Jerker Nilsson• Gert van Dijk (Eds) STRATEGIES AND STRUCTURES IN THE AGRO-FOOD ...

297 Pages·2008·1.46 MB·English

Jerker Nilsson • Gert van Dijk (Eds)

STRATEGIES
AND STRUCTURES
IN THE AGRO-FOOD
INDUSTRIES
ISBN 90 232 3264X

1997
Van Gorcum & Comp. B.V., P.O. Box 43, 9400 Assen,

The Netherlands
Table of Contents

Preface VII

Abstracts XI

PART I: CONDITIONS FOR COOPERATIVE BUSINESS 1

1 Institutional and Organisational Change in the European
Food Sector: A Meso-Level Perspective 3
Torben Bager

2 The International Cooperative as a Partnership:
Legal Aspects 20
Ruud Galle

3 Creeping Privatisation of Irish Co-operatives:
A Transaction Cost Explanation 31
Laurence N. Harte

4 The Saskatchewan Wheat Pool in the Globalized Food
Sector: Can They Remain True to Their Roots? 54
Lou Hammond Ketilson

PART II: STRATEGIES FOR AGRICULTURAL COOPERATIVES 75

5 Organizational Structure and Globalization:
The Case of User Oriented Firms 77
Michael L. Cook

6 Implementing the Sixth Reason for Co-operation:
New Generation Co-operatives in Agribusiness 94
Gert van Dijk

7 Marketing Cooperatives as a System of Attributes 111
George W.J. Hendrikse and Cees P. Veerman
IV Table of Contents

8 The Position of Agricultural Cooperatives in the Changing
Food Industry of Europe 130
Petri Ollila and Jerker Nilsson

PART III: PERFORMANCE IN BUSINESS SECTORS 151

9 Impact of Mergers and Acquisitions on Structure and
Performance in U.S. Food Industries in the 1980s 153
Francis Declerck

10 Economic and Financial Performance of Cooperatives and
Investor-Owned Firms: An Empirical Study 171
Anastassios Gentzoglanis

11 Mergers and Structural Reorganization of Agricultural
Co-operatives in Japan 183
Hideki Tanaka

12 Diversification, Vertical Integration and Profitability in the
Greek Food Manufacturing Industries 194
Constantine A. Bourlakis

PART IV: MARKET CHALLENGES 205

13 Intense Competition, Revised Strategies and Financial
Performance in the U.K. Food Retailing Sector 207
Ken Bates and Mark Whittington

14 Internal and External Coordination and Organizational
Structures: The Case of a Leading European Company in the
Canned and Frozen Vegetable Market 225
Louis-George Soler and Egizio Valceschini

15 Strategic Behavior and Interrelationships in the Food Chain:
The Case of the Finnish Market 239
Saara Hyvönen and Raija Volk

16 Quality Certification as a Key Success Factor in International
Marketing of Food Products 258
Niels Jørgensen
Preface

The origin of this book is rooted in a seminar held in April 1995 at EIASM
(European Institute for Advanced Studies in Management), in Brussels.
Under the theme of ‘Institutional Changes in the Globalized Food Sector’,
the seminar gathered academics studying the pattern and nature of
changes in food production and marketing, the causes of these changes
and their implications.
As can be seen from the chapters of this book, the changes which are
currently occurring are being studied by a wide range of disciplines and
with an equally wide range of methods. The book not only gives an over-
view of current trends in the agro-food industries, but also the theories
and methods that are used to make our knowledge consistent and testable.
Change in the industries which ensure us of our daily bread is truly
fundamental. Today we are confronted with BSE, or Mad Cow Disease.
This shows us how sensitive consumers are and the volatility of consump-
tion patterns – in the UK alone more than one million people have
excluded beef from their daily diet. This is a massive change in a short
period of time. No such dramatic developments are analysed in this book.
However, forces of change are taken into consideration in many of the
contributions. Related to the BSE case, there is the emphasis on food
safety, health and well-being. Consumer sensitivity to such quality
dimensions has stimulated many innovations in production systems and
production chain management. These developments have encouraged the
application of information technology, and quality measurement and
monitoring. Apart from the hardware and control methodology, it has
also led to institutional and structural changes. Among examples of such
changes is the diversification of farm production for specific market
segments, creating links between products and firms throughout the proc-
essing and distribution chain.
Research on institutional change in the agro-food industries enjoys the
growing interest of academics. They not only attempt to explain the
dynamics and causal relationships; sometimes they also want to make
predictions on the basis of extrapolations of present patterns. In view of
these aims (explanation and prediction) perhaps the most exiting obser-
vation about this book is that the academic disciplines are changing as
well. Especially the attention given to the transaction cost and agency
theories is striking. The growing interest seems to signify that food
industries are moving from hierarchically organised structures to more
VI Preface

‘loosely-knit’ networks. This has implications for the organisation of
research and innovation, for risk sharing and for the role of distribution
and marketing throughout the chain.
This theoretical development has not, however, resulted in one domi-
nant theoretical perspective – neo-classical, neo-institutional and insti-
tutional paradigms exist side by side, also in this volume. The neo-clas-
sical approach of deducting hypotheses from theory and then applying
econometric techniques to a sample of data is less dominant today than it
used to be. The transaction cost theory and other neo-institutional
approaches are more often used as an heuristic model of thought than as a
theory in the strict meaning of the word. Institutional studies are tra-
ditionally wide in scope and ambition. So, if a common denominator for
the current research on the agro-food industries should be identified, this
is rather an observation that modern researchers tend to relate to practice
and choose their economic tools accordingly. By combining observations
from cases with statistical evidence they try to develop a new ‘language’.
This ‘language’ will help other researchers and, in due time, also
practitioners so that they can streamline their work into ‘normal business’.
However, this language of today's ‘normal business’ is not yet available,
and current developments are not ‘normal business’. ‘Normal business’ is
by definition understood by ‘normal science’. The future will tell us what
the paradigm of change in the food industries in the late 1990s was and
what ‘normal science’ is in the 2000s.
A few trends can already be discerned. Economists are now in the proc-
ess of collecting empirical information to develop a new selection of
hypotheses. First, transaction cost theory is telling us that various types of
loosely organised systems, open to continuous innovation and new busi-
ness entities, are gaining ground in the market place. Even large mono-
lithic companies, usually multinational enterprises that control a wide
range of activities, integrating or surpassing markets at will, have to adapt
to this operational mode.
Second, farmer-businesses, often structured as co-operatives, are forced
to change to maintain their market position and preserve their significance
for their farmer-members. Questions arise about whether they can
maintain their co-operative identity, and if they will still be able to reduce
the farmers' transaction costs irrespective of varying governmental
policies. Perhaps we will see a split between consumer-oriented busi-
nesses and co-operatives that do the initial processing of raw produce. At
least this is plausible when considering business conduct based on tradi-
tional co-operative principles, as these are restrictive when, for instance,
doing business in the branded foods sector. However, co-operatives are
efficient in creating a market structure that offers farmers the opportunity
to focus their professional ability on producing quality products that can
be processed into new products with added value. Anyhow, the way
agricultural co-operatives will operate in the future will be mainly
decided by their ability to develop new financial models with new forms
of equity.
Preface VII

Third, it is striking how little attention business academics pay to issues
of public policy on farming and food production. The role of government
is mainly restricted to legislation and regulations on minimum standards
of quality and safety. Raising the competitive pressure in the various
industries is often considered to be a sufficient condition for this to
happen. Still, we know that a host of governmental regulations are of
profound importance to the agro-food sector, not only antitrust legislation
but also the broad area of agricultural policies.
Fourth, as always, final demand is best understood by confronting the
consumer with new products and applying new marketing techniques.
Today, however, there is also new information technology to facilitate in
measuring the consumers' response. Again, this can be viewed as trans-
action cost reduction, having repercussions throughout the chain of pro-
duction, distribution and marketing. The firms – farmers, processing en-
terprises, retailers and others – are through these new technologies more
closely linked to consumer demand and, thereby, also to one another.
In conclusion, agro-food business is in a state of flux that demands
attention. Businessmen have a good understanding of market trends in
their own industries, but for a deeper understanding economic analyses
are required. The research presented in this book describes interesting
new developments and even indicates some new paradigms. However, no
clear prospects can be expressed yet. More research must be done and
more academics have to participate in the ongoing debate.

Wageningen and Uppsala, November 1, 1996

Gert van Dijk and Jerker Nilsson

Abstracts

Institutional and Organisational Change in the European Food Sector:
A Meso-Level Perspective
Torben Bager, South Jutland University Centre, Esbjerg, Denmark

Since 1980 the European agro-food sector has experienced profound
restructuring. Mergers and cross-border investments have been the daily
order.
While macro-level theory tends to understand agro-food restructuring
deterministically as a result of techno-economic change spreading
gradually downwards from global level, the European process should
rather be understood as a complex and open-ended process which not
only flows top-down but also down-top, deserving to be labelled
Europeanisation rather than Globalisation. Doubtless there are some
universal trends in the agro-food sectors world-wide, but socio-political
processes – or to be more precise, institutional and organisational
processes at national and European level – are also important, and call for
a meso-level perspective.
The article supports this basic argument by empirical analysis of
developments in the European retail and food production sectors since
1980, and by application of neo-institutional organisation theory to the
issue of why agricultural co-operatives increasingly convert into hybrid
organisations and limited companies.

The International Cooperative as a Partnership: Legal Aspects
Ruud Galle, Faculty of Law, Katholieke Universiteit Brabant, Tilburg, The
Netherlands

The paper seeks to answer the question whether the cooperative structure
as such forms an obstruction in participating in the process of inter-
nationalization. Which legal instruments are available? The new European
Cooperative Society as proposed by the European Commission is
assessed. Discussing the internationalization of the cooperative business is
not possible without paying attention to the anti-trust law implications.
X Abstracts

Creeping Privatisation of Irish Co-operatives:
A Transaction Cost Explanation
Laurence N. Harte, University College Dublin, Dublin, Ireland

Although presented as a funding mechanism, the transformation of some
leading Irish co-operatives into public companies with farmers' co-op-
eratives as controlling shareholders has established a means by which
these enterprises can be progressively changed into ordinary for profit
corporations. In this paper a transaction cost approach is used to argue
that this organisational change is the result of a diminished need for
vertical integration (especially vertical ownership) in the Irish agricultural
sector, limitations of the co-operative organisation form, and a shift in
favour of market mechanisms in business and the economy generally.
Based on an assessment of the current competitive structure of the Irish
milk market, it is reasoned that this change away from co-operatives is an
efficiency enhancing development.

The Saskatchewan Wheat Pool in the Globalized Food Sector:
Can They Remain True to Their Roots?
Lou Hammond Ketilson, Centre for the Study of Co-operatives, University of
Saskatchewan, Saskatoon, Canada

This paper poses the question: what will be the implications for the
Saskatchewan Wheat Pool as it makes the transition from a co-operative,
owned and controlled by its 78,000 farmer members, to a publicly traded
co-operative, owned by its members and investors, controlled by whom?
The paper starts with a review of relevant literature on ownership
structure, goal setting, and decision-making. The case of Saskatchewan
Wheat Pool is then presented. The paper closes with some very
preliminary conclusions regarding the potential impact of conversion.
Observations and conclusions are drawn from an analysis of interviews
with key informants, organization documents, and secondary sources.

Organizational Structure and Globalization:
The Case of User Oriented Firms
Michael L. Cook, University of Missouri-Columbia, U.S.A

Leaders of U.S. agricultural cooperatives face two overriding strategic
questions as they plan for the 21st century: can their organizations com-
pete in an increasingly global market place, and can their organizations
compete in an increasingly industrialized food and fiber sector. The
answers to these questions are, of course, complex and multifaceted.
Trade and agricultural policy factors, economic endowments, human
resource, financial and market strategy all influence the answer. But,
perhaps as important an element for cooperative leaders to consider is the
organizational structure factor. Is the traditional organizational form of a