The benefits producer organisations (POs) have had in terms of concentrating supply and achieving better prices for farmers in the mushroom industry are clear.
“Without producer organisations, we would simply not have a mushroom industry in Ireland that exports €120m a year and has such a large share of the UK market. We might not even have exports at all,” was the message I got when I asked about the lessons to be learned for beef.
In the early 2000s, there were 600 mushroom growers in Ireland. For many, it was an alternative enterprise based on the farm. Ongoing pressure on price and increasing costs forced many to either invest heavily or leave the business. Many left.
Today, there are around 58 growers and all but three or four are members of the different POs who help to negotiate contracts through agents for their growers.
The key to the PO is that it allows growers to negotiate as closely as possible with the end user of their product, cutting out middlemen. Not all POs have been successful. Some have failed, but the farmers tended to join another PO to get the benefits, concentrating the supply further.
One mushroom industry source believes that POs could have the same transformative effect on the beef industry as the co-ops had on the dairy sector in the 1920s and 1930s.
Farmers have proven in the past that they had the vision and the skills to work together. However, there is no point thinking that a few hundred farmers coming together could have the impact needed to underpin higher prices for the industry. Minister for Agriculture Simon Coveney is right saying we could have up to 15,000 farmers in a PO.
To achieve this, it will need the Department’s full backing. The co-operatives and farming organisations should also take a lead role.
If thought out properly, we could see a network of large POs around the country. Specialised POs could be established for breeds that have already built a name for themselves, like Angus or Hereford.
The upper limit set by the EU regulations for any producer group is 15% of national production. Member states can set minimum or maximum number of members in any one producer group.
Status quo
The biggest challenge for beef is that the status quo is very strongly established. There will be a lot of resistance for change from both the factories and their customers.
Supermarkets didn’t like dealing with a group of mushroom producers and they will be very slow to do it for beef.
The biggest impact POs will have is that they give members protection under competition law to negotiate together. Putting in place contracts with POs could reduce procurement costs and deliver a more predictable supply of quality animals to a predetermined specification all year round.
This would bring benefits for supermarkets as well as processors. The biggest cost will be the effort required and administration structures needed.
The cost to the mushroom industry of running POs has been between 0.5% and 1.5% of turnover. It has proved to be money well spent in terms of getting a better price and better structure. Some funding came from the EU through the Department of Agriculture. There is scope to fund POs through the new rural development plan.
There is concern in dairying in Ireland, where co-operatives dominate, that a number of co-op members could form a PO to negotiate a better milk price with their own co-op. This would leave the other farmers in the cop-op having to pay, a move that goes against the co-op ethos.
The Irish Co-operative Organisation Society’s (ICOS) view would be that the establishment of additional POs should be encouraged, but only where clear evidence is available that such new producer groups would be advantageous to producers in the marketplace.
They must not result in the undermining of the capacity of established co-operative livestock mart sector to provide its members with similar services. They believe the marts could form the infrastructure around which POs can be developed.
It is important to remember that POs are not just focused on finished beef price. They could have a major role to play for farmers producing calves, weanlings or forward stores. Through POs, these cattle could be contracted to finishers who themselves had a contract for their beef, reducing volatility and giving each stage a margin. POs could also become new vehicles to reduce production costs and improve operating margins through sharing of best farming practice and benchmarking and improved individual farm management. Teagasc would have a role to link in with POs to do this.
POs could focus on joint purchasing of farm inputs and over time even look at group product marketing and branding. By being more professional in their dealings, they can explore new market opportunities and, just as importantly, have a faster responsiveness to changes in the market.
One thing for certain is that the current situation in the beef industry, where the majority of cattle are produced at a loss to farmers, is unstainable. POs could be the way to transform the industry in more ways than we think.
POs have worked well in mushroom industry.The new CAP reforms allow POs more scope to negotiate together.They could be an important mechanism for farmers to achieve greater bargaining power in the marketplace.POs could also look at buying inputs and developing brands.Large-scale POs will need an infrastructure, funding and support.There will be resistance to a change in the status quo.Case study: How do the French do it?
Some 18,000 French beef farmers belong to 38 so-called “non-commercial producer organisations” across the country. They help farmers to regulate relations with processors without taking ownership of their animals at any point.
Traditional co-operatives are also active in the beef sector. Much like in dairy, they buy their members’ production according to an agreed price structure and bring it to the market. French beef co-ops have more than 60,000 members and some operate their own abattoirs and processing plants.
While co-ops require their members to commit their production and invest in marketing or processing capacity, non-commercial POs are lighter structures, closer to the system proposed in Ireland – although the French administration checks that each group accounts for at least 5,000 cattle per year before it is deemed strong enough and licensed to operate.
The first lesson to learn from the French experience is that such organisations’ negotiation power has up to now been strictly limited by competition law. The recent CAP reforms will make it easier for Irish and French groups to comply with national and European legislation against price-fixing.
“Currently we are not allowed to agree prices, but we can agree on how the price is going to be set – how it will follow a certain index, for example – as well as on price premia attached to quality specifications,” said Philippe Auger, who chairs the national beef producer organisations’ federation ELVEA.
Better deal
Despite this limitation, he claims that his fellow members get a better deal than farmers who work on their own – while retaining more freedom than if they joined a co-op.
“Among our members, no animal leaves the farm without us knowing what price it will fetch,” he says. Each local producer organisation includes buyer representatives – from dealers and factory operators to exporters – which helps disseminate market information.
And while each sale remains a privately agreed transaction between a farmer and a buyer, they all agree to play by certain rules. “Coming together gives us more weight when dealing with the abattoirs,” said Auger.
For example, Kermené, the meat processing arm of the retail multiple E. Leclerc, has agreed various types of bonuses with the local PO in the area where Auger keeps 90 Charolais suckler cows in eastern France. For example, the factory pays an extra 13 c/kg for females under eight years of age weighing between 400 to 450kg, which are then promoted in the region’s supermarkets as locally sourced meat.
Some deals are short-term: Kermené recently offered the group’s members a bonus of 5 c/kg for 4,000 cows over two to three weeks to feed a beef promotion.
A better deal
POs try to get the highest possible premium for quality products and to formalise it in a continuing agreement. “The heart of what we do is quality labels such as suckler veal, etc.” said Auger. “At the end of the day, our aim is to get a better deal for farmers. We suffer from price drops like everyone else, but we try to anticipate them.”
Despite these promises, non-commercial producer organisations and co-ops each account for less than one-third of nationwide beef production – which means that nearly half of French farmers choose to go it alone.
A report on the beef sector compiled three years ago by French senators concluded that collective bargaining in the French beef sector appeared “weak”. “Producers are not unanimously convinced that collective marketing options bring them real added value,” they noted.
“Producer organisations have probably not gained the critical mass required to really weigh on the markets in the face of highly concentrated buyers,” the senators added, recommending that the EU rules on the beef common market organisation be relaxed on the competition side to allow larger POs to form.
The French did most of the pushing at EU level to give producer groups more power. I’m sure now they have got it they will look to use it.
The benefits producer organisations (POs) have had in terms of concentrating supply and achieving better prices for farmers in the mushroom industry are clear.
“Without producer organisations, we would simply not have a mushroom industry in Ireland that exports €120m a year and has such a large share of the UK market. We might not even have exports at all,” was the message I got when I asked about the lessons to be learned for beef.
In the early 2000s, there were 600 mushroom growers in Ireland. For many, it was an alternative enterprise based on the farm. Ongoing pressure on price and increasing costs forced many to either invest heavily or leave the business. Many left.
Today, there are around 58 growers and all but three or four are members of the different POs who help to negotiate contracts through agents for their growers.
The key to the PO is that it allows growers to negotiate as closely as possible with the end user of their product, cutting out middlemen. Not all POs have been successful. Some have failed, but the farmers tended to join another PO to get the benefits, concentrating the supply further.
One mushroom industry source believes that POs could have the same transformative effect on the beef industry as the co-ops had on the dairy sector in the 1920s and 1930s.
Farmers have proven in the past that they had the vision and the skills to work together. However, there is no point thinking that a few hundred farmers coming together could have the impact needed to underpin higher prices for the industry. Minister for Agriculture Simon Coveney is right saying we could have up to 15,000 farmers in a PO.
To achieve this, it will need the Department’s full backing. The co-operatives and farming organisations should also take a lead role.
If thought out properly, we could see a network of large POs around the country. Specialised POs could be established for breeds that have already built a name for themselves, like Angus or Hereford.
The upper limit set by the EU regulations for any producer group is 15% of national production. Member states can set minimum or maximum number of members in any one producer group.
Status quo
The biggest challenge for beef is that the status quo is very strongly established. There will be a lot of resistance for change from both the factories and their customers.
Supermarkets didn’t like dealing with a group of mushroom producers and they will be very slow to do it for beef.
The biggest impact POs will have is that they give members protection under competition law to negotiate together. Putting in place contracts with POs could reduce procurement costs and deliver a more predictable supply of quality animals to a predetermined specification all year round.
This would bring benefits for supermarkets as well as processors. The biggest cost will be the effort required and administration structures needed.
The cost to the mushroom industry of running POs has been between 0.5% and 1.5% of turnover. It has proved to be money well spent in terms of getting a better price and better structure. Some funding came from the EU through the Department of Agriculture. There is scope to fund POs through the new rural development plan.
There is concern in dairying in Ireland, where co-operatives dominate, that a number of co-op members could form a PO to negotiate a better milk price with their own co-op. This would leave the other farmers in the cop-op having to pay, a move that goes against the co-op ethos.
The Irish Co-operative Organisation Society’s (ICOS) view would be that the establishment of additional POs should be encouraged, but only where clear evidence is available that such new producer groups would be advantageous to producers in the marketplace.
They must not result in the undermining of the capacity of established co-operative livestock mart sector to provide its members with similar services. They believe the marts could form the infrastructure around which POs can be developed.
It is important to remember that POs are not just focused on finished beef price. They could have a major role to play for farmers producing calves, weanlings or forward stores. Through POs, these cattle could be contracted to finishers who themselves had a contract for their beef, reducing volatility and giving each stage a margin. POs could also become new vehicles to reduce production costs and improve operating margins through sharing of best farming practice and benchmarking and improved individual farm management. Teagasc would have a role to link in with POs to do this.
POs could focus on joint purchasing of farm inputs and over time even look at group product marketing and branding. By being more professional in their dealings, they can explore new market opportunities and, just as importantly, have a faster responsiveness to changes in the market.
One thing for certain is that the current situation in the beef industry, where the majority of cattle are produced at a loss to farmers, is unstainable. POs could be the way to transform the industry in more ways than we think.
POs have worked well in mushroom industry.The new CAP reforms allow POs more scope to negotiate together.They could be an important mechanism for farmers to achieve greater bargaining power in the marketplace.POs could also look at buying inputs and developing brands.Large-scale POs will need an infrastructure, funding and support.There will be resistance to a change in the status quo.Case study: How do the French do it?
Some 18,000 French beef farmers belong to 38 so-called “non-commercial producer organisations” across the country. They help farmers to regulate relations with processors without taking ownership of their animals at any point.
Traditional co-operatives are also active in the beef sector. Much like in dairy, they buy their members’ production according to an agreed price structure and bring it to the market. French beef co-ops have more than 60,000 members and some operate their own abattoirs and processing plants.
While co-ops require their members to commit their production and invest in marketing or processing capacity, non-commercial POs are lighter structures, closer to the system proposed in Ireland – although the French administration checks that each group accounts for at least 5,000 cattle per year before it is deemed strong enough and licensed to operate.
The first lesson to learn from the French experience is that such organisations’ negotiation power has up to now been strictly limited by competition law. The recent CAP reforms will make it easier for Irish and French groups to comply with national and European legislation against price-fixing.
“Currently we are not allowed to agree prices, but we can agree on how the price is going to be set – how it will follow a certain index, for example – as well as on price premia attached to quality specifications,” said Philippe Auger, who chairs the national beef producer organisations’ federation ELVEA.
Better deal
Despite this limitation, he claims that his fellow members get a better deal than farmers who work on their own – while retaining more freedom than if they joined a co-op.
“Among our members, no animal leaves the farm without us knowing what price it will fetch,” he says. Each local producer organisation includes buyer representatives – from dealers and factory operators to exporters – which helps disseminate market information.
And while each sale remains a privately agreed transaction between a farmer and a buyer, they all agree to play by certain rules. “Coming together gives us more weight when dealing with the abattoirs,” said Auger.
For example, Kermené, the meat processing arm of the retail multiple E. Leclerc, has agreed various types of bonuses with the local PO in the area where Auger keeps 90 Charolais suckler cows in eastern France. For example, the factory pays an extra 13 c/kg for females under eight years of age weighing between 400 to 450kg, which are then promoted in the region’s supermarkets as locally sourced meat.
Some deals are short-term: Kermené recently offered the group’s members a bonus of 5 c/kg for 4,000 cows over two to three weeks to feed a beef promotion.
A better deal
POs try to get the highest possible premium for quality products and to formalise it in a continuing agreement. “The heart of what we do is quality labels such as suckler veal, etc.” said Auger. “At the end of the day, our aim is to get a better deal for farmers. We suffer from price drops like everyone else, but we try to anticipate them.”
Despite these promises, non-commercial producer organisations and co-ops each account for less than one-third of nationwide beef production – which means that nearly half of French farmers choose to go it alone.
A report on the beef sector compiled three years ago by French senators concluded that collective bargaining in the French beef sector appeared “weak”. “Producers are not unanimously convinced that collective marketing options bring them real added value,” they noted.
“Producer organisations have probably not gained the critical mass required to really weigh on the markets in the face of highly concentrated buyers,” the senators added, recommending that the EU rules on the beef common market organisation be relaxed on the competition side to allow larger POs to form.
The French did most of the pushing at EU level to give producer groups more power. I’m sure now they have got it they will look to use it.
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