Is Southern Salads collapse a warning to the industry?

The closure of Southern Salads earlier this month has rung alarm bells in the wider fresh produce industry, particularly with the company blaming the weak pound post-referendum - a factor many in the sector have to contend with.

Image: HW
Image: HW

Lea Valley Growers Association secretary Lee Stiles tells Horticulture Week: "The majority of Lea Valley growers are being adversely affected due to the weak exchange rate. Those growers who import inputs such as plants, slabs, chemicals etc are experiencing higher costs especially on the edible side."

He explains: "The UK does not produce enough fresh produce for its needs and therefore the Lea Valley packhouses have to import produce all year to fulfil retailer orders even when British produce is in season. The concern is that the worst is yet to come when the British season ends in October and the packhouses switch production overseas until spring."

With no government support to the industry, "consumers will simply have to pay more for fresh produce in the future", he suggests. "If the government wish to have cheap healthy British fresh produce available then they will either have to support the expansion of the British glasshouse industry or subsidise produce."

But British Growers Association chief executive Jack Ward is reluctant to draw wider conclusions from the Southern Salads case. He says: "Every business is different and in any business failure there may be more behind the public statements. Produce importers were of course hit by the crop shortages from Spain at the start of the year."

Another factor may have been the company’s decision to expand production in 2014, he suggests. "That ratchets up the gearing and gives you less room for manoeuvre when something goes wrong."

But he adds: "With a weaker pound, if you are supplying imported produce it’s getting more painful. In theory exporting becomes more attractive but our nearest potential markets have well-developed industries of their own. And for UK growers a lot of what you are inputting is priced in euros – from fruit trees and strawberry plants to mushroom compost, seeds and equipment. That and the uncertainty we already have around labour mean it’s not a good time to sign a £5m cheque."

Already some analysts are warning that parity between the pound and the euro may not be far off, exacerbating these strains further. And while there are always policy levers to address a weak currency, those who lose out from it are at least matched in number by those such as exporters who stand to gain. In a pamphlet published by think tank Civitas last month, entrepreneur and economist John Mills argues for a weaker pound to be a UK policy goal post-Brexit in order to boost manufacturing and exports and so re-balance the economy.

Exporters in the food and drink sector have seen an 8.5% increase in exports in the first half of this year to a record £10.2bn, dominated by whisky, salmon and, increasingly, beer.

Conversely, suppliers of imported horticultural equipment face a problem. Royal Brinkman UK’s managing director Glenn Notley says: "We buy a lot from our parent company in the Netherlands, and the issue for us is more when the rate drops quickly, as happened in the two months after the referendum. It can cost us a lot, and you can’t pass on those costs. We are having to be more careful, allowing for a bigger variation. We check the exchange rates several times a day. Wherever it settles we can handle, though if the pound’s lower that obviously makes things more expensive."

And Richard Burton, owner of specialist horticultural machinery supplier Richard Burton Specialised Machinery, says: "The exchange rate isn’t helpful. Some equipment we order a long time before it arrives – you can pay forward but that ties up your money. Some suppliers will try to take advantage, raising their prices 12-15%."

This is affecting investment decisions, he believes. "For our customers we try to price accordingly. Big tractor sales aren’t what they were. For growers [the exchange rate] is just part of the whole uncertainty around Brexit."

Viewpoint: Jimmy Russo, co-owner, Valley Grown Salads, 2017 Salad Grower of the Year

"I feel for Southern Salads but they are just the tip of the iceberg, as it were. This is the shape of the future unless customers are prepared to pay more for produce. We have all enjoyed cheap prices but it’s not sustainable. Most growers only make 1-1.5% margin and can’t survive on those incredibly low margins forever. They are already lean machines, they aren’t over-spending.

"To be sustainable we need to see prices up 20-25%. The costs of everything is going up and up, including labour because people aren’t coming through the door. The last minimum wage cost me £100,000, but rents are expensive here and even that amount won’t get people to stay. Already Cornerways has left the industry and that 40 acres [16ha] of tomato production hasn’t been replaced. People want British produce but the appetite [to invest] isn’t there because the margins aren’t there."

He says of the retailers: "There is an acceptance of this, but whether there will be movement is another matter. They aren’t out of the woods themselves."

The company has recently invested £14m in increased production, including a new 92,000sq m pepper and tomato glasshouse at Nazeing which opened at the start of the year. "But now it’s raining and I haven’t got an umbrella," Russo says. "It would be suicidal to invest now."

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