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What can EU produce sector expect after Brexit?

What can EU produce sector expect after Brexit, Source: Freshfel
Source: Freshfel

 

 

With the UK all but certain to leave the EU in 2020, the European fruit and vegetable industry is viewing with great concern the potential impact this will have on intra-EU trade flows. A recent Rabobank report found that fresh produce will be the most affected food sector following Brexit, along with animal protein. At a time when the EU agricultural sector is still adjusting to the fallout of the Russian embargo, the potential loss of another key market could have devastating consequences.

Loss of trade would be costly on both sides of Channel

For many years now, the industry has benefited from frictionless trade thanks to single-market provisions, with the EU Mainland being a net supplier to the UK. In fact, the UK is the third largest destination for EU fruit and vegetables, receiving 3.1 million tons (€4 billion) of fresh produce each year. The two-way flows between the EU and the UK are worth €3.6 billion and account for about 10% of all intra-EU fresh produce trade. Besides generating large revenues for EU suppliers, this dynamic has left the UK heavily dependent on the EU for its fresh produce, with 55% of all the country’s imports coming from the EU-27 Member States. The main EU imports to the UK are tomatoes (480,000 tons), apples (245,000 tons), onions (230,000 tons), sweet peppers (175,000 tons), and soft citrus (164,000 tons). The largest source by far is Spain, which represents 45% of the total, followed by the Netherlands (22%), France (7%), Germany (6%) and Ireland (6%), with significant volumes imported from third countries via other EU Member States.

 

 

“55% of the UK’s fresh produce imports arrive from the EU”

 

 

The UK itself produces around 2.2 million tons of fresh produce (1.8 million tons of vegetables and 450,000 tons of fruit). Its exports to the EU total around 310,000 tons, most of which are shipped to Ireland (101,000 tons), France (90,000 tons) and the Netherlands (30,000 tons). The main trade is the re-export of bananas (64,000 tons) and other exotic fruits.

Rising prices

So, how is Brexit likely to change this picture? To answer this, multiple aspects need to be considered, such as tariffs, potential quotas, logistical hurdles, customs operations, certification, and tracing. At this point, we can only speculate about the terms of the eventual deal, as the final details of any agreement are still to be established. If the UK leaves the EU without a withdrawal agreement, then it will automatically revert to WTO trading rules in dealing with the EU. This would lead to a new tariff regime in place which would increase costs for operators in the EU and the UK who had previously benefited from zero-tariffs. What is clear, however, is that no extra tariffs will be applied to fresh produce for up to 12 months after the UK leaves the EU.

Bottlenecks and rotting produce

Secondly, border procedures and customs operations could lead to delays along the supply chain. This could have drastic consequences in the fresh fruit and vegetable trade given the perishability of the products. Trade flows are dependent on swift border procedures and customs clearance. Currently, 130,000 containers of highly perishable products arrive in the UK from the EU each year, with 55,000 containers sent from Spain alone to the port of Dover. The main bottlenecks of the EU-UK fresh produce trade are located at the ports of Dover and Rotterdam, and at the Eurostar connection in Calais. Dover is a very narrow transit port, lacking parking and storage facilities. Any new procedures will place great burden on ports and lead to backlogs, which in turn would compromise the timing of arrival and the quality of the perishable products. Morrisons supermarket chain has announced contingency plans that include switching to alternative ferry crossings, such as Le Havre-Portsmouth, if the Dover-Calais route becomes gridlocked. In turn, the Co-op supermarket chain has stated its intention to use air freight to bring in fruit to avoid empty shelves.

Ireland is particularly vulnerable given its relative geographical isolation. New border controls could result in lower supplies and higher prices for Irish consumers, too. Goods shipped between Mainland UK and Northern Ireland will also be subject to checks by UK and EU officials, which is causing particular distress in Belfast.

Higher costs

The UK may introduce different food safety regulations. This would lead to increased certification requirements, including certificates of origins, quality and phytosanitary certificates, which would constitute a further financial burden on operators. As fresh produce often arrives in mixed containers, with an average consignment comprising 10 different product categories, then based on an annual average of 130,000 containers, this would result in additional cost of up to €65 million in certification, according to a Freshfel report.

UK to turn into a rival for the EU?

The EU is concerned about what steps the UK may take to make itself a more attractive market, to the potential detriment of its European neighbours. When the UK becomes a third-country trading partner, new transhipments rules will need to be defined, governing how produce is stored and handled. If the EU wishes to retain its competitiveness as a logistical hub, it must ensure it continues to be a more attractive logistical environment than the UK, or risk losing trade. Another fear is that the UK will loosen MRL and phytosanitary requirements in order to attract imports from around the world. Such changes would have a knock-on effect on trade within the EU, where stricter rules are in place.

Less movement, less collaboration

While the movement of citizens is to be guaranteed during the transition period (up to December 2020), the current shortfall in seasonal labour in the UK is likely to be exacerbated and result in higher costs for UK producers. The field of research and innovation is also certain to be affected, with the UK one of the largest beneficiaries of Horizon 2020 funds, receiving €3.3 million in grants. For instance, the “Raditom” research project is investigating the preservation of tomato flavour, while the “EUFRUIT” project involves 12 countries focussing on coordination and information sharing.

The ideal scenario

Ultimately, the industry fears that the complexities of fresh produce trade with not be adequately considered given the limited time for negotiating exit conditions. Ideally, there would be a longer transitional period than the currently proposed 11 months (until December 2020) to allow a new free-trade agreement to be concluded and grant businesses sufficient time to adapt to any changes. An undertaking to protect the supply of EU fresh produce to the UK would defend jobs and economic growth on both sides of the Channel.

Moreover, if the UK integrates its digital customs services with those of the EU, this would help lubricate trade flows. It is vital not to reverse the great progress the sector has made in recent times. The issuing of electronic organic and phytosanitary certificates via ‘traces’ has greatly improved the monitoring and risk analysis of trade in plant products. The fine balance that has allowed the sector to flourish could be greatly undermined by any variation in price or conditions.

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Poupart Imports brings world best produce to the UK

Topfruit, grapes and summer stonefruit / soft-fruit are the mainstays of Poupart Imports’ success and continue to show annual growth, Green said.

“It’s a very dangerous business to be in and it’s daily, it’s immediate, it’s spot, it’s the open market. We are still traders, unlike the companies that supply the retailers, who are programmed and automated and predictable – we are the unpredictable end of the fresh produce industry.”

That’s Poupart Imports Senior Trader Jerry Green talking to ED about the volatile prices in the world of wholesale supply.

While at the London Produce Show in June, he said this specialist supplier to the non-supermarket sector handles high quality produce and trades across the whole UK fresh produce wholesale market, including pre-packers and processors, even retail category managers in the event they run short.

Topfruit, grapes and summer stonefruit/soft-fruit are the mainstays of Poupart Imports’ success and continue to show annual growth, Green said.

The company is also a specialist in handling consignments destined for retail which have either become ‘compromised’ (under-specification, for example) or which are ‘excess to requirement’ and which need a special type of handling.

Bases in UK & Spain

“We’re very well-placed,” Green said. Poupart Imports – part of the Poupart Ltd Group – has offices in 3 different areas.

Deep sea procurement, off-market sales, accounts and logistics are run out of its head office in Hertfordshire, in England, while most of its European procurement is handled out of its base in Figueres, near Barcelona.

A third office in Surrey, also in England, is a 2-person operation controlling some 35% of the company’s total sales volume.

Why wholesale supply is so unpredictable

Tomatoes are a huge item for the importer, which offers the whole gamut, be they round, plum, cherry, cherry on the vine, cocktail tomatoes, etc. Green said they are a good illustration of the challenges of buying on the spot market as it takes very little to change the supply and demand equation.

“A little blip in the temperatures in the production area and it looks like there’s a spike in demand. There’s not, demand is constant, it’s just the supply is not there, so it contributes to a hugely volatile market.”

Also volatile is the market for iceberg lettuce, where a 5kg box can be £10 one day, £5 the next day, £2 the following day and £8 the day after, Green said.

“We operate within probably the purest form of the oldest economic law, that of supply and demand. Prices move in an instant depending upon the perceived availability or under-supply.”

Salad and vegetables procurement via Spain

Poupart Imports offers a wide, seasonal product range. Green said salad items and vegetables are procured almost exclusively by the firm’s base in Spain. “We handle all sorts of salads, leaves, capsicums, aubergines, courgettes, tomatoes and a range of vegetables – a pretty comprehensive range – but there are various products, like potatoes and onions that we don’t find worth touching as we don’t have the product knowledge, contacts or expertise properly to manage these categories.”

Spain is the main source of Poupart’s salads and vegetables but it also sources from France, Italy, Morocco and Poland.

Avocadoes: mainly sourced from Peru but also South Africa, Spain

Poupart aims to supply avocadoes year-round, mainly drawing its supply from Peru (50%), South Africa (25%) and Spain (25%). Green said Hass is the biggest seller in the UK, and what the retail sector mainly sells, but Poupart Imports doesn’t tend to handle that variety. The open spot market sells mostly greenskins, such as Fuerte, Pinkerton and Zutano.

The company doesn’t tend to import products such as pineapples as a retail programme is required to successfully manage the individual season and to mitigate losses incurred in the spot markets. “This is really outside the remit of Poupart Imports as non-retail is the target market,” Green said.

The company does however import melons – from Europe, Brazil, Costa Rica, Honduras, Panama and Guatemala – for its open market business.

Year-round grape supply and largely seedless

It imports grapes throughout the year, averaging about 60 pallets a week but attuning its volumes to supply and demand. “If there’s an oversupply, we will attempt to dissipate that supply across the market, if there’s an undersupply we do our damnedest to procure whatever we can, safe in the knowledge that it can be traded successfully in such times of high demand.”

The company does import a seeded grape variety in Red Globe but about 85% of its grapes are seedless and mostly white varieties, particularly Thompson, Sugarone and Superior. Red varieties such as Flame and Crimson complete the offer.

“Obviously we start off in Europe, and that lasts us through to about September-October, from there we go to Brazil, Peru, and then South Africa. After Christmas it’s still a bit of South Africa, then we major on Chilean red and green grapes before going heavily into India. At the end of the Indian season, which is about now (early June), you’re looking at bringing in Israeli, and Egyptian before we go back into the European season in about a month’s time.”

“We bring it in in bulk 9kg, in 4.5 kg boxes and in ready-packed 10 x 500g punnets, labelled or unlabelled, and with single or mixed varieties in the punnet –  whatever the customer wants.”

Wide client base

As for its clients, Green said Poupart supplies virtually every Total Produce outlet in the UK wholesale sector and views the group as an integral part of its customer base.

Other clients include Barton & Redman in Manchester’s New Smithfield Market; H G Walker, Premier Fruit and P&I at New Covent Garden Market; JT Produce, Payne Simmons and Mirpa/Cypro Food in London’s Spitalfields Markets; Burbank in Bradford, Crossley and Graham, and Nicol & Dow in Glasgow, just to name a few.

Keeping customers by keeping them happy

“We never become complacent about our customers and fully accept that no customer belongs to us no customer belongs to us, they just happen to be customers who are reasonably loyal to us in the short term. There’s no long term about it unless we continue to perform for them and keep the customers satisfied. We do manage to keep customers loyal to us and in some ways dependent upon us because we’re pretty good at what we do and have become acknowledged market leaders in the sector,” Green said.

“We have a 12 man sales desk if you like, albeit split up between the 3 offices, and we attempt to service the best part of 138-140 customers. Every single day, they will all get at least one phone call a day from us and if they don’t take one particular product they’ll take another. Very rarely do you put the phone down without selling somebody something.”

“We’re there five days a week most of the year and six days a week during the summer months when there’s a lot of stonefruit. We are viewed as being one of the two principal suppliers to the wholesale sector,” he said, “and continue to enjoy this position thanks to the professionalism of the procurement and sales teams, the synergy between the two, the back-up provided by the admin and logistics departments and above all by the comprehensive nature of our daily offer to the market.”

Poupart Imports: http://poupartimports.co.uk/

JB