Europe’s Currency Advantage In Developing New Markets

European Market

Facing a combination of challenging domestic market conditions and the ongoing ban from trading in Russia‭, ‬many of the larger EU‭ ‬fruit and vegetable distributors developed strategies to enter and develop other markets in regions of the world‭, ‬such as Asia‭, ‬Middle East and Africa‭. ‬If EU packers and exporters can harness this opportunity‭, ‬it should drive demand back up the supply chain to support an increase in horticultural production in the leading growing countries across the Continent‭, ‬such as Spain‭, ‬Italy‭, ‬France‭, ‬Poland and the Netherlands‭. ‬These parts of the world are‭, ‬of course‭, ‬where many U.S‭. ‬exporters are also looking to develop new business too‭, ‬so the overall competitive environment in them will only intensify‭.‬

Europe faces tough competition in these emerging markets from other major producing regions of the world‭, ‬in particular the likes of Chile‭, ‬Peru‭, ‬South Africa‭, ‬and of course‭, ‬the U.S‭. ‬‮—‬‭ ‬which‭, ‬in many cases‭, ‬has a more dominant position in these sorts of markets built over a period of time‭.‬

But Europe has an ace card‭, ‬and it should play it now‭. ‬Structural‭, ‬political and economic difficulties within the Eurozone weakened the strength of the pound against most major currencies‭, ‬including the US‭$ ‬and Chinese RMB‭ (‬which sets the tone for many Asian currencies in particular‭). ‬A weak Euro‭ (‬€‭) ‬makes European exports more competitive in international markets‭. ‬And with little prospect of an improvement in the Eurozone‭ ‬economy on the horizon‭, ‬Europe’s currency advantage may last for some time‭.‬

This is potentially good news for price-sensitive buyers in Asia‭, ‬Africa and the Middle East‭, ‬who are looking more globally to source horticultural products at a more competitive cost‭. ‬This became even more apparent‭, ‬during a recent trip to Asia‭, ‬where I saw European suppliers‭ (‬benefitting from a weak‭ ‬€‭) ‬beginning to make inroads into produce markets that are typically dominated by supply from the U.S‭., ‬Australia and New Zealand‭.‬

The most‭ obvious impact of the change in the exchange rate will be to trade between the U.K‭. ‬and Europe‭, ‬which might well impact to the detriment of the U.S‭. ‬for any opportunities for suppliers of fresh produce such as apples‭, ‬grapes‭, ‬grapefruit‭, ‬blueberries and other fresh items‭.‬

It is impossible to predict how long Europe’s window of opportunity may last‭. ‬Therefore‭, ‬it makes sense that EU exporters should take full advantage of its competitiveness‭ ‬in the short-term‭, ‬whilst also taking the opportunity to get closer to the market and buyers‭, ‬in order to lay the foundations for more sustainable medium to long-term opportunities‭.‬

What impact will that have in the UK‭?‬

The UK still remains part of the EU‭, ‬but operates outside of the Eurozone‭. ‬In 2017‭, ‬a referendum will be held in the U.K‭. ‬to decide on the future role and membership of Britain within the wider EU‭. ‬A weak Euro currency and a stronger economic recovery in the U.K‭. ‬led to a 15‭ ‬percent rise in the value of Sterling relative to the‭ ‬€‭ ‬in the two years to September 2015‭.‬

The most obvious impact of the change in the exchange rate will be to trade between the U.K‭. ‬and Europe‭, ‬which might well impact‭ ‬to the detriment of the U.S‭. ‬for any opportunities for suppliers of fresh produce such as apples‭, ‬grapes‭, ‬grapefruit‭, ‬blueberries and other fresh items‭. ‬Europe is‭, ‬by far‭, ‬the biggest trading partner for the U.K‭. ‬In 2014‭, ‬the U.K‭. ‬imported‭ ‬£39‭ ‬billion worth of agricultural‭, ‬food and drink products from Europe‭. ‬This is equivalent to 72‭ ‬percent of total U.K‭. ‬food and drink imports‭, ‬according to HM Revenue‭ ‬&‭ ‬Customs‭ (‬the tax and customs authority for the U.K‭.).‬

In the same way a weak‭ ‬€‭ ‬will favour European exporters in global markets‭, ‬it will also provide a temporary increased advantage for them in the U.K‭. ‬too‭. ‬Exporters from the continent will see the U.K‭. ‬as an even more attractive market based on this‭. ‬The current‭ ‬£‭/‬€‭ ‬exchange rate will help suck in additional imports to the U.K‭. ‬from the likes of France‭, ‬Italy‭, ‬Spain and the Netherlands‭ ‬‮—‬‭ ‬they are already large suppliers of a wide range of produce‭.‬

This will be a major test for all in the U.K‭. ‬fresh produce supply chain‭. ‬It will also place U.K‭. ‬suppliers under even greater pressure to remain competitive against their European counterparts‭. ‬It might also test the support for British sourcing policies‭ ‬of all major buyers‭ (‬retailers in particular‭). ‬No one really knows how long the current state of affairs will last‭. ‬The movements of exchange rates are notoriously difficult to predict‭. ‬However‭, ‬what is certain is the longer this situation exists‭, ‬the more pressure for U.K‭. ‬horticultural and the wider food industry will be under‭. ‬Less good news for U.K‭. ‬producers may be that the‭ ‬opportunities in the U.K‭. (‬and even further afield in the likes of Asia‭) ‬are often driven by events that are determined by factors well beyond the producers’‭ ‬immediate control‭. ‬Today’s produce industry is a truly global and interconnected supply chain‭.‬

John Giles is a Divisional Director with Promar International, a leading agricultural and horticultural value chain consulting company and a subsidiary of Genus plc. He has been involved in a wide range of produce related assignments in the UK, the rest of the EU, Latin America, SE Asia and China.