Category Archives: Insights

Understanding the Produce Value Chain

Think back several decades and walk into your favorite grocery store. What did you see? Was produce the first department you entered? Did you see a vast array of fruits and vegetables including fresh cut, a dozen or more different types of apples and tomatoes, and fresh berries every day? (Hint: the market for small tomatoes has tripled in just the last decade to now well over $1B). Leap forward to today, and if you don’t see a well-stocked, well merchandised impressive display of fresh produce then you’re probably shopping in a store that won’t be around for long.

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Grocery retailers know that it is the ‘fresh perimeter’ of their store that sets them apart from competition, with produce being the number one point of differentiation. The aromas, colors and vibrancy of so much fresh and wholesome food are a powerful way to greet their customer. It also is a powerful way to grow profitability.

According to the United Fresh Produce Association, fresh produce accounted for 13 percent of store sales in 2013, up from just under 11 percent in 2011. The average produce department in 2013 generated $47,209 in revenue every week, up 4.8 percent from 2012 with most of this gain coming from pricing. Innovation in convenience, variety and flavor helps drive these price gains. Newly popular items like clementines and kale, snack-sized tomatoes and peppers, fresh cut salad and fruit are just examples of categories that have exploded due to innovation.

However, not all innovation is successful. In fact 70-80 percent of new grocery items fail. It is not enough to know only what the consumer wants, or know only how well a product yields on the farm. One also needs to understand cost of production, handling, packaging, distribution logistics, shelf life and challenges faced by the grocery retailer. Bringing forth a new produce item is risky business and is not for the faint of heart.

Context has extensive experience all along the produce value chain, from seed and inputs, through packing/shipping to grocery retail and foodservice. A critical factor in launching any product innovation is to make sure the value chain is lined up beforehand. Growers can’t take the risk to produce a new item unless they know who is buying, and for how much. A packer/shipper may be willing to take some risk, but they need to understand seasonal impacts on supply and product quality, best practices to preserve flavor and shelf life, have some idea as to consumer willingness to purchase the item and retailers willing to carry and promote the product.

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For retailers, shelf space is precious and adding items requires work and often worker training. Retailers need to be comfortable that the product they receive will be consistent in delivering the promised value, dependable in supply, and unique enough to catch the attention of their customers –and of course, grow profits. Regardless of where you are along the chain, Context can link the chain together helping ensure product and financial success.

Provided by Jennifer Garrett, Senior Associate; David Stark, Senior Associate; and Jim Zarndt, Senior Associate.

The Power of Benchmarking

Each year since 2007, Context has conducted benchmarking studies for the crop protection manufacturers in North America. Individual, customer reports are made available to subscribers, providing them with both a “big picture” and a “close up” view of their industry, and more importantly, a keen perspective as to where and how they measure up.

This unique, qINStory6Image1auality study represents a supermajority of the industry involve
d in the segment. It contains accurate, consolidated financials, uses workable definitions consistently applied (to assure apples to apples comparisons), and incorporates process steps to test and retest accuracy and adherence to definitions.

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Benchmarking provides companies with a set of standards that can be used as a point of reference for evaluating performance, and/or a level quality. Benchmarks may be drawn from a firm’s individual experience or juxtaposed to the experiences of other firms in the industry.  The comparative elements in a benchmarking study of this nature require an exceptionally high level of proven integrity to assure and deliver full confidentiality of individual company information. It also demands a solid experience-base to provide industry understanding, and to discern what important information is also highly valuable to your firm. Context delivers on each of these points.

Context launched its eighth benchmarking study with the 2014 Benchmarking for Crop Protection / Pest Management Manufacturers in North America. In addition we are launching a South American study.  

In the studies issued to date, shifts in what constitutes “best in metric” are common and significant.  Relative position shifts are also common.  Subscriber feedback has continued to be very positive. We are very pleased to work together with our subscribers to optimize the value of information gleaned from the studies.

INStory6Image3aIndividual company reports include:

  • Comparisons, by metric, of the subscribing company to the range and average of the top 10, basics and generics, and covering each of two years
  • Analysis of year-to-year changes, how did the range and weighted averages change
  • 5 year trend charts on key metrics
  • Basics compared to generics
  • Discounts and rebates, how are they trending both overall and by product type
  • Which metrics show the highest variability
  • Which metrics increased the most, which decreased the most
  • Recommendations, i.e. based on the data, what should be recognized and celebrated; what should be evaluated for value realized or cost saving; what should be evaluated for additional resources

INStory6Image4bKnowing your company’s positioning relative to competitors is a valuable, constructive and strategic tool, and it will be available again in 2014 to subscribers who are interested in the value an accurate external dimension in business performance can bring them in crop protection and pest management.

INStory6Image5bBut it doesn’t have to stop at those parameters. Context has the capability and integrity to craft and conduct a benchmarking study for your industry as well – seed, equipment, fertilizer or other areas are ready to be explored.

Contact Context Partner, Mike Borel at mike.borel@contextnet.com or call 925-937-4180.

A Sweet Assignment: Ag Challenges in Russia and Ukraine

Context provides companies with the comprehensive research necessary to confidently advance efforts in situations that involve both new business endeavors and new geographies – wherever they are found in the world. As an example, Context recently was asked to explore and provide understanding of the sales potential and the best routes to market for a seed enhancement technology in Russia and Ukraine.

Our senior consultant travelled to the main production regions and discussed with input suppliers, growers, processors and commodity traders. The drivers and constraints became clear and we identified relevant opportunities and threats. Context will continue to support the client with appropriate and actionable market entry strategy, and in finding the right personnel to execute effectively.

There are four major beet-growing regions in the Former Soviet Union (FSU): Ukraine and the three Russian regions Central Russia, Volga/Siberia and South Russia (Figure 1).

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Most soils are of the high quality “black” earth: High organic matter and with good drainage. Climate is continental with cold winters and dry hot summers.

A main constraint is low precipitation in the Volga/Siberia and Central region. In the South region mainly high temperatures limit yield potential. In recent years, however, limited rainfall and high day and night temperatures have affected yields all over Russia and Ukraine. Especially in 2010 when yields were severely reduced due to heat stress in mid summer. Sharp season changes can cause drought in spring resulting in bad germination; early frost in autumn can result in harvest and storage losses of up to 25%, like in 2011.

For the purpose of this case study, we will consider Russian sugar beet production. With the collapse of the FSU, sugar beet production collapsed too. The Russian average area dropped from 1.5m ha in the period ’86-’90 to 0.8m in ’01-’05 (Diagram 1).

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However in recent years, total area rebounded to 1.3m ha in 2011. Supported by relatively high sugar prices, economic stability and government support, the private sector invested in agricultural inputs and machinery. Meanwhile, many factories were upgraded and consolidated into large holdings. These vertically integrated holdings consist of farms and factories and can produce and process their own beets. For example, “Prodimex”, a Russian holding, owns 15 factories and cultivates over 350k hectares.

Considering productivity, average yields fell sharply from 23 to 15 tonnes per ha during the period 1986 – 2000 (Diagram 2). Thanks to aforementioned factors such as government support and private sector investments, beet yields picked up during the period 2000 – 2010 and in 2011, were on average 39 tonnes per ha.

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As discussed, the collapse of the FSU resulted in a strong decrease of both beet acreage and yield but recovered during the last decade. Interestingly, the yield per hectare is now higher than during soviet times while acreage is still below historical peaks. Main reason for higher yields is the increased use of better inputs, technology and management. Western hybrids have replaced domestic varieties and growers are getting used to modern crop protection chemicals, fertilizer and machinery.

A major threat in Russia and Ukraine remains the political and legal systems. However, though corruption and bureaucracy are nuisances, they are not limiting the ability to do business. Bigger threats are the high cost of (working) capital, poor farm management, outdated accounting systems and poorly developed business plans. For the moment, both countries profit happily from relatively high agricultural commodity prices on the world market. But there is a risk that poor replenishment of nutrients will deplete the soil; that a lack of crop protection and narrow rotations will result in disease and pests; that poor crop management will result in harvest and storage losses; and that poor financial management will lead to corruption and wrong investments.

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Top photo: Insect damage during germination of sugar beet crop. Middle and bottom photos: Sugar beet harvest in Ukraine

Context understands the huge challenges of doing business in the FSU, but we also see the global opportunities for substantial and sustainable agribusiness. Farming systems are becoming more modern and intensive. Better inputs, technologies, and management are key success factors. For example, faster germination of sugar beet seeds, thanks to seed enhancing technology, establishes young plants before drought occurs and gives them an advantage in early life. Less seeds are needed per hectare, the soil is covered faster, more leaf canopy reduces evaporation, and with a longer growing period, yields are higher. Working smarter with less, while producing more…that’s our challenge.

To learn more, contact Context Senior Associate, Roelof Kramer at roelof.kramer@contextnet.com.