In the produce world, Roberta Cook is among the most celebrated agricultural economists of her generation. The Pundit had an opportunity to share a platform with her years ago at what is now called the Agricultural & Applied Economics Association, and we’ve had the privilege of working with her many times since.
She is a constant star at The New York Produce Show and Conference, with the industry applauding her always well-researched and data-intense sessions, such as these:
When we heard she was willing to take a deep dive into some important issues to present at The London Produce Show and Conference, there was no hesitation, “sign her up.” Then we asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
Q: What an honor to have you present in London! You’ve impressed attendees with your information-dense, thought-provoking talks at the New York Produce Show’s Global Trade Symposium. What do you have in store for attendees at the London Show?
A: Since the audience is so international, I have brought together data on global trends in fresh produce imports and exports, changing demographics and implications for fresh produce demand, the rise of supermarkets in the developing world and the implications for fresh produce trade, and the changing structure of global food retailing.
Q: Sounds like you’ll be covering a lot of ground…What triggered this intense data collection and analysis?
A: I had this idea: Years ago, I was working in Argentina looking at imports there of fruits and doing some work in Brazil and Chile, and, of course, I worked a lot in Mexico. One of the things I observed was the rapid growth in modern retailing and in developing countries.
Supermarkets really started to make inroads in the past couple of decades, depending on the country, some more advanced, some less advanced. But basically, this trend emerged. So when you get modern supermarkets in developing countries, it stimulates fresh produce trade. Because if you’re a modern retail chain, you’ve got this investment in infrastructure and you want to keep your produce department shelves full year-round just like you would in the rest of the store.
But in the world of fresh produce, no country really produces everything needed all year-round. We have this seasonal thing. In the past, as a consumer, you just didn’t have products in the off season available.
These developing countries have grown in population. You have more middle income consumers emerging, and you’ve got mega cities in many of these countries. You even have more consumers with similar food preferences as in developed countries, and they want a greater diversity of fruits and vegetables year-round. These chains started to become more focused on imports, which stimulated fresh produce trade.
Another point is, when you get the modern retail sector emerging, generally the status quo with buyers in these countries is a lot of fragmentation on the supply side, the grower and wholesaler side, and the intermediaries. So, it’s challenging for modern retailers to source fresh produce sufficiently.
Gradually what happens is these chains start developing better supply chains. That means more cold chain management, something important for fresh produce, and it helps retailers earn the same margins if they reduce their waste.
Q: You’ve hit on a hot topic…
A: Globally, food waste is becoming more important, and certainly in fresh produce, cold chain management is one way to control that.
As you get bigger suppliers, it means they can operate more efficiently. With higher productivity, you can get some streamlining of the supply chain, reduce transaction costs, and you have more consumers willing to avail themselves in the convenience and food safety attributes. Those trends tend to drive demand in middle income countries and developing countries.
These are the same kinds of trends we’re experiencing here in the United States. There’s greater demand for convenience, fresh-cut, and food safety guarantees.
I’ve been interested in this topic for a while because over time it’s going to have very important consequences for world food demand and specifically for fresh produce.
Q: With that backdrop, how is population changing in the world, and what impacts will that have for the industry?
A: Understanding growth trends in population and income levels is going to be very important in terms of projecting produce demand. Important shifts are under way in the share of global population accounted for by key regions with profound implications for food demand in upcoming decades.
Q: Could you give us a preview of those profound implications?
A: There are various elements… We have mature food markets here in Europe. We have rapid growth in the developing economy, and that’s driven by higher incomes and more urbanization, leading to demand for higher quality, fresh produce.
Huge changes in relative importance of markets are going to take place over the next decade. Then you have this other aspect, which is the modern supermarket sector as I mentioned. Within that piece, there’s what’s happening in developing economies, and then there’s the whole issue of what’s happening in the developed countries, in terms of retailers’ market shares.
Q: What is the competitive dynamic?
A: We see big alterations in formats, hypermarkets versus convenience stores. In Western Europe and the U.S. and Canada, smaller store formats are growing at the highest rates, cannibalizing sales of big box stores. This will have a big impact going forward in Europe on where produce will be sold.
We’re seeing convenience stores wanting washed grapes in clamshells, and these kinds of products. The fact we’re experiencing this growth in both Europe and the U.S. will have implications for demand.
When I look at the modern supermarket sector, I want to examine different store formats and then also how the rise of supermarkets in developing countries is influencing demand.
Q: What is the next area you’ll cover?
A: That takes us to the international trade piece and fresh produce specifically. What I wanted to do was explore changing volumes of fresh produce trade over the past decade, and within different countries. Are there any shifts in major products that are being traded, in kinds of products increasing or declining, etc.
I’ve pulled together data for produce globally, and believe me, it was a nightmare. In the end, I’ve done it, so I’ll show those numbers, which highlight the growing role of China.
Q: Why is it so hard to synthesize all the international trade data?
A: For the U.S., if we want to know what’s happening with our trade, where we export to and where we import from, by commodity and tariff code, we can see that picture. But, of course, we’re only one player in global trade. I can go to the USDA website, and you can do all these queries and download all this data for the U.S. picture on exports and imports. But I don’t have access to anything else in rest of world.
Basically then, I can go to the United Nations commodity trade statistics data base, or the FAO data or Euro stats, but all of those are really, really, quirky and hard to do queries on, and the problem is things are aggregated at a broad level, like all horticulture products are mixed in together, and I’m only interested in what’s happening with fresh produce. So then you have to start doing things by code and with different countries, and it’s not in a form you can work with… Let me tell you, it’s a nightmare.
Q: Sorry I made you have to relive that experience.
A: People don’t realize what’s involved. So my overview is shifts are underway in key regions and these have influence on demand as fresh produce demand growth will outpace that of developed countries. Exploring market access, do you have legal entrée to a country for your product? You know a lot of times, we have phytosanitary restrictions with fresh produce and certain countries can’t ship products. And there are other trade issues impacting imports and exports.
Q: The U.S. apple industry recently gained expanded market access to China for a broader range of apple varieties in a landmark trade deal… Is that symbolic of a wider trend?
A: Yes, that’s right. As another example, Peru just got access to different markets for various products. Market access is improving, which impacts international trade, and there is increasing competition between exporters.
Q: How does this connect to your point earlier that growth in developing countries will outpace that of developed countries?
A: This is a major point, and one of the reasons why I wanted to do this presentation. In Western Europe, the U.S., Canada, and Japan, we have low rates of growth in population. Already, we have high income levels, and people are not increasing their level of fresh produce consumption very much. Right now that’s understood.
At the same time, in developing countries we’re seeing growth in populations and in incomes. And as people’s incomes increase, they spend a lot on food and try to upgrade the quality of their diets. So they reduce the amount of starchy foods, like rice and wheat-based products, and increase the amount of protein and vegetables.
Remember 20 years ago, there were a lot of restrictions in international trade and many products couldn’t be shipped. There has been so much effort to address phytosanitary issues that products are going to move where demand exits.
Take a look at California exporters for fruit. They’re facing much more competition from other countries than they did in the past. For example, more countries have access to China for table grapes. It’s a positive picture for expanding trade. That’s a good thing, but it also increases competition for exporters.
There’s another part to this — growth in foreign investment for expansion of the modern supermarket sector in developing economies.
Then with GAT in the 80’s, and the WTO in the 90’s, all these trade agreements helped increase foreign investments, including into the supermarket sector.
Also, in the 80’s, 90’s, and 2000’s, what we saw in the U.S. and Canada and particularly in Europe, food markets becoming saturated, and where are they going for growth? Wal-Mart looked for expansion in developing countries. And we started to see foreign investment in the modern supermarket sector throughout Latin America and Asia.
As I mentioned, this stimulated cold-chain infrastructure coinciding with demand for imports year-round.
When we look globally at retail trends, I want to give a picture of what’s going on in Europe and North America, excluding Mexico. Part of this presentation is projecting out, but we need to know what’s going on now. Competition at all levels is increasing. Greater competition at the buying end of the supply chain pressures upstream margins back to the growers.
International trade is expanding. Coupled with the proliferation of all these store formats means consumers have more choices. That requires everyone to focus on understanding consumer preferences, whether you’re a retailer or a supplier, in the fight for distribution and share of stomach.
Now then, let’s look at what’s happening globally in more detail with the population growth. World population numbers are striking. Everyone talks about how we have seven billion people, and it’s expected we’re going to be at nine billion by 2050, but where are they going to live?
Q: Is the growth concentrated?
A: The big growth, over one billion people, will be added in Africa, and I don’t think people fully appreciate that. This is according to projections. By the way, there are the World Bank and UN projections, and I chose the midrange estimate. Basically, we’re going to increase our population by over two billion people; the majority will be in Africa, but Asia will increase by 900 million.
Q: Where in Africa, and where in Asia?
A: This is all relevant. In Africa, all the growth is coming in Sub-Saharan Africa, not North Africa. Africa is just starting to get the supermarket growth phenomenon that Asia and Latin America have been experiencing. And already we’ve seen how important that has been. We’re just starting to see Wal-Mart and several European supermarkets investing in Africa, and it’s something to watch in the next 20 years. It has not unfolded yet but, it has begun.
In Asia, almost all the countries show growth. I have Asia broken down into China, India, Japan and other Asian countries. Other Asian countries show the biggest growth, then India, and China is actually expected to decline. China has its one-child policy, which it has had for a long time, so it has a slow population growth rate. Japan shows a decline in population as well.
I have broken numbers out in Europe between Western Europe, Eastern Europe and Russia. Eastern Europe and Russia will actually lose population. They’re projected to lose 41 million people by 2050. I have it broken down in the Americas too.
Remember, these are projections, and may not come to pass, but you can’t just wait for history.
Q: How do these rates of change stack up when looking back at history?
A: We’ve got the supermarket revolution; then privatization, market liberalization, FDI (Foreign Direct Investment), and emerging middle classes. All these factors are contributing to much faster growth of modern supermarkets in the developing world than occurred in the U.S. and Europe a century ago.
It took us decades to shift to modern supermarkets. It really started in the teens and 20’s, and then stagnated and started up again after World War II. So it took decades for what is occurring at more rapid speeds elsewhere.
I want to make the point that Foreign Direct Investment was fueled by European chains facing saturated markets at home. These companies, such as Tesco, Carrefour and others, aggressively expanded internationally. Now what’s happened, after having troubles, is that many of these companies are retrenching and focusing more on their home markets.
What we’ve seen in Latin America and Asia is a lot of growth of local and regional chains, but I’m getting ahead of myself. I’ll address more on that later.
But first, I’ll talk about three waves of supermarket emergence. You’ll see how rapid the growth was in China — 488 percent just between 1999 and 2005. It just took off. In 2004, I was in China at a big conference in Shanghai, organized by the Chinese, giving a speech on the modernization of the retailing sector. We were entertained by the head of retailing for the city of Shanghai and given a tour of the surrounding province, where they were really promoting this growth of modern retailing.
I’ll take attendees through the waves of supermarket emergence. First, the early 90’s take-off: East Asia (outside Japan and China), South America, South Africa, and Central Europe. Modern retail’s share of total food sales grew from 5 to 10 percent to 50 to 60 percent by the late 90’s. The second wave in the mid-late 90’s: Southeast Asia (outside Vietnam), Central America, and Mexico. Modern retail’s share reached 20 to 50 percent by the late 90’s. The third wave in the late 90’s and 2000’s: mainly China, Vietnam, India and Russia. Modern retail share was 5 to 20 percent by the end of 2000’s.
And in Africa (outside South Africa), modern retailing is only beginning (mainly in eastern and southern Africa).
Q: So is retail competition within developing countries heating up?
A: We see the first-wave countries, just as in developed countries experiencing the channel-blurring phenomenon with ways to buy food increasing with smaller formats. European food retailer investment in developing markets has slowed as companies like Tesco retrench to deal with increased competition in home markets.
At the same time, homegrown chains in developing countries are evolving more rapidly. It won’t just be the top Western chains dominating the market any more.
I will show retail data that really highlights a new era of how modern retail is structured internationally. The global combined share of modern food retail markets held by the top 30 grocery retailers, which are basically Western Europe, Wal-Mart, and Japanese, has already declined. Not because modern retail has declined, but because modern retail is really growing. It’s just that Western European firms no longer are as competitive as they used to be internationally. You’ve heard people say they were the only game in town, and now they’re not.
This is an exaggeration. I’ve been in many of these countries 20 years ago, where local chains were in existence without Foreign Direct Investments. Yes, there’s been a huge wave of investments into the developing world, but the role going forward won’t be as dominant as it was in the past.
I waffle on this, because the thing I have to be careful about… I’m not saying these Western retailers won’t be important. However, the big five to 10 guys’ market share won’t be as dominant. It doesn’t mean they won’t be big.
Q: So which retailers are best positioned going forward?
A: Comparing the top three global retailers in 2004 and projecting to 2019, Wal-Mart will continue to be the biggest player, but Amazon will be moving into second positon knocking Carrefour out of the Number 2 spot, and Tesco out of Number 3. E-commerce and people purchasing more food on line is a big deal. So I will include some of that data in my presentation.
We have these key forces driving change: urbanization, aging population, smaller household size, and people are just not as willing to spend as much time shopping. Then e-commerce is eroding the strength of the big box stores. Now retail has gone beyond store online, mobile and tablet.
Consumers are becoming channel agnostic; people are looking for single experiences in shopping. When I started at UC Davis, we looked at the UK market, and it had the highest retail net margins in the world. They were really profitable. The top retailers didn’t have the competition they have today. So this is very relevant to this London conference for sure.
These retailers are forced to change and diversify their stores. Many are changing formats. Some big box stores are adding hard discount sections within their stores to compete with chains like Aldi. Some are putting in convenience sections. Some are opening smaller neighborhood stores.
This really has to happen to reach consumers, but is adding complexities in operations. That’s leading in part to the reevaluation of expansion and global strategies. This gives more opportunity to local, regional-based chains in these countries, some of which have been bought by European chains and then sold off because they couldn’t manage them effectively.
Q: What does this mean for the supplier side?
A: The structure of the supply chain is changing. If you’re a grower/exporter, you need to be paying attention to this.
I have a chart of the global top 10 food retailers in sales, comparing sales of these stores in 2014 versus projections in 2019. What you can see is Amazon in 2014 is Number 10, and in 2019 is expected to be the Number 2 global food retailer, while Wal-Mart stays at Number 1.
Q: This is for food in general. What about in fresh produce?
A: For the produce industry, the sales rankings would change, but still, Amazon is projected to be much more of a factor in produce. I’m sure Amazon wouldn’t be anywhere near the top 10 players for produce, but the important point is the landscape is changing.
Who would have thought Amazon would move into such an important position? It may not unfold as predicted… we always have to be cautious with projections, but this is what the global retail experts are expecting now.
So let’s come back to what happening globally. While leading players will continue to grow, in Europe there is slow growth and this is happening more recently, because economic growth rates are slowing in Europe. While many of these chains have expanded internationally, they’re not as important as they were in the past. Other countries and other chains are growing a lot and cutting into their dominance.
The big gainers in terms of market share will be the strong local and regional players that are positioning themselves in these fast growing markets. I’ll show more detail on this during my talk.
Still Western Europe and North America are the predominant markets in the world, but their growth rates aren’t expanding as rapidly as Latin America, Africa, the Middle East, and Asia.
Q: What about Russia?
A: Eastern Europe is growing in terms of modern retail, even though their population isn’t growing. It’s because their share of modern retail has only been developed recently, after the fall of the Soviet Union and everything. Now in Russia there’s a lot of expansion in modern retail. Western European chains are heavily invested in Russia now.
Q: What advice do you have for retailers in Western Europe?
A: These chains have to figure out how to manage their formats. Some are introducing foodservice brands and dedicated discount strategies as I’ve mentioned. There’s a lot unfolding there.
And then everyone’s been predicting — and this has been recently evolving — the increased role of convenience stores in Western Europe. Even though the convenience store channel is small for food sales compared to hypermarkets and supercenters, it is growing at a higher rate.
There are opportunities for produce in these convenience store formats. It requires getting the right produce items, the right packaging and the right attributes for consumers buying in these formats.
Q: Does this apply to the U.S. market as well?
A: Yes. There also is a lot of potential with convenience stores in the U.S. The biggest number of stores we have in the U.S. is convenience stores. There are around 156,000. Right now, there is not very much produce in them, but that could change.
Coca-Cola always wants to be in the reach of consumers. The produce industry could take this same direction. I’ve been talking about this for 25 years. There’s always the barrier of perishability. How do you get the fresh produce distributed? Now convenience stores are trying to respond to consumer preferences and differentiate themselves because they face saturated markets too. It is a big trend to think about globally and is more advanced in Europe.
Since the show is in the UK, I’ll provide some more data specifically on what’s happening in the UK retail market.
Q: This is an intense amount of information and insight for people to absorb in one presentation…
A: The next big piece of my talk is on international trade, and I’ll provide extensive data on global export and import trends. I’ll highlight global shifts, and some striking changes, as well as many industry opportunities tied back to all the issues we’ve discussed.
Q: Attendees have much to look forward to…!
Which is more impressive? That she will do all this? Or that she will do all this in just an hour!
There are so many important thoughts here, but one that has been underappreciated is how the role of European retailers may be constrained as regional and national retailers rise in the most rapidly developing markets.
Very often, big retailers pave the way for their own competition. We remember when Wal-Mart started growing and it decided to use only case-ready meat and eschew in-store butchers. Its demand for case-ready beef created a new supply chain for everyone and soon even small players had some case-ready product.
So when European retailers — and Wal-Mart — land in developing economies, they set up an infrastructure for cold chain management, food safety and more. Soon local retailers have access to trained employees and to larger systems because of the larger retailers.
Of course, much depends on nuance. Africa may come to have a billion people, but will the countries of sub-Saharan Africa adopt the policies that will lead to the rising incomes that make the billion people good prospects for produce? That is uncertain.
Come engage with the mind of Roberta Cook. Come engage with the industry in the iconic city of London. Come prepare yourself with the kind of ideas that will make you and the organization you work with more successful.
Come to The London Produce Show and Conference.
You can get all details and can register on the website.
This is also a reminder to add one of the Five Exclusive Industry Tours to your registration.
There is so much to think about, so much to engage with. Come join us in London.