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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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In order to take all steps of the supply chain into account, growers, wholesalers, distributors and retailers of the organic and the traditional food sectors were interviewed. In total, 18 telephone interviews were conducted which lasted between 45 and 90 minutes. The results, particularly those referring to production, imports and distribution were discussed with and verified by experts from the organic apple supply chain.

4 Results This chapter starts with a description of the supply of organic apples, focussing first on European production and imports. The following description of production structure in Germany and on main distribution channels aims at helping to understand power relations between actors. Finally, the quality of business relations within the supply chain will be described and discussed.

4.1 Supply of organic apples in Europe and imports to Germany Production of organic apples in Europe has increased markedly since 2007 and has exceeded 100 000 t in 2011 (Table1). This tendency can be observed in all mayor European production countries. Largest European organic apple producer is Italy and particularly South Tyrol with a share of about 40 % of the European production. The numbers in Table 1 underestimate the full extent of growth in the Italian production since apples in conversion to organic production are no longer included since 2009. In Germany, production decreased since 2007 disregarding the marked growth of production area because of unfavourable weather conditions. Only the quantity harvested in 2011 is at the actual German production potential. Austria is the third country with significant relevance for the German market. Here large investments in conversion to organic apple production took place since 2007.

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Total production (incl. production for industrial purposes) Since 2009 South Tyrol does no longer report production of apples in conversion The numbers for France are not complete.

The corresponding number in the source is only 68 995 t which is less than the sum of the quantities by country. For consistency reasons the number was adjusted.

Source: Own compilation based on EBF (2011) Another perspective are the imports of organic apples to Germany (Table 2). Organic apples

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* Incomplete, since numbers of importers are missing. These actors imported about 6 000 t in 2009.

Source: Own research Since producers and their organisations in Austria and in Italy did not answer to the enquiry, expert estimates were used instead. According to them about 30% of the apples harvested in South Tyrol and 30-40 % of the quantities produced in Austria go to the German market.

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From 2009 to 2010 the relative importance of European imports over imports from overseas increased markedly. Comparing the numbers it has to be taken into account that in 2010 the numbers of importers are missing who imported about 6 000 t in 2009, mainly from overseas (see Chapter 3). Adding this quantity to the 10 000 t for 2010, the decrease in imports from overseas is still at about 10 %, and the share of imports from overseas in all imports was at about 50 % in 2010.

4.2 Production structure and main distribution channels in Germany Going more deeply into the German situation some information on the numbers of growers is given. About 260 growers produce organic table apples which are mainly marketed via retailers (Zander 2011). Organic apple production in Germany mainly takes place in regional production clusters around the Lake Constance, the Niederrhein and the Niederelbe regions.

Due to these regional clusters producer organisations and wholesalers can bundle large amounts of produce at comparably low transportation costs. Additionally, they realise economies of scale in storage, sorting and packaging. They are able to offer a large variety of different gradings, each of them big enough to satisfy the requirements of the retailers. Tight relations exist particularly between growers and wholesalers, since quite a few of the wholesalers are spin-offs of organic apple producers of the first generation. They still are closely connected with the growers also personally.

In all these production clusters growers and producer organisations face various marketing opportunities namely organic and traditional distributors as well as retailers. Due to the strong demand also wholesalers have a range of potential customers. Because of supply shortage during the last years, traditional retailers had difficulties to get access to domestic organic apples.

Market transparency turned out to be high at all steps of the supply chain. In this respect the ‘Europäisches Bioobstforum’ (European Organic Fruit Forum) is of high relevance, since it engages in reporting e. g. of harvested quantities and qualities. Members meet regularly.

Also proximity in the regional production clusters help the information flow and market transparency.

In order to better understand existing distribution channels of German apple growers, growers and wholesalers (such as producer organisations) were asked for their customers in 2009 and 2010 (Table 3). The mayor share of German organic apples is sold to whole food distributors and less than 40% is marketed via traditional retailers. These numbers contradict the numbers published by AMI (2011) which are based on household panel data. According to this data the share of traditional retailers is much larger at about 58% and that of whole food traders only at 28%. The reason for this discrepancy is supposed to be the higher share of imported apples in the traditional retailers, since imports were not subject of this particular enquiry.

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1) The quantities for 2010 are at about 80% of the reported production according to table 1. Taking into account losses during storage of about 20% the compilation for 2010 is almost complete.

Source: Own research 4.3 Relationship quality and collaboration In this research the relationship quality was characterised mainly by the constructs satisfaction, trust and commitment. Different aspects were considered when assessing the satisfaction with suppliers: satisfaction with product quality, with varieties and gradings, with product prices, with supply continuity and flexibility and with the general business policy of suppliers. Satisfaction with customers was evaluated using the criteria producer price, terms of payment, ordering behaviour, purchase promises, general business policy of customers and their interaction with suppliers. Business relations in the supply chain of organic apples at all steps are characterised by a high degree of satisfaction. Only the ordering behaviour was described to be sometimes too short-term. The general satisfaction also includes satisfaction with purchase agreements which is noticeable since mostly no written contracts on quantities exist and the risk was reported to be always with the suppliers.

At all steps of the supply chain, actors described the relationships with business partners to be trustful. Only very few actors assessed the relationships to be improvable regarding trust.

When asking the actors for three expressions which describe their relationships with business partners, ‘trustful’ was named most frequently.

Two indicators were used to catch the degree of commitment: the existence of joint business goals (goal congruence) and the duration of the business relations. The inclination to change partners is closely related with this later indicator. Additionally, the expressions used spontaneously to describe the business relations were used to infer to the degree of commitment. Most interviewees reported on far reaching goal congruence. Joint goals of growers and their customers were the provision of high product qualities, increase of sales quantities and returns as well as sustainable and reliable business relations. The common goals at the following levels of the supply chain varied only little. For some of them ‘fostering the organic idea’ was an important issue. At all levels long lasting business relations exist.

These relations mostly were initiated when starting with producing or marketing organic apples. Changes in business partners only occur by acquiring additional partners in order to

Katrin Zander

market higher quantities or to amplify the range of products. Asked for alternative suppliers or customers, interviewees had some difficulties in answering. Although, theoretically there were alternatives, none of the actors could think of advantages of replacing actual business partners. Establishing new business relations would take much effort and time until they would be comparable to the old ones. Business relations were described as ‘personal’, ‘friendly’ and ‘amicable’, also indicating at a high level of potential commitment.

The long lasting business relations and the limited supply were the reasons why traditional retailers had difficulties in listing organic German apples. They entered only recently into the market for organic food when most business relationships were already established. This is also the reason for the higher share of imported apples in these traditional retailers.

The high relationship quality resulted in intense collaboration between business partners in the organic apple supply chain. Collaboration without fixed contracts dominates by far classical contract- and asset-based cooperation. The regional production clusters are another driving factor of collaboration. Collaboration takes place in form of joint storage, sorting and distribution. That way, large and uniform lots can be provided. Suppliers exchange products with competitors in cases of shortages in order to comply with the needs of their customers.

This is also the case at the level of growers and wholesalers / producer organisations. They also trade with organic apples from neighbouring countries in cases own or German produce falls short. Customers show high loyalty with their suppliers by preferring to rely on ‘old’ suppliers instead of looking for new suppliers. The membership in one or the other organic farmers’ organisation is without relevance, given that the grower is member in any one of them. It can be assumed that this business behaviour contributes to a large extent to calming down the price war which commonly disfavours producers. The high willingness to collaborate also among growers is supposed to be caused by the fact that apples are a permanent crop which needs high investments and specific knowledge. Growers cannot easily switch to another product in case of unfavourable market situations like other growers. Whole food distributors collaborate by joint product acquisition to realise better prices and conditions and to improve the information basis. The exchange of contacts with growers helps securing future supply of produce. However, these measures are not specific for the organic apple market since they are the same for most organic fruit and vegetables.

Actors of the supply chain also collaborate vertically by jointly planning the varieties which are to be planted by growers and coordinated offers also in traditional retailers.

5 Conclusions The investigations confirmed the hypothesis from the beginning that German apple growers and ‘their’ wholesalers are in a good market position. Growers are mostly satisfied with the rather stable product prices they receive. That way they are able to invest in production and storage technology which serve to reduce annual fluctuations of production and to improve product quality. In doing so, growers are in accordance with customer requirements regarding quality and availability of local or domestic apples. Wholesalers and retailers thus are facing reliable business partners on the production side.

Success factors within the organic apple supply chain to a large extent are caused by the high relationship quality between actors. It can be characterised by high degrees of satisfaction and trust and very committed business partners. Actors agree in the joint goal of providing the German market with high quality organic apples from local or domestic production at Katrin Zander prices which grant economic sustainability for all partners. Regional production clusters foster bundling of produce and enhance information flow. They also help creating integrative structures between growers certified according to the standards of different organic farmers’ organisations. All these factors jointly result in pronounced collaboration activities both horizontally and vertically.

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