Review highlights role of agri-cooperatives in strengthening farmers’ position in supply chains and reducing price volatility
12 May 2013
The EC has published a report that brings together and reviews 77 reports on support for EU farmers’ cooperatives, drawn from 27 country reports, six EU-wide synthesis reports, 34 case studies, and 2 studies on cluster analysis and the development of agricultural cooperatives. According to the report, agri-cooperatives “play a key role in strengthening bargaining power” of producers and help farmers “to capture a higher share of the value added in the food supply chain in all member states”. This is in part because “a large number of cooperatives have expanded their activities in downstream stages of the food chain.” However, the report notes that there are limits to the countervailing power that this generates vis-à-vis large retailers.
The analysis found that a large market share for cooperatives can increase producer prices and reduce price volatility. This is seen as particularly important in an era of heightened price volatility. These benefits arose even for non-cooperative members, with the activities of the cooperative generally compelling competitors to pay higher prices. This role was particularly well developed in the dairy sector, with cooperatives across the 27 EU member states accounting for well over 50% of dairy product sales; product branding by cooperatives is more strongly developed in the dairy and wine sectors than in other sectors.
The analysis identified 46 transnational cooperatives, mainly in the dairy and fruit and vegetable sectors. These transnational cooperatives “often have foreign subsidiaries that source from non-member suppliers”. According to the report, “most cooperatives prefer to internationalise by acquiring or setting up foreign investor-owned firms, and not by merging with other cooperatives or inviting foreign farmers to become members.”
The European farmers’ and agri-cooperatives’ organisation Copa-Cogeca, commenting on the EC report, has endorsed “the proposal to extend product coverage for recognition of producer organisations, like cooperatives” under the current CAP review, and called for an expansion of funding for producers’ organisations to be prioritised under the EU rural development policy.
This call needs to be seen against the background of the EC proposal to cut EU direct aid payments by 4.98% in 2013, as part of the wider EU financial discipline mechanism. Copa-Cogeca was highly critical of the proposal, noting in a press release that the production costs of many EU farmers are barely covered by market prices.
Editorial comment
Two of Europe’s leading dairy cooperatives (Arla and FrieslandCampina) are looking to invest in the dairy sector in Africa. Given the benefits to milk producers that arise from cooperative forms of organisation, the question arises: to what extent can this interest by European dairy cooperatives be capitalised on by developing stronger producer organisations in those African dairy sectors where they are looking to invest?
Currently milk production in East Africa is largely by smallholders, with milk being primarily marketed through informal channels. While such milk is cheap and is seen as more wholesome, governments are increasingly concerned over the safety of such directly consumed milk. Efforts are being made to raise milk quality standards and improve enforcement, with malpractice, such as adulteration, generally decreasing.
While formal sector milk marketing is largely controlled by private sector dairies, liberalisation of the dairy sector in Kenya has seen the rise of producer cooperatives that have themselves entered milk processing. This mirrors developments in the Kenyan tea sector.
Against this background, scope exists for mutually beneficial cooperation between local and European dairy cooperatives focused on technology transfer and the mobilisation of investment capital. Such cooperation, possibly through the vehicle of joint ventures, could play a major role in expanding the participation of smallholder producers in the dairy sector in East Africa.
In West Africa, where local milk production falls far short of rapidly expanding demand for dairy products, more fundamental challenges are faced: these include the modernisation of milk production, collection and processing required to achieve competitive dairy production based on locally sourced milk.
The long-term engagement of EU-based cooperative dairies, within the framework of government policies designed to progressively improve and expand domestic milk production, could potentially offer a way forward, given the strong growth in consumer demand that is under way (see Agritrade article ‘ Expanding Dutch corporate involvement in local milk procurement in Nigeria’, 15 April 2013).
This, however, will require an intensification of private–public sector dialogue on the appropriate policy framework required at national and regional level, in order to attain the objective of increasing domestic milk supplies to an expanding dairy processing sector.
