Doing nothing is not an option for Dutch greenhouse vegetable sector

It will only be possible for the Dutch greenhouse vegetable sector to emerge from the current downturn if growers and producer organisations significantly improve the marketing for vegetables such as tomatoes, cucumbers and sweet peppers. LTO Glaskracht, the greenhouse horticulture division of Dutch Federation of Agriculture and Horticulture LTO, commissioned the McKinsey consultancy to make an analysis and formulate recommendations for the growers. Rabobank believes the resulting analysis and recommendations should now be put into practice as soon as possible.

McKinsey’s analysis has been presented to growers on Wednesday, 17 December 2014. The objective is for it to lead to an improved sales structure with greater opportunities for higher and stable prices, preventing production for which there is no demand, better alignment of production and demand and improved sales possibilities in the event of overproduction. It is up to the growers and producer organisations to state in mid-January whether they will turn McKinsey’s analysis and recommendations into actions.

Businesses standing at a crossroads

‘Rabobank does not view this McKinsey study as non-obligatory. Businesses are standing at a crossroads: Will they continue to go alone on the current path or will they work together in partnership to improve sales? When the McKinsey analysis puts forward proposals for improvements, we expect greenhouse vegetable growers and producer organisations to begin making these improvements. Doing nothing is not an option. The sector is not healthy. If businesses do not improve sales, the current compulsory rationalisation will continue. And that would not be in anyone’s interest. Rabobank supports McKinsey’s analysis and recommendations’, says Ruud Huirne, Director of Food & Agri Nederland at Rabobank. Rabobank is the largest financier of the Dutch greenhouse vegetable sector.

Businesses’ capital positions still suffering from low prices

Businesses in the greenhouse vegetable sector are extremely reliant on exports. This is true whether they handle their sales independently or through producer organisations. These businesses have been facing overly low prices for their products for a prolonged period. The McKinsey analysis reveals that some of them are still making a profit, but that more than 50% are running at a loss. These businesses’ capital positions are suffering as a result.
Competition in Europe is set to increase further in the years ahead, for example due to investments being made in Spain and Morocco. According to the McKinsey analysis, this increased competition will pose problems for Dutch greenhouse vegetable growers that are currently still operating profitably.

Growers need greater market strength

This is why the answer to improving profitability does not lie in production, but specifically in the field of sales and marketing. The growers and producer organisations are confronted in Europe with a limited number of customers that buy large volumes and they need greater market strength vis-à-vis these customers. Huirne: ‘If the Netherlands were to start producing less, other countries would start producing more and the position of the Dutch sector would only deteriorate further. The fact is that all the cucumbers, sweet peppers and tomatoes are consumed, they are just sold at an overly low price. This is not attributable to the level of technical knowledge and innovation in the Netherlands. The vegetable growers in the Netherlands extract more quality from every hectare of land than anywhere else in the world. But most businesses do no succeed in transforming this quality into a good price in the market. That is the crux of the problem.’

Improving sales through coordination and market focus

The McKinsey analysis sets out the improvements that can be made in the area of sales:

  • Coordination at the sector level, in the areas of market information, innovation and product quality standards for example.
  • Efficient chain with a limited number of market-focussed producer organisations that can, for example, provide sales plans and outlets in the event of temporarily higher production.
  • Focus on market-orientation and innovation, for example in order to respond directly to consumer demands by service and aligning the flavour, size and packaging of sweet peppers, tomatoes and cucumbers.

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