Agricultural Economics II. Popp, József Agricultural Economics II



Download 1.15 Mb.
Page8/16
Date18.10.2016
Size1.15 Mb.
#972
1   ...   4   5   6   7   8   9   10   11   ...   16

Introduction

Climate change is with us. A decade ago, it was conjecture. Now the future is unfolding before our eyes. Canada’s Inuit see it in disappearing Arctic ice and permafrost. The shantytown dwellers of Latin America and Southern Asia see it in lethal storms and floods. Europeans see it in disappearing glaciers, forest fires and fatal heat waves. Scientists see it in tree rings, ancient coral and bubbles trapped in ice cores. These reveal that the world has not been as warm as it is now for a millennium or more.

The three warmest years on record have all occurred since 1998; 19 of the warmest 20 since 1980. And Earth has probably never warmed as fast as in the past 30 years – a period when natural influences on global temperatures, such as solar cycles and volcanoes should have cooled us down. Studies of the thermal inertia of the oceans suggest that there is more warming in the pipeline. Climatologists reporting for the UN Intergovernmental Panel on Climate Change (IPCC) say we are seeing global warming caused by human activities and there are growing fears of feedbacks that will accelerate this warming (IPCC, 2007a).

1. 9.1. Definition of climate change

Climate change is a significant and lasting change in the statistical distribution of weather patterns over periods ranging from decades to millions of years. It may be a change in average weather conditions, or in the distribution of weather around the average conditions (i.e., more or fewer extreme weather events). Climate change is caused by factors that include oceanic processes (such as oceanic circulation), variations in solar radiation received by Earth, plate tectonics and volcanic eruptions, and human-induced alterations of the natural world; these latter effects are currently causing global warming, and “climate change” is often used to describe human-specific impacts (IPCC, 2007b).

Scientists actively work to understand past and future climate by using observations and theoretical models. Borehole temperature profiles, ice cores, floral and faunal records, glacial and periglacial processes, stable isotope and other sediment analyses, and sea level records serve to provide a climate record that spans the geologic past. More recent data are provided by the instrumental record. Physically based general circulation models are often used in theoretical approaches to match past climate data, make future projections, and ulink causes and effects in climate change.

The most general definition of climate change is a change in the statistical properties of the climate system when considered over long periods of time, regardless of cause. Accordingly, fluctuations over periods shorter than a few decades, such as El Niño, do not represent climate change. The term sometimes is used to refer specifically to climate change caused by human activity, as opposed to changes in climate that may have resulted as part of Earth's natural processes. In this sense, especially in the context of environmental policy, the term climate change has become synonymous with anthropogenicglobal warming. Within scientific journals, global warming refers to surface temperature increases while climate change includes global warming and everything else that increasing greenhouse gas levels will affect.

On the broadest scale, the rate at which energy is received from the sun and the rate at which it is lost to space determine the equilibrium temperature and climate of Earth. This energy is distributed around the globe by winds, ocean currents, and other mechanisms to affect the climates of different regions.

Factors that can shape climate are called climate forcing or “forcing mechanisms”. These include processes such as variations in solar radiation, variations in the Earth’s orbit, mountain-building and continental drift and changes in greenhouse gas concentrations. There are a variety of climate change feedbacks that can either amplify or diminish the initial forcing. Some parts of the climate system, such as the oceans and ice caps, respond slowly in reaction to climate forcings, while others respond more quickly.

Forcing mechanisms can be either “internal” or “external”. Internal forcing mechanisms are natural processes within the climate system itself (e.g., the thermohaline circulation). External forcing mechanisms can be either natural (e.g., changes in solar output) or anthropogenic (e.g., increased emissions of greenhouse gases).

Whether the initial forcing mechanism is internal or external, the response of the climate system might be fast (e.g., a sudden cooling due to airborne volcanic ash reflecting sunlight), slow (e.g. thermal expansion of warming ocean water), or a combination (e.g., sudden loss of albedo in the arctic ocean as sea ice melts, followed by more gradual thermal expansion of the water). Therefore, the climate system can respond abruptly, but the full response to forcing mechanisms might not be fully developed for centuries or even longer (IPCC, 2007c).

2. 9.2. Global greenhouse

People are causing the change by burning nature’s vast stores of coal, oil and natural gas. This releases billions of tonnes of carbon dioxide (CO2) every year, although the changes may actually have started with the dawn of agriculture, say some scientists. The physics of the “greenhouse effect” has been a matter of scientific fact for a century. CO2 is a greenhouse gas that traps the Sun’s radiation within the troposphere, the lower atmosphere. It has accumulated along with other man-made greenhouse gases, such as methane and chlorofluorocarbons (CFCs).

If current trends continue, we will raise atmospheric CO2 concentrations to double pre-industrial levels during this century. That will probably be enough to raise global temperatures by around 2°C to 5°C. Some warming is certain, but the degree will be determined by feedbacks involving melting ice, the oceans, water vapour, clouds and changes to vegetation. Warming is bringing other unpredictable changes. Melting glaciers and precipitation are causing some rivers to overflow, while evaporation is emptying others. Diseases are spreading. Some crops grow faster while others see yields slashed by disease and drought. Strong hurricanes are becoming more frequent and destructive. Arctic sea ice is melting faster every year, and there are growing fears of a shutdown of the ocean currents that keep Europe warm for its latitude. Clashes over dwindling water resources may cause conflicts in many regions (Emanuel, 2005).

As natural ecosystems – such as coral reefs – are disrupted, biodiversity is reduced. Most species cannot migrate fast enough to keep up, though others are already evolving in response to warming. Thermal expansion of the oceans, combined with melting ice on land, is also raising sea levels. In this century, human activity could trigger an irreversible melting of the Greenland ice sheet and Antarctic glaciers. This would condemn the world to a rise in sea level of six metres – enough to flood land occupied by billions of people (Schmidt et al., 2004).

The global warming would be more pronounced if it were not for sulphur particles and other pollutants that shade us, and because forests and oceans absorb around half of the CO2 we produce. But the accumulation rate of atmospheric CO2 has increased since 2001, suggesting that nature’s ability to absorb the gas could now be stretched to the limit. Recent research suggests that natural CO2 “sinks”, like peat bogs and forests, are actually starting to release CO2 .

3. 9.3. Deeper cuts

At the Earth Summit in 1992, the world agreed to prevent “dangerous” climate change. The first step was the 1997 Kyoto Protocol, which finally came into force during 2005. It will bring modest emission reductions from industrialised countries. But many observers say deeper cuts are needed and developing nations, which have large and growing populations, will one day have to join in. Some, including the US Bush administration, say the scientific uncertainty over the pace of climate change is grounds for delaying action. The US and Australia have reneged on Kyoto (Australia eventually joined the protocol in late 2007). During 2005 these countries, and others, suggested “clean fuel” technologies as an alternative to emissions cuts (McKibben, 2011).

In any case, according to the IPCC, the world needs to quickly improve the efficiency of its energy usage and develop renewable non-carbon fuels like: wind, solar, tidal, wave and perhaps nuclear power. It also means developing new methods of converting this clean energy into motive power, like hydrogenfuel cells for cars. Trading in Kyoto carbon permits may help.

Other less conventional solutions include ideas to stave off warming by “mega-engineering” the planet with giant mirrors to deflect the Sun’s rays, seeding the oceans with iron to generate algal blooms, or burying greenhouse gases below the sea. The bottom line is that we will need to cut CO2 emissions by 70% to 80% simply to stabilise atmospheric CO2 concentrations – and thus temperatures. The quicker we do that, the less unbearably hot our future world will be (McKibben, 2011).

4. 9.4. The world needs to adapt to the impacts of climate change

It is now widely accepted that the world is likely to exceed a commonly held benchmark of a two-degree temperature increase, relative to pre-industrial levels, by the end of the century. A 3-4 degree centigrade increase could have catastrophic implications for developing countries. Adaptation is at the centre of the World Bank’s support to developing countries as it is critical to sustaining and furthering development gains in these countries. It will cost an estimated USD70-USD100 billion per year through 2050 for developing countries to adapt, according to a World Bank study Economics of Adaptation to Climate Change (EACC).

5. 9.5. Providing financing for adaptation

Programs range from adaptation in arid and semi-arid lands in Kenya, Yemen, and India to dealing with the impact of rapid glacier retreat in the Andes. These programs integrate a menu of financing options available from several sources, such as the International Development Association (IDA), the Least Developed Countries Fund (LDCF), the Special Climate Change Fund (SCCF), and bi-lateral co-financing. Finance from IDA – fund for the poorest countries – to climate-affected sectors like agriculture, flood protection, water supply, and health has been increasing every year (The World Bank, 2012).

The Pilot Program for Climate Resilience – a dedicated fund of almost USD1 billion for adaptation under the Climate Investment Funds, is working with nine country pilots and two regional pilot programs in the Caribbean and South Pacific with the World Bank, and the other Multi-lateral Development Banks. This fund gives priority to highly vulnerable least-developed countries, and provides grants and optional near-zero interest concessional loans for a range of activities, including improving agricultural practices and food security, building climate-resilient housing, and improving weather data monitoring.

The World Bank is the world’s largest source of finance for disaster risk reduction and reconstruction. Since 2007, the Bank has lent USD 9.2 billion through 215 post-disaster recovery projects. As part of a comprehensive disaster risk management strategy, the World Bank has two instruments on catastrophe risk financing that provide the much-needed financing when a disaster strikes (The World Bank, 2012).

Countries need support to re-orient their development plans so that climate change is factored into their planning process. For example, in Indonesia, a development policy loan promotes a low-carbon growth path for the economy. The World Bank is screening all its programs and projects in climate-sensitive sectors like energy, urban and water for climate change concerns. The World Bank has strengthened operational ulinks between climate adaptation and disaster risk management, working closely with the Global Facility for Disaster Reduction and Recovery (GFDRR). Disasters are an entry point for dialogue with countries on building resilience to future long-term risks posed by climate change.

There are increasing efforts to ensure synergies between adaptation and mitigation when designing and planning climate actions. Examples include work on climate smart agriculture where the focus is on a triple-win: carbon sequestration, food security and climate resilient livelihoods; or water efficiency measures in urban municipalities which reduce energy consumption and emissions from water pumping and distribution.

Africa is one of the most vulnerable regions in the world to climate change. Since water is an area that will be most stressed, the World Bank is working on a real-time, comprehensive Hydro-met Monitoring and Forecasting System. For river basins like Niger and Zambezi, there is a need for ongoing work on climate resilience assessments.

6. 9.6. Timeline of climate change

900-1300: The Medieval Warm Period brings warm weather to Europe, thanks to an unusually strong North Atlantic Oscillation bringing in extra heat.

1350-1850: The Little Ice Age chills parts of the northern hemisphere.

1709: As the Little Ice Age comes to an end, Europe experiences a freakishly cold winter.

1827: French polymath Jean-Baptiste Fourier predicts an atmospheric effect keeping the Earth warmer than it would otherwise be. He is the first to use a greenhouse analogy.

1863: Irish scientist John Tyndall publishes a paper describing how water vapour can be a greenhouse gas.

1890s: Swedish scientist Svante Arrhenius and an American, P C Chamberlain, independently consider the problems that might be caused by CO2 building up in the atmosphere. Both scientists realise that the burning of fossil fuels could lead to global warming, but neither suspects the process might already have begun.

1890s to 1940: Average surface air temperatures increase by about 0.25 °C. Some scientists see the American Dust Bowl as a sign of the greenhouse effect at work.

1940 to 1970: Worldwide cooling of 0.2°C. Scientific interest in greenhouse effect wanes. Some climatologists predict a new ice age.

1957: US oceanographer Roger Revelle warns that humanity is conducting a “large-scale geophysical experiment” on the planet by releasing greenhouse gases. Colleague David Keeling sets up first continuous monitoring of CO2 levels in the atmosphere. Keeling soon finds a regular year-on-year rise.

1970s: Series of studies by the US Department of Energy increases concerns about future global warming.

1979: First World Climate Conference adopts climate change as major issue and calls on governments “to foresee and prevent potential man-made changes in climate.”

1985: First major international conference on the greenhouse effect at Villach, Austria, warns that greenhouse gases will “in the first half of the next century, cause a rise of global mean temperature which is greater than any in man’s history.” This could cause sea levels to rise by up to one metre, researchers say. The conference also reports that gases other than CO2 , such as methane, ozone, CFCs and nitrous oxide, also contribute to warming.

1987: Warmest year since records began. The 1980s turn out to be the hottest decade on record, with seven of the eight warmest years recorded up to 1990. Even the coldest years in the 1980s were warmer than the warmest years of the 1880s.

1988: Global warming attracts worldwide headlines after scientists at Congressional hearings in Washington DC blame major US drought on its influence. Meeting of climate scientists in Toronto subsequently calls for 20% cuts in global CO2 emissions by the year 2005. UN sets up the Intergovernmental Panel on Climate Change (IPCC) to analyse and report on scientific findings.

1990: The first report of the IPCC finds that the planet has warmed by 0.5°C in the past century. IPCC warns that only strong measures to halt rising greenhouse gas emissions will prevent serious global warming. This provides scientific clout for UN negotiations for a climate convention. Negotiations begin after the UN General Assembly in December.

1991: Mount Pinatubo erupts in the Philippines, throwing debris into the stratosphere that shields the Earth from solar energy, which helps interrupt the warming trend. Average temperatures drop for two years before rising again. Scientists point out that this event shows how sensitive global temperatures are to disruption.

1992: Climate Change Convention, signed by 154 nations in Rio, agrees to prevent “dangerous” warming from greenhouse gases and sets initial target of reducing emissions from industrialised countries to 1990 levels by the year 2000.

1994: The Alliance of Small Island States – many of whom fear they will disappear beneath the waves as sea levels rise – adopt a demand for 20% cuts in emissions by the year 2005. This, they say, will cap sea-level rise at 20 centimetres.

1995: The hottest year recorded to date. In March, the Berlin Mandate is agreed by signatories at the first full meeting of the Climate Change Convention in Berlin. Industrialised nations agree on the need to negotiate real cuts in their emissions, to be concluded by the end of 1997.

In November, the IPCC states that current warming “is unlikely to be entirely natural in origin” and that “the balance of evidence suggests a discernible human influence on global climate”. Its report predicts that, under a “business as usual” scenario, global temperatures by the year 2100 will have risen by between 1°C and 3.5°C.

1996: At the second meeting of the Climate Change Convention, the US agrees for the first time to legally binding emissions targets and sides with the IPCC against influential sceptical scientists. After a four-year pause, global emissions of CO2 resume their steep climb, and scientists warn that most industrialised countries will not meet Rio agreement to stabilise emissions at 1990 levels by the year 2000.

1997: Kyoto Protocol agrees legally binding emissions cuts for industrialised nations, averaging 5.4%, to be met by 2010. The meeting also adopts a series of flexibility measures, allowing countries to meet their targets partly by trading emissions permits, establishing carbon sinks such as forests to soak up emissions, and by investing in other countries. The precise rules are left for further negotiations. Meanwhile, the US government says it will not ratify the agreement unless it sees evidence of “meaningful participation” in reducing emissions from developing countries.

1998: Follow-up negotiations in Buenos Aires fail to resolve disputes over the Kyoto “rule book”, but agree on a deadline for resolution by the end of 2000. 1998 is the hottest year in the hottest decade of the hottest century of the millennium.

2000: IPCC scientists re-assess likely future emissions and warn that, if things go badly, the world could warm by 6°C within a century. A series of major floods around the world reinforce public concerns that global warming is raising the risk of extreme weather events. But in November, crunch talks held in The Hague to finalise the “Kyoto rule book” fail to reach agreement after EU and US fall out. Decisions postponed until at least May 2001.

2001: The new US president, George W Bush, renounces the Kyoto Protocol because he believes it will damage the US economy. After some hesitation, other nations agree to go ahead without him. Talks in Bonn in July and Marrakech in November finally conclude the fine print of the protocol. Analysts say that loopholes have pegged agreed cuts in emissions from rich-nation signatories to less than a third of the original Kyoto promise. Signatory nations urged to ratify the protocol in their national legislatures in time for it to come into force before the end of 2002.

2002: Parliaments in the European Union, Japan and others ratify Kyoto. But the protocol’s complicated rules require ratification by nations responsible for 55% of industrialised country emissions, before it can come into force. After Australia joins the US in reneging on the deal, Russia is left to make or break the treaty, but hesitates. Meanwhile, the world experiences the second hottest year on record and Antarctica's Larsen B ice sheet breaks up.

2003: Globally it is the third hottest year on record, but Europe experiences the hottest summer for at least 500 years, with an estimated 30,000 fatalities as a result. Researchers later conclude that climate change at least doubled the risk of the heat wave happening. Extreme weather costs an estimated record of USD 60 billion this year. 2003 also sees a marked acceleration in the rate of accumulation of greenhouse gases. Scientists are uncertain if it is a blip or a new, more ominous trend. Meanwhile Russia blows hot and cold over Kyoto.

2004: A deal is struck on Kyoto. President Putin announces in May that Russia will back the Protocol. On 18 November, the Russian parliament ratifies the protocol, paving the way for it to come into force in 2005. A study ulinks the 2003 heat wave to global warming. Hollywood blockbuster The Day After Tomorrow bases its plot on an exaggerated climate change scenario.

2005: On 16 February, the Kyoto Protocol comes into force. In December, Kyoto signatories agree to discuss emissions targets for the second compliance period beyond 2012, while countries without targets, including the US and China, agree to a “non-binding dialogue” on their future roles in curbing emissions. Europe launches its Emissions Trading Scheme, despite criticism of the idea.

2005 is the second warmest year on record. Researchers ulink warming to a record US hurricane season, accelerated melting of Arctic sea ice and Siberian permafrost. At a pivotal climate meeting held in Exeter, UK, scientists warn that the west Antarctic ice sheet is starting to collapse.

2006: The Stern Report, commissioned by the UK government, argues that the costs of coping with climate change will be greater than the costs of preventing it. Al Gore’s climate change film An Inconvenient Truth becomes a box-office hit. Carbon dioxide emissions are found to be rising faster than in the 1990s, and new evidence bolsters the iconic “hockey stick” graph. The US Environmental Protection Agency is taken to the Supreme Court over its refusal to regulate CO2 emissions. US agencies, including NASA, are accused of trying to censor climate experts.

2007: The fourth Assessment Report of the IPCC places the blame for global warming firmly on humankind, estimates the cost of stabilising greenhouse gases at USD1830 billion, and calls for governments to begin planning adaptive measures. Some of the most extreme scenarios are left out of the report, leading to accusations that it has been watered down. The synthesis report warns of “abrupt and irreversible” climate change.

Al Gore and the IPCC are awarded the Nobel Peace Prize, while a UK judge criticises An Inconvenient Truth for containing nine “factual inaccuracies”. TV documentary The Great Global Warming Swindle alleges that climate science is deeply flawed – the programme is later found to have misrepresented the science and interviewed researchers complain to the British watchdog for broadcasting standards, Ofcom. In April the US Supreme Court rules that the EPA does have the authority to regulate carbon dioxide emissions.

Measurements of solar activity show that it has declined since the 1980s, debunking the claim that it is responsible for global warming. At the annual UN climate summit held in December in Bali, government representatives from around the world agree a timetable to establish a post-2012 replacement for the Kyoto protocol. The United States delegation is publicly booed, then agrees to the pledge at the eleventh hour.

2008: The polar bear is listed on the US endangered species act, because of the risk to its habitat from climate change. Alaska threatens to sue over the decision. The World Conservation Union finds that thousands of species are at risk from climate change.

Barack Obama becomes president of the United States, promising increases in science funding, especially for climate change and energy technology. He appoints Nobel laureate winner and renewables expert Steve Chu as energy secretary.

2009: Governments, including the US, prepare to negotiate a successor to the Kyoto Protocol at a conference in December. Eric Steig and colleagues show that Antarctica is warming. A thin strip of ice protecting the Wilkins ice sheet from collapse breaks apart, hastening the sheet's demise – while the Arctic continues to warm much faster than expected. A major study suggests that humanity can emit no more than 1 trillion tonnes of carbon, if we are to avoid temperature rises of 2°C or more.

Indigenous peoples from around the world meet in Alaska to agree a common position on climate change. Italy and Switzerland agree to redraw their border in response to melting glaciers.

7. Questions

1. True or false: Planet earth’s climate is changing?

2. True or false: Most of the increase in global temperatures since the mid-20th century is due to humankind burning fossil fuels?

3. True or false: Most or all of the lights in my home are energy efficient?

4. True or false: The electricity supplied to my home is from a green tariff?

5. True or false: I know what my personal or family carbon footprint is?

6. Is global warming equal to climate change?

8. References

IPCC AR4 WG1 (2007a): Solomon, S.; Qin, D.; Manning, M.; Chen, Z.; Marquis, M.; Averyt, K.B.; Tignor, M.; and Miller, H.L., ed., Climate Change 2007: The Physical Science Basis, Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, Cambridge University Press. http://www.ipcc.ch/publications_and_data/ar4/wg1/en/contents.html

IPCC AR4 SYR (2007b): Core Writing Team; Pachauri, R.K; and Reisinger, A., ed., Climate Change 2007: Synthesis Report, Contribution of Working Groups I, II and III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, IPCC, http://www.ipcc.ch/publications_and_data/ar4/syr/en/contents.html .

IPCC AR4 WG1 (2007c): “Summary for Policymakers”. In Solomon, S.; Qin, D.; Manning, M.; Chen, Z.; Marquis, M.; Averyt, K.B.; Tignor, M.; and Miller, H.L.. Climate Change 2007: The Physical Science Basis. Contribution of Working Group I to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press. http://www.ipcc.ch/publications_and_data/ar4/wg1/en/spm.html  (pb: 978-0-521-70596-7).

Emanuel, K. (2005): Increasing destructiveness of tropical cyclones over the past 30 years. Nature 436 (7051): 686-8. Bibcode 2005Natur..436.686E. doi:10.1038/nature03906. PMID 16056221. ftp://texmex.mit.edu/pub/emanuel/PAPERS/NATURE03906.pdf. 

Edwards, P. G. and Miller, C.A. (2001): Changing the atmosphere: expert knowledge and environmental governance. Cambridge, Mass: MIT Press.

McKibben, B. (2011): The Global Warming Reader. New York, N.Y.: OR Books. 

Ruddiman, W. F. (2003): The anthropogenic greenhouse era began thousands of years ago. Climate Change 61 (3): 261-293. doi:10.1023/B:CLIM.0000004577.17928.fa. 

Ruddiman, W. F. (2005): Plows, plagues, and petroleum: how humans took control of climate. Princeton, N.J: Princeton University Press.

Schmidt, G. A., Shindel, D. T. and Harder, S. (2004): A note of the relationship between ice core methane concentrations and insolation. Geophys. Res. Lett. 31 (23): L23206. Bibcode2004GeoRL..3123206S. doi:10.1029/2004GL021083. http://www.agu.org/pubs/crossref/2004/2004GL021083.shtml. 

The World Bank (2012): Climate finance and the world bank: the facts. http://climatechange.worldbank.org/content/climate-finance-and-world-bank-facts


10. fejezet - 10. FOOD CHAIN: FOOD MANUFACTURING, DISTRIBUTION, AND RETAILING

1. 10.1. Food supply chain

There are three ulinks in the supply chains of the agri-food sector. They are production, wholesale/intermediary trade and retail trade (Figure 1). For example the supply chains for bread and onions have a number of additional ulinks. In the case of bread, there is first the production and wholesaling of wheat, flour and meal before the production of bread starts. In the potatoes, vegetables and fruit group processing also occurs before the supply chain in the case of onions (i.e. the sliced onions). In the wholesale/intermediary trade it is possible to make a distinction between companies that do their own purchasing and distribution and companies that use specialised service providers for distribution and/or processing.

10.1. ábra - Figure 1: Overview of players in the agri-food sector

Source: The Netherlands Competition Authority (2009)

The vegetables and fruit product group is seasonal in most of the countries. There are several months when it is not generally profitable for producers to produce. Factors that play a role include the temperature and the limited number of daylight hours. To meet domestic demand in this period the wholesalers and intermediary traders obtain products from other countries. Trading in the vegetables and fruit sector is highly international.

1.1. 10.1.1. Producers

The producers in the upstream sector have a large number of companies compared with other stakeholders in the supply chain. The producer level usually has the highest added value compared to food manufacturing and retailing. An exception is the bread supply chain where most value is created within the bread industry. The vegetables and fruit sectors are often affiliated to sales organisations where the members receive payout prices based on the expected or actual revenues of the growers’ associations and sales organisations.

1.2. 10.1.2. Wholesalers

The wholesale level lies between producers and supermarkets. This level is characterised by numerous intermediary traders, i.e. wholesalers that buy and sell to other wholesalers. The most important activities for the wholesale/intermediary trade are collecting products from the various primary producers and distributing a total package of products to a relatively small number of large customers. Depending on the type of company and type of product, the products are on the one hand sold and distributed directly to the supermarkets, and on the other hand sold to service providers who perform such activities as packaging, grading, cutting, processing and distributing. There are often mutual deliveries between wholesale companies. Besides the classical wholesale companies this level includes the sales organisations of producers.

Wholesalers appear to be strongly concentrated for a majority of products. Compared with the upstream sector, the added value of wholesalers is significantly less, with the exception of the some typical supply chain for bread. Nevertheless, the wholesalers do fulfil an important role in packing the products, quality control and often product development and promotional activities.

1.3. 10.1.3. Supermarkets

The supermarket is the final downstream sector in the supply chain. There are supermarket chains that independently purchase their products, such as Aldi, Lidl and Super de Boer, while others, often smaller chains buy through purchasing organisations. The added value for these products is limited compared to the stakeholders in the upstream sectors of the supply chain. As a supermarket sells a lot of products, the added value over the entire product group may be relatively high.

2. 10.2. Food retail trade

On the purchasing side the core tasks of food retailers are purchasing, logistics and stock management. Suppliers deliver products to the distribution centres of the supermarket chains, from where the supermarkets deliver to their branches. Distribution nowadays depends not only on managing logistics but also on managing information. The supplying of branches and distribution centres is ulinked to the data scanned at the cash desk. On the selling side, the core tasks include the layout of the shop floor and shelves, the choice of product ranges, price determination and promotional activities. Supermarkets are providing more and more service to consumers, such as home delivery, electronic ordering and a wide array of payment possibilities and other financial services. The profile of supermarket chains is being strengthened by the selling of their own-label-brands. Supermarkets are issuing an increasing number of more stringent product specifications for own-label-brands and also for other products. This occurs particularly with respect to food safety.

The geographical market for the products in question is larger than the country where the food chain is located. The market is not a national but a global one. Food chains use a limited number of suppliers to guarantee security of supply, quality and competition. Besides possible price and volume arrangements, the suppliers and supermarkets agree arrangements about the width of the range of products, logistics and planning, peak supply, brands and packaging. The purpose of such arrangements is to increase product quality, accessibility, traceability and supply chain transparency and to differentiate the supermarket chain from other chains. Chain stores determine to a significant degree the product specifications and other conditions of delivery. They do so for such purposes as developing own-label brands. These arrangements are agreed with the direct supplier, but increasingly also with a chain of suppliers. Agreements are concluded both with growers and with service providers.

Arrangements for product specifications, packaging and logistics are made under master agreements, but also in detailed written contracts. Large supermarket chains sign arrangements throughout the entire chain. Small supermarket chains confine themselves to arrangements with relatively large parties in the chain. Backward integration is difficult, because wholesaling is not part of the core competence of chain stores.

However, the interdependence between suppliers and supermarket chains is increasing all the time. This increases the switching costs for supermarkets. The arrangements for packaging, own-label-brands, product specifications and logistics mean that it is no longer possible to replace a supplier by an arbitrary competitor. Generally speaking, there are no major differences regarding the conditions of delivery between suppliers on the one hand and supermarket chains on the other.

2.1. 10.2.1. Negotiations

Supermarket chains and their suppliers agree in writing or otherwise the supply of products for a period of six months to a full year. The prices are agreed in writing for this period. The value of a written contract is limited, however. Supermarket chains are said regularly to reverse arrangements. Prices for vegetables and fruit are generally set weekly. However, there are some supermarkets (value‐for‐money supermarkets) that agree volume and price arrangements for the duration of the harvesting season. Supermarket chains also claim that a fixed contractual price is risky since they do not want to incur a loss on a product for the whole season. The same applies to price arrangements when planning and marketing special offers.

Supermarkets get a number of suppliers to submit offers for the price at which they are willing to deliver. Based on such offers, suppliers are selected for one week, six months, one year or a season. However, the freedom of choice of supermarkets is limited for some products, particularly if the supermarkets want to have several suppliers of a certain size. When there is limited freedom of choice the prices are established by consulting with each other.

The volume in long‐term contracts depends on the required (minimum) weekly quantity and the price. If the contractual price is too high, the contractual quantity will be smaller. The rest will be purchased on a weekly or daily basis. These purchases will be made with the same supplier as the one with whom the seasonal contract exists with a view to the logistical costs and the monitoring of quality. Consultations are held to agree the contractual conditions. Furthermore, supermarket chains have great influence over the conditions. This has to do with the wish of supermarket chains to define in increasing details the product specifications of products, in particular own-label-brands. It is also in the interests of supermarkets to organise the logistical process as cheaply as possible. Logistics is the crucial point in controlling costs in the chain. The contractual conditions that suppliers and supermarket chains agree with each other are similar. However, there are some differences that are related to differences in quality, volume, order size and frequency.

2.2. 10.2.2. Price, discounts, financial contributions and risks

The prices that suppliers and supermarkets agree depend in the first instance on supply and demand. To a significant extent this also explains why the negotiating position of suppliers is weak in relation to the supermarket chains. In virtually all markets there is an oversupply and overcapacity. This enables supermarket chains to play‐off suppliers against each other. Suppliers underbid their competitors in every possible way in order to market an oversupply. Supermarket chains and also independent branch owners take advantage of this situation. Particularly for vegetables and fruit, suppliers regularly do business with branch owners outside the central purchasing organisation of supermarket chains. Franchisees and independent companies are free to make some of their purchases themselves.

The negotiating position of suppliers is relatively strong if they hold a licence for a new variety. This occurs in the case of new varieties of vegetables and fruit. The exclusive sales rights result in sales being monopolised and competitors can be pushed out via the back door. The suppliers earn particularly through new varieties. For these varieties the suppliers are able to determine the selling price based on a cost price‐plus method. There are differences in the prices that suppliers and supermarket chains agree with each other. The differences are related to a significant extent to differences in quality, variety, order frequency and volume and the total range of products. When determining the price some supermarket chains agree one price for all suppliers.

Supermarkets regularly negotiate discounts on deliveries. Volume and graduated discounts in particular are given. The purpose of both kinds of discounts is to get the supermarket chains to take up as many products as possible from the overall range and to stimulate repeat purchases. Discounts are also regularly given for early payment. The supermarket chains regularly lengthen the payment term, unilaterally or otherwise. Discount arrangements are set down contractually but are also negotiated between the parties while a contract is in force. Discounts and payment arrangements are important to preservation of the supplier‐customer relationship.

The discounts correspond in part with cost savings but are also unrelated to cost savings to a certain extent. Indirectly, volumes play a large role due to the effect on the logistical costs, i.e. full versus half‐full lorries and pallets. Discounters do not negotiate discounts or other financial contributions and concentrate on price. Supermarkets negotiate with suppliers on contributions towards promotional activities, i.e. costs for a leaflet and sometimes a lower purchasing price. Such arrangements are agreed contractually, however, in some cases they are also negotiated in the interim. Payments for such matters as shelf space, inclusion in the range of products and introduction of a new product occur seldom if at all. In the case of generic fresh products, negotiations revolve around the price (including discounts). The supermarkets carry out pilots if they foresee risks in introducing new product varieties. There are also suppliers that require financial contributions from supermarket chains although they are exceptions.

The product and sales risks attached to vegetables and fruit generally shift at the time of sale of the product from the supplier to the customer. The risks attached to perishable and unsold products therefore rest with the supermarket chains after delivery. The loss is great at relatively small supermarket chains. Unsold vegetables and fruit are dumped by the supermarket or by the service providers. There are generally no buyback arrangements for vegetables and fruit. Unsold bread is generally taken back by the bakeries (or by the service providers) after one day and is resold for processing into bread crumbs, animal feed and similar. The bakeries sometimes buy back the unsold bread, furthermore it also happens that they take it back for nothing.

Prices are not adjusted to changed market conditions unless the prices jeopardise quality or security of supply or the market conditions have changed dramatically. This occurs occasionally. It can prove necessary for the supermarkets to agree to a price increase to safeguard supplies. A threat not to deliver or not to take a product is used occasionally as a way of getting a better price. Supermarkets do this but so do suppliers. Supermarkets sometimes threaten to remove a product from the range and occasionally actually do so. This usually concerns either a single product or a small number of products but not the entire range of products.

Differences of opinion about fulfilment of contractual conditions occur to a limited extent. Where differences of opinion exist they are settled generally. Cancellation of a contract while it is in force occurs seldom if at all. Differences of opinion may arise about the quality of a product. Quality control is not complete and based on random samples. Growers can take advantage of this situation by wrongly trying to sell products as Class I products. A dispute will exist if the customer discovers this during checks. Conflicts of this kind are resolved commercially.

3. 10.3. Asymmetric price adjustment

In the examined supply chains, the purchase of raw materials consists for the larger part of the total direct costs of the wholesaler and the supermarket. This cost item is also by far the most volatile over time. The other costs (labour, capital, interest) are generally far more constant over time. Therefore, a strong relationship (long term) may be expected to exist between the purchasing price and the selling price of stakeholders (upstream and downstream sectors) in a supply chain. Changes to the purchasing price will ultimately result in similar changes to the selling price. In the economic literature, however, a number of examples can be found as to why this price adjustment does not need to be perfect and why asymmetry may occur. Asymmetric price adjustment is mainly about the difference in adjustments between price increases and price decreases.

Two aspects typify asymmetric price adjustment. The first concerns the speed of the price adjustment. A higher purchase price can be passed on sooner in the selling price than a reduction of the purchasing price, for example. A situation may also occur where a higher purchasing price is charged on more slowly than a lower purchasing price. This form of asymmetric price adjustment leads to a temporary transfer of margin between the selling company and the purchasing company. The second aspect concerns the size of the price adjustment. In this instance, higher purchasing prices will be passed on in their entirety to the following sector, while price reductions will be passed on only to a limited extent. Here again, it is possible for a higher purchasing price not to be passed on in its entirety on one hand side, and a lower purchasing price to be passed on in its entirety on the other side. This form of asymmetric price adjustment leads to a permanent transfer of margins.

Asymmetric price adjustments have to do with imperfect competitive markets, or in other words the existence of market power. It is generally assumed that if market power rests with the wholesalers or the supermarkets, the consequence will be that increases in producer prices will be passed on sooner and/or more than decreases in producer prices. The wholesaler or supermarket will then achieve temporary or permanently higher margins. However, there may also be market conditions in which market power can lead to temporary or permanent lower margins.

However, asymmetric price adjustment can be caused by asymmetric adjustment costs for changes to quantities and/or prices of inputs and/or outputs. For example, if the output increases, a company will have to incur extra costs to obtain extra input (search costs, pay a higher price). In the case of perishable goods like vegetables and bread, supermarkets might be cautious about increasing the price because a possible reduction in demand might oblige them to throw away unsold products.

Asymmetric price adjustment may further have to do with psychological price levels. Supermarkets generally charge prices like EUR0.99, EUR2.49 and EUR9.99. Relatively small price increases might not be desirable for this reason (EUR1.04, EUR2.61 and EUR10.48).

A consumer will generally prefer to pay relatively stable prices for products. A consumer does not want to pay a different price every day for a loaf of bread in the supermarket because of fluctuations in the grain market. Therefore, some of these fluctuations will be absorbed by relevant sector in the supply chain. Examples of ways of absorbing a fluctuation are the conclusion of forward contracts and the temporary application of higher or lower margins. Asymmetric price may further be caused by certain government interventions, like price thresholds and quality requirements.

4. Questions

1. Trends in the food industry?

2. Lack of price transparency in the food supply chain?

3. Food retail trade?

4. Price adjustment in the food supply chain?

5. References

The Netherlands Competition Authority (2009): Pricing in the agri-food sector. The Netherlands Competition Authority (NMa). p. 54. http://www.oecd.org/site/agrfcn/48638829.pdf

Bunte, F., Bolhuis, J., de Bont, C., Jukema, G. and Kuiper, E (2009). Pricing of food products. LEI Wageningen UR, The Hague. 70 p. http://www.oecd.org/site/agrfcn/48638813.pdf


11. fejezet - 11. PRICE VOLATILITY IN FOOD AND AGRICULTURAL MARKETS


Download 1.15 Mb.

Share with your friends:
1   ...   4   5   6   7   8   9   10   11   ...   16




The database is protected by copyright ©ininet.org 2024
send message

    Main page