Category: Fair Pricing

Veiling REO – Belgium

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By , May 16, 2013 10:34 am

REO Veiling was established in 1942, in order to address the burgeoning fruit and vegetable culture, which was steadily developing into a unique phenomenon in Mid-West Flanders. The present supply hall and auction room, which have been in operation since 1 April 1991, are located on the “De Klauwaertbeek” industrial estate in Roeselare, and cover a 20 ha surface area. The packaging department and buyers’ depots are taking up more than 9 ha. REO Veiling is number five in the ranking of largest farmers’ cooperatives in the food chain in Belgium. There are 1,400 members supplying through REO.

Fair Pricing

 The REO Veiling has maintained the auction clock as its core mechanism of price determination. The growers needed to have trust in the capabilities to the cooperative to generate fair prices to them. The change to bilateral transactions and future contracts, was considered to be a threat to this transparency and could generate problems in the membership when the price for their products as settled by REO in these direct transactions were lower than the prices paid to other producers in similar auctions.  Director Rita Demaré summarize the major challenge that auction cooperatives face:

 “The auction has the task to get the best out of the market. We make decisions in the interest of our members, but that is not immediately clear for all. We definitely can improve our communication to our farmers. As auction we need to watch that there is sufficient market for  our products.” (Van Bavel 2012)

To adjust the cooperative to the tendency of buyers demanding more diversified, high quality and packaged vegetables, REO Veiling decided for a major internal reorganisation. In 2008, they added a commercial service to their core-activity and employed their former crop advisors to market and product managers. This shift was accompanied with a series of necessary training to their staff and an increase in the margins that members pay to the auction as a percentage of the turn-over (1,2%). (REO Actueel #59, February 2008)

 “The REO Veiling has consciously – after a thorough reflection with you, colleague-producers – chosen to keep the auction clock. The sales of the commercial entity has been activated but is supportive for the auction-sales. This is not the easiest way, but a way that must keep your trust in your sales organisation.” (Rita Demaré in REO Actueel #69, October 2009)

The commercial entity of REO Veiling negotiates future contracts directly with buyers. Contracts can vary between one week and one year.  This addition of future contracts was not a decision taken solely by REO. This is has been the strategy in most Belgium auction cooperatives, united in LAVA.

  “I do not see the future contracting as an end in itself, as it was considered in the Netherlands, but as an extra service to the client, attractive to clients at moments when the auction system does not run smoothly enough for them. The facility covered in 2007 on average around 10-15% of total turn-over of all Belgium auction cooperatives, with some products at a quarter of the volume” (Maarten De Moor interviewed by Vlaams Infocentrum Land- en Tuinbouw, 29-04-2007)

Anticipating Free-riding

To reduce the fluctuations in supply and resulting price volatility in the auction system, and to guarantee threshold supply to invest in value adding activities, like packaging for the retail, REO Veiling introduced a system of binding supply agreements. Producers have to state the amount of produce that they are going to deliver and are being controlled on deviations.

 “When there are unexplainable differences between the outlook and the supply, the producer will have to cost part of the costs.” (Rik Decadt interviewed in Boerderij Vandaag, March 15, 2006).

To further bind the members to the cooperative, in spite of these stricter requirement, additional services have been introduced. An important service is the collection of the vegetables directly from the members farm. REO Veiling together with a private company established a special transport firm for this, Rejo Fresh.

 

Source:

Ton, G. & G.G. Szabó (2012). Support for Farmers’ Cooperatives. Case Study Report. Organisational mechanisms to solve collective action challenges in vegetables marketing. Wageningen: Wageningen UR. http://edepot.wur.nl/244836

ZON Fruit & Vegetables – Netherlands

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By , May 16, 2013 10:31 am

ZON Fruit and Vegetables was set up as the Cooperative Auction Association in 1915. Eighty-seven years later, midway through 2002, after various mergers and structural changes ZON has developed into one of the largest fresh produce cooperatives in Europe. Until 2001 the growers were members of local sales cooperatives that in turn were members of ZON. A major growth step was made with the incorporation of the various business activities in a number of operating companies that are controlled by ZON Holding B.V. The cooperative has about 400 members. Recently, ZON has entered a partnership with the Spanish cooperative UNICA to facilitate year-round deliveries to its retail clients. ZON also manages a 130 ha industrial zone.

Fair Pricing

ZON Fruit & Vegetables uses a mix of three different price-determination mechanisms. The auction clock, historically the main mechanism, became increasingly less important. A second function performed by ZON is as a broker, offering prices to potential buyers. The third mechanism is the use of long-term contracts. Most of the supply, from 85% of the members, comes from the region round the cooperative, Venlo, and a small but increasing part of the supply is imported from Spain. The cooperative provides logistic services to its members. They manage a fleet of (subcontracted) trucks that take the product from the place of production to the auction or, when sold through the other two mechanisms, directly to the buyer. Buyers are generally whole-sellers, and to a lesser extent supermarkets in the Netherlands. In 2010, ZON has re-engineered its commercial division to expand the volume of direct sales to the retail. In 2011, ZON started a pilot to supply directly to US supermarkets.

In general, in the Netherlands, the growers’ associations and trading houses have succeeded in concluding long-term agreements with the supermarket chains to only a limited extent: the auction clocks have been largely abolished in most marketing cooperatives, even though a sort of  spot market has remained. The negotiations have retained their short-term character since the contracts relate to at most a couple of weeks. With the short-term character of the delivery and price agreements the market remains, in essence, a spot market. Solely the rules governing the spot market have changed: firstly, the transparency of the market has decreased since the market’s equilibrium price is known only approximately. Secondly, scope for renegotiations has been created. Transactions carried out using the auction clock were confirmed by pressing a button, but bilateral agreements offer scope for the renegotiation of agreements (Klemperer, 1989; Jansen et al., 2001). The combination of these developments has not been beneficial to mutual confidence between the market players in the greenhouse vegetable chain. More than in the past, confidence now needs to be acquired and maintained (Bunte 2009).

 Anticipating Free-riding

ZON Fruit & Vegetables offers a choice to its members and the use (and benefits)  of the clock auction system differs among sectors. From 2010 onward, the tomato growers have increased the volume that they market through the clock auction, while the pepper producers had a contrary stance towards the auction clock.  The growers of pepper like to negotiate directly with retailers and prevent low prices in a context of high volumes and low prices. They complain about ‘desperate’ growers that accept low prices, and the atomisation of supply over several marketing cooperatives as the major weakness of price-determination. They want to reduce the amount negotiated through the auction clock to the minimum. Till 2007, the pepper producers (responsible for a quarter of total turn-over) of ZON had been coordinating prices with other cooperatives, specifically with FresQ, and has been observed for monopolistic behaviour. Interestingly, a fusion of activities of the marketing cooperatives, instead of this informal price coordination, to get alignments in prices would have been acceptable under anti-monopoly regulation.

These tensions between pepper producers wish for more bargaining power and the wish of ZON to keep the supply through ZON cooperative evolved towards a situation that half of the produce of the pepper produer group being negotiated through FresQ and half through ZON.

 

Source:

Ton, G. & G.G. Szabó (2012). Support for Farmers’ Cooperatives. Case Study Report. Organisational mechanisms to solve collective action challenges in vegetables marketing. Wageningen: Wageningen UR. http://edepot.wur.nl/244836

(Español) Manejo de información de mercado: transparencia pero no en detalle

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By , October 11, 2012 12:14 pm

Sorry, this entry is only available in French and European Spanish.

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By , July 8, 2012 10:01 am