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.