Guidelines for farming producer groups outlined by EU

The guidelines for farming Producer Organisations (PO) have been launched by the European Commissioner for Agriculture, Phil Hogan.

The 2013 reform of the EU’s Common Agricultural Policy brought in rules to strengthen producers’ bargaining power vis-à-vis a concentrated downstream sector such as processors or retailers, he said, and the Minister for Agriculture Simon Coveney has pushed the idea of farming producer groups to help beef farmers get a better price in recent months.

Commissioner Hogan said producers in the olive oil, beef and veal, and arable crops farming sectors can jointly sell their product through producer organisations, but only under certain conditions.

The Commission published the Draft Guidelines for public consultation – which is open until May 5, 2015.

Commissioner Hogan said the aim of these guidelines is to help farmers and national competition authorities actually make use of these rules, and to do so faster and with more confidence.

“I invite all stakeholders, in particular the producers in the sectors concerned, to make use of this opportunity to see, and tell us, whether their needs are met,” he said.

He said that the Commission will take all feedback into account before putting out the final guidelines for farming later in the year.

The full details of the draft guidelines are available here.

Beef and veal sector Producer Organisation examples

Joint Distribution

An example of the Producer Organisations working in the beef farming sector is in relation to joint distribution.

Joint transportation is likely to generate significant efficiencies in certain situations. For example, this is the case if the PO organises transport services from producing points to the buyer or to the processing site for the majority of the livestock commercialised by
the PO.

The PO can operate the transportation business more efficiently compared to what would be done by members on an individual basis.

Therefore, in such a  situation, the PO is likely to achieve significant cost reductions and generate significant efficiencies compared to what would be done by members on an individual basis and the PO would fulfil the conditions of the simplified method.

Selling Platform

Organising a selling platform is likely to generate significant efficiencies in certain farming situations. For example, this is the case if the PO develops a physical market or auction platform for selling livestock.

In such a situation, the PO invests in facilities to present livestock and allow trade of the livestock. This requires significant costs of investments in the facilities and in running the facilities if this covers large volumes and regular trades.

Achieving such volumes and trades and making the corresponding investment, means that the PO represents the main channel of sales for its farming members, i.e. it sells the majority of the livestock of its members (in volume). This ensures economies of scale for the sales of the livestock by allowing producers to reach a larger number of buyers and more quickly than if they were doing it individually. It can also reduce transaction costs for the sellers and buyers.

Therefore in such a situation, the PO is likely to generate significant efficiencies compared to what would be done by farming members on an individual basis and the PO would fulfil the conditions of the simplified method.

Joint procurement of inputs
Joint procurement of inputs is likely to generate significant efficiencies in certain situations. For example, this can be the case if the procurement is done for significant volumes as then the PO can obtain significant discounts, better delivery terms and/or credit terms compared to what an individual producer would obtain.

Besides purchasing these inputs on its account, the PO may ensure proper storage and/or delivery of these products to the members. When a PO procures for its members feed, purchased animals or other inputs like fuel and electricity, these inputs represent significant costs.

If a PO carries out procurement for a volume corresponding to what is needed to produce the majority of the livestock jointly commercialised, the PO is likely to generate significant efficiencies. In such a situation the PO would fulfil the conditions of the simplified method.