Fundación para el desarrollo

Developed countries have mature markets, which means that there is not much prospect for spectacular growth of FFV sales. However, the share of developing countries exports to the EU is still growing. In addition, exporters of exotic FFV are finding new markets in new member countries of the European Union where the integrated FFV companies do not yet have a stronghold.

In Europe, large wholesale traders or distributors are often closely linked to retailers which increasingly operate on larger scales, with centrally controlled systems of purchasing, and want to have the minimum number of suppliers. Retailers such as supermarkets are imposing costly requirements for good quality produce, food safety and all year round supplies, but at low prices. This means that distributors have to do their own sourcing to guarantee a wide range of products throughout the year. Distributors engage in direct links with producers and producer organisations and, as a result of this, traditional auctions and wholesale trade of imported FFV are losing their importance. This puts pressure on producers to increase production or to produce from different regions. For example, a number of Spanish growers are producing in more than one region of Spain, as well as in

the Canary Islands and in Morocco, to extend seasons. Consistency of supply over extended seasons has become a source of strategic competitive advantage for many producers and distributors. A distributor such as Fyffes provides a range of services, including financing and marketing services for their producers (for example, Turbana in Europe). These distributors “communicate” their clients' demands on quality, volume and food safety to producers, importers and exporters.

Distribution companies have engaged in mergers, acquisitions and alliances to meet supermarkets’ demands for large, cheap and diversified volumes of FFV. These

consolidation activities are increasingly cross-border and cross-continental. For instance, the second largest Dutch FFV trader, Bakker Barendrecht (which is the main provider of FFV to largest Dutch supermarket, Albert Heijn), has been taken over by a Belgian distributor, De Weide Blik, which supplies the Belgian branches of the French supermarket chain Carrefour and has also strong positions on the South African and Uruguayan market. Both De Weide Blik and Bakker Barendrecht supply to wholesaler Makro in their respective countries.35 _{Interestingly, when mergers or acquisitions take place between}

large distributors, the supermarkets they supply get involved in the discussions before the merger or acquisition takes place.36

Traditionally, trade in FFV has been in the hands of small family companies. Now some of the large FFV multinationals are getting involved as part of a strategy to diversify and increase scale. For instance, US multinational Dole is taking over a Dutch importer (Velleman & Tas) and taking over Swedish trader Saba.37 Chiquita bought the German fruit and vegetable trader Atlanta that has a turnover of Euro 1 billion. This means that importers are increasingly in the hands of foreign companies.

In Europe, FFV wholesale traders and distributors can expect to operate in an environment of growing consolidation. 38 _{Analysts expect that major take-overs in the}

coming years will result in only 10 to 15 food distributors operating in Europe. These expectations might however underestimate the recently growing role of discounters who still buy on the spot market and look for the cheapest products available.

Critical issues

The growth of global FFV companies who manage and sometimes own the entire chain means that FFV is increasingly channelled through parallel large handling companies. This has major implications for both producers and exporters in developing countries. This reduces the marketing possibilities for small-scale and new producers of FFV in the South, even if trade barriers are reduced in the developed countries. Also, producers require huge financial and human resources to get organised and enter the concentrated FFV chain.

The strategy of discounters that want to source from the cheapest traders provide an opportunity to keep independent wholesale channels open but do not provide good prospects for good prices to the producers.

Strategies to increase margins through value-added

The profit margins of wholesalers and distributors have been decreasing because of the competition for contracts with large-scale retailers and pressure for low prices. As a consequence, distributors now provide more value-added services to increase profits. This includes meeting supermarket demand for year round supplies, conceiving marketing concepts and promotional activities, cutting, washing, mixing, packaging, ripening of fruit, offering prepared salads, etc. Stock control is also an important service, along with logistics. The European distributor Fyffes has diversified successfully (see box below). Distributors such as Geest have begun specialising in cutting and packaging salads and distributing many pre-cut salad mixes after selling its banana trade business. They are responding to a growing demand for 'convenience food', such as packaged cut vegetables or ready to eat salads.

Banana companies in general have sought to strengthen relationships with leading retailers through value-added services such as banana ripening and distribution, category management, branding initiatives and establishment of long-term supply agreements. Also, they are looking for higher margins by moving away from commodity fruits and vegetables towards more value-added products, as ready-to-eat salads, bagged vegetables, fruit bowls and processed produce.

2.2.4 Leading distribution companies and structure of the European