The energy crisis has a major impact on the entire floriculture sector. Not only our growers are hit hard, all links in the chain feel the direct and indirect effects in their business operations. The highly fluctuating energy prices create great uncertainty in the market, including among consumers at home and abroad, write Ruud Knorr and Leendert-Jan Plaisier.
What will the world look like in say three months? Whoever knows, may say. Because at the moment, more than usual, our logistics processes and commercial services touch each other, we are writing this column together. That gives us the opportunity to paint the broader picture.
2021 was a year to look back on with great pleasure. With 17% growth in pricing and 3% in volume, it was a banner year for our cooperative. The best year in our history regarding our product turnover. Ten months later, the reality looks very different. Many growers fear for their survival, inflation is unprecedentedly high because of extremely high energy prices and the purchasing power of European consumers is under enormous pressure. Partly due to fewer orders from retailers in the direct channel, volume for the clock has increased this year, against the trend. As the Dutch economy does still grow, the labour market tightness persists.
End times almost back to level
Scarcity in the labour market was also the main cause of bottlenecks in our logistics services. With, in second place, the unbudgeted sharp increase in the supply of clock carts. This combination caused end times of 60 to 90 minutes later than before. Since a few weeks, due to a decrease in volume, the end times are now 30 to 60 minutes better. In Aalsmeer, we now structurally meet the standard again, in Naaldwijk and Rijnsburg not yet on all days and the other days we are not far off.
In logistics, this gives air, but the explanation for the decline is less production. And that is worrying. So we are already noticing the effect of growers quitting or reducing production by putting their greenhouses cold or cutting back on lighting. How big the effect will be in the fourth quarter and first quarter of 2023 is difficult to predict. But that the volume of flowers and plants will contract then seems inescapable. A sharp drop of energy prices to a manageable level is not obvious, although you never know, and the cabinet's proposed support measures offer little relief.
Q2 2023: a peak with an unpredictable start
From Royal FloraHolland, we actually expect another significant peak in supply from the second half of April 2023 due to the season's weather effects and increase of demand. The impact on clock volumes in the 2023 peak will also be strongly influenced by how many contracts retailers have signed and whether they will call off the agreed quantities. It is now harder than ever to predict exactly when that peak will start. In spring, nature takes control of the climate in the greenhouses. If the weather gods are kind to us and we get plenty of sunshine, the peak is earlier. If spring is grey and dreary then it will be later.
For the split between clock and direct volumes, we see that some of the retailers and growers are now reluctant to sign contracts with all the uncertainty. Of course, account managers and auctioneers keep a lot of contact with growers and buyers. We don't want to be taken by surprise and only together can we ensure a successful peak period.
Exploring options together
That is why we are already having intensive discussions with growers and buyers about this. We do this on the basis of scenarios: suppose... Once again, we coordinate auction processes and logistics. We do this using a fixed approach, our Plan A, which includes various measures. What other knobs can we turn, what measures do growers and buyers think are best given the circumstances and what effect do we expect them to have. Recently, we have already had a good and open discussion about this in the customer platforms clock and hybrid. Royal FloraHolland has picked up the gauntlet further, but it is not just a problem for RFH alone. The best (or: least unfavourable) solution can only come from joint choices. This has already been discussed with the Member’s Council. Royal FloraHolland is therefore inviting a delegation of growers and buyers to devise and discuss additional measures.
The peak in 2023 is, as said, not a challenge of Royal FloraHolland alone, but one of the entire sector. We all stand to gain from finding the most optimal form so that together we can get through the peak operationally in an acceptable manner while allowing trade to take place in full. We rely on the willingness to make a concerted effort to do so. And that starts right now, to avoid surprises later and to be well prepared as a whole industry for the coming peak period. Together is the basis of success.
Order picking and One auctioning
Despite the uncertainty, trends and the market are moving at lightning speed, which is why we remain committed to change to remain future-proof in the sector, for growers and buyers. In the meantime, we continue full speed ahead with the roll-out of order picking and preparations for national auctions. It offers opportunities for new services, such as time period delivery. It also offers opportunities to structurally adjust our cost structure. We do it carefully and step by step, in co-creation with growers and buyers. That combination is the key to both logistics and commercial success throughout the chain. Again, let's act together, on our way to a hopefully successful peak.
For more information:
Royal FloraHolland
www.royalfloraholland.com