Vegetable Firms Hot Commodities in ’07, As Green Scene Becomes Less Serene
A From-the-Field Report By John M Saulnier, QFFI Chief Editor & Publisher

Ton Christiaanse, (right) executive board member of the Vion Food Group and chief operating officer of its EUR 1.1 billion Convenience division, which recently brought Oerlemans Foods into its fold, will continue to keep his eyes peeled for additional acquisitions in 2008. Seen at Mr. Christiaanse’s side is Marc van der Lee, director of communications.

Scarcity of precious peas reaches historic level in Europe. Couple that with zero or near-zero carryover of key vegetable varieties, and it is no surprise that prices are shooting up.

As a severe shortage of peas and tight supplies of beans and sweet corn in Europe impacted the EU frozen food market in late 2007 – and will continue to be felt until new crops are harvested in 2008 – another development still reverberating has to do with the supply of and demand for vegetable processing companies on the auction block.

Buyers have recently seen the price of peas spike 30% and a number of scarce vegetables become more expensive than a year ago, but it was the sale of revered frozen vegetable producers such as Oerlemans Foods, Salvesen and Padley that had tongues wagging in the trade, as much as talk about upward price trends.

Then there was the acquisition of spud specialist Van den Broeke-Lutosa by Pinguin in Belgium. Meanwhile, the fate of another “for sale” company, Warsaw, Poland-headquartered Hortex Holding SA, was still a hot topic of speculation as this magazine went to press.

The fact that Venlo, Holland-based Oerlemans Foods NV was snapped up last October was not particularly surprising, since it was no secret that the frozen vegetable, potato and fruits supplier had been shopped around for some time. What was eye opening, however, was that a EUR 7.4 billion company largely engaged in the meat business, Vion NV of Best, Holland, made the purchase.

But for Ton Christiaanse, chief operating officer of the Convenience division of Vion, the Oerlemans purchase made perfect sense. First, he told Quick Frozen Foods International, it was about bringing complementary synergies to the group’s expanding portfolio of value-added frozen products – which includes the Salomon FoodWorld menu of foodservice-oriented fare ranging from hamburgers and schnitzels to Chik’n® Stiks and California Rolls, and the Quisit line of retail frozen ready meals and private labels produced in Germany.

Salomon FoodWorld Teams with Artland Under an Enlarging Vion Group Umbrella Mini-schnitzel is just one of the Artland Fleischwaren products being taken on by Salomon FoodWorld. Germany’s Salomon FoodWorld, up to now a specialist in finger- and hand-held food, is moving more to the “center of the plate,” integrating into its product line the output of a traditional meat producer. Artland Fleischwaren of Badbergen, Germany, established in 1884, recently came under control of the Vion Food Group to which Salomon of Grossostheim-Ringheim, also belongs. Vion, headquartered in Best, Holland, is an internationally operating food group. Artland was, among other things, the market leader in supplying schnitzel specialties to the foodservice branch. “We see a chance to make more out of the Artland brand, above all through our common competence in the center of the plate area.” said Philip Dean Kruk, managing director of Salomon FoodWorld. Among the Artland products now being offered is a mini-schnitzel of breaded pork with a note of lemon flavor. It’s meant as a small meal and goes well on a buffet table with a dip.

Oerlemans is now being called upon to play a major part in procuring non-meat products for Vion. Indeed, approximately 50% of the company’s Convenience division’s raw material requirement is for items other than beef and pork, which it produces internally. The list of outsourced foodstuffs runs the gamut from fish, shrimp and chicken to pasta, rice, broccoli, peppers and pineapple.

Secondly, the acquisition catapulted Vion geographically into two regions of heightened strategic interest.
“Oerlemans has a good position in the United Kingdom market, where Vion would like to grow more. We believe that innovative products that succeed in the UK can be successfully transferred to the Continent,” said Mr. Christiaanse. “The other region where Oerlemans is very strong is Eastern Europe.

It has two factories in Poland producing for not only for the domestic market, but also Russia, Belarus and Ukraine.”

Vion’s strategy, then, is to enhance product leadership through organic development and further acquisitions, and to boost volume by marching eastward. The forecast for growth in Western Europe is that it will continue at a steady albeit gradual pace, while frozen food sales in the East are expected to surge at double-digit rates well into the future.

Hortex Sale on Horizon?

Another frozen vegetable and fruit company with a high profile in Poland and neighboring markets including Russia is Hortex, which operates a network of factories including three specialized plants in Ryki, Skierniewice and Przysucha that pack everything from minced spinach and green peas to cherries, plums and tangerine nectar. Argan Capital, an investment fund engaged by majority shareholder Bank of America, has reportedly put Hortex on the market for EUR 300 million. Is Vion thinking about grabbing the asset?

“The Hortex brand is interesting, but we already have our position in Eastern Europe,” said Mr. Christiaanse. “It would make more sense for us to pick up a Belgian company. There are ample opportunities out there. Let’s just say that companies that are active in the field of ready meals, vegetables and potatoes could be interesting to us.”

“At Oerlemans,” he continued, “the potato is regarded as the thirteenth vegetable. And unlike seasonal green vegetables, potatoes can be processed all year long.”

It has been rumored for some time now that both Coca-Cola and PepsiCo are interested in Hortex for its beverage business, while Bonduelle of France and a few Belgian producers reportedly have had their eyes on the vegetable unit for some time. Frozen vegetable processors in West Flanders, nonetheless, insist that they are not about to buy a company deemed to be significantly overpriced.

“Hortex generated about 182 million euros in turnover, which is slightly less than the turnover we are doing,” one Belgian packer told Quick Frozen Foods International. “But as their profit in 2006 amounted to three million euros, the asking price is thus 100 times earnings,” “Such a price-value relationship is not attractive to us.”

Nor is it of interest, apparently, to Ardooie-based frozen vegetable producer d’Arta. Managing Director Johan Talpe told this writer as much during a recent visit to his office.

How about the Westrozebeke, Belgium-headquartered Pinguin Group, which went on a buying spree last year by acquiring two vegetable companies in the United Kingdom as well as potato processor Van den Broeke-Lutosa?

“As processors we would not be keen on paying a premium for the Hortex brand, though it has a big market share in Poland and is well known in Russia,” said Herwig Dejonghe, chief executive officer and managing director of Pinguin. “So we are not in the game.”

Poland is a powerhouse on the European processed vegetable scene. Its output of 440,000 tons in 2006 surpassed that of Spain and France, which respectively packed 420,000 and 413,000 tons. Belgium, of course, is No. 1 by far in production, at 782,494 tons.

There is no doubt in the mind of Paul Haspeslagh, managing director of Ardooie-Koolskamp, Belgium-based Dujardin Foods, that growth in frozen vegetable consumption in Eastern Europe will continue at a clip of five to ten percent or more per annum for the next 20 years or so.

“The only question is: Will more be produced here and elsewhere in Western Europe to meet the demand, or will it be produced in the East,” stated Mr. Haspeslagh. “The climate is better in Belgium, where we have 11 months of growing time compared with a shorter six-month June to November period in the east of Europe. Also, the quality of beans and peas tends to be better here due to generally milder weather during the all-important ripening process.”

Having said that, he noted that disappointing harvests for important varieties were experienced throughout Europe in 2007, leading to factory inefficiencies and increased production costs on top of higher spot market prices for critical raw materials. Bad summer weather sparked the shortage and led to what the Dujardin executive described as an “El Niño-like year” for peas, in which yields were sharply curtailed.

Pinguin’s Dejonghe concurred wholeheartedly, describing the severity of the pea shortage as historic in proportion in the United Kingdom, where yields shriveled by as much as 50% in key farming areas. Suppliers in Britain and on the continent quickly sold out their stocks, leaving those processors who were short of the increasingly precious commodity with two choices: either make do without, or import expensive stopgap relief shipments from New Zealand, Argentina or anywhere else where quality stocks could be found.

“It is better now to promote product other than peas,” said Dujardin’s Haspeslagh. “We are managing the situation. Our customers know that we can’t give 100% to one and zero to another.”

Pinguin’s annual report, released on Nov. 9, in part summed up the 2007 deep frozen vegetable scene as follows:

While beans are in short supply at the moment, Ardo has enough in stock to take care of the needs of its customers.

“After years of overstocks, the past financial year was the first year of scarcity for almost all vegetables. The shortages were caused by crop failures brought about by poor weather conditions, while significant price hikes for all arable products on the world market produced a scarcity of available growing space for vegetables. On top of this, the new and subsidized biofuels sector is distorting agricultural commodities markets. As a result of these various factors, the market is faced for the first time in 22 years with rising contract commodity prices...”

Ardo, Europe’s most prolific producer of frozen vegetables with processing plants spanning the continent and beyond – from England and Belgium to Spain and the Czech Republic – summed up the crop situation in a report issued to customers in November:

• Peas were down 20% to 30% in availability compared to 2006, a year when carryover was zero. However, despite drastically increased sales prices, demand and consumption has remained constant.
• Sweet corn yields fell by 15% in most growing areas, though on account of different reasons. In Hungary it was due to drought conditions, while in southwestern France and Spain it was heavy rain and relatively cold weather during the peak sowing season that caused problems.
• Pepper farmers saw yields dramatically reduced in Portugal and Spain due to low temperatures and rains. In Turkey, it was hot and dry climate that took the toll.
• Main crop cauliflower yields were reduced by 20%, largely because of planting season woes caused by wet weather in July and August. Results of the winter crops in Brittany were also disappointing.
• Spinach yields were reported as “relatively good.”
• Brussels sprouts, owing to relatively warm temperatures in October and November, were coming to processors in larger sizes than usual. This was not good news for suppliers of small-size sprouts demanded by the USA market.
• Root vegetable yields were said to be “pretty normal,” with sizes “above average.”
• Baby carrots generally suffered in quality and quantity, due to high levels of humidity.
• Green bean availability is variable, with the harvest in Brittany off by 20% and significant damage affecting the crop of extra fine beans. The yield for beans was also adversely affected in northern France, Belgium and Holland, resulting in a pan-European shortfall of 15%.
• Broccoli harvesting will continue slowly until March, with yield results remaining uncertain until after the first quarter of 2008.
• Organic vegetables “are still very difficult to harvest,” according to the Ardo report, which further noted: “The crops of organic beans have decreased by 50%!” That’s not encouraging, at a time when demand is increasing.

“The season for planting and harvesting seems to be getting later and later,” observed Karin de Baene of d’Arta. “Because of these delays, we will be running baby carrots into December, and will have to catch up to get ready for onions and Brussels sprouts.”

As for peas, the company is looking forward to early-harvest inputs from its Dardico plant in Portugal, where crops will be harvested next spring, several months before summer picking begins in northern Europe. Meanwhile, the sales team is encouraging clients – especially those in Spain and Portugal – to order more spinach and less peas. Of course, this kind of pitch is a harder sell in the UK, where peas are a traditional staple of the English diet.

With the price of peas trading at upwards of EUR 1.35 per kilo in December, and most other vegetables in general more expensive than during 2006, the sky was nonetheless not “falling down” upon price-obsessed retail buyers. Indeed, with two consecutive years of price increases now on the books, many processors are breathing a collective sigh of relief in belief that the downward spiral of 2000-05 is really over.

Better Get Used to It

Spanish Subsidiary of Gelagri Bretagne Rolls Out Microwaveable Multipack Line Gelagri Bretagne’s frozen vegetables in multipacks are microwaveable. Multipacks of frozen vegetables distributed in 150-gram to 400-gram microwaveable steam pouches are now being produced at the Gelagri Bretagne processing plant in Santaella, Spain. The facility is situated 35 kilometers south of Cordoba, in the fertile Guadalquivir plain. Positioned as “family packs of individual portions,” the blends include peppers, courgettes, eggplant and onions grown locally. One of the specific offerings is a Seasoned Green Vegetable Mix, featuring peas, green beans and broccoli. Special packs, produced on request by clients, can incorporate vegetables, potatoes, rice or pasta with meat or fish to create full-fledged ready meals. Gelagri Bretagne’s Spanish unit produces some 10,000 tons of frozen vegetables per annum, while its two units in France pack 85,000 tons combined. Most raw materials in France, where the company is headquartered, are supplied by an 850-member farming cooperative, known as Coopagri Bretagne, which cultivates some 10,600 hectares in Brittany and Pays de Loire. In business since 1976, the company’s turnover last year was EUR 93 million.

“Vegetables are going to be more expensive, that’s a fact. And there’s no way back,” stated Michel Delbaere of Ooigem-based Crop’s NV. The managing director was optimistic about the frozen vegetable and fruit industry, based on a number of factors that revolve around the fundamental law of supply and demand.

“Today there are six billion people in the world, and by 2060 it is estimated that there will be nine billion,” he commented. “Standards of living are increasing, which means people are consuming more convenience foods. And they are eating more vegetables and fruit for health reasons.”

Crop’s, which offers a wide variety of vegetables, is also very well positioned in the frozen fruit business. Raw materials are sourced from around the world for further processing, mixing, packaging and logistics positioning at its flagship factory and central coldstore in Belgium. Furthermore, operational presence has been established in Eastern Europe and Latin America, where production units are situated near orchards or growing fields to guarantee speedy harvest-to-freezing transition over a two- to four-hour time frame, which thus guarantees maximum preservation of vitamins, flavor and texture.

The Crop’s Serbia facility specializes in sourcing and processing raspberries, blackberries, plums and sour cherries, while the Crop’s Poland unit focuses on strawberries, rhubarb, blueberries, sour cherries, plus red and black currants.

In Chile, Crop’s has direct access to Heritage and Meeker variety raspberries, as well as blackberries and grapes. In Costa Rica, Crop’s works with the Horquetas-based Tropifrost factory to preserve pineapple and papaya chunks, slices and puree at the peak of ripeness.

In recent years Crop’s has developed an assortment of Fruit for Smoothies distributed in 150-gram bag-in-bag retail packs to better address the booming demand in Europe and beyond for blended beverages made from fruit. Flavors available in the Crop’s line range from Mandarin Pleasure (a mix of mandarin, mango and banana) and Strawberry Delight (strawberries, peach and papaya) to Mango Dream (pear and mango) and Pineapple Sunset (pineapple, papaya and mango).

Mr. Delbaere told QFFI that sales of the products were going well. “Consuming Smoothies is probably one of the most pleasurable ways to assure intake of five servings of fruits and vegetables per day, which is recommended for good health,” he said. “With our products, all that consumers or operators have to do is add fruit juice, blend it, and the result is a delicious Smoothie containing 40% of one’s five-a-day requirements.”

Smooth, Profitable Operator

There are Smoothies, and there is smooth – and certainly one of the smoothest financial operators in the frozen vegetable and fruit business last year was Pinguin NV. The company’s share value more than doubled during the 2006/07 fiscal year to EUR 14.40, before advancing further and closing out the calendar year at EUR 16.15.

The rise began after a Belgian newspaper published a positive story headlined: “The Resurrection of Pinguin.” This was well in advance of its acquisition of Van den Broeke-Lutosa for EUR 175 million, and the subsequent capital increase of EUR 66 million last autumn following the issuance of 1,176,400 new shares. Guy and Luc Van den Broeke, the sellers of Lutosa, each bought EUR 10 million worth of Pinguin stock at a price of EUR 17 per share.

“I never used the word ‘resurrection’ when speaking with the journalist,” said Mr. Dejonghe. “But when he asked me if 2007 was going to be the year when positive things will happen, I responded: ‘Yes, absolutely’.”

The bottom line, according to the company’s annual report, showed “the best results in Pinguin’s history, posted on slightly lower sales, reflecting good operating figures as well as two positive one-off events. The Deprez family (via 2D NV) extended its strong stake in Pinguin with a new capital increase...”

Herbafrost’s Frozen Purple and Thai Basil Increasingly Make European Cuisine Scene – Reported by John M. Saulnier The color of Purple – look for more of it, along with Thai Basil, in foods this year. Move over Sweet Basil. It’s time to make room for Purple and Thai varieties to command a bigger presence in the frozen food sector, as they increasingly accentuate the flavor and aromatic qualities of ready meals, soups and sauces. Both herbs are now cultivated in the Antwerpian Campine region of Belgium, and are being packed and marketed by Hulshout-headquartered Herbafrost NV. Purple basil (opal basil, or Ocimum basilicum purpurea), a member of the mint family and native to India. has a flavor profile described as “heightened in intensity” in comparison with sweet basil. The purple color comes from anthocyanins, which have a lot of beneficial attributes. The Thai variety (Ocimum basilicum, also known as “Siam Queen”), featuring small leaves and purple stems, also has a strong flavor imparting a subtle licorice taste. “We have sent samples to a number of food processors and menu developers who have responded quite favorably,” said Peter Van Asten, managing director of Herbafrost. “Purple and Thai Basil both grow very well in the sandy soil of this region, in part because of its good drainage characteristics.” Offering a wide assortment of free-flowing, IQF culinary herbs ranging from diced chives, oregano and savory to sage, rosemary and thyme, the company sources a great deal of its raw materials from contract farmers working plots of land in Belgium stretching from the Dutch border to France. Herbafrost operates a second processing plant in Vladso (West Flanders) which specializes in dill and parsley, while most other output stems from the flagship factory in Hulshout. “It is very important to have our processing and freezing facilities as close to the fields as possible. This assures that a minimum period of time elapses between harvest and freezing, and makes for a high-quality, fresher than fresh end product,” said Klarine Cabezón, sales manager. The company produces mixes and blends as well as mono products, and offers specialty-cut sizes as well as standard presentations. In addition to conventionally-grown herbs, an organic range is offered, though supplies are scarce at the moment. “Last year’s growing season presented problems for many varieties, as it was both too dry and too wet,” recalled Mr. Van Asten. “We are hoping for better weather in 2008, but in January one never knows what will be in stock the following August."

Here are the key numbers: consolidated sales, EUR 147.2 million (-1.22%); operating cash flow was EUR 13.9 million (8.8% of sales, compared with 4.7% the year before); consolidated net result was EUR 6.9 million (compared to -2.9 million in 2005-06); positive operating result amounted to EUR 0.9 million.

As the United Kingdom is a major market – 30% of sales were generated there last year – the company moved to further secure supply lines in Britain by taking over Christian Salvesen’s Foods division for EUR 26.7 million, in addition to buying Padley Vegetables. This gives Pinguin the capacity to ramp up volume of peas and other greens from 52,000 tons currently produced at its Kings Lynn factory to 130,000 tons per annum.

The operations are being integrated and restructuring is taking place among the newly acquired units in Boston, Bourne, North Thoresby and Easton. Heading up the effort is Peter Denolf, a former Ardo man who is now managing director of Pinguin UK. Peter Ohms is operations manager.

The unit plans to invest in a state-of-the-art plant in the coming years, in order to be competitive over the long run with highly efficient factories on the continent. Sales volume is budgeted to rise from 90,000 to 130,000 tons, of which imports will weigh in at 40,000 tons.

Meanwhile, in the short run, turnover generated in the UK is anticipated to be in the range of £90 million a year.

“We have great expectations for a bright future in the United Kingdom,” said CEO Dejonghe, who plans to spend at least a day and a half per week visiting plants in Britain.

Most players in the European vegetable industry are optimistic about the future these days, and a recently published study from the University of Ghent in Belgium provides more ammunition for producers of frozen and canned products to use in the marketplace.

Heidi Goovaerts of Ardo, spokeswoman for a vegetable education program funded by the EU and industrial vegetable producers from Belgium, France and Holland, highlighted the study to journalists during a recent press conference.

“There are plenty of positive findings in the latest study, as well as in previous ones,” she said. “Chief among them is the fact that the freezing process locks in vitamins and minerals, while fresh vegetables lost almost 60% of vitamin content within three days of harvest.”

However, vitamin potency is diminished somewhat during the blanching process used prior to freezing vegetables.

“This means that more attention must be paid to blanching, so that greater preservation of vitamins may be obtained,” she stated.