Horticulture’s (near) future: questions and some (cautious answers

Cindy van Rijswick, Rabobank’s fruit and vegetable specialist Horticulture’s (near) future: questions and some (cautious) answers

Even before the global pandemic, known and lesser-known forces were steering production models in a different direction. But COVID-19 seems to have accelerated that. Every so often, we all, as human beings, citizens, and economic players, have to face new, ever-changing challenges imposed on us by a rampaging climate and changing society. The fruit and vegetable sector is no exception.

Will the changing climate, local focus, and cultivation technology advances drive a geographical shift in cultivation? Will the high gas prices lead to growers accelerating their use of greener energy? Will the cooperative model slowly die out due to ever-expanding farms and investment firms’ interest in the fruit and vegetable sector? We put these and other questions to Cindy van Rijswick, a fruit and vegetable specialist at Rabobank. This Dutch bank not only lends mortgages to consumers but also likes presenting itself as an agricultural sector partner and pioneer in the energy transition field.

“Jumping right in to answer the first question: there’s indeed a shift in the crops grown in different countries. In Spain, especially in the south, there are increasingly alarming reports of water shortages. Growers there will likely cultivate, in particular, less grain, instead emphasizing other crops. You sometimes hear that Europe will eventually become more dependent on Northwest Europe for its food supply. However, we shouldn’t lend too much weight to that for our region,” Cindy begins.

“Perhaps we’ll have slightly higher average yields than in the south, but due to often recurring extreme weather conditions, like dry weather or floods, we too are at the climate’s mercy. The Andalusian council’s Environmental Information Network calculates that in the 2021/2022 hydrometeorological year, southern Spain’s average rainfall was more than 30% below normal values. In November, 80% of the Guadalquivir basin was officially declared an ‘area in a state of unusual drought’.”

ALMOND TREES IN CALIFORNIA

Cindy says California’s climate is similar to some Mediterranean regions. There, too, drought is often already setting crop farms’ agendas. “Californian growers are often choosing other crops, particularly those that will sell for more in stores, thus promising better returns. But, bizarrely, many of these crops also require plenty of water. For example, people have switched from rice to almonds, and are using drip irrigation, But almond trees still consume a lot of water. They do bring in a lot of money, though,” she says.

In the Salinas Valley, lettuce cultivation used to be strong; now, strawberry plots rule the roost. After all, strawberry cultivation’s attractive income ensures farmers can keep paying the higher land prices. “And even higher-value crops may, perhaps, eventually push out strawberries, too. Much of that is still grown in open fields and is quite draining on water resources.” Not to mention the labor issue, which also plays a role in crop selection. Nuts can mostly be harvested by machine, strawberries can not yet.

In Europe, Peru has emerged as an important avocado supplier for that market in recent years. And, according to calculations by the consulting firm, Inform@ cción, its exports grew by 28.2% last year. These could keep growing similarly in the coming years. Yet, the changing climate may well cause that country to lose between 55 and 70% of areas suitable for avocado cultivation by 2050. So finds a study published in January in the scientific journal PLoS ONE. For now, Peru’s advantage is that it can channel a considerable amount of water from the Andes to the growing areas.

TECHNOLOGICAL ADVANCES

To avoid switching crops, growers in some areas may first try adjusting their planting and harvesting dates. For instance, growers in Mediterranean regions could better harness winter precipitation. But ultimately, technological advances will have to be considered in response to the challenges brought on by climate change. “When we find ourselves in deep water - ironically, since we’re talking primarily about drought - there will still be ways to avoid having to change crops immediately. Much can still be done but will require investment. There’s still plenty of ground to be won by, say, increasingly using sensors and software to monitor and optimize water consumption according to the plants’ needs. Because even drip irrigation is still often used when plants don’t really need the water. Precision agriculture can make a difference,” explains Van Rijswick.

According to her, governments and growers must also pay attention to better drainage. Water that is not in the form of rain often just flows away. “Plus, drought or salinity-resistant varieties can also help keep crops in current locations. Israel has already made some progress in this regard. After all, many countries will always have plenty of saltwater. The problem is that these crops cannot yet match the traditional varieties commercially. Canopy use will increase too. But before truly viable, widely applicable solutions are available, there will be crop shifts, in some areas, partly driven by higher insurance premiums.” Still, a shift does not always have to be dramatic, Cindy points out. It has happened more often than not over the centuries, and 50 years ago, Dutch growers were cultivating very different crops in the Westland area.

Lastly, says the fruit and vegetable specialist, non-arable land can simply be used for something else like solar panel fields. According to figures from the Spanish government, in 2019, that country’s solar power generation capacity increased by 93.2% compared to 2018. The National Energy and Climate Plan would like to see an installed capacity of 39,000 MW for Spain by 2030. “And dry, fallow soil may well recover over time. Many scenarios are possible, and it’s hard to predict what path horticulture will follow in hot, arid areas, but technology will likely play a big role.” The disadvantage, then, is the cost involved.

EXPANSION IN ALL COUNTRIES’ CULTIVATION AREAS

What developments can a country like the Netherlands expect? Since more and more countries are managing to have their own production, it is increasingly struggling to export commodities such as apples in current quantities. “That isn’t a disadvantage just for the Netherlands. Chile, for example, sends apples [to Europe] in the summer. Its exports are already declining because the northern hemisphere is growing more itself. Consumers preferring locally grown food drives that trend. But should the Netherlands also put more effort into local food? Surely that feels very at odds with the country’s traditional role as an export country of many horticultural products such as potatoes and onions, among others.”

“In that sense, it’s a great thing that we enjoy free trade within the EU. But it will be difficult for apples. Dutch acreage decreases every year, while cultivation in Eastern Europe and Turkey is constantly expanding, also with innovation in the area of varieties. Perhaps, in time, a new bal herman_2011.indd 1ance will be achieved in which Dutch apples are primarily intended for local consumption, filling random shortage gaps. The pear situation is different. That’s still a fairly unique export product. Also, the days of Dutch bell peppers

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Governments and growers should pay attention to better drainage and collection

Spain under the spell of takeovers by private equity funds. The largest European citrus group Citri & Co founded by Miura Private Equity with the acquisition of citrus companies Martinavarro and Frutas Esther

being flown to the U.S. are largely over. The high gas prices currently make that impossible, and greenhouse farming is on the rise in the U.S. too. I think, [for the Netherlands], the future lies in continuing to export to its surrounding markets like Germany and England,” Cindy continues.

SKY-HIGH GAS PRICES

High winter demand, low European stocks, and geopolitical tensions are pushing gas prices to alarming heights. Households that use gas for heating and economic sectors that depend on this energy source for their activities are struggling. Meanwhile, the whole world wants to move away from gas toward cleaner energy. Policy choices make this increasingly evident. For instance, in early February, the Belgian government decided to reduce VAT on electricity, but not gas, for homes. Could such measures boost the energy transition, not only for households but also for the industry?

“The high gas price isn’t likely to fall quickly or hard. That and gas being an intermediate step towards further greening of energy, will encourage innovation in that field. But for now, businesses that rely heavily on gas are in true survival mode, and have no money for innovative solutions such as geothermal energy. The high gas price seems like an opportunity to stimulate investment in cleaner energy. But if there’s no money, the government will have to step in where the need is greatest to help people make it through.”

Many Dutch greenhouse growers have had to scale back their operations; they were simply not profitable in this time of high gas prices. They had to sit by and watch Spanish products fill the European market. Even though Spanish greenhouse vegetable transportation costs increased, production costs in the colder North rose more. “I hope, of course, that the situation will improve this winter; Dutch growers can’t sustain this in the short term, never mind for years. At present, some still have permanent contracts running, but things will get rough once those expire,” admits Cindy.

HIGHER SELLING PRICES TOO?

Prices for all kinds of things skyrocketed in the last year: fuel, packaging, fertilizer, labor. Spain’s winter greenhouse vegetables seemed to have triumphed over those from the Netherlands. But, for years, Spain has had to watch in dismay as Morocco gains an ever greater European market

Our acreage decreases every year, while cultivation in Eastern Europe and Turkey continues to expand

share. Perhaps the current higher transport costs and the driver shortage can slow that down somewhat. Though, says Cindy, these latest issues seem to be more temporary. “Then again, no one can predict the future. Perhaps the high gas and energy prices aren’t that structural either.”

What is clear is that, at some point, selling prices will have to reflect the current high production costs. That applies not only to Dutch growers’ products but also to, say, Spanish and overseas supplies. For example, container costs from South America have tripled. That, and higher raw materials and packaging prices will inevitably have to lead to a premium price for exotic fruit and fresh out-of-season produce. Bananas selling for one euro in stores no longer seems sustainable. Fairtrade has long been sounding that alarm, and in mid-January, seven Latin American banana-growing countries’ governments decided to unite. They are pressuring European buyers to negotiate better prices for their growers. “It looks like we’ll have to get used to higher food prices,” Cindy says.

ORGANIC ACREAGE: 25% SHARE

Meanwhile, the European Commission continues striving for the ideal of having 25% of Europe’s agricultural and horticultural acreage be organic by 2030. “The market will, however, lead the way. If there’s a market for organic, then it will be an interesting business model. No market and the conversion won’t happen so soon, with or without subsidies. I’m doubtful, especially about the figure; 25% seems a bit much.” The organic share in the total Dutch agricultural area is currently a paltry four percent. “It’ll be tough for these growers. Though, it could offer a good alternative in other countries with lower average yields.”

COOPERATIVES AND INVESTMENT FIRMS

Companies have vastly different financial buffers, adapt-

ability to the current tough situation, bargaining power, etc. It generally seems easier for those that work closely with their customers in reasonably short chains to pass on cost increases than those who do not have such close client relations. The larger players often, but not always, have such partnerships. Many smaller businesses depend on cooperatives, which also differ enormously, for price negotiations. Some cooperatives are genuinely struggling.

It is obviously not easy to get a large group of diverse growers to move in the same direction. In the last several years, companies that control several chain activities - cultivation, packaging, and sales - have been emerging. Takeovers and investment firm interference, not organic growth, are driving this. The Spanish fruit and vegetable sector, in particular, is under the spell of buy-outs by private equity funds. A good example is the creation of the largest European citrus group, Citri & Co, by Miura Private Equity and the subsequent acquisition of citrus companies Martinavarro and Frutas Esther.

ADDED VALUE IN CULTIVATION AND PACKAGING

“Investors aren’t interested in trade companies, per se, but in cultivation companies and, even more so, those that do inhouse packaging and trading. That adds value to the cultivation, which pushes up profit margins. In Spain, the focus is on larger fruit companies, especially vertically integrated ones. In the Netherlands, it’s on the sector’s technology suppliers. And it could continue for some time because investors still have plenty of money,” says this Rabobank fruit and vegetable specialist.

“Fruit and vegetables, with their sustainable image and long-term prospects, are an attractive investment too. In the last five years, interest in the sector has been growing; in the last two, those transactions have snowballed. Investors used to consider horticulture too risky. But they’ve already spent money in all the less risky sectors, so now it’s fruit and vegetables turn. Still, in the current climate, they’re going to have to reckon on slightly lower than usual returns.”

OPPORTUNITIES FOR DUTCH CULTIVATION COMPANIES

“Dutch cultivation companies, too, are getting bigger. They’re changing their business structures, partly because of a lack of succession; something which becomes a real issue at some point. Then, external shareholders enter the company. Of course, it cannot be ruled out that cultivation companies currently affiliated with cooperatives could serve buyers independently in the future if they’re large enough. Merged family businesses will also lead to large companies, and there are opportunities for cross-border partnerships,” Cindy adds. “The advantage of these is a year-round supply of fresh products. I’m primarily referring to partnerships with companies from southern countries like Spain. I don’t see Dutch growers opening branches there right off the bat because, bar a few exceptions, our methods and techniques aren’t the most profitable there. Perhaps the cultivation should be left to local experts, which is why partnerships offer such a good solution. I can see Dutch growers setting up greenhouses in northern

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countries such as England, Germany, and perhaps Eastern Europe and the U.S.” that’s becoming more difficult,” Cindy claims.

VERTICAL FARMING

Climate change, rising demand for local, high transport costs, eco-friendlier farming - the list goes on and on. Isn’t vertical farming the solution in Europe and elsewhere in the world? “This type of farming is still in the development phase and, so, for now, it’s a niche. Few companies are profitable so far, maybe in Japan. But not in Europe or America. There will definitely be some growers who’ll quit, but some will succeed. The operation itself may be profitable, but it’ll be tough to ever recoup the astronomical sums some businesses are currently investing.”

“Billions have already been invested in them in America, with, at present, minimal returns. Also, though there’s plenty of money available now, that will eventually dry up. Investors want something back from their money at some stage. Some funds enter the fruit and vegetable sector to list companies on the stock exchange and re-sell them at a high profit without having earned much from those businesses. That’s an attractive option, but even However, in the United States, with its often vast distances, large cultivation companies see the value in vertical farms or modern greenhouses supplementing their open field cultivation activities. It relieves some of the transportation cost pressures. Instead of growing all their lettuce in California and then transporting it to Chicago or New York, growers produce some in vertical farms in or close to the cities. “But, there’s plenty of land in some places in the U.S., so you could just plop a well-automated greenhouse down somewhere.”

“And some American companies grow lettuce outdoors for retailers and have small cells for specialties, with systems that don’t even have to be that expensive. Plus, smart companies simply wait for the right moment and then strike,” Cindy explains. “They pay rock-bottom prices for bankrupt vertical farms and make them profitable again, which is, after all, bound to happen sooner or later. In any case, in the U.S. as in the rest of the world, cultivation systems will become much more varied.”

WHERE WILL DUTCH GREENHOUSE HORTICULTURE BE IN 2050?

Bearing all these issues in mind, is a prediction for Dutch greenhouse cultivation possible? “Were it not for the current gas price debacle, I’d say the acreage will remain about the same, but with far fewer, therefore, larger companies. Those will also be structured differently and may grow some other crops. I don’t think acreage will expand. But since the market’s saturated and growers have to sell their products abroad, it won’t stagnate either,” concludes Van Rijswick.

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