Producer Organizations in the
EU: policy issues
Jose-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.
2.
3.
4.
5.
6.

Self-investment and production for downstream.
Joint asset management.
Multimarket management to diversify risks.
Marketing organizations with increased bargaining
power.
Contractual arrangements with stakeholders
operating on behalf of retail firms.
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
Denmark
Austria
Finland
Sweden
Ireland
Netherlands
Belgium
Germany
Portugal
United Kingdom
Greece
5
5
6
7
10
15
15
35
60
73
113
Italy *
France
Spain *
So urce o f data : Co mmissio n
203
314
616
*2003 fo r Italy and Spain
Average VMP per PO 2004 (Mio EUR)
P o rtugal
Greece
Finland
Spain *
France *
Sweden
United Kingdo m
Italy *
Denmark
Ireland
Germany
A ustria
B elgium
Netherlands
1,8
3,6
4,7
7,1
8,6
12,6
12,6
12,9
15,2
17,7
19,8
21,5
So urce o f data: Co mmissio n
53,0
113,3
* Data fo r
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)
Expenditure (Mio EUR)
1200
1000
800
600
400
200
0
1996
1997
Aid for w ithdraw als
So urce o f data : Co mmissio n
1998
1999
2000
Aid for operational programmes
2001
2002
2003
2004
Aid for processed tomatoes, fruit, citrus
Assessment of EU policies (criteria)
1.
2.
3.
4.
Compliance with WTO rules
Effectiveness with EU objectives.
Market asymmetries and efficiency
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
Reduce w ithdraw als
Promote products to consumers
Stabilise producer prices
Concentrate supply
Reduce production costs
Boost commercial value of products
Follow integrated production etc.
Improve environmental practices
Plan and adjust production to demand
Improve product quality
0%
Organic product ion is not included as
t here was only one act ion.
20%
Evidence of progress
40%
Probable progress
60%
80%
No conclusion
100%
No progress
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.
50.000
50%
40.000
40%
30.000
30%
20.000
20%
10.000
10%
0
% producer organisations in total
Value of marketed production (Mio EUR)
4. Attractiveness: share of POs in total
VMP
0%
1999
2000
2001
Production by producer organisations
So urce o f data: Co mmissio n
2002
Total production
2003
2004*
% Producer organisations in total
*2003 fo r B elgium, France and Italy (2004 data no t available)
Value of marketed production in 2004
Marketed production (Mio EUR)
16.000
Value of production marketed by others
14.000
Value of production marketed by producer organisations
12.000
10.000
8.000
6.000
4.000
2.000
De
nm
a rk
Sw
ed
en
Ire
lan
d
Fin
l an
d
ia
Au
s tr
m
Be
l giu
Po
rtu
ga
l
Un
i te
dK
i ng
do
m
* Data fo r 2003
Ne
the
rl a
nd
s
Ge
rm
an
y
So urce o f data : Co mmissio n
Gr
ee
ce
nce
*
Fra
Ita
ly *
Sp
a in
0
POs' share of the total VMP by MS
Netherlands
80%
France
Spain
60%
Italy
40%
Greece
Portugal
20%
EU 15 average
0%
2000
2001
Source o f data: Co mmissio n
2002
2003
2004
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.