Concurrentie, concentratie en rentabiliteit in de glastuinbouw in Nederland

Introduction

The expansion of the market area of the European Union has caused  a strong increase of supply and demand of fresh horticulture products of the Dutch glasshouse sector on the European market. Consequently there is increased competition with companies from new European member states, producing against lower prices, as well as changes in production and sales structure. In the Dutch food horticulture sector this led to a large horizontal and vertical merger between most of the auctions and a number of large exporters. From 1996 to 1998 VTN/The Greenery changed from a co-operative auction into a co-operative trade organisation. In the floriculture sector only horizontal mergers took place between co-operative auctions. The wholesalers/exporters remained independent. At present there are two Flower Auctions, FloraHolland te Naaldwijk (market share 98%) and Plantion in Ede (2%).

Central research question

This thesis explores the development of market structure, market strategy and market results in the horticulture glasshouse sector over the last thirty-five years. The central research question is whether the difference in market structure and market strategy in the Dutch sectors of glasshouse vegetables and glasshouse cut flowers and pot plants is a significant cause to explain the difference in market results for the growers and their co-operative organisations. 

The conceptual model

A number of theories and models have been studied derived from the Industrial Organisation Theory. This theory focuses on the analysis of branches of industries, industry chains and markets involved. It examines the relation between market structure (S), market conduct (C)  and market performance (P) through the SCP-model (in Dutch: SGR-model). A description and explanation is given of the static SCP-model of Bain, the dynamic SGR-model of De Jong and the branch-analysing models of Porter and Daems. The conceptual model of  competition, concentration and performance (figure 1.1) has been constructed from these models to analyse the Dutch horticulture glasshouse sectors.

Research of producers, sector research and research of auctions/sales organisations

From 2006-2008 three research projects on producers were conducted amongst 40 growers of vegetables, 40 growers of cut flowers and 40 growers of pot plants, all under glass. Data and opinions of growers about their company, market strategy and performance were gathered. In the same period sector research of the development of total production, imports and exports took place in the three sectors of the glasshouse industry on sector level, on the level of sales organisations and the wholesalers/ exporters. The gathered data have been analysed  and tested on selected variables. In three different chapters temporary conclusions have been drawn. The most important business and market characteristics and research outcomes are discussed in three separate tables at the end of these three chapters and the associated appendices. The research of producers was expanded in 2015/2016 on the basis of the data of the research 2006-2008 with econometric research and multiple analysis of a number of the most important variables of market structure and market conduct to explain the market results (Lerner Index).

Results of sector research

The three horticulture sectors under glass show a  positive development in yearly production and export value over a period of thirty-five years, besides a small decrease in 2009 and 2011, as a result of the banking and EHEC crisis. In the Dutch floriculture sector the average growing figures  are a bit higher than in the food horticulture sector because of a stronger yearly increase in the production of pot plants. In all three sectors the production and export values are increased almost every year until the banking crisis in 2009. After 2010/2011 the sectors have been recovering.

Development of  variables in Dutch horticulture glasshouse sector 1980-2016

The sector cut flowers under glass show a decrease of  area and production (m2 glass) in The Netherlands. However, there is an increase of import and direct supply of cut flowers from foreign growers and  Dutch companies from the southern part of Africa (roses, chrysanthemums etc.). All sectors profit from the growing import/re-export function of  vegetables and fruit, cut flowers and pot plants from The Netherlands to neighbouring countries and trade partners in Europe. The high share of  the sector variables domestic share and export share in all three sectors stimulate the development of  production value, export value and prices.

Results of research into auctions/sales organisations

In the food horticulture and floriculture sectors there has been quite a difference in market strategy and market structure since 1998. In the sector vegetables under glass the degree of concentration of  the four largest sales organisations (C4) has decreased to the level of before the merger (60%). In 1997 this figure was 96%. Also the share of growers of VTN/The Greenery in the area of Dutch vegetables under glass has  decreased. VTN/The Greenery did not reach her target of 1996 with their strategy of horizontal and vertical concentration: organizing a larger bundling of the turnover of the Dutch auctions and wholesalers/exporters.

The search for a good working integration of horticultural production and trade in one company with an efficient and effective structure has not been completed yet and started in 2016 with a new sales organisation. The financial position of VTN/The Greenery on the European market is not strong. Since 1996 the annual turnover has strongly fluctuated between 0.9 and 1.5 billion euros, with a variation range of 25 to 30 %. The supply of their own members halved, just like the income out of commission. The position on the Dutch market is stable, on the most important European markets difficult. The return on investment is low. In 2015 and 2016 a careful recovery started after the difficult years of crisis 2009, 2011 and 2013.

Flower auctions FloraHolland and VBA showed a clear strategy and good results around the merger of 2007. The merger was a good example of a carefully implemented strategy of horizontal concentration, bringing together the interests of the flower auctions and their members. For FloraHolland the period of the crisis 2009-2011 was a test with success.

There was an expansion of horizontal concentration across the borders: a new joint venture auction Rhein-Maas, founded together with the German organisation Landgard and there was an integration with the import auction TFA in Aalsmeer. Both organisations are important for the market position of FloraHolland. In the Dutch floriculture sector under glass there are hardly any examples of vertical concentration of producers or sales organisations with wholesalers/exporters. There are examples, though, of vertical co-operation between these organisations and international retail, especially with the larger growers of pot plants.

The auction clock, physical and digital, is the most important sales method the flower auctions use daily. For most products there is a public pricing system. It provides a transparent process of supply and demand against sharp tariffs of the auction. For cut flowers as well as for pot and garden plants a large part of the product groups are sold by way of the auction clock, which mostly ensures a reliable reference price for mediation and personal selling and provides a good match of supply and demand and a ‘clean’ market. Attention to strengthen the position of the auction clock, especially with the selling of pot and garden plants, is important. The turnover of FloraHolland decreased in 2009 (bank crisis) and increased in 2010 and 2011 just above the level of 2008. Incomes out of services dropped. As costs decreased more than incomes, profits and solvency improved in this period.

In 2012 FloraHolland realised a turnover increase of 3% compared to 2011. However, the incomes out of services decreased. In 2013 the sector performed reasonably. The turnover of  FloraHolland increased slightly but costs were higher than incomes and FloraHolland had an exploitation loss. 2014 was a year of slight recovery, 2015 and 2016 ended with an increasing turnover of 3 and 4%. Profit after tax in these years are 12  and 3 million euros. For most of the growers and customers the results in 2015 and 2016 were positive. The decision of the wholesale/export (VGB) to contribute again in the promotion costs of Bloemenbureau Holland was welcomed very positively. Along with  the new strategy of  2020 FloraHolland is working on the strengthening and expansion of the physical and digital market places.

Research results of producers

On producers level  there is also quite a difference in market strategy, structure and results between growers in the sectors of glasshouse vegetables and glasshouse cut flowers and pot plants. At present there is a fierce struggle to survive in each sector. It seems that the small grower of cut flowers and pot plants stands a better chance than the small grower in vegetables. The most striking single relations between structure, conduct and result will be mentioned.

Most striking single relations glasshouse vegetables

- The small company has relatively higher costs than the larger types. If the sales organisation uses the principle of  ‘the user pays the total costs made’ this burden is rather heavy for the smallest companies.

- Auction growers mainly deliver round or grape tomatoes, the majority of independent growers choose for the special varieties. This influences the pricing process.

- Small and large auction growers differ significantly in business size from independent growers, but realise comparable margins. Large-scale production does not always lead to lower average costs and a better margin, but it does entail a greater risk of too much supply and low prices. Growers with a larger business size are faced with larger financial problems in difficult years than smaller ones.

- Horizontal concentration of  the four largest growers of vegetables lies at a low level and their sales power is low. The concentration of the four largest sales organisations is about 60%.

- Vertically integrated auction growers are smaller in business size and invest less than non- integrated independent growers. They realise comparable margins.

- The importance of the sales organisation to realise good prices and margins for the members’ products seems rather small. Sharp purchase prices are of equal importance for the trade organisation and influence the margin of the members.

- Higher investments don’t produce higher results (directly). More innovative investments are needed to improve prices and margins.

Most striking single relations glasshouse cut flowers

- The small auction grower realises an expected smaller turnover and pays higher commission   than the larger auction grower, member of a growers organisation. Although there is no significant relation between grower type and realised margin, higher commission can lead to higher prices and margins. Besides the higher price level, smaller growers realise a higher solvency than larger growers.

- Growers of roses under glass realise a higher margin than growers of chrysanthemums    because of a wide and deep assortment.

- Small growers of cut flowers show comparable or better results than the larger ones.

- Horizontal concentration of  the four largest growers of cut flowers lies, just like the sectors of vegetables and pot plants under glass, at a low level. The small auction grower has little market power and needs the sales organisation for reasonable prices and successful sales.

- There are no significant relations between the organisation of sales and growers’ turnover, realised margin and the height of commission. It looks as if every grower uses his own mix of marketing and sales activities in a way that no significant differences in results arise.

- Selling of cut flowers by means of the auction clock gives good results.

Most striking single relations glasshouse pot plants

- The smaller auction grower, with or without personal selling, realises an expected smaller turnover but a higher margin than the larger auction grower, member of a growers organisation.

- Smaller growers (in m2 glass) get higher results or results comparable to those of the larger ones. Old and new companies get comparable margins.

- Growers of green plants get a significant lower yearly turnover than growers of blooming pot plants. Green plants are often more unique than blooming plants. That is why growers  of green plants get higher prices and margins.

- Horizontal concentration of  the growers of pot plants lies, just like in the other sectors, at a low level. The small auction grower has little market power and needs the sales organisation for realising reasonable prices and successful sales.

 - Like in the other sectors the small grower invests less in his business than the larger ones. Higher investments do not directly produce higher results. More innovative investments are needed to improve prices and margins.

- There is a significant  relation between the organisation of sales and the yearly realised turnover: larger growers use more personal selling besides the sales services of the auction, as their own business activity or as an activity of the growers organisation.

Boarding out all sales activities to FloraHolland is effective especially for the small grower and enlarges the chance of realising a higher margin. Although he pays a higher commission, he realises a higher margin because of the positive relation between commission and margin.

Producers results through econometric research

Most striking multiple relations glasshouse vegetables

The results of the econometric analysis show that in the sector glasshouse vegetables membership of a growers association produces better results on average than membership of a traditional marketing corporation. Especially young producers with new ideas about the organisation of the company and vertical co-operation with on average large and modern  companies are booking the best results.

Most striking multiple relations glasshouse cut flowers

Auction growers using the auction clock exclusively to sell their products realise a higher margin on average than growers using other selling methods. The membership of a growers association produces higher results on average than no membership and smaller companies get higher margins than large ones. Senior growers get higher results than junior growers. The auction clock is the best guarantee for realising higher margins. It seems that in the sector cut flowers a larger scale has less effect on the margin than producing ‘niche’ product types. For the latter the selling method via the auction clock plays an important role. Companies with ‘niche’ products have higher fixed costs although a higher margin gives fewer problems when it comes to finance the production.

Final conclusion

The answer to the central question confirms the following: the difference in market structure and market strategy in the Dutch sectors of glasshouse vegetables and glasshouse cut flowers is a significant cause to explain the difference in market results. If we follow the position and the results of the small grower in the sector glasshouse vegetables, we are looking at a producer in a tight spot with lower average results for the grower and his co-operation in comparison with the independent grower and his grower association. In the sector glasshouse cut flowers the position and results of the small auction clock grower is better in comparison with the grower who sells on his own or via a growers association.

The results of this research indicate that in the sector glasshouse vegetables the highest margins are obtained by the independent growers associations, working either cooperativly  with the classical co-operations or independent there from but in any case with their own marketing strategy. In the sector glasshouse cut flowers it is the grower selling through the auction clock who gets the highest margins. In the sector glasshouse pot plants, where the type of the product clearly differs from the perishable vegetables and cut flowers, there are too few data to draw conclusions.