Coordination in the Irish Beef Sector : analyses of partership arrangements

Abstract: Beef production is an important part of the Irish food sector. There are more than one million dairy cows and suckler cows in the country respectively. In 2002 the beef industry's annual turnover was €3.8 billion. In the same year the self sufficiency of beef in Ireland was almost 900 percent which makes the country one of the largest beef exporters in Europe. The business relation between the primary producers and the processors is generally a transac-tional approach with price as means of control. Despite the large export share, there are indi-cations that the type of solution is not optimizing the profitability in the beef production chain. Better coordination can therefore result in a better profitability. The aim of the study is to empirically investigate and theoretically explain partial vertical integration in different forms of partnership arrangements between primary producers and processors in Irish beef industry. The project is conducted with financial support from LRF (the Swedish Farmers' Association) and Kungl. Skogs- och Lantbruksakademien (The Royal Swedish Academy of Agriculture and Forestry). With the help of Irish expertise four success-ful partnerships in the Irish beef sector were chosen as study objects. During four weeks rep-resentatives from the partnerships were interviewed in Ireland. The processors in the partnerships are paying the farmers a fixed bonus for the beef in addi-tion to the variable market price. The level of the bonus is higher during times of year when production costs are higher. All the partnerships are based on monetary incentives for the pro-ducer to deliver cattle. If the price is to low the producers can without prior notice, stop deliv-ering cattle which motivates the industry to keep the price at a high level. The production in one of the partnerships are regulated by the processor while the other part-nerships give the producer the freedom to chose production method as long as the product meets the requirements set up by the processor. The price risk is shared between the producers and the processors by the use of market price and bonus. Fixed prices are preferred by the producers by the risk for the processors for that is too high due to low margins in processing. The producers are motivated by the fact that the bonus is only paid if the cattle meet certain specification. In one of the partnerships the processor provides free advice to the producers in order to get more consistency in the cattle delivered. All the contracts are kept simple and do not require specific investments that will lock up the producers. Renegotiations are carried out regularly and the production is adjusted by market signals from the retail level. In two of the cases the producers are organised in a producer group and the price negotiations for all members are conducted by a representative, which lowers the costs of negotiations and gives the producers a better situation of negotiation. A lot of things are coordinated without written contract in order to minimize the risk of expensive law suits. If a conflict occurs, the parties will rather quit the co-operation.