Growing UP
FOR AUCTION
6
business trends
WHAT'S Nf.wS Issue 11 November 1996
Exporters of agricultural products have played an indispensable role in the
success of the Dutch economy for most of the postwar period. However, the
competitive realities of the marketplace are shifting fast.The balance of power
has steadily been moving away from primary producers in favour of retailers. In
order to recapture their place at the competitive table, Dutch growers, drawing
liberally on Rabobank's agribusiness expertise, have embarked on a radical
adaptation of their traditional, auction-based sales system.
This adaptation was triggered by a
quickening process of concentration among
the integrated retail giants that own and
operate most of Europe's leading
supermarket chains. At present, in Europe,
some 65 percent of Dutch growers'
production winds up in these supermarket
chains. Some two dozen of them effectively
dictate prices and market conditions
throughout the EU. This tendency towards
concentration is set against a parallel shift in
consumer tastes and an appetite for a more
diversified and changing product range.
CONCENTRATING FOR STRENGTH
'Despite its unquestioned success over the
last 100 years, the growers' auction system
is no longer sufficiently adapted to the
retailer consolidation and rapidly-evolving
consumer tastes that characterise the
modern market,' remarks Gerard van
Oosten, a member of the board responsible
for operations and products at The
Greenery International. The Greenery, a
new cooperative, was organized with
detailed advice and an NLG 450 million
loan package from Rabobank. It folds
together 8 previously-independent Dutch
auctions, with combined annual sales
totaling some NLG 3 billion, and its
product range now primarily consists of
greens, fruits, and legumes, and
mushrooms.
ACTIVE MARKETING
The Greenery plans to take a much more
active role in marketing Dutch produce
abroad, and will develop a strong
information gathering system on the leading
foreign markets. Its shareholders are the
growers themselves. Before the recent
merger, some 10,000 Dutch growers sold
their wares through 20 regionally-based
collective auction centres. Retailers found it
possible to play one centre off against the
next - to the detriment of primary
producers - while the growers had an
insufficiënt sense of market trends to act
consistently in their own best interests.
MORE PARTNERSHIP
'It was recognized that we needed to make
radical improvements if we wanted to save
the industry,' says Van Oosten. 'The very
future of Dutch horticulture was at stake.
We've had to try and reorganize ourselves
around the principle of scale so that we can
deal with these big organizations as true
partners. We are a more relationship-driven
enterprise, responsive to the market, and
devoted to achieving better efficiency and
cost-savings. Rabobank has been
instrumental at every stage of the
reorganization and we feel an interest in our
future at the highest levels in your
organization,' he adds.
CUSTOMER RESPONSE
Jacob van Dijk, the Greenery's relationship
manager, wholeheartedly agrees. 'There is
no reason why Dutch growers can't take
part in and benefit from the process of
concentration that's sweeping through their
market,' he observes. In order to do so,
however, they have been forced to jettison
TUINBOUWVEILIN
GEN - NIEUWE
ONTWIKKELINGEN
Het Nederlandse
veilingen-systeem is redelijk uniek.Tot voor
kort verkochten de ca. 10.000 telers hun
producten via de 20 regionale veilingen.
Onlangs fuseerden 8 van deze veilingen tot
een nieuwe coöperatie:The Greenery. Onze
bank adviseerde in dit proces en zorgde voor
financieringen van in totaal NLG 450 min. De
nieuwe veiling werkt marktgerichter. In
plaats van alles 'via de klok' te veilen,zullen
lange termijn contracten gesloten worden
met supermarktketens. Deze aanpak geeft
een grotere zekerheid.
Gerard van Oosten, Board member
of The Greenery International.
an attitude that Van Dijk has characterized
frankly as short-termist. 'If prices for a
product are good, growers tend to flood the
market and thus drive prices back down. It
is important to take a view on the entire
supply chain - production, distribution and
logistics. This way, growers can put their
resources to work where they will do the
most good: in more specialized product
ranges and in responding to consumer
demand.'
BREAK WITH TRADITION
One way to do this is to 'wire' the entire
supply chain electronically. The Greenery is
installing an electronic 'market' that will
function as a virtual crossroad for
information about supply and demand. The
merger proposals were not adopted without
controversy, however. 'Growers have been
obliged to change their traditional way of
looking at things,' van Oosten concedes.
'For centuries, farmers everywhere have
battled against the elements. Their
expectations tend towards the extreme -
either bumper harvests and meager crops.
This is culturally ingrained in their way of
life.'
TRADEOFFS FOR SURVIVAL
The public auction system, under which
some 80 percent of Dutch produce is now
sold, dovetails well with this outlook. It
works on the so-called 'clock' principle: as
the indicator moves from a high price
down towards the low, the buyers call out
their bids and thus stop the clock. This can
produce occasional windfall profits - as
well as heavy losses in an atmosphere of
oversupply. Apart from the clock system,
whose share of total sales will drop to
about 25 percent, prices will be fixed
through agreements with supermarket
chains. The goal is that the new system
will offer a degree of security for producers
in the form of a reliable and stable cost-
plus price.
