What can we learn?

Horticulture Network Ireland is determined to promote the benefits of networks within the horticulture industry and to show how they can benefit members at a time when changing market conditions and more demanding consumers leaves a less than certain feeling about your future sales. Where better to start than with examples of the numerous network groups that have sprung up in Holland over the last decade, almost all successful in achieving better prices and recognition for their products.

On a recent trip to Holland, I took a closer look at the idea that co-operatives are still the efficient organisations for carrying out transactions for horticulture produce. While we are very familiar with the Dutch experience of auctions organised by grower-owned co-operatives, in the late 1990s we saw a merging of these co-operatives, transforming them into more marketing type organisations. These new co-operatives took on more specific marketing programmes based around crop and variety marketing with a wholesale function.

Holland, some 15 years ago, only exported. They had little or no imports at a time when costs in general were rising. Since then, the change in mindset has brought about a dramatic change in the industry. While some producers did relocate to Kenya and South America to reduce production costs, the industry began focusing primarily on specialisation and collaboration.

Today, Holland imports 30% of its food and amenity horticulture produce while 70% is produced at home. This gives a very good mixture for export because they have the widest possible range available, Lillie's from Thailand and South America among them.

At the time, the Dutch horticultural industry reacted to the changing market conditions. However, it is foolish to assume that the shift in market trends solely effects the Netherlands and it is important to recognise that the Dutch model is one that the remainder of EU countries should learn lessons from.

In meeting with the Director of the Dutch Produce Association Mr. Hans van Es, who represents some of the larger and more well-known co-operative groups like The Greenery, Fruitmasters, Best Growers Benelux and many of the auctions in Fruit and Vegetables, I asked him the reasons for these developments and how the Dutch experience is not simply a unique one to Holland.

According to Mr. van Es, growers in Holland had to deal with overproduction, up-scaling, application of information technology, chain and network forming. He outlined how the old grower owned co-operatives organisational characteristics made them less suitable for customer-led production. The new supply chain structure in Holland today has meant that most of the chain specific investments have and were made by downstream parties and not the producer oriented groups. This is why, according to Mr. Van Es, the producer auctions over the past ten years turned into more marketing type groups, focusing on customer demands almost before supplier interests.

When buying at an auction, one can't negotiate with producers for customer-specific demands, for example, special packaging or quality. With the clock system, occasional higher demand immediately drives up the price and large retailers prefer stable prices, which the auction could not guarantee. So, in effect, the system that had addressed the sale and logistics needs of its growers for many decades was now not addressing the new market conditions.

The Dutch introduce a three-step approach to change the auction system. Firstly, all fruit and veg auctions were merged to benefit economies of scale, which, in turn, enabled the new co-operative to begin direct trade with major food retailers. Other growers formed product specific bargaining associations and marketing co-operatives to trade directly with wholesalers.

Today, only one quarter of members stock is sold by the clock system as the new contract mediation direct to large multiples has become more common. Compared to the old auction system, the activities of the new marketing co-operatives are more diverse. For example, The Greenery supplies various markets wholesale, retail, domestic, foreign, fresh, prepacked and branded product, which is a differentiated marketing strategy with product specific marketing activities.

It's not so much economies of scale in selling and logistic processes but economies of scale and scope in marketing. A broad product portfolio has advantages when dealing with the larger retailers who prefer to deal with one company that can provide the full range of service all year round. Van Es pointed to the fact that retailers are also scaling up their businesses. Their purchasing power is increasing rapidly in Western European countries and roughly fifteen major retailers are now selling 75-80 per cent of all the fruit and vegetables. Large European retailers want to deal with larger European suppliers and that affects the horticulture industry on a global scale. International sourcing is an issue that will develop further and how we anticipate this maybe will be of great importance to the Irish horticulture industry.

The resounding message coming from many of the industry players in Holland is that we must anticipate these changes. Many of the changes are not always nice but they are inevitable nonetheless, whether they are based on political decisions or driven by market trends. For example, the ten new EU members means we have less market protection and less subsidies which all have consequences for the sector.

According to Mr. Ad Klaassen, former founder of The Greenery, producers have to cluster, work together and be part of a chain. It is expected that within seven to ten years, a limited number of integrated fresh produce companies (food providers) will cover a big part of the European market. For professional growers it is important to have a link to these food providers who must deliver to their clients in Berlin, Dublin, Stockholm, Milan and Paris twice per 24hours. Of course, smaller specialised companies will find their place in local markets or be suppliers to these food providers.

What is also clear is the fact that the Dutch have set up different groups or co-operatives for different reasons. If there is something to learn here, it is that we must identify if it is prices, logistics, or investments that we want to tackle and if so, what structures best deliver results in these desired areas. According to Klaassen, a commitment by network members and particularly companies with a leadership role or who are already in that market is critical.

Klaassen explained the importance of Government support towards networks and how they must recognise the groups and provide funding in order to give the members time to realise the benefits. With the benefits becoming clearer over time, companies are more prepared to invest the necessary resources themselves to keep the network going.

The role of providing a platform for discussion and creating the critical mass of companies who join together to achieve a strong position, in Klaassen's opinion, was significantly important. Strategic co-operation and sharing knowledge among the members has led The Greenery to produce customised concepts for the delivery of horticulture produce to care institutes and sports canteens, to name a few.

What is evident when you visit such an organisation as the Dutch Produce Association is that this intensive support encourages both quality and innovation and, in turn, a level of trust among members becomes increasingly apparent as they continue to engage with each other.

An example of other grower groups developing economies of scale and scope in marketing is the Decorum Plants group in Holland. This is an initiative by 48 Dutch indoor plant growers who want to sway the perception of their products away from that of "commodity" to "high value crop". They believe that the quality of plant stands or falls by the way it is dealt with in the chain. To deliver their quality, continuity and reliability on a European level, they have brought together a network of sectors including grower, exporter and foreign wholesaler. A vertical integration in the industry that is more diverse leading to a differentiated strategy, which will meet increasing consumer demands. This protects any investments made by the grower to deliver that quality by ensuring greater sales.

Whether elements of the co-operative need to be adopted here or not is a debate that the industry should engage in and do so involving all parties concerned. Concentrated buyers and more demanding consumers are the market conditions today and how we adapt and further anticipate this will determine the industry's success. What we need to identify in the Horticulture industry is whether or not we want to improve efficiencies in production and distribution channels or whether growers want to build their brand name and market specialty products.