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Farming and cooperative agribusiness in Central Europe: lessons learned and members’ involvement Gert van Dijk –President of COGECA, Brussels, Wageningen University and Nyenrode Business University, The Netherlands Finnish Cooperative Movement 110 Years: Celebratory Conference Chapter 1 Globalisation means new influences on on food, farming & agribusiness Global environment • Trade – The EU has become the biggest raw material importer and biggest processed foods exporter – The Doha Round remains a priority for the EU • World economy – Current reflections are taking place against the backdrop of volatile agricultural prices and economic downturn • Climate change – Awareness of its effects is growing – It conditions much of our thinking in time and space 2007 and 2008 years of ‘Agri-flation’ • In the period 2007-2008 most agri commodities have doubled in price Global demand raw materials was higher than supply Stock levels of commodities historic low Net production shortage of 3-5% in cereals Population growth Accelerating growth in use of agricultural commodities as feedstocks to produce biofuels. • Reduced crops due to adverse weather in last 3 years in Australia, Ukraine and elsewhere. • Increasing participation of hedge funds and investment funds in commodity markets. Cross border liabilities International liabilities (% GDP) 800% 700% 600% 500% 400% 300% 200% 100% 0% US JP GE FR ITA UK 1980 SP (81) NL (82) 1990 2000 SWI (83) 2006 2007 CAN FIN ICE AUS AVG Ownership cross border International assets (% GDP) 800% 700% 600% 500% 400% 300% 200% 100% 0% US JP GE FR ITA UK 1980 SP (81) NL (82) 1990 2000 SWI (83) 2006 2007 CAN FIN ICE AUS AVG Growth in speculative investments in ‘food commodities’ Commercial and non-commercial open contracts February 2005 vs February 2008) Total open ‘05 ‘08 Maize 657 1452 Wheat 223 449 Soya 272 596 Sugar 400 979 % noncommercial ’05 16.9 28.0 19.9 34.8 ’08 43.2 42.3 46.0 33.7 Sources: Commitments of traders reports; Commodity Futures Trading Commission Chapter 2 EU’s food & agribusiness has lost competitive positions to A. New Zealand dairy industry B. US food & agri-business C. US biotech & seed industry Bron:rabobank Chapter 3 EU antitrust policy is more favourable for retailing than for manufacturing F&A&H suppliers are dealing with powerful customers Top 10 foodservice Top 10 retailers (food sales for 2006 in $bn) (total sales for 2006 in $bn) 1. Wal-Mart Stores 2. Carrefour 3. Tesco 4. Ahold 5. Lidl 6. Kroger 7. Rewe 8. Aldi 9. Edeka 10. Metro 1. McDonald’s 2. Yum! Brands 31 3. Compass Group 4. Sodexho Alliance 5. Wendy’s 6. Burger King 7. Aramark 8. Accor 9. Subway 10. Starbucks 159 72 53 47 46 43 41 40 40 36 Total: As a % of the total market:577 10% Source: Rabobank, 2007 57 20 16 14 13 12 9 9 8 As a % of the total market: 9.1 % Total: 189 Top 10 food manufacturers (food sales for 2006 $bn) 1. Nestlé 2. PepsiCo 3. Kraft Foods 4. Unilever 5. Tyson Foods 6. Coca-Cola Co. 7. SABMiller 8. Danone 9. InBev 10. Heineken 65 35 34 27 26 24 19 18 17 15 Total: 280 As a % of the total market: ca. 5% Food distributors are at the winning end of the food chain Key developments in food retail: -Discounter growth ‘The supply chain funnel’ Consumers Supermarket outlets Supermarket formats -Large purchase organisations Buying desks Suppliers -Private labels (semi) processors -Service retail vs Farmers discounters -Ongoing consolidation > 16 million 5,000 27 7 1,500 > 6,500 > 80,000 number of players in the Netherlands Source: EFMI, 2007 Chapter 4 Political fall out affects CAP Financial conditions in member states • Budgetary deficits • Aging • Future pressure on labour markets: high costs for governments Farming and CAP • Enlargement has laid emphasis on common market issues (levelled playing field, competition policy) • CAP determined by WTO negotiations and Ministers of Finance of member states • too big differences in agricultural development between members prevent common policy and common budget alternative views on cost of CAP CAP cost in 2007 (in absolute terms) CAP cost in 2007 (in relative terms) 50% 140 EU-27 120 100 40% 44% of EU budget 30% 80 60 20% 0.43% of EU GDP 40 10% 20 0% 0 % of GDP Billions of euros CAP expenditure EU budget CAP expenditure AGRI-L1 CAP perspectives 21 All EU public expenditure Redesigning the CAP • No grand strategy / back to the drawing board? • - Wishes – Sketches - Measuring up possible effects– Planning – Specifications • Debate is down due to political fall out Van Goghs vision on CAP (according to Cropper) Chapter 5 EU needs its own grand strategy which requires the participation of the entire chain – indeed also of the retail business The CAP debate: seeking the common ground • Agriculture is still a strategic sector in Europe – Diversity of the EU agriculture should be a key element – Agricultural activities should be maintained in all regions • Issues arising from the Health Check debate: – Decoupled payments – the most efficient means – Market-orientation is desirable - but safety nets & market management instruments are required – Rural development objectives continue to apply beyond 2013 • Modernisation • Public goods • Rural society and new societal challenges (climate change) 25 Chapter 6 Cooperatives –Strategies –Business models – EU cooperatives needed to act as market leader Competition between cooperatives presents a new chapter Strategies of coops • Forward integration/consolidation • Regional /niche • Institutional contracting support of members Total turnover by cooperatives in the EU (in bln Euro) Conclusions and recommendations Chapter 7 Conclusions and recommendations 1. Future strategies of cooperatives will have to be designed at the interfaces of - Business - Food & Farming strategy - Public policy 2. It is not a question anymore of member-farmers’ involvement in cooperative business but of cooperative business involvement with members