Volcano Eruption Triggering Disruption in certain F&A Sectors – Rabobank
More than in Europe (EU), the airspace closure has been felt by farmers and exporters in Africa, Asia and South America that rely partly on the European market for their perishables.
23 Apr 2010 --- “The eruption of Iceland's Eyjafjallajökull volcano and the resulting airspace closure across large parts of Europe is having limited impact on food & agribusiness (F&A) as a whole. However, trade disruptions have significantly affected specific F&A sectors”, says Rabobank’s analyst Cindy van Rijswick. Cut-flowers, fresh fruits and vegetables and seafood are the products most impacted. Those suffering most are specialised trading companies and the farmers in developing countries who depend heavily on the European market for selling their perishable products.
More than in Europe (EU), the airspace closure has been felt by farmers and exporters in Africa, Asia and South America that rely partly on the European market for their perishables. Although a large proportion of fresh fruit and vegetables consumed in the EU is imported from third countries, the estimated air-freighted share of fresh fruit and vegetable imports in the EU ranges from 2% to 5%. Most of the imported products—such as bananas, apples, pears and citrus—are transported by sea. The main air-freighted products include beans, grapes, peas, exotic fruit, asparagus, cherries, peppers and berries.
For the European fruits and vegetables industry, the effects will be fairly marginal if the disruptions can be resolved in the short term due to the fact that limited alternative markets are easier to find for European producers compared to developing country farmers. Food retailers have not reported empty shelves up to now.
“For the East African flower industry, the impact of the flight ban is significant”, said Rijswick. The Kenya Flower Council is reporting losses of USD 2 million a day for the Kenyan flower industry. For Kenya, the flower industry is its main export earner, and 97% of the flowers produced are exported to the EU. They are all transported by air as time is of the essence for delicate and highly perishable products like cut flowers.
For some of Kenya’s flower businesses, the current difficulties could be the straw that breaks the camel’s back. Cut-flower prices have been under pressure for more than two years now because of the growing global supply of cut flowers and a drop in demand in Europe resulting from the economic downturn. Moreover, the Kenyan flower industry has suffered due to the prolonged drought.
“The short-term impact of the flight ban on the seafood industry is significant and widespread”, Rabobank’s seafood analyst Gorjan Nikolik adds. Western Europe is a major importer of seafood, a part of which is fresh and transported by plane. Suppliers will need to find alternative routes to reach their market resulting in higher costs.
“The salmon farming sector is less impacted than the wild catch in the North Atlantic. Located in Norway and Scotland, salmon farmers can use land transport to reach the main European markets. Some airports, such as those in Sweden and northern Norway, are still open for exports to Russia, Asia and sporadic flights to North America”, said Nikolik. Early estimates indicate that so far lost exports by Norwegian salmon farmers alone are around GBP 3 million.
In the coming weeks, the true magnitude of the impact of the volcanic eruption and the resulting airspace closure will become clear for food & agribusiness. If more volcanic eruptions follow and planes have to be grounded again, the discussions on vulnerability and desirability of air-freighted food transportation will definitely proceed.
The current situation may lead those farmers and traders who are largely dependent on air freight to consider options for reducing their dependency on a single mode of transportation or single market. Furthermore, the current situation reinforces the importance of a company’s flexibility and financial buffer to overcome unforeseen challenges.
Source: Rabobank
