POs and PDOs: A Tale of Two Marketing Models

1. POs and PDOs: A Tale of Two Marketing Models Tim Josling Stanford University

2. Introduction • (Lower Expectations) • The Policy Context of POs • The Policy Context of PDOs • Complements or Substitutes? • Transferability of marketing models • Conclusions? Josling Cal/Med Sonoma

3. The Policy Context of POs • First Session discussed role of POs in EU Fruit and Vegetable Regime • No exact equivalent in California • Satisfy several policy needs • State supported intervention in diverse markets • Encouragement of producer disciplines • Channel for funds for F&V producers (South) • Countervailing power (against supermarkets) Josling Cal/Med Sonoma

4. The Policy Context of PDOs • Pierre has/will describe a PDO/PGI, and the Institutions that register/monitor the GI • Some interest in California in PDOs but little/no encouragement from policy instruments (State or Federal) • EU PDOs satisfy three policy needs • Main instrument for “quality” improvement • Regional identity and development of tourism • Capture of rents from product differentiation Josling Cal/Med Sonoma

5. Complements or Substitutes? • POs associated with “old” CAP • More appropriate for oversupplied markets? • More appropriate for undifferentiated commodities? • PDOs associated with “new” CAP • Encouraging demand rather than reducing supply? • Extracting rents from differentiation? Josling Cal/Med Sonoma

6. Complements or Substitutes? • But POs are now encouraged to promote product in their operational programs • They can target children in fruits and vegetables promotion (fits in with nutrition policy) • They can distribute freely to schools, hospitals, up to five percent of the marketed quantity (cost paid by EU) • They must devote 10 percent of their OP to environmental measures (as well as cross-compliance) • Co-financing of organic production (60 percent) Josling Cal/Med Sonoma

7. Complements or Substitutes? • And PDOs tend to (and are sometimes encouraged to) control supply • Depend on control of competitive products from at home or abroad • No financial transfers to PDOs, but assistance for registration process Josling Cal/Med Sonoma

8. Complements or Substitutes? • POs are often quite small • majority have less than 50 members • median VMP is 4 mill euro • Mean is 10 million euro – pulled up by large Dutch POs • Spend about 6 per cent of VMP on Operational Funds (including withdrawal) Josling Cal/Med Sonoma

9. Complements or Substitutes? • POs can join with other POs (PGs, APOs, and transnational POs) • Large firms can use POs for disposal of surplus production • PDOs limited by geographical identity: cooperation with other PDOs problematic • PDOs challenged by large firms preferring their individual reputation and greater control Josling Cal/Med Sonoma

10. Complements or Substitutes? • Financial assistance for POs is still mainly for fresh Fruits and Vegetables (though processed tomatoes eligible) • Products with separate CMOs (olives, wine, potatoes) are not supported through F&V POs • PDOs are more common in wine, meats and cheeses, though in some countries they are widely established for fruits and vegetables • PDOs often do include products with separate CMOs Josling Cal/Med Sonoma

11. Complements or Substitutes? • POs are dominant in Belgium and the Netherlands (<70 % organized) and widespread in France (46 %) • Share of POs in Ireland and the UK increasing rapidly (above 50 percent) • Almost none in Portugal, Greece and Finland • Spain has many small POs (41% of EU total) • Italy is less than 30 percent “organized” Josling Cal/Med Sonoma

12. Complements or Substitutes? • PDOs for F&V are most common in Italy (47), France and Spain (25 each), Portugal (22), and Greece (21) • Very few F&V PDOs in Austria, UK, Germany, Denmark, Netherlands, Finland • PDOs least common in Ireland, Belgium, Poland, Sweden and Slovenia (0) Josling Cal/Med Sonoma

13. Transferability of marketing models • Do marketing models (POs and PDOs) transfer to other countries or regions? • Within EU, some evidence of POs spreading: • Policies to encourage their establishment successful in UK, Ireland • Attempts to try to increase share of farm sales that go through PO not very effective in France, Italy, Spain • Easing of restrictions on POs has been necessary to increase attractiveness • But additional obligations may have offset that effect Josling Cal/Med Sonoma

14. Transferability of marketing models • PDOs have spread in some countries • government encouragement (e.g. UK “European Food Names” promotion) • Set up registry points, inspection bodies • No expansion of PDOs in other member states (Belgium, Netherlands) • F&V PDOs still mainly in France, Spain, Italy, along with Greece and Portugal Josling Cal/Med Sonoma

15. Conclusions? • For fruit and vegetable marketing a choice exists between a “non-exclusive” collective marketing agency with government funding (PO) or an “exclusive” production/marketing club that aims to reduce competition and develop reputation (PDO) • Where POs are dominant, PDOs seem to offer nothing (Belgium and Holland) • Where products have not historically been “locally” identified then PDOs offer little (UK, Ireland, Northern EU) Josling Cal/Med Sonoma

16. Conclusions? • Where producers are only partially organized, and CMOs are less protective, PDOs seem to offer scope for product differentiation • Needs to be based on more comprehensive quality control and local and reputational attributes (France, Spain, Italy, Portugal, Greece) • Reward is rents from differentiation rather than EU financing for market (crisis) management Josling Cal/Med Sonoma

17. Conclusions? • POs and PDOs will continue to co-exist (complementary) • POs unlikely to take on the obligation to monitor production methods and quality standards and exploit geographical identities • PDOs unlikely to seek EU/local funds for withdrawal operations • Success of either form of cooperative marketing may depend on retailers’ decisions and supply chain compatibility Josling Cal/Med Sonoma