Pricing squeeze pushes veggie supplier into receivership

An independent vegetable supplier has been forced into receivership in the wake of the supermarket pricing war, with industry experts saying the situation for small food businesses is worsening.

Barbera Farms, a family-owned business operating in Queensland’s Bundaberg and Bowen regions, is one of the largest independent small crop growers in the country, employing 800 staff.

The business, which supplies capsicums, zucchinis and tomatoes, went into receivership yesterday as a result of rising debt and the pricing squeeze from its large supermarket customers.

Initially dubbed “the milk wars”, Coles and Woolworths came under fire earlier this year for heavily discounting milk and eggs, but the pricing pressure has now shifted to items including chicken and fresh vegetables.

As a result, Barbera Farms is now under the control of Ernst & Young, which was appointed yesterday by lender Suncorp.

A Suncorp spokesperson said in a statement that it worked with Barbera Farms “over an extended period of time” to provide support during difficult trading conditions.

“[We] were at a point where we had to appoint a receiver/manager to determine the best course of action for that company going forward,” the spokesperson said.

Speaking on behalf of Barbera Farms, Ernst & Young partner Justin Walsh says his firm is working towards putting the business up for sale, and there is “no intention to reduce staff numbers at this stage”.

Walsh, who is handling the receivership with partner Chris Munday, says staff have been told it will be “business as usual” and there will be “absolutely no disruption to supply”.

According to Walsh, the company is a blue ribbon farming asset and the best way to maximise its value is to keep operating.

Barbera Farms holds a substantial slice of Australia’s horticultural industry; revenues for the financial year ended June 30, 2009 were $73.5 million.

The business supplies around 65% of capsicums, 60% of zucchinis and about 25% of tomatoes across Australia.

John Brent, chairman of industry body Ausveg, says the trend of pushing down supermarket prices is no longer limited to the dairy industry as it is now seriously affecting growers.

“There’s no doubt there is toughness out there in the marketplace… All along the chain, that vertical integration from grower through to consumer, we need to ensure there is an opportunity for long-term sustainable product and marketing of vegetables,” Brent says.

Jos de Bruin, chief executive of Master Grocers Australia, says the supermarket giants have the market power to “break a business with one decision”.

“It’s not good for innovation and it’s not good for differentiation. I think all of us would like to have a degree of choice and foster sustainable competition,” he says.

“I don’t think our politicians are taking enough notice of what is going on out there… If we’re not careful, things will become worse.”

Alex Livingstone, chief executive of horticulture organisation Growcom, says bargaining with supermarkets is getting harder for suppliers, stating: “It’s a fairly tough and cutthroat industry when it comes to pricing.”

In addition, Livingstone says the cost of processed vegetables from overseas is significantly less than Australian due to economies of scale and lower labour costs.

“Where processed becomes a substitute for fresh is where it gets really difficult,” he says.

According to Ausveg, local operators should ensure they promote their Australian produce with clear labeling, particularly if the produce is organic.