German group BayWa AG's (DE: BYW) plans to take a majority holding in exotic fruit importer TFC Holland B.V. for €28.7 million have put the firm on a new trajectory, branching out from a produce business that has historically focused on temperate fruit.

TFC's Peter Kooi (left) with Christiane Bell and Klaus Lutz

The deal would only be next door in the Netherlands, but the announcement in the lead-up to industry event Fruit Logistica was arguably BayWa's most significant in the produce space since it took over New Zealand company Turners & Growers (NZX: TUR) in 2012.

"For BayWa it's a little transaction, but strategically extremely important," CEO Klaus Lutz told www.freshfruitportal.com in Berlin.

While the group deals with a range of products via T&G, at home in Germany the core operation is apples - a crop that has suffered from the impacts of Russia's ban on EU produce exports.

"The question was, 'what can we do to reduce the dependency on one fruit?' Due to the Russian and Ukrainian crisis, we had to acknowledge that this dependency was really dangerous for our bottom line," Lutz said.

"We said, ‘okay, we have to diversify our product portfolio as soon as possible’. This is the first step now in diversifying our portfolio in the fruit business here in Germany and Europe."

He said the expectation was to expand BayWa's presence with German and other European retailers, with avocados, papayas and mangoes as the leading products.

“But the overall picture is 200 different varieties and it’s more an on-demand business. That’s what I like very much.

"We work on the projects of our customers so we do not have to really take a long position on the stock. Financially that’s very interesting."

With less cold storage capability than apples, tropical fruit is a completely different business for BayWa, however Lutz is confident in TFC's management and experience. He is also positive BayWa's fruit general manager Christiane Bell will fit well into the position of managing director at TFC, taking on a dual role.

"We’re still not forgetting where we come from with our roots in Lake Constance, but everything we add on brings its benefit and value to the existing business," Bell told www.freshfruitportal.com during the event.

"Due to the benefit of it being ready to eat, that’s the big vehicle of the whole assortment. We meet customer demands, and that’s what TFC has learned in an excellent way."

The executive went into more detail about challenging times for BayWa's southern German apple growers, who unlike northern producers have had a lower crop this year, but are not seeing any benefit in prices despite the  volume dip.

"What do the Germans retailers do? They want price – we have less quantity and low prices. That’s not good news," she said.

"If it’s like this for another two years growers will be out of business and then we’ll have a fundamental problem."

Building a German apple export future

To face this challenge, BayWa is encouraging some growers to convert orchards to premium varieties, and the group has already started to do this with the first plantings of T&G's proprietary Jazz apples.

"If we all produce Gala on an inflationary basis then none of us is going to win. We need to look at what is going to work in the future to have export varieties out of Europe.

"In Asian markets right now the markets are stocked by merchandise that are worth only half what the growers have asked for, and they’re clogging up the markets right now. That will not happen when we market apples that are 100% safe."

Both executives were emphatic about the importance of export development for the BayWa fruit division's future and German growers.

Lutz has previously been critical of the German Government's lack of efforts to secure market access arrangements overseas when compared to other agricultural nations, but he is hopeful current Agriculture Minister Christian Schmidt's employment of more export-focused staff will yield results.

But as intergovernmental negotiations can be lengthy and unpredictable - neighboring Poland beat Germany to gain Vietnamese market access despite both countries applying around the same time - BayWa is taking overseas market development by the horns, opening up a new office in Bangkok.

"It's just to try to get a relationship with retailers in Asian countries where German varieties can be exported. That’s where we started just a couple of months ago, and I’m very optimistic that the person who is responsible for that will create an interesting business for BayWa itself – that’s not in competition with T&G of course," said Lutz.

Bell said not only would the office create opportunities in Thailand, but also in other markets where Germany has access like Malaysia, Singapore, Cambodia and Hong Kong.

"You need a one-to-one relationship. You can’t do it over the phone from Lake Constance. You have to be there, they have to see you," she said.

www.freshfruitportal.com