Europe’s Currency Advantage In Developing New Markets
January 1, 2016 | 4 min to read
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.
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