Most farmers sell their products to large food companies and therefore lose large proportions of their income to long supply chains. But individual farmers manage to sell directly to customers. Is this a viable model? EURACTIV Germany reports.
It takes around an hour and a half to reach the small village of Brodowin in Brandenbrug, Germany. Only 400 people live here but nevertheless, people come from the capital to visit the regional farm for weekend trips.
They are familiar with Brodowin because its products are also available in Berlin’s supermarkets. On the site, the visitors look at the farm’s dairy and stables, where 240 cows produce the organic milk that Brodowin’s cheese is made from. The business, which has around 110 employees, also distributes its own meat, eggs, vegetables and honey.
The farm delivers not only to supermarkets in Berlin but also directly to customers. Every week, 2,000 households order baskets with seasonal and regional products that are individually assembled and brought to the customer’s front door.
As a result, the business receives all of the proceeds of its products, without having to go to retailers. This is worth it, even if you have to pay charges to have the strict “Demeter” organic seal, believed Franziska Rutscher, who is responsible for public relations in Brodowin.
“Our customers are willing to pay more for organic products. Therefore, we remain competitive with conventional farms.” Moreover, she is sure that an increasing number of large businesses will jump on the organic bandwagon in the future.
However, concepts such as the one at the Brodowin farm, where agricultural products find their way to consumers remain an exception. The vast majority of farmers are at the end of a long value chain for their commodities and mostly only receive fractions of the proceeds.
On average, farmers in the EU only receive 21% of what customers pay for their products. The middlemen make their money from the rest, which on average amounts to 28% for the processors and 51% for retailers.
But it is not only a matter of the proceeds. For farmers, the lack of alternative market outlets means that they are heavily dependent on the large food chains which they supply. Consequently, producers have a particularly weak negotiating position in the food industry, where the market dynamics work at their expense.
Therefore, it is often the case that prices are depressed, orders are cancelled at short notice and goods are simply sent back. This can be financially disastrous for individual farmers.
Many consumers and farmers feel things cannot go on like this. Therefore, in addition to classic weekly markets, an increasing number of solidarity-based associations that bypass intermediaries are forming.
In Germany, there are around 190 so-called “solidarity-based agricultural undertakings” where consumers come together to provide farmers with a purchasing guarantee for their products and sometimes also a loan. In return, the consumers are able to have a say in how the products are produced.
Direct supply chains are fashionable as consumers are becoming increasingly aware of the importance of sustainable, environmentally-friendly and fair agriculture. This is because if a product finds its way directly from the farmers to customers, this saves time, packaging materials and emissions.
Small businesses cannot afford their own delivery systems
However, to a large extent, the reality looks somewhat different. In 2015, the proportion of directly marketed food amounted to barely 5% of the total value of agricultural products, according to a study by the Agricultural Market Information Company (AMI).
In the German food trade, which made €255 billion euros in revenue the year before last, the four largest food business operators (Edeka, the Schwarz-Gruppe, Rewe and Aldi) still control among them more than a half of the market share.
In order to strengthen European farmers against these wholesalers, the current common agricultural policy (CAP) envisages concepts to support short supply chains. Farmers can have corresponding measures co-funded by the European Agricultural Fund for Rural Development (EAFRD).
The question is whether this is enough. This is because concepts, such as the one in Brodowin, work particularly on a regional basis and do not provide a solution to increasing food needs, critics believe.
In any case, it is particularly difficult for smaller farms to implement their own delivery systems. They lack the money, human resources, logistical capacity and advertising opportunities.
Things were also difficult in the beginning in Brodowin, Rutscher explained. “The owners invested in the farm for years before it was in the black at some stage. Initially, our delivery service was on a very small scale and by paper and telephone.”
EU directive should strengthen farmers’ rights
Just last week, the European Parliament adopted a draft bill that should protect farmers’ rights in the value chain. In every member state, a central authority should act as a port of call for complaints and remove the “fear factor” from the food supply chain, according to the Commissioner for Agriculture and Rural Development Phil Hogan.
The Centre for European Policy (cep), a German think tank, is not thrilled with the proposal because, among other aspects, groupings of retailers and wholesalers into purchasing groups are supposed to be prohibited.
“This intervenes too much into contractual freedom in trade,” cep stated. Instead, in order to avoid unfair trading practices against farmers, competition regulations should be monitored more effectively.
It may take years before the new EU directive passes into national legislation. Even then, the vast majority of farmers will be dependent on retail to market their products.
However, on the small Brodowin farm, they can sometimes allow themselves to disregard the demand. The production is still small enough to do this. Sometimes, their own products are used and sold in the farm’s kitchen. And if there is ever too much cheese, Rutscher explained, it spontaneously finds its way into a leek soup.
DISCLAIMER: This publication reflects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein