The strength of the Australian dollar has eased over the course of the last month, leading to a fresh produce export situation that may not be ideal, but certainly better. Domestically, the market is inundated with an amount of fruit and vegetables that consumers haven't been able to absorb. At www.freshfruitportal.com we speak with Produce Marketing Association (PMA) Australia-New Zealand CEO Michael Worthington about the industry's outlook, the silver lining, and what retailers are doing to boost rotation.

Australia is facing a classic horticultural industry problem; following a disastrous year of floods and cyclones in 2011, weather conditions have been too good in 2012 and there are crops aplenty.

The situation doesn't get any easier when you combine this with a strong Aussie dollar and a degree of economic strain.

"Generally the industry is going through a period of relatively lower prices across all product lines, and that is causing quite a bit of pain for companies no matter what part of the supply chain they’re in," says Worthington.

"Overlay that with consumers tightening up the purse strings a bit - the demand side is probably not as strong as we’d like - and you've got the issue of the exchange rate which means a lot of product that normally would be exported is also on the domestic market, which is adding to the supply side of the equation.

"We’ve had relatively favorable conditions across most of the seasons, so unless there’s some supply shock, this will continue for a while."

So how does the industry get itself unstuck? Worthington says strong promotion with low prices for certain lines is prompting consumption spikes, but this is likely just displacing purchases of other fresh produce items that are not on promotion.

"The total sales basket in terms of volume is not increasing at a level that is overcoming that oversupply situation," he says.

"It’s very difficult to see the demand side of the equation kicking up strongly, in spite of a lot of media about more healthy eating, and in spite of the fact that prices are actually pretty good compared to where they were a year or so ago; it’s not actually translating into consumers buying a lot more.

"It’s just a bit of a cycle that we’re going through at the moment."

Worthington believes there is still more scope for ongoing industry-wide promotion to let consumers know 'there has never been a better time to consumer fresh produce than now'.

Silver lining

He says the weakening of the Australian dollar could help the industry to an extent, while at home there have been positives with certain products.

"That might help some of those producers to  start shipping more product off shore - there's no doubt about it everyone’s grappling with the issue, and they’ve got to find some short term solutions.

"Looking at produce as a whole, if you dissect it with some of the new varieties, they’re getting tremendous growth in new products.

"The totality is not so good, but there’s always nice little stories which are mainly around new product, smart marketing, and some people are doing OK out of it."

He cites low-GI charisma potatoes, Jazz apples and different greenhouse tomato varieties as examples.

"Greenhouse tomato production is growing fast and a lot of those greenhouse tomatoes are displacing field tomatoes; tomatoes are the fastest growing industry, and the fresh category is approaching AUD$1 billion (US$989 milion).

"It's a strong category and it’s been driven predominantly by new, higher value tomatoes like your truss, cherry varieties, and that’s what consumers are responding to. It’s now a higher value market and probably lower volume."

In February, Australia's largest tomato grower SP Exports was forced into receivership, but Worthington says it is important to recognize Australia's tomato production is actually increasing.

"The number of processing tomato growers has declined considerably but the volumes have actually increased, and there’s one major processing company that is actually increasing volumes.

"So it's not heading south for the processed tomato growers."

Grape escape

He adds grapes have done comparatively well this season with strong export demand over the summer-autumn period.

"I think probably they had a better season than they’d had in the last three to four years; less shocks with quality breakdown, relatively good quality across the season, and the demand for products like Crimson in Asia have been good.

"In spite of the dollar, they have been able to ship volumes up into Asia which always helps the domestic markets retain reasonably strong pricing."

Cherries and Chile

He says Australian cherry exporters had an all right export season despite the dollar, with Taiwan back on-stream.

"China was very difficult though because of the big supply out of Chile, but then they also had a very good domestic marketing campaign that did well, and they had some supply shocks that shortened up supply a little bit.

"Going forward they do need those export markets, and I think they’re still reasonably placed, and they do produce a reasonable product; they’re never going to compete head on with Chile, but they have got some quite nice niche markets in Asia that they have to keep working at.

Australia also competes with Chile in citrus, and Worthington says early indicators are showing some 'nice fruit around' for that category.

Big task for the tropicals

Worthington highlights both mangoes and avocados are faced with very strong supply.

"Given good growing conditions, they are going to have to work very hard on developing new export markets to take up some of that strong supply situation.

"The avocado season has started with the early shepherds at the moment, but the Hass season doesn’t start for another few weeks, and all indications are that it’s a big crop and they really are going to have to work very hard this year to both promote very strongly domestically, as well as really building on some of the small successes they’ve had on the export game.

He says the avocado industry has done well to develop the largest consumption of the fruit per capita in the English-speaking world, but there is still a long way to go yet.

"It's testament to that industry that has been very focused on the consumer over the last few years, and has been very conscious of the added supply part of the equation, and as a result they have convinced consumers to really keep eating avocados.

"But you can't just do the domestic market alone, you have to keep building those export markets."

He says the banana season has been very strong as well.

"It's been very good for consumers. Banana prices are at pretty low levels so there’s no excuse for consumers not to be really getting into them so I think that industry is back on supply track, and it’s really just then a function then of how much they can get local consumers to eat."

For pineapples, Worthington says as there are no fresh imports it is a matter of boosting demand as with other fruit categories.

Stepping up the game in retail

He says promotions and competition for fresh produce sales has been increasing in Australia, not just between the two main supermarkets Woolworths and Coles, but also with independents, discounters like Aldi and Costco.

"There is a lot of talk about what the two major supermarkets are doing, but they don’t dominate as much in fresh produce as they do in general grocery lines.

"With fresh produce, those two guys make up about 50% of all sales, with the balance going to a mixture of food service and independent green grocers. They’re very powerful but it’s not as if they’ve completely got the market to themselves.

"That said, both of them have been very strongly promoting fresh produce and with a lot of lines at very competitive prices. They can do that at this time because the supply side is such that they can afford to do that."

He says this is very good for consumers and the produce industry, and is also leading to better competition from other players.

"The independent retailers are also having to step up their game to remain competitive, offering the consumer something you can only get at a green grocer that you can’t get at a retailer.

"They’ve sharpened up their game considerably, and I think that causes a bit of angst in the marketplace but on the whole I think it’s positive."

Worthington notes the 'quiet but steady rise' of the discounters.

"They're relatively small in terms of overall percentage at the moment, but their growth is very significant, particularly when the general economy is a bit tougher than it has been.

"Consumers start looking at those discounters in a new light. You're getting more segmentation in the marketplace with independents having to remain more competitive to stay in the game, the two big guys being very aggressive and smart with their marketing campaigns, and the discounters going ‘price, price, price'.

"It's a very competitive space at the moment in fresh produce, and it makes for interesting times. Those discounters have definitely got themselves established and they’re not going away."

Food service

Worthington says the food service industry is fragmented and is still growing.

"I think what you’re getting is on the QSR (Quick Service Restaurants) side like McDonald’s and Subway they are all doing OK, with very competitive pricing once again, at the same time they realize the guns are out in terms of healthy eating.

"So they’re trying to play a nice balance at the moment of competitive quick meals, but knowing that they have to keep some of the fresh product lines in the eye of the consumer.

"Then the general restaurant trade is pretty strong at the moment, so food service continues to grow. By volume it is still around about that 20% mark, but it is growing; not meteoric but steady."

The PMA Australia-New Zealand Fresh Connections event will be held in Melbourne on Jun. 26-28 this year.

www.freshfruitportal.com