Vegetable industry: facts about the value chain, margins, and ROA

Jeroen Lustig
Published on
March 30, 2022

COVID-19 has exacerbated both the positive and negative trends that were already apparent in the vegetable market before the pandemic, according to our latest trend report. With newly updated information for 2020, our analysts examined the data of the top 500 fruit & vegetable (F&V) companies in Western Europe focusing on growth, profitability and returns over the years 2015-2020.

These indicators provide valuable insights into how vegetable companies, and the F&V market as a whole, are developing. Here, we outline some of the key findings.

Health consciousness drives growth

Pre-pandemic the vegetable industry was enjoying significant growth on the back of increasing health consciousness among consumers. Since then, this trend has gathered pace, with an even greater focus on health leading to significant consumption-driven growth during 2020. Yet our data reveals that most food recorded a sales drop during the year. National lockdowns slowed or stopped the flow of materials and goods, taking existing problems in the supply chain to new levels while also creating additional disruptions for routes to market.

Margins are squeezed

Problems around increased complexity and compliance in the value chain were also heightened by the pandemic, putting even more pressure on profit margins for all value chain links, with an average of 4.6% EBIT across the F&V industry. Growers took the largest margin hit. This segment absorbs the majority of market volatility while simultaneously bearing above-average risks relative to the rest of the value chain.

Further cost absorption by these players has its limits. Given current supply chain shortages and cost inflation, this will become a significant challenge for the entire value chain, up to the retailer and ultimately the consumer.

Seed growers receive growth boost

Overall, suppliers (seed breeders) listed the highest growth rates in 2020, benefiting from hoarding at the start of the pandemic. There is a high likelihood that these numbers will drop off, as they did after 2018 when there was similar stockpiling. Initial results from listed vegetable seed breeding companies over 2021, however, indicate that there has been no significant decrease in activity so far.

With fierce competition among the top-10 vegetable seed breeders, consolidation also remains a prominent theme. To reduce time-to-market for blank spots – in terms of crops or geography - companies are on eyeing acquisition targets as opposed to organic growth. In 2021, Japanese firm Mitsui & Co. reached an agreement to acquire Italian seed breeding company ISI Sementi, for example.

Bargaining power will be key

Meanwhile, retail-focused suppliers were able to capitalize on growing retail demand, with sales up by more than 5% overall. Our data suggests that retail bargaining power is the key to resolving long-term margin pressure in the vegetable industry. Traders, increasingly on fixed contracts with retailers, are particularly squeezed within the value chain, for example. It will be interesting to see how this dynamic is affected by the increasing consolidation of existing players, and by the entrance of large conglomerates, such as Mitsui & Co, from outside the industry.

Preserved and frozen back in fashion

Similarly, companies focusing on preserved and frozen products were able to thrive during the pandemic, following the temporary shift in consumer buying preferences. Dutch branded preserved vegetable processor HAK was a prime example of a company that benefitted from consumers stocking up on these items while they were stuck at home during lockdowns. In 2020, the company’s turnover grew by 17.1%.

Favorable market dynamics are bringing new entrants into the vegetable industry leading to increased competition. Add this to the rising problems around increased complexity and compliance in the value chain and it is clear why it is becoming increasingly difficult for existing vegetable players to retain their position.

For more insights on the vegetable industry and its top performers, download our trend report on the fruit & vegetable industry via the link below.

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