In the first part of the blog, we have analyzed global trends for the entire agribusiness and its sectors. In this part, we will talk about how coronavirus and the global economic crisis have already affected the production, export, import, and processing of vegetables, fruits, berries, nuts, herbs, and other fruits and vegetables in the world and the countries of Eastern Europe.
However, forecasting something in this situation is extremely difficult. Therefore, we will build on the most likely scenario. It is worth noting that the world’s level of uncertainty is now the highest in the last hundred years.
Thus, let’s start with the general trends and move on to the situation in the countries.
- First of all, the consumption structure of food products has changed under the influence of the following factors:
- Demand has grown for products that can be stored longer because people are less likely to go shopping to reduce the likelihood of becoming infected with the coronavirus. Thus, citrus fruits, apples, vegetables of the so-called “borsch set” (onions, carrots, beets, potatoes) turned out to be in a winning situation, and those that quickly go bad (berries, herbs, cucumber, tomato) are in a less advantageous position.
- Demand for cheaper products has grown, and demand for expensive products has declined, as household incomes have already dropped. And this trend will only strengthen in the coming months. Again, local products win in this situation, and imported ones lose because national currencies devalued. Also, more expensive products, such as berries and nuts, asparagus, exotic fruits, as well as all products certified as organic, became less popular, while cheaper ones are in high demand;
- Demand has grown for products that, according to the public opinion, can fight viruses or strengthen immunity. These are, first of all, products such as garlic, onions, lemon, and ginger;
- The demand for packaged products has grown, despite the fact that it is more expensive because people unreasonably fear that the chances of contracting a coronavirus will be lower if they buy the product in a package;
- The population’s demand for processed products and frozen products has grown because they can be stored longer, while demand from HoReCa (the foodservice industry) has fallen to almost zero. In particular, this industry was the primary consumer of these products in the countries mentioned above.
- Demand on products that were grown specifically for HoReCa fell. For example, the main consumers of asparagus in Ukraine are restaurants. It is entirely incomprehensible who will buy it at all this year. For example, in India, a farmer feeds cows with strawberries, broccoli, and salads, because there is no one to even give out for free since these products have always been delivered to restaurants, and local people are almost unfamiliar with them. Even if the restaurants open, it is obvious that many people will not go to them in the first months because caution and lack of money will restrain them. Similarly, HoReCa was a major consumer of frozen foods, fresh-cut products, as well as bulk products. Their production now has to be stopped or urgently reoriented.
- Demand for many types of imported fruits and vegetables fell due to the devaluation of most countries’ national currencies and an increase in the value of imports relative to local products.
- Product sales channels have changed.
- In many countries of this region, authorities have banned food markets. This catastrophic decision led to the loss of sales markets, primarily by small and medium-sized farmers, because the availability of supermarkets in all countries, including the leader in this indicator, which is Russia, is extremely low. In addition, networks in almost all countries in the region sell significantly higher volumes of imports than local products. After all, it is possible to apply the same safety rules that are in supermarkets for open food markets and trays. Moreover, governments should have created a simple procedure for temporarily permitting the work of non-food businesses and restaurants in the format of grocery stores. This would have reduced the concentration of people queuing in supermarkets.
- Again, HoReCa is the most important sales channel. In the USA, for example, more than half of all fruits and vegetables were consumed by restaurants, hotels, cafes, and other representatives of the HoReCa industry. In many large cities of this region, the share of HoReCa in the consumption of fruits and vegetables was also very high.
- Import and export in many countries are blocked due to restrictions on travel. Therefore, those countries that are heavily dependent on exports or imports now have big problems. At the same time, countries like Ukraine that do not depend heavily on imports or exports benefit. A striking example is hazelnuts and greens in Georgia. Export has stopped. At least hazelnuts can still be preserved, but the greens must be removed from the greenhouses before the end of the season, and cucumber and tomato have to be planted. These are direct losses.
- Labor force, its efficiency, and cost have changed:
- In countries that hoped for an incoming workforce, including Poland and other EU countries, there will be problems harvesting berries and fruits, as well as some vegetables. Even if the local workers who have lost their jobs agree to harvest fruits and vegetables, their effectiveness will be significantly lower than that of immigrants, because the immigrant is always more focused and motivated. As a rule, a worker goes abroad to work, because he or she can earn 2-3 times more than at home. Accordingly, a worker values this work more. At home, he or she will receive less and will be less motivated.
- In many countries, if there is quarantine at the time of work, problems may arise with the transfer of workers to the fields. These problems are already in place, and farmer labor costs have risen significantly.
- Countries from which people commuted to work are more likely to benefit, especially in those segments where harvesting requires a lot of manual labor. The positive effect will be achieved if farmers can solve logistic problems and ensure the safety of employees.
- The difference in prices for fruits and vegetables in different countries has grown significantly due to the emergence of new logistical barriers, more expensive and complicated logistics. Most likely, this trend will continue. Consumers in countries with a shortage of certain products will be forced to pay more to ensure their imports and exporting countries may have too low prices on the domestic market for export items that will not cover production costs. By the way, it is already obvious that both farmers and the population in many countries of Eastern Europe and Central Asia will expand the area under traditional vegetables. And this means that the supply of such products can rise sharply and there is a threat of falling prices.
- Logistics has become more complex, and shipping costs have risen sharply due to high risks throughout the delivery chain. This severely limits the capability of export and import, especially when it comes to the inexpensive positions of vegetables, fruits, and berries.
- Losses in vegetables, fruits, and berries grew throughout the entire value chain for the following reasons:
- People make larger one-time purchases, which leads to an increased percentage of spoiled products at home, which means that demand will be higher to compensate for the loss;
- Losses also increased at the level of supermarket chains, as the previous information on the demand structure is useless and they have difficulty in predicting the correct volume of product purchases;
- Another reason for the losses is the inability of the networks to work with local products in developing countries and the lower quality in terms of safety due to the lack of proper post-harvest refinement of products;
- Losses are possible at the level of farmers and traders due to labor shortages, as well as the inability to timely ship certain types of products. In many countries, huge volumes of products that cannot be sold through conventional distribution channels are already being thrown away.
- The costs of production and the cost of growing vegetables and fruits can increase significantly in countries that depend on imported material and technical resources: fertilizers, plant protection products, seeds, seedlings, packaging, and those that rely on the foreign seasonal workforce.
- The mechanization and automation of all production processes will become more relevant than ever before because this will guarantee uninterrupted production.
- Processing of fruits and vegetables may increase due to higher demand for processed products with longer shelf life, as well as a higher supply of cheaper raw materials in specific segments, making it difficult to sell fresh.
- Online sales of fresh fruits and vegetables have already risen sharply, both in the B2B and in the B2C segment. This will be the starting point for a faster transition of the business to digital dimensions, which will ultimately reduce the cost of transactions. In response to difficulties with selling early vegetables in Ukraine, EastFruit helped create a UkrOpt trading group based on Telegram, in which almost 1 thousand participants were registered in a week. Our other EastFruit Trade Platform group continues to be the largest among all platforms and already has more than 6.7 thousand participants from 25 countries of the world!
Now, let’s talk about the situation in individual countries.
- Uzbekistan will receive a lot of problems associated with a fall in demand in Russia and a rise in the logistics cost. Besides, Uzbekistan products had previously hardly hit the supermarket shelves in the Russian Federation, being sold mainly in markets. If the work of the food markets is complicated or limited, this will become an additional problem. Therefore, the season for Uzbekistan fruit exporters may not be the best, but processors will receive a lot of available raw materials. After all, the local market is not able to consume such volumes of fresh fruit. There may also be problems with the export of greenhouse vegetables and herbs, even in the next season. Nut exporters are also now forced to cut prices, and the long-term forecast remains negative. At the same time, the country is not particularly dependent on imports. Only the availability of potatoes can be at risk, and prices can be high.
- Ukraine found itself in a rather comfortable situation, since it does not substantially depend on imports or exports, and its domestic market is rather large. The most considerable losses may be experienced by exporters of walnuts, who take the leading position of the country’s fruit and vegetable export. The difficulties of blueberries producers and producers of other berries are also possible, especially if quarantine is not completely canceled until the season starts. But the processors of cultivated berries are likely to receive a more substantial offer of more affordable raw materials. If the crop does not suffer from frost, apple producers are likely to encounter low prices, approximately as in the season 2018/19. Most likely, Ukraine will dramatically increase the area of potatoes and vegetables, and next season their prices may drop significantly.
- Moldova has already suffered significant losses. In particular, apple prices have fallen, and this spring, when they usually rise, and contracts with buyers in the Russian Federation were broken because they were not ready to pay the previously agreed prices due to the devaluation of the ruble and the decline in incomes of the Russian population. Walnut exporters have similar problems since prices are falling, and with them, demand, while the cost of logistics is growing. In the new season, a decrease in demand for table grapes is also possible. But a genuine incentive will be given to the development of local vegetable growing and potato growing, as the country is now almost completely dependent on imports. In the meantime, before the start of the new season, the prices of these essential goods (onions, potatoes, garlic) can be very high.
- Georgia experiences problems with the export of hazelnuts and greens. In addition to these two positions, Georgia also exports significant volumes of tangerines, persimmons, and peaches. There may be some problems with the export of peaches, and the persimmon and tangerine seasons are already over. Georgia already has problems with onions, potatoes, and other vegetables at affordable prices, but early production will begin soon.
- Tajikistan annually exports significant volumes of onions, table grapes, dried apricots, and other dried fruits, as well as, to a lesser extent, fresh stone fruits. The country imports mainly small volumes of citrus fruits, bananas, and greenhouse vegetables. Most likely, problems may arise with the export of fresh table grapes if the borders are still closed by the beginning of the season or due to lower consumer incomes. There is also a threat that many countries will dramatically expand onion areas, which could harm prices and demand. At the same time, Tajikistan can take advantage of a favorable situation in the lemons market and increase exports, though their volume of production in this country is not very large. Dried fruits are likely to continue to be in demand since Tajikistan has a competitive price for them, but perhaps exporters will have to agree to even lower prices.
- Russia and its fruit and vegetable business will find themselves in a rather favorable situation since the devaluation of the ruble, and a decrease in household incomes will increase the demand for those products that are grown in the country and reduce the demand for imports. Russia is a net importer of all types of vegetables and fruits, so the situation for farmers will be generally favorable. The prices for all goods have already risen sharply, and this will ensure the desire, at least, not to reduce the farming area. As for importers, they can drastically reduce business volumes and profits, because imports of fruits and vegetables to Russia are tied directly to world oil and gas prices. Accordingly, we can expect a collapse in imports to levels close to 2015.
Thus, the situation will change very dynamically, so farmers will have to pay attention and track the most important factors. Uncertainty in the contracting of products will increase; therefore, in order to minimize the risk level of the business, farmers should significantly increase the efforts to market and promote their products. Those who will have several options for selling products are likely to be able to go through this crisis as painlessly as possible, which will definitely be very protracted.
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