89 - Eurofresh Distribution

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DiStributioN/DiStribucióN
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The North South divide
The North of Europe continues to follow
the trend towards a concentration in retail
EC Studies into the retail sector and
supply chain for fresh fruit and vegetables
have revealed continued differences
between Northern and Southern
Europe in the evolution of the sector.
The North of Europe continues to follow
the trend towards a concentration
in retail with the large players dealing
directly with the producers whereas in
Southern Europe there is still resistance
from the traditional local markets
and other forms of local distribution.
Large retailers represent from 18 to
34% of sales in Italy and have remained
stable at around 30% in Spain,
while in France and the U.K. they represent
up to75% of total sales. In
Germany, the large retailers continue
to account for 77% of sales, although
the German market differs due to the
40% represented by the discounters.
In France the eight major retailers account
for 90% of food retail and make
their purchases via only five offices. In
the Netherlands the top three retailers
account for 60% of sales, the top five
for 75%. In both Sweden and Finland
the top three importers / wholesalers
account for 80% of food sales. Within
the new member states of the E.U., the
investments Western European retail
chains have made since the mid-1990s
mean that they have already captured
a large share of the food markets.
Reduction of the importance
of the wholesale markets
The evolution of the sector has led to
a renovation of supply practices over
the last two decades, including the
centralisation of supply management
(meaning fewer purchasing offices),
the development of direct relationships
between producers and retailers,
a reduction in the importance of
the wholesale markets, the use by retailers
of specialised wholesalers and
preferred suppliers and the implantation
of private standards organisations
such as the Eurep Gap, BRC and IFS.
Prior to these changes, the producers’
clients were shippers and rarely the retailers
and the sector functioned along
the lines of a commodity model based
on a large number of operators and on
simple transactions between shippers
and buyers in wholesale markets. It
has now become a system involving a
limited number of operators of larger
economic size with more complex
transactions (including private standards,
quality and packaging, marketing
services, etc.) implemented within
medium-term contracts. In this new
context Producers Organisations often
deal directly with the retailers.
Concentration of supply
This situation has had a major impact
on producers, the consequences of
which have included deterioration
in the balance of market power for
producers (especially for basic products).
There is fierce price competition
between major retailers, resulting in
a need to increase economic size in
order to work with large scale retail
and provide the services they require,
(which in turn implies investments
that increase fixed costs which have
to be recovered from larger volumes
if investments are to be profitable.)
This has led to the need to develop
synergies with other organisations,
(e.g. producers’ organisations in other
countries.) vertical coordination in the
form of quality management systems,
certification and product innovation,
and the necessity to adopt strategies
that go beyond production for merely
regional or national markets.
Since 1996, Producers’ Organisations
have been seen as the backbone of
the Common Market Organisation
(CMO) which considers that given the
increasing concentration in the retail
sector, the grouping of supply is necessary
to reinforce the position of the
producers on the market. In order to
achieve this objective, the CMO has
proposed marketing standards, operational
funds and programmes among
other initiatives, giving priority to supporting
producer organisations in the
CMO for fresh products. Expenditure
on Producers’ organisations has been
highest in Italy and Spain, followed
by France and finally the Netherlands,
which among the member states has
the largest producer organisations,
although it is in Belgium where the
producers’ organisations account for
the highest proportion of national production.
An assessment of the impact
of the CMO reveals only mitigated success
at the macro-level. In most Member
States, Producers’ Organisations
have a limited size (an average of €5
million). This constrains their strength
compared to the retail sector; The CMO
has not really been able to foster the
creation of new structures except in
countries were there already existed
a tradition of cooperation, such as the
historically strong organisation of the
sector which is present in Belgium and
the Netherlands.
The producer’s organisations in
Belgium and the Netherlands have
demonstrated that they are oriented
towards both national and EU markets
and able to cater for the large retail sector.
Several large producers’ organisations
have adopted vertical integration
(wholesale, logistics and international
trade) to become preferred suppliers
all year round, catering for a limited
number of large accounts. Others increase
vertical coordination and joint
actions between producer’s organisations.
Most of these producer’s organisations
have adopted strong strategies
of product differentiation, e.g. the
quality label Flandria in Belgium for
top quality fruits and vegetables.
EUROFRESH
DISTRIBUTION
89
Low organisation
levels
In general we see a different story in
the Southern Member States. There
exist only low levels of organisation
in the sector (In 2004 Greece 13%,
Portugal 6%, Spain 33%, Italy 31%)
Small holdings remain predominant
in production and large retail chains
have not yet made much impression
in terms of sales to consumers, (Spain
and Italy around 30%, Greece and Portugal
probably lower).
Why should this be so? Historically
there is a low level of cooperation and
a resulting low interest level in joining
groups (Greece and Portugal). There
exist alternative means of support
investments through structural funds
and rural development funds (whereas
in Northern Europe these funds are
much lower), all of which, together
with the complexity of the CMO result
in a lower incentive to group together.
In Spain while the general level of organisation
was 33%, within the citrus
sector it was 50% (the other half being
family trading companies dealing
directly with individual producers).
The strawberry showed a level of organisation
of 60-70% (Huelva), fruits
in general around 50-60% (30-35% cooperatives)
due to the fact the sector is
export-oriented, processed tomatoes
80-90%, cherries 70% cooperatives
and 30-40% producer’s organisations
(mainly small cooperatives working for
local markets which are not recognised
as producer’s organisations). With
vegetables the level of organisation
is low (the producers work mainly for
the local market). Italy showed a level
of organisation of 31% in 2004, but in
contrast 80-85% for apples
With regards to the balance of market
power, the CMO has helped in the
creation of very large Producers’ Organisations
(in particular in Belgium,
the Netherlands and Italy) and associations
of Producers’ Organisations
that are better able to counterbalance
the bargaining power of large retailers.
To a degree, the balance of power
cannot be completely re-addressed
(due to the shelf life of produce, price
arbitrage at E.U. or international level
etc) which means producers have to
accept prices.