Investigation on Food Chain Balance or Imbalances of Power in the Agri-Food Chain

1. Investigation on Food Chain BalanceorImbalances of Power in the Agri-Food Chain Paulo GOUVEIA, Director, COPA-COGECA Vilnius, Lithuania, 2-4 August 2007

2. Structure of the Presentation: Identifying the main issues;  Late payments in commercial transactions; COPA-COGECA activities; Next actions.

3. Retail Concentration: 2004 World situation

4. Top 10 Grocery retailers in Europe, 2004 Source: “The retail exchange (www.fastmoving.co.za).

5. Concentration rate (CR-5) in the EU per Member State, 2004. Source: Market Share Matrix project (www.marketsharematrix.org), May 2005

6. In 9 out of 25 EU Member States the market share of the five biggest retailers, in 2004, was above the 75% threshold.

7. Concentration rate (CR-5) other European Countries, 2004. Source: Market Share Matrix project (www.marketsharematrix.org), May 2005

8. The same problems exist in all EU Member States The only differences are cause and scale!

9. 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.

10. Retail Consolidation: 2008 Prospects

11. Imbalances of power • The causes: • Increasing globalisation; • Retail consolidation; • Processing Consolidation; • Ferocious competition amongst retailers; • Farmers are weak sellers; • (sometimes) Abusive commercial practices; • Oversupply in some sectors.

12. Imbalances 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.

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

14. 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)

15. Late payments are an obstacle to the proper functioning of the Internal Market (art. 14 EC) (source: EC, DG Enterprise & Industry)

16. 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.

17. 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).

18. 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.

19. EE 40d SE 32d FI 32d LV 39d NO 32d LT 39d UK 52d DK 32d PL 45d CZ 45d IE 52d DE 41d SK 42d BE, NL, LU 58d CH 41d HU 45d FR 59d AT 41d SL 30d ES 92 d PT 92d IT 192d EL 103d Paulo Gouveia CY 103d

20. Focus on (when reviewing the legislation on late payments in 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.

21. 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.

22. 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”;

23. Responses received from: Austria, Belgium, Denmark, Finland, France (2), Germany, Italy (4), Latvia, Lithuania, Netherlands, Spain (3), Sweden, UK

24. Main findings were segmented into 5 groups: • Regulation • Self Regulation • Buying Power • CAP Reform • Future Profitability of Farming

25. Regulation: Lack of specific regulation Competition Acts exist in 10 of responding Member States Examples: - Danish Competition Act - UK Supermarket Code of Practice

26. Where Competition Law exists, it has been ineffective in addressing the abuse of buying power

27. Self-Regulation: Italy has a Voluntary Code of Practice UK/NFU ‘Buyers’ Charter’ abandoned French Voluntary Code failed after 2 months Denmark positive

28. Generally, food chain self regulation has had very limited success!

29. Buying Power: 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.

30. All sectors are vulnerable to abuse… but … the most vulnerable are perishable products

31. The future: • 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.

32. COPA-COGECA Action Plan: Defines a set of actions to be undertaken. Highlights some of the specificities of agricultural and livestock production.

33. Specificities of agricultural production: - 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.

34. COPA-COGECA Action Plan: • Addresses 12 objectives in 3 main areas: • Cooperation and vertical integration; • Regulation and Self-Regulation; • II.a Regulatory approach • II.b Self Regulation • Communication.

35. COPA-COGECA Action Plan: • 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

36. COPA-COGECA Action Plan: • Regulation and Self Regulation • II.a. Regulatory approach • Define a leading contact point at the EC: DG Internal Market • Set-up an Advisory Group under DG Internal Market to formalise the dialogue with the EC • Revise, re-assess and develop appropriate legislation (e.g. revision of Directive 2000/35) • Create an “European Food Trading Agency”

37. COPA-COGECA Action Plan: • Regulation and Self Regulation • II.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

38. COPA-COGECA Action Plan: • Communication • Maintain 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.