Freshfel Europe has highlighted the current “unprecedented trading conditions” in which the fresh produce sector currently operates, highlighting the pressure that Covid-19 and the war in Ukraine are putting on the business.

These developments were “completely reshaping the global business environment for fresh produce,” Freshfel said.

"Within an interconnected and international fruit and vegetable sector, thoughts and solidarity go 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 increase” in costs throughout the supply chain, reaching an “unsustainable level” for the sector. Freshfel continued.

In early January, the sector was further affected by the Belarusian embargo, which was the prelude to the Russian invasion of Ukraine.

far reaching implications

From a fresh produce perspective, the latest developments have far-reaching implications for the sector that Freshfel Europe is closely coordinating with its members and with the European Commission.

In this sense, Freshfel Europe has been named a member of the new Group of Experts on Crisis Preparedness and European Food Security of the European Commission for agricultural markets.

Freshfel Europe said it was closely coordinating the sector perspective for the European Commission's Market Observatories and Civil Dialogue Groups to express the concerns of the European fresh fruit and vegetable sector.

The association is also active in the newly created global coalition of the world's leading fresh produce associations to address rising costs and disrupted supply chain.

In recent months, as the economy resumed after the pandemic, the rising costs of production inputs, energy and logistics became a priority concern and seriously affected the competitiveness of production.

This is one of the “dominant concerns,” Freshfel highlighted, considering that further increases are still expected in the coming months, particularly for energy and fertilizers.

“Earlier this month, Freshfel Europe estimated that rising production costs have increased over the past year by up to €0,1 per kg,” said Freshfel Europe general delegate Philippe Binard. «This estimate includes a wide range of production increases (plant protection products, fertilizers), but also pallets, transportation and consumer packaging, infrastructure costs, labor and consulting services, banking and insurance costs.

“For the fresh fruit and vegetable sector, the combined effects of these increases represent an additional cost close to 10.000 billion euros per year,” he continues. «In addition to this, logistics costs, for local distribution, for exchange within the EU, as well as for long-distance sea or air transport also significantly increase the costs of the products.

“Freshfel Europe is estimating the total additional logistical burden of around €4.000 billion for the European fresh produce sector. “This does not include other collateral logistical consequences of delays or simply unavailability of containers leading to lost business opportunities.”

According to Freshfel Europe, rising costs will continue as the outbreak of war in Ukraine is expected to further affect energy costs.

In addition, financial aspects such as inflation and exchange rate movements are also affecting the sector, with the euro and other European currencies devaluing against the US dollar so far by around 10%, which is detrimental to purchases. in euros of materials and energy dollars.

A decade of trade disruption

On the commercial side, Freshfel said that during the last decade the fruit and vegetable sector has been "repeatedly 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 fruits and vegetables, there are more than 3.000 million euros of business that are at stake each year under 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 aggravated by new developments. Given the long-term investments in orchards and the market access protectionism of many countries, the challenge of repositioning production in new markets is complex, timely and costly.

Freshfel said its analysis showed that as the EU fresh produce sector absorbed the lion's share of embargoes, several destinations, including allies in geopolitical instability such as the US, Japan, Australia, South Korea, Turkey and Peru, in addition to countries with EU Free Trade Agreements - remained "hermetically closed" for fresh European products, while access to destinations such as 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 treatment requirements.

Since the beginning of March, uncertainties have also been leaving Egypt with the introduction of the letter of credit scheme, which could limit shipments that today reach 300.000 tons.

New SPS rules for Britain on July 1 also remain a point of concern, the association said, with the forthcoming introduction of phyto control combined with the European Commission's reluctance to remove the redundant standard marketing certificate.

Beyond market access, export prospects for all European fresh produce are also at stake given current logistical constraints with container shortages and high prices.

Market stability concerns

The international turmoil in the Eastern European neighborhood also raises serious concerns about market stability in the European Union, which could put further pressure on market prices as costs continue to rise.

"Although EU supplies were already banned almost ten years ago in Russia, then in Belarus and Ukraine, these countries still import between 8 and 9 million tons of fruits and vegetables annually," Binard highlighted. “With the introduction of sanctions and banking restrictions, as well as the suspension of larger container shipping traffic, it will probably almost cancel out most of the international fresh produce business with these regions.

«The 45 percent devaluation of the ruble and economic uncertainties in Russia will make business unreliable and unpredictable for those third countries that still aim to supply the Russian market. There is therefore great concern about the diversion of volume to Europe, initially planned for these eastern destinations. .”

Freshfel said it was important that volumes arriving in the EU meet European quality specifications in order to maintain well-established trading relationships.

"Products destined for the European market must go to identified market recipients with products 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 bear market instability due to oversupply and declining prices as a result of route changes.

consumer struggles

This season is fully exposing the fruit and vegetable sector to the consequences of the economic situation for European citizens.

The sector has already taken notice of the purchasing power of European consumers, as consumers are forced to carefully balance household budgets between rising energy bills and food budgets.

“In recent months, this has already translated into a drastic slowdown in fresh produce consumption across Europe,” Binard said. “In some member states, consumption already showed a decrease of up to 10 percent. This is particularly worrying and the Farm to Fork Strategy discussion was raising expectations to change eating habits towards a more plant-based diet.”

The current situation means that in some points the prices of fruit and vegetables have to increase at the consumer level to compensate producers who are forced to sell below production costs.

“It must be remembered that in the assortment at retail level, fruits and vegetables remain the cheapest dietary option, with an average price per kg often below €2, while other food categories are well above €10 or even €20 per kg”, Binard noted.

Freshfel said it was exploring a wide range of solutions to accompany producers, traders and retailers in an “unprecedented complex market environment”.

“Freshfel Europe is well positioned to reshape the business outlook of the sector and provide new perspective and priorities for the sector in this changing environment,” said Stephan Weist, President of Freshfel Europe. «We need to find a new balance that combines competitiveness and financial stability for an essential sector with benefit for the planet and the health of citizens, while maintaining the attractiveness and affordability of products for consumers.

“This is very challenging, but Freshfel Europe with its members is well positioned to seek tailored solutions internally in the supply chain and externally with European authorities.”