Fresh produce must consolidate to thrive

A perfect storm of pressures is on the horizon for the fresh produce sector: Brexit, the national living wage, and persistent low prices, which will prompt the next revolution and ultimately lead to a more consolidated sector.

Labour makes up a significant portion of the cost of farming and processing, and this is set to grow significantly in the next few years. The first factor is the new national living wage. This is a positive step for workers, but for small farmers in particular this needs to be carefully managed to preserve pressed margins.

The second factor is that small and independent producers will find the likely labour pressures associated with Brexit challenging. Some bodies such as British Summer Fruits have warned that at its most extreme this could make accessing seasonal workers impossible. It seems inconceivable that we will end up with a blanket block on European workers for seasonal picking given the importance of these workers to British agriculture and other industries. Instead, the most likely scenario is one similar to the situation pre-2004 and 2007 where it essentially involved more paperwork to hire workers from Eastern Europe.

Navigating the new regulations will require more expertise, legal and administration support, and therefore ultimately more cost. Larger players are more likely to already have this expertise in-house or have the resources to source them, while for small producers this will present a more significant issue.

Meanwhile the third factor, a downward pressure on produce prices, is nothing new but is unlikely to relent. Supermarket price competition is making it ever more difficult for producers to pass the burden of rising costs on to retailers or consumers.

The culmination of these three pressures means producers will have to innovate to become as efficient as possible, from streamlining supply chain processes and delivery to increased mechanisation and automation. In the potato sector we have witnessed a move to higher output specialist harvesting and planting equipment in the field, and higher output packing lines within the factory, along with a move to more automated grading, packing and stacking. All these innovations require significant investment. Large-scale producers have a significant advantage here with access to bank and market capital and major efficiencies of scale. In the long term, these investments will pay off and allow the larger players to offset rising costs - essential progress if British producers are to compete and excel.

The evident advantages of scale combined with cost pressures will mean a significant consolidation in the number of producers in coming years. Farmers coming together will be able to invest and thrive, enjoying the increased protection and clout that come with being part of a larger entity.

The consumer also stands to gain. Not just in terms of lower food prices - a leaner supply chain with fewer partners will offer greater product traceability and assurance.

Ultimately in future we will see a sector with fewer but larger, more professional, efficient and streamlined producers. The impetus to be efficient is greater than ever before, and the necessity to offset the challenges of Brexit and rising wages will once again be the driver of invention.

Angus Armstrong is CEO of Greenvale AP