Inflation and future supply a concern for UK importers
Sam Trebbick, Commercial Manager at Orchard World, Part of the UK's Poupart Produce group explained that they are already seeing some effect of inflation, although the Brexit effect is not as bad as it could have been. "We are quite fortunate that we have long-standing relationships with our suppliers. What we have seen is inflation in the market, there has definitely been some increase in costs back to some of the customers which is inevitable, supply has not been affected by Brexit, but by the difficult growing season across the UK and Europe."
Sam goes on to say that retailers may have to increase their prices eventually, "You have a mix of retail price inflation driven by the Euro on imported produce and you will also see price increases due to, for example, the top fruit season we are about to embark on. Somewhere along the line these costs will get pushed along to retailers, you can't really dictate what the retailers sell produce at but eventually they will pass some of that back to the consumer."
"We know it's all going to be more expensive because of the exchange rate, but a large number of companies have been buying up Euros for a while, thus eliminating the problem," explains Marcel. "On the other hand, delivery security, especially in retail, plays a major role. Everyone can remember last winter, with a large number of suppliers failing to fulfil their obligations, which is being addressed earlier and more clearly."
Another Dutch trader said that we will see a combination of Class I and II more often in the British retailers, but Marcel does not agree. "For years, there has been a pull towards Class II products, there is only so much of it to go round. Even though the interest is increasing, people are not really targeting Class II."
"We are not seeing more class II produce being imported," agrees Sam. "We have two class II lines with one of our biggest customers, but these are the everyday value lines, I don't see that we will be bringing in more class II. If cost prices inflated to such a degree that they became markedly more expensive than class II then you might see a trade into the value lines, but I think despite inflation, there have not been any big price increases in the retailers yet."
On the question of whether the economic situation will lead to a change in demand, Marcel replies: "This depends mainly on what people are buying. At the moment they are skipping foreign holidays, and are spending that money in the UK. Some people will spend less on luxury goods, which we can see by the effects in the florist trade which are now much greater than in the vegetables. What the consequences for, for example, for soft fruit and exotics will be, I can't estimate, but peppers and tomatoes do not belong to the luxury goods, but you will also see that this market is repositioning. A product like snack tomatoes could, in my view be the first victim. In the Netherlands, the greenhouse area increases each year and those products will have to be sold. Perhaps the pattern of expectations needs to be adjusted."
Will retailers expect suppliers to take a cut in profits? According to Sam that will depend on the mix, the product mix and the variety mix. We know there are challenges with different supply chain models but in essence we work hard with our growers, suppliers and customers to ensure a fair return for what we supply on a seasonal basis.
The Dollar and Rand rates as well as shipping rates have also had an influence on the company's Chilean and South African fruit programs, "Again there is nothing you can do about that, you just have to work with it and add what ever percentage of that cost on when you can," explains Sam.
"We fix a price with South Africa or Chile for the season so you need to take the rough with the smooth. Our procurement team will go out to these countries before the season starts and visit our suppliers to agree a price and then manage the situation as the currency fluctuates."
There is always the temptation for Southern Hemisphere suppliers to look towards the Asian markets where there are less regulations and often a more steady currency, but Sam explains that again due to Poupart's long-standing relationships they will get people out to these countries very early on to secure the programs. "This is what we do every year, but next year you might see this happening a bit earlier that usual. This will certainly be done for top fruit as the European season is expected to be short and we will need to secure our programs.
