susanne clausen
TRANSCRIPT
6. juli 20111...|
Exploiting Economies of Scale
The role of Agri-Cooperatives
The Agenda
Development in farming over time
Economies of scale
Agri-cooperatives and their role in regard to exploiting
economies of scale
Development in farming over time
Thirties Fifties NinetiesSeventies Tenths
Optimization
Sustainability
Mechanization
Production
Few large farms
Optimization Production
Optimization
Sustainability
Precision farming
Many small farms
Labor intensive Capital intensive
Information and
communication
technology
The skills required for farming have changed over time
Thirties Fifties NinetiesSeventies Tenths
Skilled craftsmanship
Hard physical work
Management
Skilled craftsmanship
Physical work
Leadership
Management
Human resource
management
Skilled craftsmanship
Physical work
A good managerA skilled craftsmanA good business
leader
Structural development in Danish dairy
farming
0
200
400
600
800
1000
1200
1400
1600
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Mil
k p
rod
uc
tio
n p
er
farm
, 1
,00
0 k
g
Nu
mb
er
of
farm
s / m
ilk
pro
du
cti
on
in
1,0
00
to
ns
Milk production Number of farms Average production per farm
Economies of scale drive structural
development in agriculture
Quantity produced
Long run average costs
Constant
returns to scaleEconomies of scale Diseconomies of scale
Economies of scale exist as
large farms can better exploit
productivity gains related to
technological developments
Economies of scale in dairy farming in EuropeBased on information from typical farms
Source: IFCN Dairy report 2010
0
10
20
30
40
50
60
70
SE
-60
SE
-220
DE
-90N
DE
-240N
NL
-70
NL
-182
FR
-50W
FR
-120W
IE-4
8IE
-11
0
PL
-65
PL
-147
ES
-50N
WE
S-1
05N
W
DK
-125
DK
-240
To
tal co
st
per
kg
EC
M, U
SD
The characteristics of cooperatives
They are owned by farmers
They are controlled by
farmers
The benefits generated are
accrued to the farmers based
on their use
The characteristics of cooperatives
Open membership: “naked in
and naked out”
“Equal pay for products possessing
same quality”
“One man one vote”
The mission of the cooperatives is to
benefit farmers economically through
Lower input prices
Higher product prices
Feed and other input
supplyProduction Processing Retail Consuming
Co-operatives enables farmers to own and
thus control a large part of value chain• Market power
• Creation of economies of scale
Lower input prices and higher product prices
Feed and other input
supplyProduction Processing Retail Consuming
Profits are being “recycled” in the chain
Profit
• Product development and innovation
• Sustaining the competitiveness of the co-operative
• Through their product strategy the co-operatives can mitigate market price volatility
Rights and obligations
Rights and obligations
• A right to deliver raw products
• An obligation to deliver the
entire amount produced
Rights and obligations
• An obligation and a right to
receive products
Farmers Cooperatives
Secure sale or purchase
Product development and composition
Lower risk at producer level
Easier for farmers to attract capital for investments
Increase in productivity and exploiting economies of scale and specialization gains
The existence of agri-cooperatives mitigate risk
Danish farmers have specialized in only one
production branch
0
10
20
30
40
50
60
70
80
90
100
19751980198519901995200020052010
Perc
en
t
Percent of cattle on farms with cattle
Pecent of pig on farms with only pigs
The farmers become more heterogeneous –
the big farms deliver a larger share of the milk
0%
5%
10%
15%
20%
25%
30%
Milk quota, tonnes
Percent of farms 2007/08 Percent of farms 2010/11
Percent of the milk 2007/08 Percent of the milk 2010/11
The role of co-operatives in exploiting
economies of scale
The co-operatives should
include production
quantity in their price/cost
setting
Collection costs
Quantity collected
Co-operatives constantly need to adapt in order to
be competitive and attractive to farmers
The current trends lead to discussions, we
compete with globalized commercial
corporations. If we are to survive, we have to be
attractive to the very big producersJens Jørgen Henriksen, TICAN
Jyllands-Posten 2008
We are obliged to modernize the co-operatives.
We have to respect and understand the big
differences between our membersOve Moeberg, former chairman of Ala Foods
Jyllands-Posten 2008
Feed and other input
supplyProduction Processing Retail Consuming
Integration and coordination provide competitive
advantage
Low transaction costs
Facilitating integration and coordinated actions
6. juli 201119...|
In conclusionEconomies of scale:
Exist so larger farms can better exploit productivity gains related to
technology
Demands access to capital: Owned or borrowed
Co-operatives
Have facilitated farmers’ access to capital by mitigating risk
Associated with the producers’ sale of raw products
Through product development and composition
Have not only facilitated economies of scale, but also enabled
specialization
Can facilitate economies of scale at producer level by including
production volume when shaping pricing models
Provide competitive advantage
Through close coordination and integration in the value chain
Recycling of capital makes room for long-term investment thus
sustaining competitiveness