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PROGNOSFRUIT 2007 - LITHUANIA
Investigation on Food Chain Balanceor
Imbalances of Power in the Agri-Food Chain
Paulo GOUVEIA, Director, COPA-COGECA
Vilnius, Lithuania, 2-4 August 2007
PROGNOSFRUIT 2007 - LITHUANIA
Structure of the Presentation:
Identifying the main issues;
Late payments in commercial transactions;
COPA-COGECA activities;
Next actions.
PROGNOSFRUIT 2007 - LITHUANIA
Retail Concentration: 2004 World situation
PROGNOSFRUIT 2007 - LITHUANIA
Company Country
Retail (b€) Net (b€) Grocery (%) Domestic (%)
Carrefour FR 75,7 62,1 75,4 59,1
Metro Group DE 60,3 54,1 49,1 54,5
Tesco UK 49,7 45,4 71,5 87,5
Rew e DE 44,1 40,8 75,6 71,6
Auchan FR 38,4 28,6 59,9 55,9
ITM (Intermarché) FR 37,4 34,1 69,9 71,5
Schw arz Group DE 37,0 34,3 82,3 58,2
Aldi DE 32,5 29,5 81,8 67,7
Edeka DE 31,6 26,2 84,4 92,0
Casino FR 29,5 22,9 75,0 83,0
Sales
Top 10 Grocery retailers in Europe, 2004
Source: “The retail exchange (www.fastmoving.co.za).
PROGNOSFRUIT 2007 - LITHUANIA
Member State Market Share (%)
Finland 88.2
Sweden 86.2
Ireland 83.2
Denmark 82.4
Luxemburg 82.3
Lithuania 81.4
Austria 78.7
Belgium 78.6
Slovenia 76.2
Concentration rate (CR-5) in the EU per Member State, 2004.
Source: Market Share Matrix project (www.marketsharematrix.org), May 2005
PROGNOSFRUIT 2007 - LITHUANIA
In 9 out of 25 EU Member States
the market share of the five
biggest retailers, in 2004, was
above the 75% threshold.
PROGNOSFRUIT 2007 - LITHUANIA
Member State Market Share (%)
Switzerland 87.9
Norway 86.3
Croatia 43.6
Romania 28.5
Bosnia & Herzegovina 27.9
Bulgaria 23.1
Ukraine 18.1
Serbia & Montenegro 16.4
Russia 7.7
Concentration rate (CR-5) other European Countries, 2004.
Source: Market Share Matrix project (www.marketsharematrix.org), May 2005
PROGNOSFRUIT 2007 - LITHUANIA
The same problems exist in all EU Member States
The only differences are cause and scale!
PROGNOSFRUIT 2007 - LITHUANIA
Country Market
Structure CR-5 (%) MS1 (%) CR-5 (%) MS1 (%)
HU Assymmetric Oligopoly 59 20 67 18
PL Non concentrated 23 11 24 10
CZ shif t to Symmetric Oligopoly 23 5 43 11
SK Non concentrated 10 3 32 12
SL Dominant company 60 51 77 59
LV shif t to Assymmetric Oligopoly 4 3 54 20
LT Dominant company 29 22 83 46
EE shif t to Duopoly 18 13 68 33
BG Non concentrated 11 10 23 17
RO Non concentrated 6 6 28 17
HR shif t to Symmetric Oligopoly 13 6 46 8
UA Non concentrated 6 4 18 6
1998 2003
Evolution of the retail market structure: concentration rate and dominant company market shares.
Source: Juház, Aniko et Sauder, Márta; “Hungarian Food Retailing”; IAMO Forum, 16-18 June 2005.
PROGNOSFRUIT 2007 - LITHUANIA
Retail Consolidation: 2008 Prospects
PROGNOSFRUIT 2007 - LITHUANIA
The causes:• Increasing globalisation;
• Retail consolidation;
• Processing Consolidation;
• Ferocious competition amongst retailers;
• Farmers are weak sellers;
• (sometimes) Abusive commercial practices;
• Oversupply in some sectors.
Imbalances of powerImbalances of power
PROGNOSFRUIT 2007 - LITHUANIA
The consequences:• Relentless downward pressure on prices;• Farmers, in many cases, do not cover production costs;• Insufficient investment in farm business;• Alarmingly low level of R & D;• Farmers abandoning sector and activity;• Risk for the consumer of a reduced choice, reduced flexibility of supply and possibly food safety.
Imbalances of powerImbalances of power
PROGNOSFRUIT 2007 - LITHUANIA
Late payments in commercial Late payments in commercial transactions:transactions:Regulated at EU level by Directive 2000/35
Entry into force on:
8 August 2002 (EU-15 + EEA members – Iceland, Norway and Liechtenstein)
1 May 2004: 10 New Member States (EE, LV, LT, PL, CZ, SK, HU, SL, ML, CY)
1 Jan 2007: Bulgaria and Romania
PROGNOSFRUIT 2007 - LITHUANIA
1 out of 4 insolvencies is due to late payments!
…it represents losses of:
450 000 jobs each year;
Outstanding debts of 23.6 b€ every year.
(source: EC, DG Enterprise & Industry)
PROGNOSFRUIT 2007 - LITHUANIA
Late payments are an obstacle to the proper
functioning of the Internal Market (art. 14
EC)
(source: EC, DG Enterprise & Industry)
PROGNOSFRUIT 2007 - LITHUANIA
It applies to all payments made as remuneration for commercial transactions:
Either in one country or intra-community transactions;
Transactions between undertakings, or;
Between undertakings and public authorities.
PROGNOSFRUIT 2007 - LITHUANIA
If a date for payment is not fixed in
the contract, interest automatically
becomes payable 30 days following
the date of receipt of invoice or the
date of receipt of the goods or
services.
Penalty interest is calculated on a
daily basis (simple interest).
PROGNOSFRUIT 2007 - LITHUANIA
The EC is currently reviewing the
effectiveness of Community legislation
on combating late payments in
commercial transactions.
The next slide shows the average
delay in payments throughout the EU.
3 August 2007 Paulo Gouveia 19
PROGNOSFRUIT 2007 - LITHUANIA
NO 32d
SE 32d FI 32d
IE 52d
UK 52d
ES 92 dPT 92d
FR 59d
IT 192d
CH 41d
DE 41d
BE, NL, LU58d
PL 45d
EL 103d
HU 45d
CZ 45d
AT 41d
LT 39d
LV 39d
EE 40d
SL 30d
CY 103d
SK 42d
DK 32d
PROGNOSFRUIT 2007 - LITHUANIA
Focus on (when reviewing the Focus on (when reviewing the legislation on late payments in legislation on late payments in commercial transactions):commercial transactions):• Setting a maximum payment period for contracts;
• (possibly) define a compulsory contractual late payment fee;
• Focus on grossly unfair practices;
• Organising and lodging claims;
• Full and complete retention of title;
• Transparency and compulsory reporting of late payments.
PROGNOSFRUIT 2007 - LITHUANIA
COPA-COGECA activities: Questionnaire;
Setting-up an ad hoc WP on Food Chain;
Adoption of an Action Plan;
Seminar “Rebalancing the Power in the Food
Chain” (Brussels, 3-4 May 2007);
Communication.
PROGNOSFRUIT 2007 - LITHUANIA
Questionnaire sent to all Member
Organisations;
19 Responses from 13 Countries;
Analysis of responses and initial findings (with
NFU);
Presentation and debate at POCC/CCC meeting
on 7th September 2006;
Setting-up of an ad hoc Working Party “Food
Chain”;
PROGNOSFRUIT 2007 - LITHUANIA
Responses received from: Austria, Belgium, Denmark, Finland,
France (2), Germany, Italy (4), Latvia,
Lithuania, Netherlands,
Spain (3), Sweden,
UK
PROGNOSFRUIT 2007 - LITHUANIA
Main findings were segmented into 5 Main findings were segmented into 5 groups:groups:
Regulation
Self Regulation
Buying Power
CAP Reform
Future Profitability of Farming
PROGNOSFRUIT 2007 - LITHUANIA
Lack of specific regulation
Competition Acts exist in 10 of responding Member States
Examples:
- Danish Competition Act
- UK Supermarket Code of Practice
Regulation:
PROGNOSFRUIT 2007 - LITHUANIA
Where Competition Law exists, it has been ineffective in
addressing the abuse of buying power
PROGNOSFRUIT 2007 - LITHUANIA
Italy has a Voluntary Code of Practice
UK/NFU ‘Buyers’ Charter’ abandoned
French Voluntary Code failed after 2 months
Denmark positive
Self-Regulation:
PROGNOSFRUIT 2007 - LITHUANIA
Generally, food chain self regulation has
had very limited success!
PROGNOSFRUIT 2007 - LITHUANIA
Main issues:Main issues: - downward pressure on prices; - unreasonable demands; - long payment delays; - overuse of imports to reduce prices; - unjustified return of goods; - unfair returns to farmers; - contracts exist but not compulsory in all sectors.
Buying Power:
PROGNOSFRUIT 2007 - LITHUANIA
All sectors are vulnerable to abuse…
but …
the most vulnerable are perishable products
PROGNOSFRUIT 2007 - LITHUANIA
• Majority agree prices will be lower in 5 years time;
• Fewer, larger operators;
• Need to more accurately assess demand;
• Develop farmer controlled businesses;
• Develop integrated supply chains;
• Differentiate production;
• Increase in demand for premium products.
The future:
PROGNOSFRUIT 2007 - LITHUANIA
Defines a set of actions to be undertaken.
Highlights some of the specificities of agricultural and livestock production.
COPA-COGECA Action Plan:COPA-COGECA Action Plan:
PROGNOSFRUIT 2007 - LITHUANIA
- time gap between initiating the crop (or animal)
production and trading the final production;
- Many products are perishable and/or have a very
short shelf life;
- Being the 1st link (and usually the weakest) in the
chain limits passing on any consequences of market
variations.
Specificities of agricultural production::
PROGNOSFRUIT 2007 - LITHUANIA
Addresses 12 objectives in 3 main areas:
I. Cooperation and vertical integration;
II. Regulation and Self-Regulation;II.a Regulatory approachII.b Self Regulation
III. Communication.
COPA-COGECA Action Plan:COPA-COGECA Action Plan:
PROGNOSFRUIT 2007 - LITHUANIA
I. Cooperation and vertical integration;
Promote the economical organisation of
producers (upwards vertical integration)
Facilitate positioning on the market and promote concentration of supply
Accompany policy development
COPA-COGECA Action Plan:COPA-COGECA Action Plan:
PROGNOSFRUIT 2007 - LITHUANIA
II. Regulation and Self Regulation
II.a. Regulatory approach
Define a leading contact point at the EC: DG Internal Market
Set-up an Advisory Group under DG Internal Market to formalise the dialogue with the EC
Revise, re-assess and develop appropriate legislation (e.g. revision of Directive 2000/35)
Create an “European Food Trading Agency”
COPA-COGECA Action Plan:COPA-COGECA Action Plan:
PROGNOSFRUIT 2007 - LITHUANIA
II. Regulation and Self Regulation
II.b. Self-Regulation
Create/develop best practices in partnership with other stakeholders always integrating consumer representatives.
Establish with other stakeholders an informal platform to prepare joint/common positions.
COPA-COGECA Action Plan:COPA-COGECA Action Plan:
Self-regulation on its own is, currently, not a working solution and we propose a combined a mixed approach: Self-regulation framed by
regulatory dispositions
PROGNOSFRUIT 2007 - LITHUANIA
III. Communication
Maintain an internal communication in order to inform and coordinate actions with COPA and COGECA member organisations.
Develop appropriate communication with the stakeholders in the chain.
Foster institutional communication especially with DG Internal Market as the preferred leading directorate.
COPA-COGECA Action Plan:COPA-COGECA Action Plan:
PROGNOSFRUIT 2007 - LITHUANIA
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