Reykjavík Grapevine - 03.12.2010, Page 12

The Reykjavík Grapevine
Issue 18 — 2010
12
Article | Words Eimear Fitzgerald photography Páll Hilmarsson
Rummaging through boxes of vegetables in a
local supermarket recently, I noticed some-
thing on my quest for the holy trinity of quality
and freshness at an affordable price. The level
of debate going on amongst shoppers about
the quality of vegetables relative to their cost
seemed to be greater than for any other food
types. perhaps it's due to the rising popular-
ity in trends for vegetarianism, veganism and
more eco-conscious lifestyles? perhaps the
tighter squeeze on everybody’s pockets has led
us to question what we are prepared to spend?
perhaps people are just feeling more patriotic
and want to question their food sources more?
The cost of importing food is rising, particularly in
the case of vegetables. Figures from Statistics Ice-
land show that the consumer price index (the CPI
tracks the price consumers pay for a basket of every-
day products) for the category of vegetables has risen
steadily on average since January of 2008. The in-
dex peaked at 150 points in April this year, leading to
an overall increase of 50% in the price of vegetables
in less than three years.
I set out to investigate why we consumers end up
paying the price we do for Icelandic vegetables, and
as a consequence came across some curious trends
happening within the industry as a whole.
SUppLy ANd dEMANd
A stroll through any supermarket will reveal that
some Icelandic vegetable varieties are priced fairly
competitively with imports (tomatoes, for example)
while others cost a good deal more than their for-
eign equivalent (like zucchinis). So what makes for
this variation in price?
Gunnlaugur Karlsson and Kristín Sveinsdót-
tir of Sölufélag Garðyrkjumanna (SFG – “The Gar-
dener’s Sales Collective”), the company behind the
brand Íslenskt.is, explain that the amount consum-
ers end up paying for Icelandic vegetables depends
on supply and demand. Here comes the science.
“The demand for products depends on the time of
year. In summertime we are very competitive in
price, as we have greater quantities of vegetables,
especially tomatoes and cucumbers. It’s much more
difficult to be competitive on price during winter as
there’s less quantity and fewer varieties,” Gunnlau-
gur explains.
He adds that while there are variations, “It’s
a myth that Iceland vegetables are vastly more ex-
pensive than other countries.” This, he says, is an
issue that again comes back to supply and demand.
“We’re not exporting, so if farmers can respond to a
high demand for produce by producing a lot, prices
can then be kept down. For example, we had a situa-
tion during the summer, where Icelandic cucumber
portions were cheaper in Bónus than their equiva-
lent in Tesco supermarkets in the UK”.
That’s a surprising fact to digest but illustrates just
how competitive domestic produce can be if enough
is produced. It seems that if you want to get value
for money when shopping for Icelandic vegetables,
there’s a much greater chance if you shop for vari-
eties that are in season and plentiful. If you want
strawberries in December, you have to expect to pay
a lot more.
SUppLy CHAIN
Another part of the process where end costs tend to
get inflated is with suppliers and middlemen. “The
suppliers are few and in a powerful position in rela-
tion to the producers. There has been a monopolistic
trend,” says Ólafur Dýrmundsson of the local Farm-
ers’ Association (Bændasamtök Íslands).
In view of this SFG’s Gunnlaugur explains
that his organisation’s part in the chain is to collect,
package, market and resell to suppliers on behalf of
farmers. He stresses the fact that because SFG is
owned by farmers themselves, the company is not in
the business of making a profit. “We run our opera-
tions on the basis of a 10% cost to farmers, ensuring
they receive 90% of the price of their produce. The
supply chain only works as long as it’s a convenient
system. If someone in between is taking more than
he should, then it’s going to change”.
Bananar (“Bananas”) is Iceland’s main distribu-
tor of both imported and Icelandic vegetables. Ba-
nanar Manager Kjartan Friðsteinsson argues that
the popular notion of distributors exploiting the
devaluation of the króna through the application of
higher margins is a misconception. “Of course we
are running a business, but we are not increasing
the margin or anything like that. The fluctuation of
the króna means we have to pay the rate of exchange
at any particular time. Actually I think the percent-
age margin has gone down rather than up, relatively
speaking, and the margin in vegetables is very low
anyway, compared to other items such as electron-
ics.”
Explaining Bananar’s pricing structure, Kjar-
tan tells me “Sometimes we have to buy oranges
from South Africa, for example, other times from
Argentina or Spain. Prices can fluctuate in different
countries at different times of the year, and you also
have to import from further distances when oranges
aren’t in season closer to home. This all adds to the
costs the consumer pays.”
Kjartan balks at suggestions of suppliers having
possible financial motive to support imports over
domestic produce. “We’re just here to fill in the
gaps, if it comes to a time that domestic production
satisfies demand in a particular product, then we’ll
happily stop importing it.”
GROWING pAINS
But what about the costs involved in production. Just
how expensive is it to produce vegetables in Iceland?
Knútur Ármann, a tomato grower based in
Bláskógabyggð, explains that growing vegetables
in greenhouses requires a variety of imported ma-
terials such as glass, steel and lamps. While these
were always costly, the price has soared since 2008.
“In the last two years the low value of the króna has
made the cost of the materials we need to import,
such as fertiliser, very expensive. They are now dou-
ble the price,” Knútur says.
Knútur cites electricity as his single biggest pro-
duction cost. “My energy costs equate the salary I
have to pay for six people. We understand that most
Icelandic people want their food to be fresh and lo-
cally produced where possible, and that people have
less money in their pockets. But it’s very difficult in
the current climate to keep prices fair and afford-
able, when the price of production is going up all the
time.”
SFG’s Gunnlaugur supports these claims: “In
this industry the biggest single issue is the price of
electricity. It’s not the price of the electricity itself
that’s the problem, but the costs associated with its
distribution and transportation,” says Gunnlaugur.
This sentiment was echoed by the Farmers Associa-
tion’s Ólafur Dýrmundsson who believes, “the cost
of electricity is a major cost item and one of particu-
lar concern for greenhouse growers.”
ENERGy EXpLAINEd
On the back of these comments the energy issue
was put to The National Energy Authority, Orkus-
tofnun, for comment. Their representative Haukur
Eggertson proposes a few suggestions as to why
the industry might be feeling the price pinch now
more than ever. Competition was introduced into
the market for electricity distribution in 2005, in
a move away from a previous monopoly held by
national power company Landsvirkjun. Haukur
explains the impact this brought about. “For years,
Landsvirkjun had run an experimental scheme,
selling surplus electricity at lower rates to emerging
industries. With greenhouses and vegetable produc-
tion just emerging as an energy intensive new in-
dustry, growers were a main benefactor. However,
this practice couldn’t continue within this new ener-
gy environment, as selling electricity at lower prices
to certain groups over another, for no apparent busi-
ness reason, would be against competition law”.
He goes on to explain that the initial plan was to
have an adjustment period at the end of the scheme,
“but this didn’t happen, so the price changes came
as a big shock to growers”. He suggests that these
previous discounts, and the subsidy system that re-
placed them, hasn’t forced the industry to be smart
about their energy usage. “A weakness of the subsi-
dy system is that it has not been rewarding, or given
incentive to farmers to reduce their electricity costs.
Farmers haven’t exploited the current tariff system
in order to get most value out of rewards that exist
for large volumes of usage, for working at off-peak
times and using electricity in an even, consistent
manner.”
Haukur declines to comment on whether the
energy industry is setting its prices too high, but
adds, “Orkustofnun’s job is ensure that energy dis-
tributors behave in a correct manner and demand a
fair price for their services, and that they must ask
the same price of all users. As far as we know, no-
one is getting rich from distributing electricity.”
GROWING dEMANd – WEAKENING pROdUC-
TION
Meanwhile, it seems consumer demand for Icelan-
dic products has grown strongly since the economic
collapse of 2008. Bananar’s Kjartan Friðsteinsson
notes that the demand for Icelandic produce is actu-
ally much higher than current production levels. “At
the moment approximately 30% of our business is
in Icelandic vegetables, but in fact demand for Ice-
landic produce is greater than the supply.”
Kristín Sveinsdóttir of SFG believes the demand
was strong before. “But it has increased strongly
since 2007. Healthier lifestyles are helping us.
Farmers use very little fertilisers, and we have very
high quality water which is extremely important for
production”.
Brynhildur Pétursdóttir, a representative of
Neytendasamtökin, the consumer association, also
agrees. “It seems evident that Icelandic consumers
believe Icelandic vegetables are of good quality, and
consequently many are willing to pay that little bit
more. People are increasingly concerned with the
environmental impact of importing food, as well as
the fact that Icelanders need all the work they can
get.”
However while consumer demand may be
pushing forward, production figures surprisingly
appear to be in decline. Figures from Samband
Garðyrkjubænda (The Icelandic Horticultural As-
sociation) show that while production had been in-
creasing year on year (from c. 7.000 tonnes in 1995
to c. 19.000 in 2006) it has actually decreased since
2007, to just over 15.500 tonnes in 2009. Bananar
also supported the notion that production has de-
creased in the past three years.
It seems the current situation is a paradoxi-
cal one. In the context of today's extremely tough
economic climate where every industry is fighting
tooth and nail to stimulate demand for their prod-
ucts, here is an industry which, incredibly, is in
decline despite growing consumer demand. While
the arguments are admittedly complex, the dynam-
ics multifaceted and the stakeholders numerous, its
nonetheless a difficult logic to grasp.
While the domestic horticulture industry is
limited in some ways by geography and environ-
ment, one is left with the impression that the indus-
try has yet to fully stretch its legs and discover its
full potential. Although its future is to a large extent
in the hands of farmers, policymakers and indus-
try stakeholders, we consumers also have a role to
play through the choices we make. Some food for
thought the next time you stroll through those su-
permarket aisles.
The accompanying photo depicts a container filled with PERFECTLY FINE fruits
and vegetables that had been thrown away by a certain distributor. Imagine how
much waste goes on in our community - it's downright creepy!
From Farm to Fork
“People are increasingly concerned with the environ-
mental impact of importing food, as well as the fact
that Icelanders need all the work they can get.”
Demystifying the cost of Icelandic vegetables.
Domestic vegetables made
up approximately 29% of the
Icelandic vegetable market.
Value of imported veg-
etables—ISK 1,619 million,
or 2/3 of total vegetable
consumption.
D
om
es
tic
Im
po
rt
ed
Almost 5,000 tonnes of
Icelandic vegetables were
produced in 2009, and 13,000
tonnes of potatoes.Ve
ge
ta
bl
es
Po
ta
to
es