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Producer Organizations in the
EU: policy issuesJose-Maria Garcia-Alvarez-Coque
UPV, Valencia
CAL/MED Workshop, 25-26 October 2007
Why collective action is relevant? Supply chain challenges are a key factor for
cooperation.
Stakeholders share interests in: cost reduction quality upgrading risk management relational rents
But cooperation is constrained by trade-offs in aspects of value distribution, transaction costs and trust.
Alternative pathways for cooperation
1. Self-investment and production for downstream.
2. Joint asset management.
3. Multimarket management to diversify risks.
4. Marketing organizations with increased bargaining power.
5. Contractual arrangements with stakeholders operating on behalf of retail firms.
6. Co-ownership cooperatives to reduce information failures.
Cooperation can be vertical or horizontal
The EU policy
1.4 million producers of F&V (EU25) The EU has promoted the horizontal type
(classes 1 to 4). Since 1996, POs are the pillar of support for
F&V (1.5 billion € in 2005). An ultimate goal: grouping of supply to
balance retailers’ market power. Instruments are addressed to increase
ATTRACTIVENESS.
Characteristics of POs
1 500 producer organisations in the EU15 Minimum 5 members and €100,000 of VMP. Member States can have stricter criteria. Legal forms: cooperatives, groups of
individuals or companies.
Number of POs in 2004
314203
113
35
15
107
6
55
15
616
7360
Spain *
France
Italy *
Greece
United Kingdom
Portugal
Germany
Belgium
Netherlands
Ireland
Sweden
Finland
Austria
Denmark
Source of data : Commission *2003 for Italy and Spain
Average VMP per PO 2004 (Mio EUR)
53,021,519,8
12,912,612,6
7,14,73,61,8
8,6
113,3
17,715,2
NetherlandsBelgiumAustria
GermanyIreland
DenmarkItaly *
United KingdomSwedenFrance *
Spain *FinlandGreece
P ortugal
Source of data: Commission * Data for
Measures to support POs
Support to establishment (preferential loans). Withdrawals Processing aids Operational Programs
Co-financed by farmers. Limited to 4.1% of the VMP. Measures include quality improvement, marketing
activities, promotion campaigns, development of organic or integrated and environmentally friendly production.
Support through POs (EU 15)
0
200
400
600
800
1000
1200
1996 1997 1998 1999 2000 2001 2002 2003 2004
Exp
endi
ture
(M
io E
UR
)
Aid for w ithdraw als Aid for operational programmes Aid for processed tomatoes, fruit, citrus
Source of data : Commission
Assessment of EU policies (criteria)1. Compliance with WTO rules
2. Effectiveness with EU objectives.
3. Market asymmetries and efficiency
4. Attractiveness
1. Compliance with WTO rules Withdrawals and processing aids are “amber box”
policies. Operational programs are basically “green box”
measures. Some measures included in the operational program
addressed to crisis management. Are operational programs actionable?
They provide with incentives to increase competitiveness
They can be misused to reduce general production costs.
2. Effectiveness In 2005, the Court of Auditors assessed
effectiveness. The Commission introduces eligibility lists.
The MS ensure that programs support objectives.
But focus is on showing implementation rather than achievement of objectivea.
Some POs use the subsidy to support the costs of existing activities.
An evaluation study by the Commission is scheduled to start in 2008.
Impact on EU objectives
0% 20% 40% 60% 80% 100%
Improve product quality
Plan and adjust production to demand
Improve environmental practices
Follow integrated production etc.
Boost commercial value of products
Reduce production costs
Concentrate supply
Stabilise producer prices
Promote products to consumers
Reduce w ithdraw als
Evidence of progress Probable progress No conclusion No progressOrganic production is not included as there was only one action.
Source: EUROPEAN COURT OF AUDITORS
3. Market asymmetries and efficiency
In some MS, POs are becoming “preferred suppliers”. In others, levels of organization remain weak.
Part of the asymmetry of power cannot disappear. The behavior of many cooperatives does not help:
“supply oriented” strategies contribute to surpluses. contribute to the lack of market transparency.
Producer grouping and farm incomes are favored with the same instruments. Some structures were formed to “crop the aids”.
Many private stakeholders don’t receive support.
4. Attractiveness: share of POs in total VMP
0
10.000
20.000
30.000
40.000
50.000
1999 2000 2001 2002 2003 2004*
Val
ue o
f mar
kete
d pr
oduc
tion
(Mio
EU
R)
0%
10%
20%
30%
40%
50%
% p
rodu
cer
orga
nisa
tions
in to
tal
Production by producer organisations Total production % Producer organisations in total
Source of data: Commission *2003 for Belgium, France and Italy (2004 data not available)
Value of marketed production in 2004
0
2.000
4.000
6.000
8.000
10.000
12.000
14.000
16.000
Spai
n
Italy
*
Fran
ce *
Gre
ece
Net
herla
nds
Ger
man
y
Portu
gal
Uni
ted
King
dom
Belg
ium
Aust
ria
Finl
and
Irela
nd
Swed
en
Den
mar
k
Mar
kete
d pr
oduc
tion
(Mio
EU
R) Value of production marketed by others
Value of production marketed by producer organisations
Source of data : Commission
* Data for 2003
POs' share of the total VMP by MS
0%
20%
40%
60%
80%
2000 2001 2002 2003 2004
Netherlands
France
Spain
Italy
Greece
Portugal
EU 15 average
Source of data: Commission
Why are they not attractive enough? There should be potential for “Growing success. But POs are not attractive enough for farmers:
No history in cooperation. Many producers in Southern Europe work for local markets or deal directly with traders.
Lack of flexibility of the framework. Strict requirements for extension of rules. Heavy bureaucracy for supporting schemes. Lack of professional management in some MS. Lack of trust related to their limited effectiveness.
Case study. Valencia region
Strongly specialized in citrus. 60 thousand growers. 35 thousand growers in 115 POs in 2004. In 1994, POs marketed 1.4 million T (30 % of total
production). A decade later, figures were very similar.
Reasons: Lack of trust on cooperatives Perceived advantages are related to payment guarantee.
But better prices are usually paid by private operators. Local authorities favor cooperatives. This puts outsourcing
and some associations in disadvantage.
What is expected to change (I) Regulation No 1182/2007 amends previous F&V rules. More flexible legal framework: obligation to provide
technical means only “if necessary”. Co-finance of Operational Programs increased to
60% for some cases (new PO Association, PO merger, promotional measures).
National strategies in line with rural development. Compulsory inclusion of environmental actions.
What is expected to change (II) Prevention and crisis management by POs:
support ceiling rises to 4.6% of the VMP. Green harvesting or no harvesting, withdrawal
and free distribution, harvesting insurances, promotion and communication, training…).
Decoupling of processing aids: transition period 5 years for perennials.
MS may retain criteria for eligibility (e.g. PO membership).
Possible developments
New forms for POs will be created. Some existing POs will face problems.
Money for Operational Programs will increase gradually (50 million € per year until 2013).
Some POs will take over cultivation activities as members become aged.
Decoupling will have limited impact on production. Operational programs vs. rural development.
Thanks for your attention
Typical contents of an operational programme Purchase of sorting and packing machinery. Employment of quality control staff and
marketing staff. Investments in irrigation facilities and
greenhouses. Subsidies to growers for replanting fruit trees. Costs of natural pest and disease control
approaches.