Supermarkets add to food sources in order to steady prices

By Jessica Lim, Straits Times, 17 Oct 2011

PRICES of Australian carrots sold in FairPrice supermarkets are set to remain at 85 to 95 cents for a 500g pack in the next two years. Singapore’s largest supermarket chain recently inked two-year contracts with two farms in Western Australia state to supply 52 million carrots – about 80 per cent of what it sells a year.

Over the next month, contracts with other farms in the state will be signed for cauliflower, sweet corn, broccoli and vine tomatoes – although in smaller amounts.

Apples and other fruits may also be thrown into the mix.

These efforts are the latest by importers and supermarkets in Singapore to diversify food sources and keep a lid on prices.

High demand from emerging economies like China and supply shortages due to bad weather have led to higher prices of necessities – from cooking oil and rice to vegetables and soya beans – since 2008.

Securing supply is crucial because Singapore imports more than 90 per cent of its food and is hence vulnerable to price fluctuations.

FairPrice chief executive Seah Kian Peng, who was in Western Australia to sign the deals with Sumich and Centre West Exports, said: ‘Should there be any issues with a particular food source due to various reasons, diversification helps to lessen the impact on the overall supply and prices of our fresh produce.’

Said Mr Tng Ah Yiam, FairPrice’s managing director for group purchasing, merchandising and international trading: ‘When there is a contract, farmers plan and reserve stock for us. It is also a guarantee for farms.’

He added that Western Australia was chosen because of its proximity to Singapore, advanced farm technology and good climate for growing food.

The chain’s contracts with the two carrot farms are its first outside of South-east Asia. It inked its first overseas contract in 2000 with farms in Malaysia for vegetables like chye sim, potatoes and kailan.

It now has 84 contracts signed with farmers in Indonesia, Thailand, Malaysia and Singapore – more than thrice the number in 2008 – for vegetables.

It is also in discussions with farmers in China.

Other supermarkets are also taking the contract route.

Cold Storage, which started doing so five years ago, has 10 contracts with vegetable producers in Tasmania state in Australia, Malaysia and New Zealand, said a spokesman.

Prime has two contracts for leafy vegetables in Malaysia while Sheng Siong said it is considering the option.

FairPrice’s new contracts will help to steady the prices of carrots, cauliflower, sweet corn, broccoli and vine tomatoes, said Mr Poh Sen Kah, its category manager for vegetables.

Over the past year, he noted that the prices had fluctuated by 15 per cent due to an unstable supply.

The higher cost is sometimes passed on to consumers.

With the contracts, price fluctuations will be limited to 5 per cent at the most, he said, adding that it is an amount the company can absorb.

Vegetables from Australia make up about 10 per cent of the total amount that FairPrice sells.

Consumers are drawn to the better quality as farmers there invest in modern farming methods.

Western Australia’s Minister for Agriculture and Food, Mr Terry Redman, said the contracts are a first for the region, which exported nearly A$5 billion (S$6.5 billion) worth of agricultural produce last year.

He added that his ministry is hoping to promote more of such contract farming deals.

The tie-up with FairPrice is good news for consumers like Madam Lilian Choo, 52, a teacher.

‘The vegetables from Australia taste sweeter compared with those from other countries,’ said the mother of two. ‘But they are so much more expensive.’

‘If the prices are a little bit lower, I may switch,’ she said.

Farmers in W. Australia welcome deals

UNDULATING fields of cauliflower greet visitors at Manjimup Fresh Produce, a thousand-acre farm in Manjimup – a town 307km south of Perth.

Its owner Gary Ryan, 46, used to grow 600,000 heads of cauliflower a year in the 1990s. About 80 per cent of them ended up in Singapore.

By 2004, his output had halved and only 1 per cent of that was Singapore-bound. The rest was sold locally.

The reason: China was producing cauliflower by the container load at half the price because of its cheap labour costs – among other things.

‘They completely wiped us out. We never really fully recovered,’ said Mr Ryan, whose farm was set up in 1956 by his grandfather.

The father of two, who started growing other varieties of vegetables including cabbage and broccoli, stopped exporting altogether. He is hoping to get that part of his business up and running again.

The farming contract between FairPrice and UTR Produce – a brokering company representing farmers to coordinate their supplies into the Perth and international markets – will help him.

Mr Lloyd Williams, the director of UTR Produce, works with numerous farmers at a time so there will always be supply to meet contract requirements. He gets up to 10 per cent return for everything he sells.

By next month, he will be inking two-year-long contracts with FairPrice for cauliflower, sweet corn, broccoli and vine tomatoes.

Such contracts, he said, will go a long way to help farmers in the region. According to his records, there were about 70 broccoli and cauliflower farmers in the Manjimup district in the late 80s.

Now, there are only seven left.

The major supermarket chains in the region refuse to work with farmers on contract terms because they want to hold out for lower prices, he said.

‘They call us only when they are short and tell us what they will give us in terms of price.

‘What can a farmer do? It costs them a lot to put money into infrastructure and into the ground. It’s difficult if they cannot guarantee a return,’ he said, adding that many farmers are now working on the quality of their produce.

Produce from China is half the price of its Australian counterpart. At FairPrice, consumers pay 37 cents for 100g of broccoli from China. Australian broccoli costs 69 cents per 100g.

Cauliflower from China can be bought at 25 cents per 100g, while the same vegetable from Australia cost 49 cents per 100g.

Said Mr Ryan: ‘We will never be able to get them on price. But we get them on quality every time.’

He added that contract farming also gives him enough security to invest in fertiliser and water sprinklers. ‘That’s how we are going to compete.’

Other farmers like Mr Vincent Tana, whose father started the family’s 3,500ha carrot farm Sumich, agrees that contract farming is the way forward.

Such contracts have also enabled him to invest in water sprinklers and wind-turbines.

He said: ‘Growing without supply is a big risk. If we can’t sell the carrots, it’s perishable in weeks.’

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