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«Proceedings of the 6thInternational European Forum on System Dynamics and Innovation in Food Networks, organized by the International Center for Food ...»

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System Dynamics and Innovation

in Food Networks

Proceedings of the 6thInternational European Forum on System Dynamics and Innovation in

Food Networks, organized by the International Center for Food Chain and Network

Research, University of Bonn, Germany

February 13-17, 2012, Innsbruck-Igls, Austria

officially endorsed by

EAAE(European Association of Agricultural Economists)

IAMA (International Food and Agribusiness Management Association)

AIEA2 (Assoc. Intern. di Economia Alimentare e Agro-Industriale) INFITA (Intern. Network for IT in Agric., Food and the Environment) edited by U. Rickert and G.

Schiefer  2012, Universität Bonn-ILB, Germany, Order Address:

Department of Food and Resource Economics, University of Bonn ISSN 2194-511X Meckenheimer Allee 174, D-53115 Bonn, Germany Phone: ++49-228-733500, Fax: ++49-228-733431 Published by e-mail: uf.ilr@uni-bonn.de Universität Bonn-ILB Press, Bonn Printed by (Rheinische Friedrich-Wilhelms-Universität Bonn, Universitätsdruckerei der Rheinischen Friedrich-Wilhelms-Universität Institut für Lebensmittel- und Ressourcenökonomik) Bonn Katrin Zander

How to Defend Market Shares against Foreign Competitors:

The Case of Organic Apples in Germany Katrin Zander Institute of Market Analysis and Agricultural Trade Policy, Johann Heinrich von Thünen-Institute, Bundesallee 50, 38116 Braunschweig, Germany katrin.zander@vti.bund.de Abstract While generally the share of imports is increasing in the German organic fruit and vegetable market, the situations seems to be better in the case of organic apples, and the share of domestic produce is comparably high at about 55 %. This contribution answers the question on the reasons and the success factors within the organic apple supply chain. The focus of the research is laid on the relationship quality and on collaboration activities. In order to create a better understanding of the supply chain some information on production, imports and main distribution channels is provided. Structured interviews were conducted with selected actors of the supply chain. Success factors of the organic apple supply chain turned out to be the high relationship quality between actors which results in intense collaboration. Actors at all levels of the supply chain are highly committed and describe their business relations as satisfying and trustful. However, part of the success is also related to the pronounced retailers and consumer preferences for domestic apples.

Keywords: Supply Chain Management, relationship quality, organic farming, competitiveness 1 Introduction Sales of organic food are still increasing in Germany (BÖLW, 2012). This development is associated with more and more international trade and with growing requirements regarding quantities and qualities. Increasing shares of imports of organic food are reported even for products that can be produced in Germany. Thus, the question on the competitiveness of German organic food producers arises.

Apples are an important product within the German organic fruit industry and account for about 20 % of the market for organic fresh fruit (AMI 2011). On the German market for organic apples, additionally to German apples also apples from other European countries (Italy/South Tyrol and Austria) and from overseas (Argentina, Chile and New Zealand) are sold. Compared to other fruit and vegetable sectors the share of domestic apples seems to be increasing: it was reported to be at 48 % in 2006 (ZMP 2008) but augmented to 55 % in 2008 (ZMP 2009). Obviously, German producers were successful in increasing the market share in the years 2007 and 2008 which were characterised by a rather high German production. Even apples which were produced on farms in the process of conversion to organic farming, i. e. apples not yet fully organic were preferred over ‘new’ organic apples from overseas. This is another indicator for the high preference for German organic apples.

Hence, the German market for organic apples behaves differently to other organic fruit and vegetable markets regarding international competitiveness. Thus, this industry might serve as an example for other organic food markets.

Katrin Zander

The aim of this research was to identify the specific characteristics of the market of organic apples and to determine the success factors. Attention was laid on market structure and on relationship quality among actors of the supply chain. Finally, recommendations for other organic fruit and vegetable industries were generated.

2 Theoretical background The functioning of markets and of supply chains depends on various factors. These factors are the relation between supply and demand, the market structure which refers to the number of suppliers and customers and their corresponding market shares, the degree of market transparency, the existence of market barriers and the degree of integration of enterprises (Knieps 2008; Treyer 1996). A factor with a high impact on the market interactions and particularly on the integration of enterprises is acknowledged to be relationship quality (Gellynck et al. 2011; Naudé and Buttle 2000). In this regard trust, satisfaction, commitment, coordination, communication, joint problem solving, goal congruence, close personal relationships, joint investments, power and profit are named as ‘major constructs of relationship quality’ (Naudé and Buttle 2000: 355). While the authors cited by Naudé and Buttle (2000) did not agree in all constructs relevant for relationship quality, they mostly concurred regarding trust, satisfaction and commitment (cp. Gerlach et al. 2007). These factors are closely related to each other and not independent.

The focus of this contribution is laid on trust, satisfaction and commitment. Trust is a multidimensional construct with contractual trust, competence trust and goodwill trust being its components. Contractual trust refers to the moral dimension of keeping contracts and promises. Competence trust is aligned to the confidence in the partners’ capabilities, and goodwill trust is based on the preparedness of partners to cooperate and ‘to do more than expected’ (Batt 2003: 67). Particularly under conditions which are characterised by pronounced information asymmetry and/or uncertainty, trust is of major relevance (Welpe 2008). This is the case in organic apple production, since yields are instable and do not qualify for fixed long-term arrangements. Satisfaction is the degree to which expectations meet reality. The expectations depend on general requirements and on the experiences of business partners. Satisfaction is a cumulative evaluation of past experiences and is a prerequisite for partners to enter into committed business relations (Gerlach et al. 2007).

Commitment is understood as the deeper insight and the willingness to engage for the quality of existing relationships, also without any immediate reward. It includes dedication and faithfulness in business relations (Naudé and Buttle 2000).

Cooperation and collaboration are different ways of voluntarily working together with other enterprises in order to realise mutual benefits. In contrast to cooperation which usually is contract- and asset-based, collaboration is less formal and more flexible, and mostly is not fixed by written contracts. With regard to cooperation, typically horizontal and vertical cooperation of different intensities are distinguished. Benefits of horizontal cooperation are cost reduction, increases in revenues or the full use of growth potentials. Advantages of vertical cooperation are the compliance to higher product quality standards, better traceability and the reduction of transaction costs. Similar differentiations can be made with various forms of collaboration. Driving factors of collaboration are common and mutually compatible goals and advantages in various regards which are not achievable individually.

Also collaboration has the potential to improve the economic performance of the involved Katrin Zander businesses markedly (Weaver 2009). Since collaboration is not based on fixed contracts a much higher degree of trust is needed than for cooperation. Collaboration can be understood as an expression and a consequence of high relationship quality and to a large extent determines the relative negotiation power of actors and by that the competitiveness of enterprises.

3 Methodological approach The analyses concentrated on organic apples for table consumption and - since direct sales are only slightly affected by international competition - on apples distributed other than directly to the consumers.

The analyses consisted of four steps. Starting point was the compilation and analysis of existing data on production of organic table apples in Europe. The data was made available by the Europäisches Bioobstforum (European Forum of organic fruit, EBF). The EBF is a union of European producer groups and is organised as registered association. The members report on their production, storage and distribution quantities as well as on product prices to the German AMI (Agrarmarkt Informations-Gesellschaft, before ZMP, Zentrale Markt- und Preisberichtstelle). From these data and the data of additional reporters AMI elaborates annual production statistics. Experts estimate the share of European production covered by these numbers at about 65 % to 70 %. In our research this data was used to document the annual organic table apple production from 2007 to 2011.

The second step consisted in an enquiry among main importers of organic apples on the German market on the imports of organic apples. 17 importers acting on the German organic apple market were identified and 13 of them answered our query. They provided numbers on the imports from different countries for 2009 and 2010. In two additional cases data for 2009 were available from another research project and we resigned from approaching these importers again.

With the aim of giving a description of the main distribution channels in the German market the members of the EBF were asked to fill in a table on their main customers and their corresponding shares in sales in 2009 and 2010.

In the last step a survey among actors of the supply chain of organic apples in Germany was conducted. By means of in-depth interviews European organic apple producers and wholesalers were asked on their experiences with suppliers, customers and the relationship quality.

Generally expert interviews are helpful during the exploration phase of research in order to shorten long observation processes or to generate theories and/or hypotheses (Bogner and Menz 2005). Experts are seen as representatives for other actors and can give a quick overview over central aspects of the research under question. Experts are often highly motivated to participate in interviews, particularly when they are interested in the research process by themselves. Naturally, experts do not provide ‘objective information’; instead they will exhibit personal opinions and valuations.

In order to obtain comparable results from expert interviews, interviews usually are based on structured guidelines. The way of analysing the results depends on the research question.

In this research ‘thematic coding’ was applied, which is understood as a common sense

Katrin Zander

technique (Kuckartz 2007). Thematic coding needs the expertise of the researcher in order to extract the information relevant for answering the research question (Kuckartz 2007).

In this research a structured questionnaire with both closed and open questions was developed. It was adapted to the requirements of the different actors of the supply chain.

The topics of the questionnaires were supply and distribution, number of business partners, requirements regarding business partners, cooperation behaviour, contracting and relationship quality with aspects like satisfaction, trust etc. Interviewees were asked to give three expressions in way of ‘free association’ which describe best their business relations with suppliers and customers. Since commitment is difficult to ask for directly, some of these expressions were used to deduce on the degree of commitment. Additionally, goal congruence, the duration of business relations and the inclination to change business relations were used as indicators for the degree of commitment. The interviews ended with questions on specific activities realised with the aim of market regulation, the perception of the actual situation and further perspectives of the organic apple market in Germany.

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