Reaction to Rabobank report: “Without auctions, it would become a price jungle”

Intricate strawberry market should not get tangled up in price agreements

Price agreements that extend beyond the cultivation season are not yet commonplace in the strawberry sector. This is what Rabobank noted, in its report about the strawberry market. This bank suggested the sector should be working more with these kinds of long-term price agreements. They say these agreements should serve as a price risk management tool.

The Belgian auction house, Coöperatie Hoogstraten's Gaston Opdekamp and Jan Willem Tolhoek of the Dutch auctioneers, Veiling Zaltbommel, have seen that this trend has been going on for years now. However, they point out that price agreements do not always save the day. They are also, often, not desirable. "The growers sometimes simply have to be able to have a win. And, besides, without auctions, it would become a price jungle."

Jan Willem Tolhoek, Veiling Zaltbommel
“Rabobank's remarks that more price agreements should be made is nothing new. That fewer products should be auctioned and more should be sold via price agreements is a trend we have been seeing for years. We always try to make price agreements for our new growers."

"This is easier to do in the autumn than in the spring. This is because in autumn there is a far larger supply of products. These are also concentrated in a much shorter period. There is more competition too," says Jan Willem.

Jan Willem cites the price developments of recent weeks as an example. "Last week, prices were very low. At the moment, they are moving a little again. Yet, last week not all the Dutch retailers opted for Dutch products. There were still Spanish strawberries on their shelves."

"This shows that not all the retailers can switch or respond to market developments as quickly. We have to deal with this. We can then make agreements with our growers. We still, however, have to get rid of the product. Then, you still have to deal with international competition as well," he explains.

Do not get rid of auctions
It is not as black-and-white as Rabobank states in their report is what Jan Willem is trying to say. “We work more and more with price agreements. We chose to auction fewer products at times when there is a large supply. We do so to support prices. Yet, we do not want to get rid of the clock completely."

"It is auctions that bring supply and demand together in a very transparent way. The clock shows how prices are formed. Moreover, with price agreements, you can only observe the rise and fall of prices in the free market. You can never be part of it." 

These price peaks and troughs are inextricably linked to a weather-dependent crop such as strawberries. "We must not forget about auctions. Despite growers' clearly visible need for clarity. This need manifests itself in price agreements," this auctioneer explains.

"However, this need undermines certain, other, intricate systems. Of course, everyone agrees with making things permanent. However, in practice, this is often somewhat more difficult. The possibility of reacting to real-time developments must always remain."

Gaston Opdekamp, Coöperatie Hoogstraten
In contrast to the Dutch auction house, Coöperatie Hoogstraten, in Belgium, still make full use of the clock. About 95% of their strawberry supply still goes to auction. Gaston Opdekamp explains Hoogstraten's choice. He also discusses the report. "I have serious doubts about how working with long-term price agreements - as outlined in the report, multi-year agreements - will turn out in practice."

Opdekamp talks of a ‘desktop approach’. “The report seems to approach the subject from a strawberry winter cultivation point of view. This type of cultivation is very risky. This observation is correct. So, with winter cultivation, we mostly deal with price agreements. We have been busy with this for four or five years now."

"However, we also still auction a considerable amount of these strawberries. We even did so last winter. This resulted in regularly high prices. You would never achieve this with fixed agreements. Last winter's prices might have been an exception to the rule, but there they were. The market seemed prepared to pay these prices and showed a need for the product."

The theory behind working with price agreements is mainly based on a cost price-plus scenario, says Gaston. “Possible disasters and unforeseen circumstances are not provided for in these agreements. This, while according to us, the grower should be able to experience the peaks to be able to deal with the troughs he will also encounter."

Brokerage formulas
Despite predominantly sticking to the clock, Hoogstraten does also work with price agreements. "We are certainly, not unwise to the ways of the world," emphasizes Gaston. "We too offer growers the option to choose certainty. We do so via a mobile app which contains brokerage formulas. Here, we present buyers' offers to growers, who can then react."

"We do, however, first evaluate a buyer's offer, based on past figures. This is to see whether the asking price can be achieved. If this is not the case, the offer is not placed on the app. We do not bring unrealistic prices to our growers." When it comes to agreements, there are ones at Hoogstraten that often run for several months.

Buying certainty
At the moment, large greenhouse horticultural projects only receive investments if there is clarity about sales. This is logical on the one hand. However, according to Gaston, as it now often happens, this clarity is of little value. “The price agreements that are made are no more the declarations of the intention of purchasing. In my opinion, they are often too obligation-free."

"At that moment, these agreements are not worth much more than a folded piece of paper. A cooperative such as ours does not only make a promise of purchasing; we also have a statutory purchasing obligation. We cannot guarantee prices, but, in this manner, we do give growers the certainty that their products will, indeed, be bought."

Agreements are easily compromised
“In the Rabobank report, they talk about price agreements with buyers," continues Gaston. “One often sees that parties in the market are not able to market all the products of a cultivation company equally well. This is even the case with large buyers. Strawberries have a wide range of specifications. These are regarding quality, sorting, and varieties."

"This, while many of these specifications vary throughout the season at cultivation companies. This variation means there is often no connection between what the buyer can market well and what the grower has to offer. This disparity results in the agreements made being compromised."

"Agreements are, therefore, often made about, for example, specific sortings or qualities that reflect good prices. These then ignore the price formed for the rest of the volume. This practice negatively affects the price as a whole. This is also often accompanied by impromptu solutions and disappointment on the grower's side," this auctioneer goes on to say.

"The cooperative plays an important role in preventing this. It has a redistributing role and, based on historic figures, we are convinced that we do so at the best - if not, one of the best - prices in the market. This, at extremely low cost for the grower."

Only substantial volumes can be auctioned off
Most of Hoogstraat's strawberries are on the clock. This is in contrast to other places, says Gaston. “Brokerage is becoming increasingly dominant. However, the combination of auction (daily) prices and brokerage (longer term) prices is a subtle game. What we do find strange is that, at present, certain products are being offered to certain players via two methods of daily prices. This is via a brokerage at a certain price, before the auction starts. Then, the auction begins. This happens every day."

"According to us, this is completely illogical. What sense is there, then, in an auction? An auction can only fulfill its function if a substantial amount of product is being sold here. It must also be the only daily system. A brokerage can add to this in a supportive role. And, only when the time between making the appointment and delivering the product is far apart enough," he explains.

"In the meantime, the clock is still considered as a point of reference. Not for nothing, of course. Without an auction, it is very difficult to get insight into the market. In my opinion, without the clock, it will become a price jungle. This should never be the intention."

"Not even for Rabobank. I just think this report pays too little attention to the specifics of strawberry cultivation. The model, as it is laid out, does not, in our opinion, work in practice," Gaston concludes.

For more information:
Veiling Zaltbommel
www.veilingzaltbommel.nl 
info@veiling-zaltbommel.nl 

Jan Willem Tolhoek
j.tolhoek@veilingzaltbommel.nl 

Coöperatie Hoogstraten
www.hoogstraten.eu
info@hoogstraten.eu

Gaston Opdekamp
gaston.opdekamp@hoogstraten.eu 


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