POs and PDOs: A Tale of Two Marketing Models

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POs and PDOs A Tale of Two Marketing Models

• Tim Josling
• Stanford University

2
Introduction

• (Lower Expectations)
• The Policy Context of POs
• The Policy Context of PDOs
• Complements or Substitutes?
• Transferability of marketing models
• Conclusions?

3
The Policy Context of POs

• First Session discussed role of POs in EU Fruit
  and Vegetable Regime
• No exact equivalent in California
• Satisfy several policy needs
• State supported intervention in diverse markets
• Encouragement of producer disciplines
• Channel for funds for FV producers (South)
• Countervailing power (against supermarkets)

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The Policy Context of PDOs

• Pierre has/will describe a PDO/PGI, and the
  Institutions that register/monitor the GI
• Some interest in California in PDOs but little/no
  encouragement from policy instruments (State or
  Federal)
• EU PDOs satisfy three policy needs
• Main instrument for quality improvement
• Regional identity and development of tourism
• Capture of rents from product differentiation

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Complements or Substitutes?

• POs associated with old CAP
• More appropriate for oversupplied markets?
• More appropriate for undifferentiated
  commodities?
• PDOs associated with new CAP
• Encouraging demand rather than reducing supply?
• Extracting rents from differentiation?

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Complements or Substitutes?

• But POs are now encouraged to promote product in
  their operational programs
• They can target children in fruits and vegetables
  promotion (fits in with nutrition policy)
• They can distribute freely to schools, hospitals,
  up to five percent of the marketed quantity (cost
  paid by EU)
• They must devote 10 percent of their OP to
  environmental measures (as well as
  cross-compliance)
• Co-financing of organic production (60 percent)

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Complements or Substitutes?

• And PDOs tend to (and are sometimes encouraged
  to) control supply
• Depend on control of competitive products from at
  home or abroad
• No financial transfers to PDOs, but assistance
  for registration process

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Complements or Substitutes?

• POs are often quite small
• majority have less than 50 members
• median VMP is 4 mill euro
• Mean is 10 million euro pulled up by large
  Dutch POs
• Spend about 6 per cent of VMP on Operational
  Funds (including withdrawal)

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Complements or Substitutes?

• POs can join with other POs (PGs, APOs, and
  transnational POs)
• Large firms can use POs for disposal of surplus
  production
• PDOs limited by geographical identity
  cooperation with other PDOs problematic
• PDOs challenged by large firms preferring their
  individual reputation and greater control

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Complements or Substitutes?

• Financial assistance for POs is still mainly for
  fresh Fruits and Vegetables (though processed
  tomatoes eligible)
• Products with separate CMOs (olives, wine,
  potatoes) are not supported through FV POs
• PDOs are more common in wine, meats and cheeses,
  though in some countries they are widely
  established for fruits and vegetables
• PDOs often do include products with separate CMOs

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Complements or Substitutes?

• POs are dominant in Belgium and the Netherlands
  (lt70 organized) and widespread in France (46 )
• Share of POs in Ireland and the UK increasing
  rapidly (above 50 percent)
• Almost none in Portugal, Greece and Finland
• Spain has many small POs (41 of EU total)
• Italy is less than 30 percent organized

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Complements or Substitutes?

• PDOs for FV are most common in Italy (47),
  France and Spain (25 each), Portugal (22), and
  Greece (21)
• Very few FV PDOs in Austria, UK, Germany,
  Denmark, Netherlands, Finland
• PDOs least common in Ireland, Belgium, Poland,
  Sweden and Slovenia (0)

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Transferability of marketing models

• Do marketing models (POs and PDOs) transfer to
  other countries or regions?
• Within EU, some evidence of POs spreading
• Policies to encourage their establishment
  successful in UK, Ireland
• Attempts to try to increase share of farm sales
  that go through PO not very effective in France,
  Italy, Spain
• Easing of restrictions on POs has been necessary
  to increase attractiveness
• But additional obligations may have offset that
  effect

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Transferability of marketing models

• PDOs have spread in some countries
• government encouragement (e.g. UK European Food
  Names promotion)
• Set up registry points, inspection bodies
• No expansion of PDOs in other member states
  (Belgium, Netherlands)
• FV PDOs still mainly in France, Spain, Italy,
  along with Greece and Portugal

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Conclusions?

• For fruit and vegetable marketing a choice exists
  between a non-exclusive collective marketing
  agency with government funding (PO) or an
  exclusive production/marketing club that aims
  to reduce competition and develop reputation
  (PDO)
• Where POs are dominant, PDOs seem to offer
  nothing (Belgium and Holland)
• Where products have not historically been
  locally identified then PDOs offer little (UK,
  Ireland, Northern EU)

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Conclusions?

• Where producers are only partially organized, and
  CMOs are less protective, PDOs seem to offer
  scope for product differentiation
• Needs to be based on more comprehensive quality
  control and local and reputational attributes
  (France, Spain, Italy, Portugal, Greece)
• Reward is rents from differentiation rather than
  EU financing for market (crisis) management

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Conclusions?

• POs and PDOs will continue to co-exist
  (complementary)
• POs unlikely to take on the obligation to monitor
  production methods and quality standards and
  exploit geographical identities
• PDOs unlikely to seek EU/local funds for
  withdrawal operations
• Success of either form of cooperative marketing
  may depend on retailers decisions and supply
  chain compatibility