That the Dutch greenhouse vegetable sector is not in great shape, is clear to everyone in the sector. But what is the situation exactly? Consultancy firm McKinsey & Company looked into that, on behalf of horticulture trade association LTO Glaskracht Nederland. On Wednesday, the figures and findings were announced at two meetings. Both financially, in the international market and in the chain, the position of cultivation companies is downright bad. "If nothing changes, it will only get worse. And change doesn't happen of its own accord," Nico van Ruiten of LTO Glaskracht Nederland observes. That's why the organization is now putting the ball in the court of growers and producer organizations. Mid-January, they will have to choose: should the sector be redesigned?
A lot of visitors at the presentation in Zoetermeer yesterday, as shown by Jos van Kester on Twitter. A total number of around 250 growers attended the two presentations. The gist of the story may have been known already, but the exact figures did make the situations clear for the growers.
The financial health of the Dutch greenhouse vegetable growers is dismal, the McKinsey report shows. 50% of growers had insufficient income between 2011 and 2014 to pay interest and amortization. Another 15% succeeded in coughing up interest and amortizations, but were unable to invest. Only 35% of companies managed this. The percentage of grower's equity capital halved between 2006 and 2013. The causes are scaling up without capital growth, cumulative losses, depreciation of land, and investments without equity capital such as CHPs. This means growers have no more room to absorb blows.
The study looked at international competition, in particular to Spanish, Moroccan and Dutch production. Production in these countries increased annually by about 2-6%, while consumption in the main markets only increased by 1-2% on average. With regards to cost price, the Netherlands won't win this battle. Cost prices for the German market of a mixed package with tomatoes, including production, marketing and transport costs, are between 1 and 1.10 euros in the Netherlands during summer. That means the Netherlands is a competitor to its own market. In winter, the price is between 1.50-1.70 euros. In Spain, added up, this amounts to around 0.90-1.00 euros, and in Morocco, producing, packaging and shipping can be done for 0.70-1.20 euros. "The Netherlands is only able to achieve better prices when something goes wrong in foreign production," Van Ruiten clarifies. This won't change just like that. Morocco and Spain are constantly evolving. The seasons are structurally extended, the production increased, the cultivation improved, and in marketing, new markets like Poland and Hungary are sought out. It will be obvious: the Netherlands won't win this battle on cost price. "In addition, we're seeing an increase of local production in the main purchasing countries, which also adds extra volume with a good chance of selling in those countries."
The position of growers in the Dutch market structure doesn't bring any positive news either. The current market structure, with 15 European purchasers buying 84% of the produce, is bad in every way for the growers, and good for the buyers. A reverse auction has evolved, in which buyers can change suppliers without problems or cost.
The figures from the report are clear and not very optimistic, but has it ever been different? Isn't this situation a logical consequence of market forces? Isn't it a matter of waiting until the acreage decreases and profitability improves? Not according to Van Ruiten. For cultivation companies, it's currently impossible to leave the market. Companies are under water, which is why growers simply cannot halt operations. And when a company does eventually go bankrupt, this doesn't have any influence on the acreage. Selling the company at a lower price only causes a decrease of the average cost price. That only causes more companies to run into problems. "The first signals are visible," Van Ruiten clarifies. "The past year, companies went bankrupt, but the acreage stays the same. Companies where things are going well now, will also run into trouble in the future because of this."
No solution yet
So what now? That's the question posed by LTO Glaskracht to growers and producer organizations. Urgent problems, which have to be resolved this year, are peak supply causing lower prices and the lack of an exit strategy for growers, according to Van Ruiten. In the slightly longer term, in the coming years, the sector will have to be reformed. Does the sector want to cooperate on this? That's something for growers to think about during the Christmas dinner. Mid-January, a follow-up meeting will be held with Dutch producer organizations. Unattached growers can also sign up for this path. If a large part of the sector will commit, a plan for reforming the sector will be announced in 9 weeks. Because, Van Ruiten emphasizes, such a plan doesn't exist yet. "Growers, entrepreneurs will have to reinvent the sector. There is no ready-made solution for that." There are ideas and mindsets, like proactively working on market intelligence (information on market and consumer preferences in different countries), corporate branding of the Dutch produce, increased transparency on price and volume. "How these things will have to be given shape and fit within regulations, will have to be looked into. But you can't do things like this alone. And if we do nothing, nothing will change, and it will only get worse."