Supply Chain

Key Factors Influencing Economic Relationships and Communication in European Food Chains

Common Agricultural Policy (CAP) reform has major implications for food chain systems across Europe. Due to a reduction in commodity support and protection, new challenges and opportunities exist for European producers, processors and retailers. In order to capitalise on these new developments and achieve sustainable market returns, proactive and self-responsible behaviour is required by all actors of the chain. To surmount the challenges of the food sector and to promote its sustainable development, increased supply chain management is required. Measures to achieve this include improved supply chain coordination among farmers, processors and retailers by strengthening economic relationships and by intensifying communication.

A pan-European research project, entitled FOODCOMM, is underway to analyse the food chain in six European countries. Research will help identify the key factors that influence economic relationships and communication within food chains and identify the economic, cultural and social factors which influence co-ordination within these chains. The objective of this project is to analyse the role (prevalence, necessity and significance) of these relationships and level of co-ordination and communication in selected European food chains.

At a national level, relationships and communication in the Irish beef and pigmeat sectors will be analysed. The Irish beef sector provides an interesting focus for study due to its high export orientation and relative value in EU terms. Similarly, the Irish pigmeat sector is a relevant study point due to the fact that it is one of the few commodities for which trade has not been significantly distorted by the CAP.

Initially, a review of both meat sectors was carried out. Both the Irish pigmeat and beef sectors were reviewed in terms of their structural organisation, economic relationships and sector specific cultural and political influences. The information is based on secondary sources and key informant interviews representing producers, processors and retailers. This research stage highlighted that both Irish chains are characterised by restructuring at producer and processor level. This trend was strongly influenced by CAP reform in the beef sector whilst market factors were more influential in the pigmeat sector. Most exchanges between farmers and processors in both chains occur in the spot market with price the main variable influencing the exchange. Contract production is a minor feature of the beef sector, where beef producers produce specific types of animals for a particular market and both sectors have some backward integration by processors, largely as a buffer against significant price variation. The power balance in both chains is skewed towards the retail multiples. However, branding in the pigmeat sector is helping to offset the retailers’ power over the processor. Branding is not a strong feature of the beef sector due to its commodity orientation. The importance of communication along both chains is increasing as a result of technological, socio-economic and most notably, regulatory factors. Traceability and quality assurance schemes are forcing communication along the chain and help to initiate trust and commitment to strengthen the economic relationships.

The next stage of the research will involve collecting direct information from the marketplace describing the role of economic relationships and communication from the perspective of the main actors in the food chain – the primary producers, the processors, and the retailers. This will involve surveying approximately 75 farmers, 25 processors and up to 20 retailers (to include multiple retailers, independent retailers, co-ops, franchised and symbol groups etc.) in both the beef and pigmeat chains. The survey results will be analysed to highlight the role of economic relationships and communication in these chains. The results should also help identify the economic, social and cultural factors that influence the relationships.

Once this information has been analysed, further in-depth interview will be conducted with the sector representatives to qualitatively enrich the findings from previous research stages. Examples of specific areas for in-depth research could include contractual particulars between specific chain partners and their impact on chain relations, the adoption rationale behind state of the art communication technology, the impact of administered co-ordination through the power of key players and the level of uptake, and impact of quality assurance schemes.

Under the FOODCOMM project, simultaneous research will be conducted across Europe, providing the opportunity for cross-country analysis. In total 13 agri-food chains are examined across 6 EU countries: 3 cattle to beef (Ireland, Poland and the UK), 2 barley to beer (Germany, the UK) 3 cereals to bakery products (Finland, Germany, Spain), and 5 pigs to pigmeat/pigmeat products (Finland, Germany, Ireland, Poland and Spain).

The outcome of this provides recommendations for potential EU policy development and measures to enhance healthy relationships and communication with the selected EU food chains. The project is supported by the EU FP6 programme.

E-platform Technologies for the European Agri-food Supply Chain (e-MENSA)

In order to respond to consumer expectations, new approaches to supply chain safety and quality assurances are needed. This EU funded project is based on the assumption that solutions to food chain problems are to be found in improved supply chain management infrastructures using e-platforms. Such novel technological infrastructures are expected to consist of the following elements:

• a system to collect, manage and store data for the validation and verification of food safety and quality downstream from the farm to sales points;
• active participation and co-responsibility of all players in a supply chain community;
• an electronic platform (e-platform) capable of connecting stakeholders via computer interfaces and co-ordinating communication within agro-food supply communities;
• a framework for harmonisation of quality assurance (QA) protocols along the entire food production and processing chain;
• computer software to maintain security of information circulating in the e-platform.

Three multi-stakeholder and trans-national discussion groups (Technical Focus Groups) were set up on food transport, processing and production with AFRC having responsibility for the transport group. Parallel on-line discussions of the three groups were organised in two structured rounds. In the first round academic experts and food-chain players identified the main issues in the supply chain. Following this, themes were identified and were discussed by the groups on a second round electronic platform. In parallel, AFRC have assisted experts in preparing three technical papers. These studies examined technological, economic and organisational elements impacting the development of e-platforms in the food industry. This information contributed to the most effective structuring of the key issues to be discussed in the above discussion groups and was also used in an integrated discussion platform (IDP) which was conducted on-line with experts in early 2006. An integrated discussion platform meeting was held in May 2006, finalising all discussions and conclusions. The AFRC was responsible for overall management and organisation of the project along with two other partners.

Following the discussions, both within the individual discussion groups and the integrated discussion platform a future research agenda was identified for Framework 7 proposals to the European Commission along with a position paper. A programme for dissemination covered various working documents and an overall project presentation was made at the European Commission in June 2006.

This project has the potential to help the food industry overcome supply chain problems using electronic platform, and this will help ensure the safe efficient service that today’s consumer expects of the European food industry. The project assumes that recent developments in food processing, auditing and information technologies offer the potential to reduce major transaction costs also in the food supply chain, such as information search, contract negotiation and contract monitoring, thus overcoming major food chain problems.

This project aimed at establishing a technology platform to support the development of supply chain electronic platforms (e-platforms) in agri-food through multi-stakeholder trans-national working groups. It explored consensus across players/academia on technological strategies, to prepare for future research activities, to support policy development at EU level and to contribute to identifying research agendas for future community research.