Recently BayWa reported that in 2021, “revenues in the Global Produce Segment increased to €0.96 billion (2020: €0.94 billion).”
Global Produce is one of the segments of German-based BayWa that, in its nearly century-long existence, has strived to serve the basic human needs in the fields of food, energy, and building. Or, in its own words: “We empower what matters.”
These good results were achieved despite logistical challenges and unforeseen climate events resulting in lower fruit production. “And exactly to manage those challenging circumstances, good results are needed,” mentions BayWa Global Produce CEO Benedikt Mangold, who thinks the survivors of this situation will be those who can adapt quickly and are able to manage and finance that process. Aimed at solidifying and further developing its strong position in the international market, BayWa further strengthened its fresh produce segment by consolidating the fruit and vegetable business in the wholly owned subsidiary BayWa Global Produce GmbH.
Falk Schlusnus, Benedikt Mangold en Gareth Edgecombe from BayWa Global Produce at the BayWa stand op FruitLogistica
During the long anticipated Fruit Logistica in Berlin, PRIMEUR had the pleasure of speaking to Benedikt along with colleague Gareth Edgecombe, CEO of T&G Global, BayWa’s New Zealand-based fresh produce grower, marketer, exporter, and seller, and Falk Schlusnus, CEO of TFC, the Netherlands’ based importer and exporter of exotics.
The trio discussed topics such as logistical constraints, rising costs and long-term challenges, how to maintain resilience, and the need for a strong network and developments within BayWa. Despite the turbulent times, they remain optimistic about the future of this booming sector.
We last saw each other at Fruit Logistica in 2020; since then, it has been an eventful time. How has BayWa Global Produce fared in corona times?
Benedikt Mangold talked about the BayWa umbrella: “The past couple of years certainly have been a challenging time for all of us, but I think together as a group, we have fared quite well. I strongly believe in the power of a diverse network, which is what we have in our portfolio at BayWa Global Produce: different companies with their own strategies, operating models, and strengths. This value becomes evident in challenging times when each company can support the other by playing to their strengths. Activities across different products, business models, timetables, and regions; that’s definitely been the way to go over the last few years, and even though there is still uncertainty in our industry, we’re working together to forge a positive future.”
Gareth Edgecombe: “Last season, given COVID-19 border closures and the tight labor market, it was a challenge to have enough people to work in our orchards and post-harvest operations. It was also very difficult in terms of logistics and shipping, with global supply chains significantly disrupted. This affected our apple exports as well as the importing of produce into New Zealand. A lot of work had to be done to address this and navigate through it. Our teams were very solution-oriented. They adapted, were resilient, and despite these challenges, made strong progress delivering our strategy and building a solid foundation for future growth. We are fortunate to be in a sector where our products are sought after, especially throughout the pandemic, with consumers and customers seeking them out for their nutrition, convenience, and great taste. If you think about the retail channels and our premium fresh produce, in general, demand has remained strong. The T&G Global model is based on very strong brands such as our premium JazzTM and EnvyTM apple brands, underpinned by unique plant genetics – and demand for these brands globally is strong. So even though we’ve experienced some challenges during COVID-19, the underlying strength of our business model came through. That makes us very excited for the future.”
Looking to the future, Gareth remains confident. “The government and industry have worked together to help address some of the seasonal labor challenges. While improved, there are still shortages, but everyone has their head around this and we’re doing everything we can to mitigate any issues. In regard to logistics - although very expensive, with continuing disruptions in some parts of the world -– they do feel more under control than last year. That hasn’t helped with pricing, but we’re chartering ships and sharing other charters with fellow horticultural exporters to help get our exports to the global markets. Although there is still a long way to go with this current season.”
Falk Schlusnus: “With our exotics, we were affected by the pandemic, not only in our production in the Netherlands but also in our origin regions all over the world. Labour and logistics were, and still are, a big problem. Fortunately, we have a very strong network within the group, but also with TFC, with 30 years of solid relationships with our suppliers. We are vertically integrated, so part of our supply is derived from our own production, and we are fortunate that we are well set up to do so. Our customer base, which is mainly retail, also faced challenges during the pandemic. We approach these issues together. For example, when containers are late - which is not uncommon at the moment - there is a heightened level of communication and understanding between us and our customers which provides clarity for all involved. With our now closer collaboration within our group, I am absolutely positive about the future we are building with our suppliers and customers. I am proud of the strength of our BayWa Global Produce family.”
There have been quite a few disruptions recently. Logistics, corona, and the war will also have an impact. Also, the consequences of climate change become more and more obvious. Do these developments expose the vulnerabilities in our food system? Do you think there will be changes in the long term?
Gareth Edgecombe: “The long-term challenge of climate change and decarbonization is something everyone needs to act on. We are focused on understanding and minimizing our carbon footprint and, in the longer term, having carbon-neutral operations by 2030. It is a long-term and important area of focus. The same goes for the effect of climate change on the growing environment and what that means for the locations and the quality of the crops. This means that we need to adapt and have very resilient systems in the future. To a large extent, that means choosing multiple planting locations to be resilient and future-proofed. We will also have to think about new genetics well-suited to a warming climate, such as what’s coming out of the pan-industry Hot Climate Programme, of which T&G is the commercialization partner. The BayWa Agri Photovoltaic system (a multifunctional solar installation, see insert) is a great example of innovative solutions; it is future-proof for decarbonization by producing green electricity and supports increased crop protection for extreme weather events. It’s a really good initiative and is an example of how we can harness the strength of the BayWa group and bring solutions into our environment to meet these challenges.”
Benedikt Mangold: “For me, this Agri PV approach is sustainability in practice. Climate change comes with increasingly severe weather events, and farmers need to protect their crops from hail, rain, and strong direct sunlight. The dual use of land for growing food and generating energy has tremendous potential, especially for permanent fruit crops.”
Agri PV installations
In an attempt to combine the protection of fruit cultivation from weather extremes such as hail, rain, or strong direct sunlight with the decarbonization of the crop, BayWa investigated whether solar energy generation and fruit cultivation can co-exist and provide double benefits.
By ‘roofing over’ farmland with photovoltaic installations, BayWa found that farmers can protect their crops from the weather and, at the same time, contribute to climate protection and decarbonization of the crop by generating green electricity.
Falk Schlusnus: “The pandemic brought challenges, the war brought challenges that are very close and corresponding. To face them, you need to be financially strong, and you need a strong organization, as we said. The cost structure, for example, automation, carbon neutrality, all these things while the problems like the pandemic or the war affect us. So we cannot lose sight of the diverse and complex pressures on our industry and business. A strong network definitely helps us work through these to find solutions. For example, we are working with BayWa on carbon neutrality within our supply chains. We also have the opportunity to make use of our new facility that is currently built in Waddinxveen, which we have committed to being completely CO2 neutral there.”
Benedikt Mangold: “In times like these, more than ever, you have to be on top of your internal processes, and that’s why I am very positive about our future. We are definitely emerging strengthened from these challenging times because of our overall strategy and passioned global network. We are focusing on genetics, among other things. This has resulted in particularly promising apple varieties that have been bred in the breeding program for warm climates. This is an industry-wide breeding program in which T&G’s VentureFruitTM business is the commercialization partner. It shows great innovation and is really exciting.”
Gareth Edgecombe: “Coming out of the Hot Climate Breeding program are a range of innovative apples and pears which have been purposefully bred to be more resistant to warm weather conditions and more climatic extremes. There is a lot of interest from all over the world in these new varieties. We have already licensed growers to bring the first apple “HOT84A1” to market, and many other growers to test globally and have discovered that the apple performs equally as well in temperate climates as it does in hot climates.”
And the consumers, how do they react to all these challenges?
Falk Schlusnus: “When the pandemic broke out, there was a real boom in demand for fresh produce. Although, now, with the uncertainty around the war and rising costs, growth has slowed slightly. Fortunately, we have a network of customers to work positively towards the future. Although we have not been directly affected by the war, there used to be a certain trade in imported goods between Europe and Russia. For example, certain products destined for the Russian market now need to be distributed within other European countries. A challenge but also an opportunity to grow our business in a different way.
Gareth Edgecombe: “For our businesses, the pandemic has shown the incredible resilience of our team and the ability to adapt to new ways of working. It has further strengthened our culture of looking around corners, being flexible and creative in finding solutions, and having contingency plans in place. That ability and resilience have improved our organizations. Part of that is also working digitally and discovering that those new ways of working are effective and hugely valued by our people. Teams have adapted quickly, and as an organization, we have embraced remote working while keeping a need to still come together to connect in person and collaborate. I am proud of our team and the resilience of our business - it has given us new capacity and capabilities - and I know we’ll keep it so we can - to deal with any future surprises.”
What about the rising costs of logistics, labor, and fertilizers, to name a few. How can BayWa Global Produce cope with this?
Falk Schlusnus: “Those costs affect everyone. It is important to be financially strong. 2022 will certainly be a challenging year for everyone. It is not only the increasing costs of gas and electricity, but also the wage costs are rising significantly, the transport costs - due to the pandemic - have increased for each origin, and insurance is also becoming more expensive. The origin is facing the same cost increase as us, so the whole supply chain is affected. Ultimately, we see our customers reacting to this as well. They raise prices, and that is the only possible reaction because everyone is affected.”
Benedikt Mangold: “Initially, retailers were a bit reluctant to raise prices because it’s quite a matter of who blinks first. A few weeks ago, one of them blinked, and now prices are going up, and that is the only way. We have to raise our prices, and they have to be paid by the consumer at the end of the day. The awareness at the consumer level, especially in the European markets, is good as they understand the external pressures everyone in the supply chain is facing. But we have to be aware of what this means economically in the medium to long term. If consumers have higher energy bills and are paying 25% more to fill up their cars, plus paying 10 to 20% more in the supermarket to get their apples, tropical fruits, or other products, how will this develop in the long run and how will consumers behave in terms of purchasing habits? It will be interesting to see this in the time ahead.”
Gareth Edgecombe: “It is inevitable that we will end up with increasing global inflation because there are too many costs that are too uniform globally. It will be interesting to see whether some of these costs are cyclical and whether there are other forms of productivity gains that can reverse or stop that process in the short term. We are all looking at where we can increase scale in the short term, share logistics, reduce costs or eliminate unnecessary steps in processes, which is a complex challenge. In the medium term, we are looking at robotics and automation to create scale and efficiency.”
Gareth mentions that T&G is already focusing on this with its new automated NZD 100 million post-harvest facility in Hawke’s Bay in New Zealand. “There’s increasing apple volumes coming online, so it’s vital we prepare now and build capacity for future volumes. To ensure high productivity, we’re also investing in the latest automation technology throughout the value chain. With the increase in scale and automation, the cost per carton will drop significantly. But it’s a big investment to do those things.”
Falk Schlusnus: “This year, TFC will also be moving to a new facility. One goal is to be more automated in operations simply to control costs due to labor and inefficiencies of the existing buildings. That will make all the difference in 2022-2023. Scaling will take place, and process steps that are no longer needed will be eliminated.”
Benedikt Mangold: “That shows the survivors of this situation; those who can adapt and are able to manage, finance, and create those steps.”
Falk Schlusnus, Benedikt Mangold and Gareth Edgecombe from BayWa Global Produce at the BayWa stand at FruitLogistica
What are the developments within the BayWa Group?
Benedikt Mangold: “Last year, we set up the new holding entity BayWa Global Produce, in which we consolidate BayWa’s whole fresh produce business: the Dutch company TFC, T&G in New Zealand, the German company BayWa Obst, and Al Dahra BayWa Agriculture, our climate greenhouse in the United Arab Emirates. Working with a family approach, we will leverage the potential of the globally growing demand for fresh produce. We build on the strengths of our affiliated companies and continue to invest in our portfolio with a focus on genetics, growing, markets and innovation. The strength of the group lies in sharing long-term experiences, both market and product insights and new technologies, as well as sales and marketing networks. Based on our overarching strategy, we have a great number of initiatives and projects underway where we can tap into the potential that we have not exploited so far. That creates resilience for the group as a whole. Of course, we also want to further expand our portfolio, and therefore, it is important for us to look around to see which strategic partners could also fit into our established family. Possible additions depend on geographies and markets in which we operate.”
Gareth Edgecombe: “The teams in our organization have always had a strong focus on developing new genetics, particularly in apples. We realized that this capacity could be more broadly applied to the global apple category and potentially used for other species as a platform for developing genetics for the fruit industry. So, we split off the part of our business that is responsible for global IP management and commercialization and set up a stand-alone company with its own mandate that seeks to develop as many apples, berries, and other species as possible. This global genetics and variety management business is called VentureFruitTM. It’s going to be a really exciting business of the future, focused on maximizing the intellectual property of the best plant genetics for growers to grow and for consumers to eat. This powerful combination and by working with the world’s best breeders and research partners will unleash future value benefiting people around the world.”
Falk Schlusnus: “At TFC, we continue to develop our vertical integration. We are following the steps we already took last year with the financing of production in, for example, the origins of South Africa and Mozambique, and will continue to shorten the supply chain. Further, high-quality ready-to-eat produce is at the heart of our business. Based on breakthroughs in ripening technology, we are able to manage the environment much more precisely. The atmosphere in the ripening chamber is now constantly monitored by AI-supported technology and individually adjusted in relation to the respective metabolic processes of the fruit. That is quite a change from the way fruit used to be ripened.
Benedikt Mangold adds: “It is a more continuous process. In the past, the head of ripening used to look inside the cell to see how fruit from different origins and in different seasonal periods would behave and then adjust the prescriptions accordingly. Today, this is done by a computer system with artificial intelligence. This, combined with the knowledge of our people in the production sites, results in higher fruit quality, a shorter ripening time, significantly better shelf-life, and less food waste. And, very importantly, a much more homogenous product comes out of the ripening cell. In the past, you had different colors and different states of the fruit that then had to be sorted after ripening. Ultimately, sustainability comes from this; using less energy, taking fewer steps, and producing less waste.”
How do you see the future?
Benedikt Mangold: “Although it is difficult to predict, I think that the logistics issue will remain for some time. We don’t expect it to calm down this year. At best, it will probably last another year, and freight costs will not fall back to their original level. That is something we have to deal with. We are probably in one of the most rapidly changing industries. With fresh produce, we can’t just wait; we have to deal with the immediate situation and find a solution. Otherwise, our product is gone. We work with highly perishable products, and it is probably in the nature of our business that we are able to deal with difficult situations and be adept at it. We have shown that resilience in our business is set up in a very good way. There is a saying that I always use: hang in there and do your best. That is all we can do for now. Let’s see that we can get our product to our customers and the end consumers with great quality. That is what we are here for, and that is what we will win. Then we’ll come out of this situation much stronger.”
Gareth Edgecombe: “If you think about the sector we are all in, we produce great tasting, sustainable nutrition, and all around the world, consumers are increasing their consumption of healthy products. There will always be a demand for premium, fresh, and nutritious produce. Our sector can and will continue to improve our product range and offering to consumers. Markets in Asia will continue to grow as rising middle-class consumers seek out high-quality, trusted, and safe produce. This is an exciting long-term trend. We are fortunate to have a Group with a lot of intellectual property, passion, and drive which can be leveraged to create that future. That is what I’m focused on. Challenges, such as COVID-19, come along and make it difficult in the short term, but we are lucky that we are in a great industry.”