Veiling REO – Belgium

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