The news “reshapes” the company
Freshfel Europe highlighted the “unprecedented business conditions” in which the fresh produce sector currently operates, highlighting the pressure placed on the business by Covid-19 and the war in Ukraine.
These developments “completely reshape the global fresh produce business environment,” Freshfel said.
“Within an interconnected and international fruit and vegetable sector, thoughts and solidarity go out from the European fruit and vegetable sector to those who suffer from the violence and freedom stolen from this situation,” the association said. .
While the sector demonstrated its resilience during the two years of the Covid-19 pandemic, the exit from the pandemic situation had led to an “unprecedented rise” in costs throughout the supply chain, reaching a “level unsustainable” for the sector,” Freshfel continued.
At the beginning of January, the sector was again affected by the Belarusian embargo, a prelude to the Russian invasion of Ukraine.
From a fresh produce perspective, the latest developments have far-reaching implications for the sector which Freshfel Europe is coordinating closely with its members and with the European Commission.
In this regard, Freshfel Europe has been appointed to the European Commission’s new European Expert Group on Food Security and Crisis Preparedness for Agricultural Markets.
Freshfel Europe said it closely coordinates the industry perspective for the European Commission’s market observatories and civil dialogue groups to voice the concerns of the European fresh fruit and vegetable sector.
The association is also actively involved in the newly created global coalition of leading fresh produce associations around the world to address rising costs and disrupted supply chain.
Over the past few months, as the economy recovered from the pandemic, rising production input, energy and logistics costs became a priority concern and severely affected the competitiveness of production.
This is one of the “dominant concerns”, Freshfel pointed out, considering that further increases are still expected in the coming months, especially for energy and fertilizers.
“Earlier this month, Freshfel Europe estimated that the increase in production costs has increased over the last year by up to €0.1 per kg,” said Philippe Binard, Managing Director of Freshfel Europe. “This estimate includes a wide range of increases in production inputs (factory protection products, fertilizers), but also pallets, transport and consumer packaging, infrastructure costs, labor benefits and advice, bank and insurance charges.
“For the fresh fruit and vegetable sector, the combined effects of these increases represent an additional cost of almost 10 billion euros per year,” he continued. “In addition to this, logistics costs, for local distribution, for intra-EU trade as well as for long-distance sea or air transport, also significantly increase product costs.
“Freshfel Europe estimates the total additional logistical burden at nearly €4 billion for the European fresh produce sector. This does not include other collateral logistical consequences of delays or simply lack of container availability leading to missed business opportunities. .”
According to Freshfel Europe, rising costs will continue as the outbreak of war in Ukraine is expected to further impact energy costs.
In addition, financial aspects such as inflation and changes in exchange rates also have an impact on the sector, with the devaluation of the Euro and other European currencies against the US dollar so far d around 10%, which is detrimental to purchases of dollar-denominated securities in euros. materials and energy.
A decade of trade disruption
On the business side, Freshfel said that over the past decade, the fruit and vegetable sector has “repeatedly been held hostage to the consequences of geopolitical disputes.”
Several crucial export markets have been suspended, including Russia in 2014, Algeria in 2016, Belarus in January 2022 and now Ukraine.
“For fruit and vegetables, more than 3 billion euros of activity are at stake each year within the framework of these embargoes, a turnover that must be repositioned”, explained Binard.
“Today, while the consequences of the Russian embargo have not yet been fully absorbed, the situation is further exacerbated by new developments. Given the long-term investments in orchards and market access protectionism by many countries, the challenge of repositioning production in new point-of-sale markets is complex, quick and costly.
Freshfel said his analysis has demonstrated that as the EU fresh produce sector absorbs the major burden of embargoes, several destinations – including allies in geopolitical instability such as the United States, Japan, Australia, South Korea, Turkey and Peru, as well as countries with EU Free Trade Agreements – remained “hermetically sealed” for European fresh produce, while access to destinations like Mexico or Chile remained very limited and under excessive conditions.
India and Southeast Asia remained markets with some growth potential, despite “sometimes discriminatory market access conditions” such as Vietnam’s cold processing requirements.
Since the beginning of March, uncertainties have also emerged from Egypt with the establishment of the letter of credit system, which could limit shipments which today reach 300,000 tonnes.
New SPS rules for Britain on July 1 also remain a concern, the association said, with the upcoming introduction of phytocontrol combined with the European Commission’s reluctance to remove the redundant marketing standard certificate .
Beyond market access, export prospects for all European fresh produce are also at stake given continuing logistical constraints with container shortages and high prices.
Concerns for market stability
International unrest in the Eastern European neighborhood is also raising serious concerns about market stability in the European Union, which could put increased pressure on market prices as costs continue to rise. to augment.
“While the supply from the EU was already banned almost ten years ago in Russia, then in Belarus and Ukraine, these countries still imported around 8 to 9 million tonnes of fruit and vegetables annually”, underlined Binary. “With the introduction of banking sanctions and restrictions as well as the suspension of traffic from large container carriers, this will likely almost cancel most international fresh produce business with these regions.
“The 45% devaluation of the ruble and the economic uncertainties in Russia will make business unreliable and unpredictable for third countries that still aim to supply the Russian market. There is therefore a significant concern of rerouting volumes to Europe, originally planned for these eastern destinations.”
Freshfel said it was important that volumes arriving in the EU were those that met European quality specifications in order to maintain well-established trading relationships.
“Products destined for the European market must be destined for identified recipients with produce grown and labeled in accordance with EU safety and quality expectations and customer requirements,” the association confirmed. “Given the rising costs of production inputs and logistics, no one can sustain market instability due to oversupply and lower prices resulting from diversion.
This season fully exposes the fresh produce sector to the consequences of the economic situation for European citizens.
The purchasing power of European consumers has already been noticed by the sector, as consumers are forced to carefully balance household budgets between an increase in energy bills and a budget for food.
“Over the past few months, this has already translated into a drastic slowdown in the consumption of fresh produce across Europe,” Binard said. “In some Member States, consumption was already showing a drop of up to 10%. This is particularly worrying and the debate on the farm-to-fork strategy foreshadowed a change in eating habits towards a more plant-based diet.
The current situation means that at times fruit and vegetable prices may need to rise at consumer level to compensate producers who are forced to sell below production costs.
“It should be remembered that in the assortment at supermarket level, fruit and vegetables remain the cheapest dietary option, with an average price per kg often less than €2, while the other food categories are much higher than €10, or even €20 per kg”, Binard noted.
Freshfel said it was exploring a wide range of solutions to support growers, traders and retailers in an “unprecedentedly complex market environment”.
“Freshfel Europe is well placed to reshape the business perspective of the sector and give new perspectives and priorities to the sector in this changing environment,” said Stephan Weist, President of Freshfel Europe. “We must find a new balance that combines competitiveness and the financial stability of an essential sector for the benefit of the planet and the health of citizens, while preserving the attractiveness and accessibility of products for consumers.
“It’s very difficult, but Freshfel Europe and its members are well placed to search internally in the supply chain and externally with European authorities for tailor-made solutions.”