Alliance in your Future Article

Is there an Alliance in Your Future?
No single issue will determine the future prosperity of growers, packers, shippers and marketers in the apple industry more than the decisions they make on alliances.

The days of the independent operator are numbered. That does mean that the days of the independent firm are numbered; just that for many functions, firms are going to be forced to cooperate with other firms in order to meet market needs.

Pressures for Alliances
The most obvious pressure for alliances is coming from the large retailers. In both direct and indirect ways they have been signaling that they want fewer suppliers, but that they want those suppliers to be able to provide a wider array of products and services. They want a continuous supply of a wide array of varieties, just-in-time delivery, category management, promotional support, etc.

However, the broad market has also been signaling the need for change. Per capita consumption of fresh apples is either static or declining in many countries. This can only be reversed through innovations in products, packaging, delivery methods, promotional appeals.

Innovation can still arise among traditional independent growers, packers, researchers and supply companies. However, it will take large, often international, alliances to implement those innovations in the marketplace.

Key Areas for Alliances
Alliances are urgently needed in three key areas, research and development, marketing and promotion. The global apple industry has made some advances in building alliances in each of these areas, but there is still a long way to go.

The area that may be most crucial in the long-run, but where the leaders have been slowest to grasp the urgency of alliances has been in the research and development community. Scientists in individual research centers around the world are working on many specialized problem areas. However, collaboration or sharing of information or collaborative efforts across state, provincial or national borders is often dependent on the whim of each scientist, on personal friendships or on traditional patterns of collaboration.

In general, administrators of universities and government research operations still see problems in state or national terms and are not sensitive to the imperatives of a global marketplace. Thus, their reward systems are geared to meeting local needs. Too much scientific effort is wasted on short-term, shallow projects and not enough is devoted to more fundamental studies with wider, global implications and payoff.

New Varieties Vital
No area of scientific endeavor is more long-term in execution and more global in its implications than the discovery and launching of successful new apple varieties. The global apple market of the present owes a huge debt to the New Zealand apple industry for its past persistence in grooming Fuji, Gala and Braeburn for the world stage. Today's apple market would be even more struggling and depressed had New Zealand not made that effort.

New Zealand is no longer willing to fund the world apple industry's R & D for new varieties. Indeed, it cannot support the costs of such an operation. It was that realization that encouraged HortResearch New Zealand to form a consortium with industry body, Pipfruit New Zealand Ltd, Apple and Pear Australia Limited and the Associated International Group of Nurseries to help develop future promising HortResearch varieties.

However, this consortium alone cannot be expected to carry the burden of developing new varieties for the global apple industry for the 2020s and 2030s. In an article in "Apples: Botany , Production and Uses" edited by D.C. Ferree and I.J. Warrington and published by CABI Publishing in 2003, Drs Susan Brown and Kevin Maloney of Cornell University reviewed apple breeding programs in 33 different countries, each with different resources and objectives. This represents a limited amount of intellectual capital for a world problem.

The model of a local breeding program seeking only to develop varieties to be grown in local conditions for sale in local markets is no longer sustainable. While some of the problems with which these programs are dealing may be local, together they could have a major influence on the future prosperity and competitiveness of the global apple industry.

Advances in scientific methods and genetics continue to increase the cost and complexity of research. The financial and genetic resources and scientific capacity of the surviving breeding programs need to be allied in a systematic way to tackle the global apple industry's number one long-term problem, finding successful, commercial varieties that can replace waning stars.

Marketing Self-correcting
Because of the pressure of retailers, many marketing alliances have been established both within countries and across international boundaries. Many smaller marketers have realized that they can no longer operate independently and meet retailer demands. However, marketers still have a lot of discretion over what type and size of alliance best meets their needs.

Since retailer purchasing preferences are still evolving, marketing alliances will need to evolve with them. Merging company A with company B may meet the requirements of current customers but may not be adequate as these customers' requirements change or new customers are added.

The choice of partners also becomes crucial. Alliances between marketers simply to increase volume or to acquire a wider product mix may not work if the partners do not have similar standards of quality. Equally important is what functions to include in any alliance. Some of the most successful alliances are likely to be those where top-class growers and efficient, high-quality packers are an integral part of the marketing alliance.

Successful future marketing alliances will no longer be those that sell whatever their growers and packers supply to them. They will be alliances where growers, packers and marketers plan ahead together to meet retailer and consumer needs. Packing houses will have to become selective about the growers whose fruit they will handle, and marketers will have to become more selective about the packing houses whose products they will sell.

Promotional Alliances Quandry
As the apple competes with numerous other fruits and snacks for the attention of retailers and consumers, promotion continues to be a vital part of the industry's global efforts. For example, in the United States, between 1992 and 2002, per capita consumption of fresh apples fell by 3 lbs while per capita consumption of other fresh fruits rose by 8 lbs. At the same time, competition from vegetables and manufactured snacks also increased.

There are three major ways in which an industry can improve per capita consumption, reduce price, improve quality or increase promotion. However, reducing price would only worsen the industry's financial squeeze. Quality improvements need to be rewarded with sufficient premium to cover the added costs. In the last decade, the industry has allowed some of its major promotional efforts to be dismantled because of perceived flaws.

Promotion still appears to be the one potential tool that a united apple industry could use to reverse or at least halt the decline in consumption. However, there is a wide split within countries and between countries about the efficacy of industry promotions. Some would like their governments to fund commodity promotions, and some governments provide matching funds. However, the amounts are rarely sufficient to have much impact on demand. Promotion of club varieties and of individual brands is more likely to increase the promoter's share of the pie than to expand the total pie.

Perhaps the solution to the promotional quandry is for the apple industry to build alliances with the health and nutritional interest groups that are also eager to see fresh fruit consumption expanded. Discussion of such alliances is already under way. It is not clear how much help they might be to specific commodities. However, the bigger the pot of money the apple industry brings to the table, the stronger will its influence be the promotional effects.

More Alliances Ahead
In the next few years, successful operators in the apple industry and supporting entities in research, supply and marketing are likely to find themselves entering into unprecedented alliances with operators in different segments of the industry, in different countries, in other commodities and even in other types of activities.

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