investigation on food chain balance or imbalances of power in the agri-food chain

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


Structure of the Presentation:

Identifying the main issues;

Late payments in commercial transactions;

COPA-COGECA activities;

Next actions.


Retail Concentration: 2004 World situation


Company CountryRetail (b€) Net (b€) Grocery (%) Domestic (%)

Carrefour FR 75,7 62,1 75,4 59,1Metro Group DE 60,3 54,1 49,1 54,5Tesco UK 49,7 45,4 71,5 87,5Rew e DE 44,1 40,8 75,6 71,6Auchan FR 38,4 28,6 59,9 55,9ITM (Intermarché) FR 37,4 34,1 69,9 71,5Schw arz Group DE 37,0 34,3 82,3 58,2Aldi DE 32,5 29,5 81,8 67,7Edeka DE 31,6 26,2 84,4 92,0Casino 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).


Member State Market Share (%)

Finland 88.2Sweden 86.2Ireland 83.2Denmark 82.4Luxemburg 82.3Lithuania 81.4Austria 78.7Belgium 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

http://www.marketsharematrix.org/


In 9 out of 25 EU Member States the market share of the five

biggest retailers, in 2004, was above the 75% threshold.


Member State Market Share (%)

Switzerland 87.9Norway 86.3Croatia 43.6Romania 28.5Bosnia & Herzegovina 27.9Bulgaria 23.1Ukraine 18.1Serbia & Montenegro 16.4Russia 7.7

Concentration rate (CR-5) other European Countries, 2004.

Source: Market Share Matrix project (www.marketsharematrix.org), May 2005

http://www.marketsharematrix.org/


The same problems exist in all EU Member States

The only differences are cause and scale!


Country MarketStructure CR-5 (%) MS1 (%) CR-5 (%) MS1 (%)

HU Assymmetric Oligopoly 59 20 67 18PL Non concentrated 23 11 24 10CZ shif t to Symmetric Oligopoly 23 5 43 11SK Non concentrated 10 3 32 12SL Dominant company 60 51 77 59LV shif t to Assymmetric Oligopoly 4 3 54 20LT Dominant company 29 22 83 46EE shif t to Duopoly 18 13 68 33BG Non concentrated 11 10 23 17RO Non concentrated 6 6 28 17HR shif t to Symmetric Oligopoly 13 6 46 8UA 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.


Retail Consolidation: 2008 Prospects


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


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


Late payments in commercial Late payments in commercial transactions:transactions:Regulated at EU level by Directive 2000/35Entry 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


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)


Late payments are an obstacle to the proper

functioning of the Internal Market (art. 14

EC)

(source: EC, DG Enterprise & Industry)


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.


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).


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


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


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.


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.


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”;


Responses received from: Austria, Belgium, Denmark, Finland,

France (2), Germany, Italy (4), Latvia,

Lithuania, Netherlands,

Spain (3), Sweden,

UK


Main findings were segmented into 5 Main findings were segmented into 5 groups:groups:

RegulationSelf RegulationBuying PowerCAP ReformFuture Profitability of Farming


Lack of specific regulationCompetition Acts exist in 10 of responding Member StatesExamples: - Danish Competition Act - UK Supermarket Code of Practice

Regulation:


Where Competition Law exists, it has been ineffective in

addressing the abuse of buying power


Italy has a Voluntary Code of PracticeUK/NFU ‘Buyers’ Charter’ abandonedFrench Voluntary Code failed after 2 monthsDenmark positive

Self-Regulation:


Generally, food chain self regulation has

had very limited success!


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:


All sectors are vulnerable to abuse…but …

the most vulnerable are perishable products


• 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:


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:


- 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::


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.



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



II. Regulation and Self RegulationII.a. Regulatory approach

Define a leading contact point at the EC: DG Internal MarketSet-up an Advisory Group under DG Internal Market to formalise the dialogue with the ECRevise, re-assess and develop appropriate legislation (e.g. revision of Directive 2000/35)Create an “European Food Trading Agency”



II. Regulation and Self RegulationII.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.


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


III. CommunicationMaintain 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.


investigation on food chain balance or imbalances of power in the agri-food chain

Documents

member statemarket share

eu member statesthe

eu level

market share matrix

paulo gouveiaevolution

paulo gouveiastructure

retail market structure

retailers farmers