The UK food and drink market is arguably one of the most attractive in the world for international suppliers and a net importer of a wide range of lines. Home to more than 60 million relatively affluent consumers in the country, the UK market is seen as relatively high value, with good infrastructure and a cosmopolitan nature, open to new tastes, formats and styles of cuisine.
It is no surprise that the UK is a relatively small producer in a global context and accounts for just one per cent of world horticultural production, making it a key destination for fresh produce even when the economic downturn ramped up the emphasis on price.
The supply chain is streamlined and in most cases, a high percentage of the market can be accessed by dealing with a relatively small number of retailers. The foodservice market, on the other hand, is still quite fragmented in comparison despite going through an ongoing process of consolidation.
Either way, many of the key international trends seen in other markets first take hold in the UK and a number of high-value niche markets still exist, such as for organic and Fairtrade products.
Britain remains an attractive market, but the potential downside of exporting to the UK should not be underestimated. The way that the Common Agricultural Policy (CAP) operates, for example, can work against a number of products, especially in the processed sector. The market is fiercely competitive and the power of the major retailers in particular means that highly demanding technical and commercial standards need to be met as a matter of course. It might also take a considerable period of time to gain market entry to the UK even after initial interest has been shown by an importer, while a number of checks are made on levels of due diligence, packhouse standards and traceability. To some, these high standards can be a disincentive to supply the UK.
But the attraction of the market is also such that nearly all the leading export countries target the UK. This includes suppliers in the EU such as France, the Netherlands, Spain and Italy, as well as those based outside such as the US, Chile, South Africa, New Zealand, Mexico and Thailand to name a few. Many of the leading producers and exporters also have an ongoing interest in other international markets such as Russia, India, China and Pacific Rim countries. The level of effort and attention to detail required for success in the UK means that sometimes exporters feel that there may be easier pickings to be found in other markets. However, the size of the overall prize in the UK remains high for many.
The UK and wider EU fresh produce market has, of course, undergone a fundamental transformation in the last 20 years as part of the wider globalisation of the food market. Year-round supply of fresh produce has become the norm. This has been driven by a combination of factors that include the power of supermarkets across the UK and other EU markets to demand a wide range of innovative products on a year-round basis. The beneficiaries therefore have often been lower cost-based growers and exporters in the likes of Chile, Argentina, East Africa, North Africa and Central America. In the future, the production and export of commodity items could move to countries such as India, China and the former Soviet Union.
What has also happened - and we believe will continue to happen - is the movement of fresh produce production to lower cost sources of supply, most of which are inherently outside the EU. This will be accentuated by a combination of a number of factors.
One is the interest of major retailers in sourcing low cost products. Nearly all retailers are concerned about passing on additional costs to consumers, especially in the last few years, when a combination of the economic downturn and food inflation has been at the forefront of their thinking. It has not, however, just been over the last few years that retailers have been looking at lower cost sources of supply from which to buy fresh produce. This has been something of an ongoing strategy for some time. Such is the fierce competition among the leading retailers in the EU that they are constantly looking at the “next new (low cost) source” as well being preoccupied with not raising prices to consumers.
Another is the interest among emerging suppliers to diversify exports. For many countries, the potential to develop an export industry based around the fresh produce sector is an extremely attractive one. Kenya has been as good an example as any. Over a period of some 40 years, Kenya has developed a sophisticated production and export industry and established itself as the leading supplier of off-season fruits and vegetables in East Africa. It is now a substantial revenue generator as well as provider of employment, sustainer of rural livelihoods and attractor of significant inward investment. A number of other East African countries, such as Uganda, Tanzania and Ethiopia have all looked to emulate Kenya’s success, but none have managed to replicate this to anywhere near the level that Kenya has achieved consistently.
Other countries ranging from Chile, Turkey, Morocco, Thailand, Peru and Namibia have all managed to develop an export sector that now supplies the EU market and which simply did not exist a generation ago.
The attraction of the UK and other leading EU markets is clear to these countries. They import large volumes of a wide range of produce, are becoming increasingly open in their nature and the route to market is well understood, if commercially and technically challenging.
Leading retailers such as Tesco, Wal-Mart and Carrefour as well as others including German discount chains Aldi and Lidl are all looking for non-European markets for future growth, especially in countries such as India, China and Latin America, where the development of a more affluent middle class will underpin their expansion. As they move into these new geographic markets, there will be opportunities for them to take their existing suppliers with them in a series of strategic alliances. It has often been the new, lower-cost sources of supply in Latin America and Asia that have benefited from the interest of retailers in developing new relationships and year-round supply. They are now in a prime position to work together in these new emerging markets.
At the same time, a whole range of countries have or are in the process of developing free trade agreements with the EU. As an example, Chile and Mexico already have these in place. Export refunds for horticultural products that have sustained EU exports of fresh produce to non-EU markets in the past, especially in the processed sector, have been removed.
All in all, the UK is a small-scale producer in global terms and is not noted as an international exporter. Being a high-cost producer means that the best bets for UK producers and packers still lie in supplying the domestic market, not least because of the huge interest among the leading retailers in sourcing local produce. Even with a recent resurgence of production in areas such as top fruit and salads, turning back the sands of time is probably not a large-scale option. UK production has been falling for a number of years, while imports of many products have been on the increase and the attraction of the market is still strong for many suppliers. This means that low-cost and other suppliers from outside the EU will still look to target the UK as a priority market for their international expansion.
Reform of the CAP will slowly open up market opportunities and while the required technical standards to service this market - not least in the UK - will remain high, the likelihood is that more, not fewer suppliers will be active in the market in the future. This all makes for a highly competitive supply environment, but gives a huge potential range of choice for retailers, foodservice companies and ultimately consumers. Only the best class will win through in the end, but the UK market is still a prize that many international growers and exporters want to have in their “battle honours” list.
John Giles is a divisional director of Promar International, a leading agrifood marketing and business development consulting company and a subsidiary of Genus plc. He can be contacted on jgiles@promar-international.com
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