Karsten Snr is chairman of the Orange River Producers Association, and he is confident that if growers can get through the current tough season then “there are good times lying ahead”. He also believes there is a “huge market opportunity” in China and the Far East as a whole. “Those still in the business are very good and strong companies,” he says. “I’m very confident about the future.”
Equally upbeat about the prospects, both in UK supply and elsewhere, is Peu Bezuidenhout of Rekopane, which supplies the full range of seedless varieties to the UK supermarkets. Rekopane has been working on extending the season and has planted or replanted 43 hectares in the last two years to get good volumes of early grapes. It also bought a second farm five years ago that is now yielding fruit and will up the company’s output from the current 360,000 cartons to 500,000.
Bezuidenhout says he is “extremely happy” about the state of this season’s crop on both white and red seedless, as well as from a market returns perspective. “At this stage [late November], the returns from the market are better than last season,” he points out. “There may be a bit of a shortage of fruit because the Brazilian and Argentinian crops are smaller, so we’re looking forward to a better price, though the exchange rate will equal that out.”
Bezuidenhout says Asda has made a positive move this season by “putting the price on the table for the following week”, a step that brings more stability to growers, and he called for other supermarkets to follow suit.
Even though he is happy with the UK market, Bezuidenhout still warns that producers are looking at other markets. Rekopane only sold 40 per cent of its output to the UK this year, compared to 60 per cent last year, as favourable alternatives in Russia, Israel and the Far East open up.
Elsewhere, Capespan still retains a strong focus on the UK market despite new South African boss Wiekus Hellmann admitting the company is keeping a close eye on growth opportunities in the Middle East, Russia and Africa.
The company reports a good crop of red seedless this year, though it says from an industry perspective white seedless could be as much as 25-30 per cent down due to cold weather.
Colors Fruit is expecting an excellent response in the UK for the new varieties it is introducing to market, with a focus on high yielding, low cost grapes with a large berry size. The five new grapes - Magenta, Melanie, Krissy, Allison and Melody - could “take the UK by storm”, according to the company’s Riaan van Wyk. “These five are better than anything else,” he says, and will be available in Marks & Spencer in the coming season.
So Orange River producers seem to be on the verge of good times. Pricing is improving and market options have never been better. But the extent of the UK’s role as a key destination market in future remains to be seen.
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