Producer Organizations in the EU: policy issues

1. Producer Organizations in the EU: policy issues Jose-Maria Garcia-Alvarez-Coque UPV, Valencia CAL/MED Workshop, 25-26 October 2007

2. 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.

3. Alternative pathways for cooperation • 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

4. 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.

5. 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.

6. Number of POs in 2004

7. Average VMP per PO 2004 (Mio EUR)

8. 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.

9. Support through POs (EU 15)

10. Assessment of EU policies (criteria) • Compliance with WTO rules • Effectiveness with EU objectives. • Market asymmetries and efficiency • Attractiveness

11. 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.

12. 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.

13. Impact on EU objectives Source: EUROPEAN COURT OF AUDITORS

14. 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.

15. 4. Attractiveness: share of POs in total VMP

16. Value of marketed production in 2004

17. POs' share of the total VMP by MS

18. 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.

19. 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.

20. 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.

21. 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).

22. 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.

23. Thanks for your attention

24. 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.