Cindy van Rijswick, Senior Fresh Produce Specialist at Rabobank, expects the sky-high gas prices to lead to far lower Dutch greenhouse production this winter. "The question, of course, is which countries will fill that gap. The Netherlands will, first and foremost, consider Spain, Morocco, and perhaps Türkiye. So the 'local for local' trend will come under pressure for a while," she begins.
But, will those countries fill that gap effectively, the market specialist wonders? Morocco will likely concentrate on the British market. Plus, it and Türkiye (theoretically) face quotas, while in Spain, there has not been any acreage expansion. "There are crop shifts, for example, from zucchini to tomato, but no new large plots. Southern Europe's greenhouses may not be heated, but even there, they fear they won't be able to pass on the increased costs of, say, transportation and fertilizers to customers. They, too, face labor shortages and rising minimum wages, just like in the Netherlands. But an impending water shortage is the main reason for that reluctance to expand acreage. That could become a huge problem in southern Europe."
Less supply but less demand too
Yet, Cindy is not sure there will indeed be such a massive supply shortage. "People are probably going to buy less. They will more often overlook, especially, the more expensive fruits and vegetables. Common products like apples tend to be cheaper and widely available and could work on a revival. Specialties will have a tougher time. I don't see prices doubling due to shortages right away," she says.
In the EU, consumer confidence is at an all-time low. That dropped a few months ago, but that was less evident because many people were in vacation mode and wanted to live it up a little after the pandemic. "Now, more people are shopping at discounters, buying less expensive products and looking for deals. Local producers whose goods are usually slightly pricier are already feeling the pinch."
Products prices climb, but not by enough
"Fruit is a little more expensive - roughly 5.6% (that includes canned and frozen fruit prices, which rose more than those of fresh fruit). Compared to other product groups, that's not too bad. Vegetables, meat, and other food items' prices increased more sharply. In September, average food prices were up nearly 13% from last year. Given the chain's cost increases, fruit prices didn't climb enough. Apples, for instance, hardly got more expensive. They should have, considering cooling costs. Polish growers have left many apples hanging on the trees to save on refrigeration. I, thus, think there will generally be ample top fruit available," Cindy explains.
Companies, obviously, cannot simply tap into a cheaper energy source overnight. "There are quite a few geothermal projects in the pipeline, but these are long-term projects. You have to get all the necessary permits and do exploratory drilling. And if several companies give up or slow down their activity, that delays those projects. Such initiatives are only profitable if a group of greenhouse farmers, or a sizable company, manages the geothermal heat source," Cindy explains. You collectively need more than 100 hectares for these kinds of projects.
Weak euro barely benefits Dutch fruit and vegetable sector
Even the weakening of the euro against the dollar is not bringing relief for Dutch greenhouse growers burdened by high cultivation costs. "The Netherlands used to send considerable bell pepper quantities to the US and Canada. But since air freight prices peaked, that's almost nothing anymore. A weak euro only benefits you if you export dollar-traded commodities outside the EU. There are some prospects for French fry, seed potatoes, onions, and bulb exports. But the exchange rate situation doesn't benefit products like greenhouse vegetables. The higher dollar will, however, affect the Netherlands as a (tropical) fruit importer. Bananas, for example, are always traded in dollars. So, given all the cost increases and the currency issue, I believe fruit will fetch higher prices in stores."
Minimum wages increasing everywhere
There is a factor that market forces do not directly determine: increased minimum wage. That is subject to political negotiations. This will increase by 10.15% in the Netherlands on January 1, 2023. "Of course, that's yet another cost companies will have to pass on in products' final price. But I must add it's a good thing that the lowest-ranked employees can expect improved wages. Those low-paying jobs are vital. Plus, that's exactly where the labor market is tight. Besides, higher minimum wages also ensure more equality," says Van Rijswick. The Netherlands is not the only European country that will raise its minimum wage in 2023; Germany has already implemented an increase of no less than 22%, and Poland and Spain, among others, are also planning an increase as of January 1, 2023.
Agriculture surviving, but horticulture and ornamental cultivation succumbing
"These cost increases are hitting the Dutch food horticulture sector hard, but ornamental cultivation is having an even tougher time. Arable farming, on the other hand, has quite nice margins worldwide, and grain growers in countries like the Netherlands will have a fine year. Also, potato prices are such that growers can make up for their increased input costs. Though, of course, there are challenges, like the new nitrate directive."
But, for greenhouses growers, 2023 will be a matter of survival. "Some are already in dire straits. And if less product is harvested, the packing stations will also not run at full capacity and will have less turnover. It's going to be a tough year for almost everyone, including the trading companies. Still, many businesses are in better shape than during the financial crisis some 15 years ago. They're generally in less debt. Ornamental growers getting the brunt of it has to do with them needing to heat their crops year-round. They also can't really store their products. For, say, rose growers, the peak is around Valentine's Day, just about the coldest time of year. And most growers have to sign new, less beneficial gas contracts now," Cindy explains.
Robots will add value
Lastly, she touched on possibly using robots to alleviate labor shortages. "Everyone hopes affordable, efficient robots can soon be available for use in greenhouses or orchards. And that they will alleviate the labor shortage issue. There are very definitely some promising projects underway, but they're few and far between. Currently, only a handful of Dutch use robots. Things are moving forward, however. These days, people seem to take a much more pragmatic approach."
Though Cindy does not anticipate harvesting robots replacing human pickers before 2025, such technology may soon be able to for other tasks, like administering crop protection products and monitoring crops. "Robots will, therefore, not immediately add true value in a labor replacement role, but they will in their ability to outperform humans in very specific tasks. Think of harvesting produce using specific customer characteristics or timeously recognizing diseases in a crop," concludes Rabobank's Senior Fresh Produce Specialist.
Cindy van Rijswick
Rabobank
Cindy.Rijswick@rabobank.com
www.rabobank.nl