ZON Fruit & Vegetables – Netherlands

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