The Latvian Market for Sweet Peppers

The Latvian Market for Sweet Peppers

Target Market Confirmation Study

Conducted by CAMIB for USAID/CNFA’s

Agribusiness Development Project

April 2006

CONTENTS

Key Observations and Recommendations

Background

Production Trends

Import Trends

Market Access

Information on Companies Interviewed

Sources of Supply and Import Seasonality

Major Clients and Markets

Product Requirements and Preferences

Size

Packaging

Logo/Brand

Quality and Certification Requirements

Certificate of Conformity

Food Safety, Quality, and Environment Awareness

Varieties and Trends

Prices

Major Competitors

Moldovan Produce: Buyers’ Perceptions and Recommendations

Additional Factors for Moldovan Producers to Consider

Quality and Duration of Storage

Packaging

Transport Symbols

Means of transport

Ship, truck, railroad, and aircraft. Container transport

List of Reference Materials

Annexes

Sweet Pepper Import Trends in Latvia in 2003-2005

TABLES AND FIGURES

Table 1 Sweet pepper imports into Latvia in 2003-2005

Table 2. The Main Food Retail Chains by Turnover

Table 3: Registered import prices at the customs, 2001-2005

Key Observations and Recommendations

Latvia is not a new market for Moldovan sweet pepper suppliers. Despite the fact that Moldova could not hold a stable position on the Latvian food market in recent years, this market can offer good opportunities for Moldovan sweet pepper producers and traders.

According to the interviewed wholesalers and importers from Latvia, most of them are willing to discuss importing sweet pepper from Moldova. Their opinion is based on key attractive points such as good flavor and reasonable prices. Some importers and wholesalers are not ready to work with Moldovan sweet pepper producers and traders mainly because of the inferior quality of products and packaging, bad transportation, poor distribution and finally bad presentation of the product on the market.

Latvia has no local production of sweet pepper. The food market in Latvia over the last five years has shown the following market trends:

• price increases for fresh vegetables
• improved logistics, marketing activities and growing efficiency of distribution
• a high demand for cheap goods

In 1999 Latvia officially became a member of the WTO. This allowed Latvia to adjust its Most Favoured Nation (MFN) status to all member states. The Republic of Moldova became a member of the WTO in 2001. Moldova benefits from the GSP+ tariff system with the EU, which sets tariffs at 0% for sweet peppers produced in Molodva and exported to the EU. 80% of Latvian imports are from the countries with which Latvia has free trade agreements.

Moldovan exporters of fresh vegetables should develop the existing trade potential and enlarge the supplies of sweet peppers to the Latvian market. Exporters should keep in mind that Latvia, being an EU member, requires exporters to follow the same export regulations for Latvia as for all other EU countries and exporters must comply with EU legislation.

Sweet peppers intended for export to Latvian market should:

• correspond to Latvian consumer requirements (quality, presentation, uniformity of sizing and color, ripeness, freshness, the percentage of products with defects etc)
• correspond to EU marketing standards, Food Safety and Environmental (EUREPGAP) requirements
• be attractively packed with excellent labeling as laid down by EU standards, strong packaging - preferably cardboard, with indented inner (‘cell’) trays to hold each pepper etc). Sacks and nets should not be used for sweet peppers – they are too delicate.
• be delivered in time with no delays (which requires well organized logistics) and in compliance with the contract.

There are about 1000 food wholesalers in Latvia, out of which 500 cooperate with main retail chains and have their own distribution system all over the country. The wholesalers’ distribution centers are located mainly in Riga and Riga district.

Background

Production Trends

World aggregated pepper production (sweet and hot peppers) was 25million MT in 2005. China was the largest producer of peppers (12.5 million MT, 2005), accounting for 50 percent of world production. Mexico (1.8 million MT), and Turkey (1.75 million MT) each accounted for another 14.5% of world production, followed by Spain (0.953 million MT, 3.8% of world production) and the United States (0.98 million MT, 3.9% of world production). Other important producing countries included: Italy, France, Greece, Israel, Hungary, Bulgaria, Romania, and the former Yugoslavia, as well as a great many African, Asian, Central and South American countries (Source: FAOSTATS).

According to the Statistical Yearbook of the Central Statistical Bureau of Latvia, there is no production of sweet pepper in Latvia. The country fully depends on imports of this product.

Import Trends

Latvia imports sweet peppers mostly from the EU countries and the Ukraine. Sweet pepper trade volumes, especially from the Netherlands and Spain, have increased over the last five years and continue to grow. Total imports of sweet peppers from all sources rose from 2584MT in 2001, to 3908MT in 2005. Latvia’s main trading partners in the sweet pepper imports have changed over the last three years. The major supplying countries used to be the EU countries (42,6%), Russia (10,5%), the USA (2,0%), and Ukraine (1,1%) (Source: Northern Enterprise, July/August 2002). At present the official statistics shows that new market players appeared in Latvia such as Estonia, Lithuania, and Poland. Ukraine is a major supplier of green sweet pepper. In 2005 the shares of the leading sweet pepper importers in the total sweet pepper import to Latvia were as follows: the Netherlands – 56%, Ukraine – 24%, Spain – 11%, Estonia – 3% Source: Eurostat Comext, see Annex 1, Table 1, and Table 1 below:

Table 1 Sweet pepper imports into Latvia in 2003-2005

2003 / 2004 / 2005
MT / Value, EUR / MT / Value, EUR / MT / Value, EUR
EU25_INTRA / 2077 / 2428112 / 2055 / 2671951 / 2916 / 2925456
EU25_EXTRA / 1248 / 196376 / 1107 / 191335 / 992 / 202646
Total / 3325 / 2624488 / 3162 / 2863286 / 3909 / 3128102
including
NETHERLANDS / 1045 / 1286355 / 1215 / 1385388 / 2183 / 2208381
SPAIN / 856 / 1077891 / 590 / 1109196 / 411 / 468578
UKRAINE / 1239 / 192289 / 1107 / 190793 / 926 / 191671
ESTONIA / 5 / 10175 / 122 / 92955
POLAND / 104 / 25484 / 58 / 39431 / 84 / 52841
HUNGARY / 65 / 29578 / 107 / 65553 / 60 / 46943
LITHUANIA / 4 / 6030 / 69 / 47104 / 43 / 33769
ITALY / 2 / 2774 / 6 / 9499 / 10 / 17205
TURKEY / 0.7 / 243 / 11 / 6296

Source: Eurostats

Market Access

Latvian consumers’ are aware of Moldovan products and competitive prices, and this is an advantage for Moldova. However, there has been a rapid expansion of European retail chains into Latvia and clearer understanding of product characteristics – which enhance successful business relationships – has grown. As a member of the European Union, Latvia must adhere to a large number of rules pertaining to food. The EU sets stringent, legally enforced quality and safety standards. Compliance with the requirements regarding food quality and safety, labeling and packaging, as well as phytosanitary requirements, is a prerequisite for entering the Latvian sweet pepper market. Imported food products are tested and must be approved by the Conformity Assessment Center.

Information on Companies Interviewed[1]

To obtain first-hand information on the Latvian pepper market, the importers and buyers of fresh sweet peppers in Latvia were interviewed. The goal of the telephone survey was to research specific market requirements, current market preferences, the demand for sweet peppers and trends in its varieties, the sources of supply and major competitors, minimum and maximum price paid to suppliers, and recommendations to Moldovan sweet pepper exporters regarding quality, safety, packaging and labeling requirements.

Company representatives from the main Latvian commercial centers participated in the survey. Eight Latvian importers were interviewed. The analysis below is based on the information and data provided by them. Seven respondents were from Riga and one was from Kekevas pagasta, Riga district. The turnover of fresh fruits and vegetables in these companies ranges from 15 to 10,000 tons. Their product range includes a wide variety of fruits, vegetables, and other food products. Most of the respondents reported an approximate sweet pepper value turnover ranging from 1,3 to 4 thousand EUR. Two companies had pepper sales ranging from 70,000 to 100,000 EUR.

Large supermarkets and hypermarkets account for almost half of Latvia's food retail market. The major supermarkets are listed in Table 1 below.

Table 2. The Main Food Retail Chains by Turnover (net, million EUR)

Number of stores (12.2004) / 2000 / 2001 / 2002 / 2003 / 2004 / Comments
VP Market / 88 / 10.67 / 119.28 / 192.65 / 234.29
Rimi / (with Keskofood) 73 / 80.14 / 111.43 / 152.16 / 172.55 / (with Keskofood) 272.30 / joined with Keskofood
Baltstore / 306 / 124.57 / cooperation
Mego / 37 / 9.39 / 31.96 / 59.85 / 63.77 / was joined to Baltstore
AIBE / 400 / 58.41 / 72.57 / cooperation
Lepirkumu grupa / 60 / 51.31 / 50.29 / cooperation
Elvi / 62 / 14.51 / 15.90 / 42.77 / 48.94 / 49.14 / cooperation
Nelda / 23 / 25.03 / 35.76 / 43.79 / 44.52
Beta / 41 / 13.39 / 21.20 / 48.12 / 37.46
Keskofood / 3.89 / 17.89 / 35.91 / joined with Rimi
Sky / 2 / 11.48 / 16.45 / 15.63 / 14.22

Source: THE OVERVIEW OF FOOD TRADE MARKET IN LATVIA Marketings Konsultaciju Centrs SIA Riga, March, 2005

Sources of Supply and Import Seasonality

It is interesting to note that according to the survey sweet pepper was mentioned as one of the 10 most popular vegetables in Latvia along with onions, carrots, cucumbers, tomatoes, and others.

All the respondents indicated that their fresh sweet pepper supplies are imported. The suppliers can be divided into three major categories:

- the EU countries: Spain and the Netherlands (major suppliers), Belgium and Hungary (small quantities).

- the CIS countries: Ukraine (actively supplying sweet peppers during the summer-fall season) and Russia (small supplies from time to time).

- third countries: Israel (considerable supplies), Egypt and Turkey (random small supplies).

Imported sweet peppers are available on the market all year round. Spanish and Dutch sweet peppers are marketed throughout the year, but major supplies fall on summer and fall months. During this season Ukrainian and Israeli importers should be regarded as serious competitors for Moldovan suppliers.

All the respondents noted that they imported sweet peppers from Spain and the Netherlands year-round. The share of total imported volume of sweet peppers from these countries varied with individual importers but was on average 50-60% per year (Spain) and 30-50% (the Netherlands). Five respondents indicated that sweet pepper imports from Ukraine constituted 70-80 percent of their imports during the summer-fall season. Two respondents had sweet pepper supplies from Israel with the share of 5-10% during the season. One respondent mentioned sweet pepper supplies from Russia (5%) and Hungary (30% in spring) and another one mentioned occasional imports from Egypt and Turkey (5-10% each per year). One respondent referred to imports from Belgium accounting for 8% of imports during the summer-autumn season. Although most respondents worked with Moldovan suppliers at some point, no one imported sweet peppers from Moldova last year due to poor quality of the product (inadequate packaging led to damage during transportation).

Major Clients and Markets

Latvian consumers are familiar with Moldovan sweet pepper production, which used to be sold on open markets at a lower price. While the consumer is price sensitive, there are a growing number of Western-oriented consumers, who prefer modern supermarkets with a wide international food assortment despite some added costs. Most bell pepper varieties can be found in large Western-style supermarkets, many of which have sprung up around Riga. In the summer, however, a few large importers distribute sweet peppers to open-air markets. As it is very difficult for independent stores and small chains to compete, their presence in the market is decreasing.

Most companies that import bell pepper sell it domestically. VP MARKET Ltd Company, which imports sweet peppers in large quantities (up to 1000 tons per year) operates on Latvian and Lithuanian markets. The main clients of the majority of the respondents are large wholesalers and retailers. Most of the buyers interviewed distribute sweet peppers directly to supermarkets. VP Market Ltd sells sweet peppers only to distributors. The clients of two wholesaler companies, Latbana SIA and Improvs SIA, are distributors (30%) and retailers (70%). All of Novita’s clients are retailers. Two small wholesale companies, INC OOO and Lepirkumu grupa SIA, sell sweet pepper directly to consumers.

There are 4 strong cooperations in Latvia: Baltstore, AIBE, Lepirkumu grupa, and Elvi. This type of chains has common management, logistics, purchasing, marketing, but the stores are more or less independent. These cooperations are located both in cities and rural areas. VP Market, Rimi, and Elvi have their own distribution centers. VP Market, Rimi and Nelda practice direct import from producers.

Hypermarkets in Latvia are food stores with total selling area over 2500 square meters. The largest hypermarket is HyperMaxima -11 000 square meters. There are 6 more hypermarkets with total area exceeding 10 000 square meters. The average size of hypermarkets in Latvia is about 5000 - 6000 square meters. Almost all the hypermarkets are located in Riga, where Latvian business is concentrated and over one-third of the population lives.

VP Market (owner - Vilnius Prekyba) is the largest food retail chain in Latvia and the Baltic countries owned by Lithuanians. In Latvia they operate 2 main retail store types: Maxima (17) - supermarkets and hypermarkets located in cities, and Saulite (71) - discounters, located in cities and smaller towns.

Rimi (owner- ICA Baltic, related to Ahold) was the leader in food retail until 2003. In order to regain its position Rimi (a Scandinavian company) associated with Keskofood (a Finnish company). Now the united Rimi has hypermarkets (11) - MaxiRimi and Citymarket, located in cities, supermarkets (35) - Rimi, located in cities, and hard discounters (27) - Supernetto, located in cities and rural areas.

Product Requirements and Preferences

Size

The sizes of sweet pepper include small, medium, large, and extra large/jumbo. Capsicum should be uniform and have thick walls. All respondents reported that Latvian consumers prefer large and extra large sweet peppers. Also, the size of sweet peppers should be in compliance with the EU standard requirements (these can be found via the American website http://useu.usmission.gov/agri/Fruit-Veg.html the initial page is in English, but once a product is selected the detailed information is available in 20 languages)

Packaging

Packaging has to satisfy handling requirements. Sweet peppers must be packed to protect the produce properly. The respondents mentioned two major types of packaging: 5 kg cardboard package in two levels and 10-15 kg plastic nets (used by Ukrainian exporters).

Logo/Brand

None of the respondents indicated any particular pepper brand and noted that sweet pepper is not usually sold by brand. The consumer is not paying as much attention to the brand, as to appearance and price. Labeling is done in the Latvian language and must include the product name, the name of the manufacturer, the origin, additives, net quantity, name and contact information of the importer, and the expiration date.

Quality and Certification Requirements

The marketing standards for quality and labelling of fruit and vegetables are laid down in the basic regulation EC 2200/96 (October, 28 1996) of the framework of the Common Agricultural Policy (CAP). The products that do not comply with these standards are barred from the market. Sweet peppers are subject to the EC Marketing Standards as laid down in the regulation EC 2200/96 (Source: DEFRA Internet site, 2004).

Certificate of Conformity

In June 2001 the EU Commission adopted Commission Regulation (EC) 1148/2001. Under this regulation all import fresh fruit and vegetable consignments from countries outside the EU and subject to the EC Marketing Standards are required to have a recognised Certificate of Conformity before they are allowed to enter the EU market. Information in English can be found at:

Phytosanitary certificates requirements:

• shall bear the official text in conformity with the FAO model;
• shall be drawn up in one of the official languages of the European Community;
• shall be filled in completely and either entirely in capital letters or entirely in typescript; if an annex is used, the phytosanitary certificate shall bear the words: “see annex” and the annex shall bear the words: “annex to phytosanitary certificate number … ” and the annex must be authorised by stamp of the organisation and signature;
• shall be stamped and signed by an authorised officer of the Plant Protection Service;
• shall be issued not more than 14 days before leaving the country;
• shall indicate the origin and the destination of the plants or plant products;
• shall indicate, besides the name of the produce, the botanical names of the plants
• shall indicate number and description of packages;
• shall indicate net weight; authenticated copies or duplicates of the phytosanitary certificate shall only be issued with the indication of “COPY” or “DUPLICATE”. A photocopy, fax copy, or e-mail copy are not acceptable

Food Safety, Quality, and Environment Awareness

Food production, especially primary growing, should be environment-friendly. In the context of the increasing environment awareness in the EU, a group of leading European food retailers launched the EurepGap Protocol in 1999. The objective of EurepGap (Euro-Retailer Produce Working Group for Good Agricultural Practice) is to raise standards for the production of fresh fruit and vegetables by promoting food safety, the sustainable use of natural resources and more environment-friendly production. Starting from January 1st, 2004, the leading European supermarket chains only sold products which complied with EurepGap standards. Working according to EurepGap standards will be a very positive aspect in the export business. For more information on the EurepGap Protocol refer to

Varieties and Trends

Pepper (Capsicum Annuum, L), also called bell pepper, chili, chilies, aji, pimiento, paprika, and capsicum, is a warm-season crop that belongs to the Solanaceae family. There are about 2000 hundred different varieties of Capsicum Annuum cultivated throughout the world.

Sweet pepper varieties differ greatly in color, shape, and size. Bell peppers are available in different colors. Sweet peppers are often green or red, but can be yellow, white, purple or black. Bell peppers are green when unripe and turn red, gold, purple, orange, or brown as they ripen. Green and violet peppers have the strongest flavor. Yellow, red, and orange are milder and sweeter. Sweet peppers of all varieties and colors are available year-round in Latvian supermarkets. Most respondents (five) said that they import sweet peppers of all colors (red, yellow, orange, and green). According to them, red-colored sweet peppers are the most popular in Latvia. This variety constitutes up to 60-65% of all imported sweet peppers. From 15 to 30% are yellow and orange. Two of the respondents imported mainly red and one preferred green-yellowish. During the season the Ukrainian green peppers are sold at a very low price average Euro 0.17 (all Ukrainian peppers are green)