Prices Down, Consolidation and Cooperation Up – Key Messages from Royal Agricultural College Conference

At the Cirencester annual conference, Christine Tacon of Co-operative Farms and John Shropshire of G’s Marketing addressed the theme of “Business strategies for the next decade”. With a turnover of £50million, and running 60,000 acres of their own and partner companies’ land, the Coop is the largest arable, vegetable and fruit farmer in Britain. It supplies the Coop Group, as well as other customers. G’s is a £230million turnover company, supplying major supermarkets, independent outlets and the catering trade with vegetables and salad crops.

Their businesses are different but their messages similar.

Message 1 – Producers profits will be further squeezed

Whilst neither speaker put it quite as baldly as that, Christine said that “these are tough times for growers”. The Farms unit is prepared to take a lower price for produce from its Coop parent in return for security of supply, and acknowledges that Coop buyers would rather not be tied to buying from the Farms but to chase lowest prices by dealing with a number of suppliers. John Shropshire was categoric – “Price is everything”- and cited celery where half of the crop this year was sold on promotion. He says growers are finding it difficult to make money even now, and forecasts that prices will drop in real terms. Perhaps controversially, he does not favour contract prices, believing that producers tend to contract at below the market average, and also that contracts mean businesses lose touch with what is happening in the market place.

Message 2 – Big is beautiful

The notion that producers’ profits are under pressure is not a surprise, but the emphasis these industry speakers put on the need for accelerated and radical consolidation might be.

Christine mentioned Thanet Earth, a veg and salad crop venture in Kent owned by a 4 business consortium, whose website proclaims that the unit has enough glass to cover 80 football pitches. She also said that UK meat and dairy industries are too fragmented and inefficient to compete with overseas companies. John was clear that further consolidation in the supply chain was urgently needed to reduce costs and offset pricing pressure. John, with G’s having farms in Spain as well as the UK, also forecast a “Europeanisation” of the supply chain in an effort to get economies of scale.

Message 3 – Cooperation will be key

Coop Farms either own land or run farms for private landowners so are well used to dealing with farmers directly. G’s is a cooperative of 20 farmers with each farmer having one vote regardless of size. Both are committed to close working relationships, and feel that the more integrated the supply chain the more chance there is to examine costs from end to end and reduce them to offset price pressure. John Shropshire particularly stressed the need for close partnerships where information flowed, and supply chains could react with speed and accuracy.

Perhaps as a reaction to the extremely difficult economic climate, there was less talk of growth producing as opposed to cost cutting strategies. However speakers commented on the need for good customer understanding, and a continued attempt to try new things even when money is tight.