Sumich

Sumich: Successfully exporting from Western Australia

Nick Tana is the owner of Western Australia’s largest horticultural exporter, having acquired the Sumich business in 1988 when it was financially strapped. Since then, Mr. Tana and his family have restructured and rebuilt the company into an exporting powerhouse. Nick built his original fortune in the fast food business but has now turned to horticulture and vegetables in particular. The Western Australian Special magazine of 2013 listed him with assets of over $200 million.

Sumich Group began its first market garden in 1944 in Spearwood, Western Australia, and by 1950 it had moved into wholesaling and had established a thriving food export business supplying fresh produce to the Royal Navy based in Singapore. It has continued to expand its vertically integrated business in which it grows, packages and exports its products to a range of different countries across Asia and the Middle East. Its production comes from a number of geographic locations across Western Australia and Tasmania. Two thousand tonnes of carrots per week are exported from the West Hill Farms carrot operation and the company also owns a thousand hectares of olive trees in the Moore River region. The company also produces olive oil from over ten surrounding farms which cover a collective 800,000 olive trees.

The company’s product ranges include cabbage, carrots, carrot concentrate, celery, onion, pumpkin, potatoes and olive products but by far the majority of the product is carrots and related products that are exported. In its packaging and processing operations the company uses advanced technology to quickly cool and safely and efficiently handle, store and distribute its products from the field to the customer. Vacuum cooling is effectively used for certain types of vegetables, as is hydro cooling. Sumich has invested in these advanced technologies in order to improve the quality and extend the life and freshness of the products, particularly carrots. An example of advanced technology it uses is pressure cooling, which cools 6-10 times faster than room cooling, so that carrots can be quickly brought down to an operating temperature that will extend their shelf life once the consumer takes them home.


Approaching export markets

Barry Buss is the long-time export manager of the Sumich business. He started his work career in 1965 and joined Sumich in 1980, working particularly in the vegetable and fruit sector. He was part of the company when it listed in 1987 but left in 1994 to start his own company which he later sold. He observed that Sumich went into receivership in 1998 and
the new owners, Mr. Tana and family, took over the company in order to revitalise it. Barry Buss rejoined the company in 2007 and remains its Export Manager, although he is planning for retirement and in doing so is developing up a younger generation who will succeed him. In the past decade, the family owned and driven business has focused primarily on carrots in Western Australia. Other vegetables, such as onions, cauliflower and broccoli became uncompetitive at one point and carrots became a highly mechanized business such that there is little or no labour cost disadvantage and therefore carrots can be competitively produced in Australia. In 2015 the company branched into Tasmania and added a substantial onion portfolio to its Western Australian (primarily carrots) business. The company now owns all its own land and is highly vertically integrated in that it grows, packs and distributes its products, having control of much of its supply chain. Western Australian carrots now comprise 70% of the business, Tasmanian onions 25%, with the remaining 5% being made up of celery, potato and other minor product lines.

Asian exports

The key to having an export business that is successful is to have a marketing philosophy and focus which is consistent over time. Barry Buss and the Sumich company focus on achieving long term relationships with partners and customers overseas. Their approach to such partnerships is relatively unique, whereby they know their costs very clearly and set a price which is based on cost plus a margin, allowing them to keep a stable price even as the price of products such as carrots goes up and down on world markets and across seasons. By clearly knowing their costs and pricing in a stable way, Sumich has become known as a dependable supplier with a consistent price that matches its attention to detail and quality consistency.

Sumich works hard to not let the domestic market fluctuations sway its pricing. In Australia, the domestic market prices fluctuate significantly when there are surpluses or shortages, for example due to floods. Domestic prices go up and down and when they go up, overseas competitors can profitably enter the Australian market. But overseas markets are relatively stable and even when international market prices for carrots generally rise, Sumich’s strategy, which is much appreciated by its customers, is to maintain stable pricing and then as part of its partnership approach, expect good will from its customers during other periods. This stability has seen Sumich’s supply chain and market strategy approaches lead to sustainable, successful collaborations with it customers. The Sumich philosophy is to observe but not participate in what other Australian growers do, which is to fall prey to the boom and bust cycles in vegetables and horticulture.

Sumich’s customers are first hand Asian importers, as well as those in the Middle East, Japan and the UK. Sumich used to deal with many large overseas supermarket chains but are doing less so now, only selling to supermarkets in Singapore and Thailand. Their product is transported in chilled shipping containers, and ends up in restaurants, hotels and supermarkets overseas.  

Supply chain and market risk

Sumich’s attempt to achieve level production and stability in its supply chain brings risk with it. Whilst it produces to a forecast of demand, its biggest risk is that demand will fall short of
those forecasts and that Sumich will overproduce, which in a glutted local market leads to product loss and waste. Hence crop management and scheduling of production is a critical factor in the supply chain. A second risk factor, given that carrots are a natural and horticultural product, are the forces of nature. Sumich tries to seed its carrot plantations with grass to protect against wind and other forms of erosion that can kill carrots, and even with rotation of crops, there are risks associated with bugs, bacteria, cabbage spot and pythium, which can all negatively impact product quality. Another risk is simply uncertainties associated with the weather, such as hail storms, which can damage crops and are expected about every ten years. In packing there are risks associated with equipment reliability, because the product is perishable.

The Sumich company maintains its competitive advantage through attention to detail and careful quality control in post-harvest handling, because many other Australian operations are not as fully disciplined in their produce processing. While some products such as strawberries are very temperature sensitive, it is clearly the case that carrots are less so. However, the core temperature of carrots needs to be quickly reduced to improve their shelf life, and this temperature reduction is done to a near freezing point – not quite to freezing point as this would be damaging to quality. Sumich emphasises its discipline in this post-harvest processing which gives the company a quality advantage. This approach to premium quality comes all the way from the company’s founder some 65 years ago, who was Jack Sumich, a Rhodes Scholar and a qualified refrigeration engineer.  

Supply chain

Once the product leaves the Sumich facilities in refrigerated containers, the company loses its first-hand control, so they strive to do all that they can both before the product leaves the company and to ensure that trans-shipping, which brings some risk, is done to the highest of exacting standards possible. Sumich monitors temperature with devices inside the containers, and believes that through such attention to detail, quality is of the utmost standard at least 99% of the time across the entire supply chain.

The economics of the carrot business are such that margins are small and volumes are high, as it is difficult to significantly differentiate such offerings. A high-risk category is when claims are made by customers on quality or where customers don’t pay for their shipments. The biggest competitor for carrots coming from Sumich are producers in China who represent formidable competition since they killed off the local cauliflower business in previous years. Sumich keeps a close eye on their Chinese competitors and believes that their quality is getting better and better, but is still not yet at the premium level that Sumich achieves. This is largely due to the end to end supply chain consistency that Sumich delivers. Some of the inconsistencies in foreign produced carrots means that they become soft or rubbery relative to Sumich’s product, and are therefore in a different market segment. At the present time the price of Chinese carrots is between 60 and 70 percent of the Sumich premium carrot price.

Innovation

Sumich has engaged significantly in innovation in processing, packing and post-harvest cooling and quality control, which supports its market strategy of consistency, stability and
discipline. They protect their intellectual property by not allowing anyone to take photos in their packing shed and attempting to keep their unique combination of processing technologies to themselves. They believe that they are ahead of the rest of the world in their post-harvest processing and have been innovative in their achievement of temperature control. The company employs over 200 people, and its innovation comes substantially from a nucleus of 8 to 10 key people in the company who formulate and implement strategy and exercise managerial control. They hold their knowledge close and share it via regular meetings in which ideas age generated, discussed, evaluated and implemented when there is a clear value proposition. The competition in the carrot market is highly intense and international in nature. Sumich believes that supply consistency is key because customers want a supply chain that contains ‘no surprises’, while at the same time delivering price stability. This gives customers confidence in the Sumich supply chain, which brings benefits to the company both in the domestic and export markets.