Distribution of Environment Friendly Agricultural Products in Korea 2012
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Distribution of Environment Friendly Agricultural Products in Korea 2012






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Distribution of Environment Friendly Agricultural Products in Korea 2012 Distribution of Environment Friendly Agricultural Products in Korea 2012 Presentation Transcript

  • OrganicCSEOUL2012 Sep. 27. 2012 Eun-Mee Jeong )KREI(Korea Rural Economic Institute)
  • IntroductionCharacteristics of Consumer Co-ops in KOREAiCOOP KOREA’s Sales Business and StrategyiCOOP KOREA’s Purchase Business and StrategyConclusion
  • 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. ㆍ Today, consumer co-ops cover about 20% of the EFA market. □ Two Activities of Consumer Co-ops 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, producers economic efficiency and consumers reliability. 3
  • 1. Introduction >> for reference: Distribution Channel of EFA Products in KOREA M_S Production Wholesale retail sale consumption (approximate) ①Producer Producer Large Retail Outlet Consumer 5~8% (Organization) Prod Mail Order Sale Consumer ucer (A) Distributors Retailer Shop Consumer ② Agricultural Producer Agri- Cooperative Agri-Coops Shop 8~12% cooperative Consumer (ex: HANARO Market) Union Member Producer of Co-ops Consumer Co-ops Co- Co-ops Shop Member 15∼20% ∼ (B) Co-ops Member Distributors Large Retail Outlet Consumer Producer Distributor Direct management 50~60% (C) Shop of the Distributior Specialty Retailer Shop Consumer 4
  • 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.□ A movement arose in the mid-1990s … the business union 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. □ This study is to introduce the business operations of iCOOP Consumers’ Co-operative Group(= iCOOP KOREA). 5
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  • 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 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 7
  • 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 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. 8
  • 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. Farmer iCOOP Member Order/ Supply Order/ Business Farmer Supply Association (Business Order/ Supply Member Farmer Operations) Stores Sale Farmer local co-op iCOOP Stores Member Association Edu/ PR local co-op Stores (Supporting Edu/ Organization) PR Member local co-op 9
  • 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. iCOOP Subsidiaries Farmers Order/ Business Association Supply (business operations) Invest iCOOP CS -ment COOP Store Production iCOOP Food System Stabilization Exchanges Order/ Supply Investment iCOOP Bakery Fund Supply iCOOP School Lunch Member Stores Eco-Friendly Cluster Local co-op (consumer) Investment/ iCOOP Certification Center Membership Fee iCOOP Cooperative Institute 1.1% of 0.5% of monthly selling price Education Investment membership fee / Exchanges Mutual Aid Society iCOOP Association (mutual aid business) Finance (supporting organization) Support for Education/ Exchanges 10
  • 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 Members and Turnover Number of Local Co-ops and Stores300 members sales volume 3500 120 members (thousand) (100mil, won) 110 3002 affiliated local co-ops monthly fee- 3000 Stores 96 member250 members 100 2633 total sales 2500200 volume 80 73 75 2062 70 75 62 62 65 156 2000 58 66150 60 1302 119 1500 46 38 110100 85 40 35 79 1000 755 26 25 56 494 15 50 34 20 22 500 7 6 165 17 6 15 53 8 - 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 11
  • 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 Local Order Order Local Co-op Member Member Co-op Supply Membership Supply i due C Local Local Order Order O Co-op Member Member Co-op Supply O Supply Membership P due Local Order Order Local Co-op Co-op Member Member Supply Supply Membership due * Distribution margin: 20~ 25% * Distribution cost: 7~ 8% * Revenue of local coop: distribution margin * Revenue of local coop: fixed monthly membership due 12
  • 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□ 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. 13
  • 3. iCOOP KOREA’s Sales Business and Strategy□ 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) Business Activities Organization Activities (iCOOP) (local Co-ops) Membership Due Vitalization of System Management stabilization Management Committee of local co-ops through stable revenue system Concentration of Specialization of Business Operation Organization Expansion of National Support for establishment of Distribution System new local coops (1,000 activsts in 75 member co-ops) (15 distribution centers) Establishment of Subsidiaries Operation of sale stores in local co-ops (specializing in eco-friendly agricultural (iCOOP CS, S& D, etc.) products) Pursuit of Consumer Movement for Distribution Efficiency Eco-Friendly Agricultural Products Promotion of environment-friendly agriculture, protection and support of domestic agriculture 14
  • 4. iCOOP KOREA’s Purchase Business and Strategy >> iCOOP’s Basic Understanding of Agriculture□ iCOOP considers todays 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□ 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. 15
  • 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□ 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 16
  • 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 raw ingredients for processing. Proxy Order Order Order Order iCOOP Producer Co-ops Member Producer Member Business Association Association Supply Supply Supply Proxy Supply • Role of Co-ops Association: distribution • Role of iCOOP: purchase and sale agent (intermediary for purchase and sale) (in charge of production and consumption) • Association income: distribution margin • Association income: distribution fee 17
  • 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 KOREAs 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 stabilization fund.□ The advantage of iCOOPs pricing method 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 18
  • 5. Conclusion >> iCOOP’s business implies…□ What is agricultures 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… 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. 19