Distribution of Environment Friendly Agricultural Products in Korea 2012
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Transcript of Distribution of Environment Friendly Agricultural Products in Korea 2012
OrganicCSEOUL2012OrganicCSEOUL2012OrganicCSEOUL2012OrganicCSEOUL2012
Sep. 27. 2012Sep. 27. 2012Sep. 27. 2012Sep. 27. 2012
Eun-Mee Jeong
KREI(Korea Rural Economic Institute))))
iCOOP KOREA’s Sales Business and Strategy
Characteristics of Consumer Co-ops in KOREA
Introduction
iCOOP KOREA’s Purchase Business and Strategy
iCOOP KOREA’s Sales Business and Strategy
Conclusion
1. Introduction
>> Activities of Consumer Co-ops(=CC) in KOREA
□ Consumer co-ops were started from the organic farm products direct-deal movement .
among farmers and consumers in the late 1980s.
ㆍEconomic activity to provide reliable food to their members
□ Two Activities of Consumer Co-ops
ㆍ Today, consumer co-ops cover about 20% of the EFA market.
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ㆍEconomic activity to provide reliable food to their members
- groceries accounts for more than 90% of their business
ㆍOrganizational activity to promote the consumption of reliable food
□ The consumer co-ops have built a self-sufficient economic system and vertically
integrated production, distribution, and consumption through an efficient
distribution system as well as co-operation between farmers and consumers .
ㆍEnvironment-conscious consumers supported sustainable production and consumption,
producer's economic efficiency and consumer's reliability.
1. Introduction
>> for reference: Distribution Channel of EFA Products in KOREA
Production Wholesale retail sale consumptionM_S
(approximate)
Producer(A)
①Producer(Organization)
5~8%
② Agricultural
cooperative 8~12%
Producer
Consumer
Consumer
Consumer
Producer
Large Retail Outlet
Retailer ShopDistributors
Agri-Coops Shop
Agri-
Cooperative
ConsumerMail Order Sale
4
cooperative
Consumer CoConsumer Co--opsops(B)
15∼∼∼∼20%
Distributor(C)
50~60%
Member
Consumer
Consumer
Consumer
Producer
Producer
Distributors Large Retail Outlet
Union
of Co-opsCo-ops Shop
Specialty Retailer Shop
Agri-Coops Shop
(ex: HANARO Market)
Cooperative
Member
Direct management
Shop of the Distributior
MemberCo-ops
1. Introduction
>> Overcome the Limitation of the Small Local Co-ops
□ Until the mid 1990s, small local co-ops were in charge of all aspects of distribution of
EFA products, from collection of the products to the delivery of the products.
� The distribution structure of small local co-ops was based on a high-cost, inefficient
system, and as a result product prices were high and remained in a vicious cycle.
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� Local co-ops began to form business union along with ones have similar policies.
� The business unions then combined only the economic activities of the local co-ops.
□ A movement arose in the mid-1990s … the business union
□ This study is to introduce the business operations of iCOOP Consumers’ Co-operative
Group(= iCOOP KOREA).
2. Characteristics of Consumer Co-ops in KOREA
□ In the 1980s, consumer co-ops in urban areas, began to appear.
for reference
Rural-Farmers Movement Civil MovementFarmers Movement Cooperative Movement Religious Organizations(direct transaction of agricultural products)Realization of various values of civil societyRural co-ops Women's Movement People Movement (workers, teachers, etc.)②②②② HansalimHansalimHansalimHansalim ①①①① Local CoLocal CoLocal CoLocal Co----opsopsopsops((((BarunBarunBarunBarun CoCoCoCo----op)op)op)op) ③③③③ WomenlinkWomenlinkWomenlinkWomenlink cocococo----opsopsopsops1970s1980s (1st half)1980s (2nd half)
6
③③③③ Civil Civil Civil Civil OrganizationOrganizationOrganizationOrganization----affiliated Coaffiliated Coaffiliated Coaffiliated Co----opsopsopsops ③③③③ WomenlinkWomenlinkWomenlinkWomenlink cocococo----opsopsopsops ④④④④ Local CoLocal CoLocal CoLocal Co----opsopsopsopsCentral Association Of Co-opsNational Co-opsAssociationSeoul Metropolitan Co-ops Solidarity of Co-ops
Hansalim Co-op Dure Co-op WomenlinkCo-op iCOOPLocal Co-opsRural Renewal MovementCivil Organization affiliated Co-ops1990 (1st half)1990 (2nd half)2000s ~Note 1) local coop, association2) Rural Renewal Movement, which is led by Korean Catholic Farmers Association and churches in urban areas, is a movement pursued within religious organizations (without organizational form including Coop) for direct transaction of organic agricultural products. Source: EunMee, Jeong (2006)
2. Characteristics of Consumer Co-ops in KOREA
>> Consumer Co-ops’ Differentiating System in Market ①□ Systematization of mutual-trust in EFA trade
a. consumers and farmers participate in
setting standards for reviewing and
selecting the products to be handled
b. CC gain the trust of members by opening
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b. CC gain the trust of members by opening
up the products information and the
essence of managing and inspecting the
products is to open up the results to the
public.
c. iCOOP KOREA, has a unique certification
system, which is a product-tracking system
2. Characteristics of Consumer Co-ops in KOREA
>> Consumer Co-ops’ Differentiating System in Market ②
□ National Wide Logistics System
a. iCOOP combined the operations of
local CC that were carried out
separately, such as order placement,
purchase and supply of products,
financing, accounting, and producer
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financing, accounting, and producer
management.
b. Local CC were able to cut their
workload drastically, and primary co-
ops in iCOOP KOREA were able to
specialize in the distribution of
agricultural products and achieve
economy of scale.
3. iCOOP KOREA’s Sales Business and Strategy
>> Organization Chart of iCOOP KOREA
□ iCOOP was established by 6 small local CC in 1997.
a. iCOOP is a consumer association that integrated the six small local CC’ business of
distributing EFA products.
b. By joining iCOOP, small local consumer co-ops entrust the business operations to
iCOOP and were able to focus on their respective organizational activities only.
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iCOOP and were able to focus on their respective organizational activities only.
Farmer
Farmer
Farmer
Farmer
iCOOP
Business
Association
(Business Operations)
iCOOP
Association
(Supporting Organization)
Order/Supply
Member
Member
Member
Member
local co-op
local co-op
local co-op
Edu/PR
Order/Supply
Edu/PR
Stores
Stores
Stores
Order/Supply
Sale
3. iCOOP KOREA’s Sales Business and Strategy
>> Organization Chart of iCOOP KOREA
□ The other associative union
a. iCOOP Association assists organizational activities of small local CC and provides
assistance in the fields of education and planning to reinforce the activity of members.
b. Mutual Aid Society for Enhancing Korean Agruculture that provides mutual aid
between farmers and co-op members.
iCOOPBusiness Association
SubsidiariesFarmers
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Finance Support for Education/Exchanges
iCOOPBusiness Association
(business operations)
Subsidiaries
iCOOP CSCOOP StoreiCOOP Food SystemiCOOP BakeryiCOOP School LunchEco-Friendly ClusteriCOOP Certification Center
iCOOP Cooperative Institute
Local co-op
iCOOP Association(supporting organization)
Farmers
Member(consumer)
Mutual Aid Society (mutual aid business)
Investment/Membership Fee
Investment0.5% of monthly membership fee
Order/Supply
Exchanges
Order/Supply
Stores
Supply Investment
Invest
-ment
Production Stabilization Fund
1.1% of selling price Education
/Exchanges
3. iCOOP KOREA’s Sales Business and Strategy
>> Trends of iCOOP KOREA’s Sales
□ The growth rate of the co-ops’ business was high especially after the year 2000
a. During the recent 10-year, co-op individual members and sales volume have increased
annually by 46% and 49% on average respectively
b. iCOOP’s Number of Local CC : 6 CCs (1998) � 75 CCs (2011)
c. iCOOP’s Number of Store : 6 stores (2006) � 110 stores (2011)
� Number of Local Co-ops and Stores� Number of Members and Turnover
11
8
17 22
56
85
110
34
79
119
156
15 53 165
494
755
1302
2062
2633
3002
0
500
1000
1500
2000
2500
3000
3500
-
50
100
150
200
250
300
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
sales volume
(100mil, won)
members
(thousand)
monthly fee-
member
members
total sales
volume
6 7
15
26
35
46
5862 62
6570
73 7575
6
25
38
66
96
110
0
20
40
60
80
100
120
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
members
affiliated local co-ops
Stores
� Number of Local Co-ops and Stores� Number of Members and Turnover
3. iCOOP KOREA’s Sales Business and Strategy
>> Sales Strategy of iCOOP KOREA
□ Monthly Membership Fee Scheme
a. Members purchase EFA products and share the operation cost of local co-ops
b. iCOOP provides the distribution service by taking only the logistics cost.
Membership due = (operation cost/number of members) – Refund
* Refund: distribution cost saved through the use of Internet and CMS
* Revenue of local coop: distribution margin rate → fixed monthly due
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Local Co-op
Local Co-op
Local Co-op
MemberOrder
* Distribution margin: 20~25%* Revenue of local coop: distribution margin
iCOOP
Local Co-op
Local Co-op
Local Co-op
Membershipdue
* Distribution cost: 7~8%* Revenue of local coop: fixed monthly membership due
Member
Member
Member
Member
Member
Supply
Order
Supply
Order
Supply
Order
Supply
Order
Supply
Order
Supply
Membershipdue
Membershipdue
3. iCOOP KOREA’s Sales Business and Strategy
□ This scheme began simultaneously with the construction of a national wide logistics
system which was entrusted by local co-ops to iCOOP.
a. iCOOP directly handles distribution from farmers to local co-op members so that the
local co-ops are not involved in logistics business.
b. iCOOP earns revenue from the distribution fee
c. Local co-ops earn income from the monthly membership fee
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□ The membership dues is spent for the management of local co-ops and the operation of
iCOOP for its national activities.
� These activities promote the production and consumption of EFA products.
□ Under the monthly membership fee scheme, local CC have an incentive to increase
their members
� Because the amount of fees decreases as the members increase.
3. iCOOP KOREA’s Sales Business and Strategy
Business Activities
(iCOOP)
Membership Due
System
Concentration of
Organization Activities
(local Co-ops)
Vitalization of
Management Committee
Specialization of
Management stabilization of local co-ops through stable revenue system
□ The Goal of Activities
a. iCOOP takes full charge of logistics (in pursuit of distribution efficiency)
b. Local Co-ops focus on increasing members (to promote the consumption of EFA products)
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Concentration of
Business Operation
Expansion of National
Distribution System
(15 distribution centers)
Establishment of Subsidiaries
(iCOOP CS, S& D, etc.)
Pursuit of
Distribution Efficiency
Specialization of
Organization
Support for establishment of
new local coops(1,000 activsts in 75 member co-ops)
Operation of sale stores in local co-ops(specializing in eco-friendly agricultural
products)
Promotion of environment-friendly agriculture, protection and support of domestic agriculture
Consumer Movement for
Eco-Friendly Agricultural
Products
4. iCOOP KOREA’s Purchase Business and Strategy
>> iCOOP’s Basic Understanding of Agriculture
□ iCOOP considers today's agricultural problem as farmers’ poverty rather than decline
in agriculture.
� iCOOP’s business scope expands to domestic agricultural products
even though its primary concern is EFA products
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□ iCOOP is intended to secure stable markets and increase farmers' income
a. iCOOP subsidiaries(invested by the co-op and farmers) are intended to create added
values for farmers by the processing of agricultural products.
b. Farmers supply raw ingredients to the processing companies and the companies
return the added value to farmers.
4. iCOOP KOREA’s Purchase Business and Strategy
>> Purchase Strategy of iCOOP KOREA Production Contract
□ Production Contract
a. The production contracts ensure stable production of farmers and make them not only
worry about the sales but concentrate on production
b. iCOOP receives a prepayment from members and pays it to the producers as a
farming capital to obtain their promise to deliver the contracted products
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□ In the recent 5 years, iCOOP’s sales increased by 40% on average annually and,
as a result, the EFA products were in short supply
a. iCOOP had to seek a transformation of its relationship with farmers
b. from an intermediary status linking farmers with consumers to a partnership status
with farmers
4. iCOOP KOREA’s Purchase Business and Strategy
□ proxy sales system
a. iCOOP does not buy the required volume but accepts total volume of farmers’
products. It is means that iCOOP takes full responsibility of selling the farmers’
entire products as their agent and partner.
b. The reason iCOOP introduced the ‘proxy sales’ is that iCOOP directly involved in
food processing by leading the development of processed foods and by providing
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raw ingredients for processing.
ProducerCo-ops
Association
• Role of Co-ops Association: distribution
(intermediary for purchase and sale)
• Association income: distribution margin
Member
Order
Supply
Order
Supply
ProduceriCOOPBusiness
Association
• Role of iCOOP: purchase and sale agent
(in charge of production and consumption)
• Association income: distribution fee
Member
ProxyOrder
Supply
Order
ProxySupply
4. iCOOP KOREA’s Purchase Business and Strategy
□ flexible pricing system
It consists of basis price, target price and price stabilization fund
a. Basis price is the cost of cash to put into production
…is fixed regardless of uncertainty of production and consumption
b. Target price is the standard price for iCOOP KOREA's sales in progress.
… is set at about 10~15% lower than consumer price
c. This target price becomes the standard for saving and spending of the price
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c. This target price becomes the standard for saving and spending of the price
stabilization fund.
a. It ensures a basis price even when there is a big risk in production
b. When products are sold at below the target price, the farmer can minimize the loss as
iCOOP compensates the loss to a certain level with the price stabilization fund
c. iCOOP has a flexibility in finding customers and suppliers of raw ingredients for
processing
□ The advantage of iCOOP's pricing method
5. Conclusion
>> iCOOP’s business implies…
□ What is agriculture's competitiveness ?
a. … is production of commodities satisfying consumers’ needs, rather than expansion of
markets for agricultural products.
b. iCOOP focuses on consumers’ needs for reliable food and farmers’ stable production.
□ The relationship between agricultural production and consumption is…
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□ The relationship between agricultural production and consumption is…
a. Exchanges are made between safe EFA products and reciprocal payment for
sustainable production and life for all.
b. Consumers care for sustainable agricultural production and farmers’ livelihood, and
farmers try best to supply safe EFA products to protect the life of consumers.
c. This is the principle of coexistence between farmers and consumers, and it is
especially the basic condition to ensure the continuity of the human race and
community.