iCOOP KOREA’s pricing system for sustainable food production and distribution


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iCOOP KOREA’s pricing system for
sustainable food production and distribution

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iCOOP KOREA’s pricing system for sustainable food production and distribution

  1. 1. iCOOP KOREA’s pricing system for sustainable food production and distribution A3 – BUILDING SUSTAINABLE SUPPLY CHAINS A CO-OPERATIVE DECADE IN ACTION ICA General Assembly, Cape Town, 3 November 2013 KIM, Hyungmi Managing Director, iCOOP Co-operative Institute
  2. 2. Overview of iCOOP KOREA(1998~) Outlook for 2013 Turnover USD 420million. Membership 200,000 :189,589 individual members With 2,909 producers and 1,468 employees in Sept. As of 2012 fiscal year..
  3. 3. We have 25 corporations The Consumer’s invested part • • • • iCOOP UNION iCOOP Consumer Activities iCOOP CDC iCOOP Co-operative Institute • COOP Store • COOP SERVICE • KCOD • iCOOP Seed Foundation … Total 12 Invested and operated by 75 nation-wide member coops and members The Producer’s invested part • • • • • • • iCOOP Association of Producer Groups iCOOP Agricultural Production iCOOP Fruits & Vegetable iCOOP Organic Food Supply iCOOP Ramen iCOOP Livestock Products COOP Bakery… Total 13 Led by iCOOP Association of Producer Groups iCOOP KOREA A co-operative group based on consumer cooperation
  4. 4. Our Growth has been constantly continued since 1998 Global financial Crisis Red bar number of members (unit in thousands) Blue Line rate of increase 4
  5. 5. Business of iCOOP KOREA- Store(70%) & Home delivery(30%) Our store & premium brand are Natural Dream Natural Dream Store is operated by iCOOP KOREA members’ joint investment. : Number of stores: 135(as of July 2013) The number of sale items : about 2,000 Categories : organic foods, bakery/pizza, fair trade products , café, daily necessities Average store size: 193m2 (The biggest: 495m2, The smallest :50m2) Names of members who invested
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  7. 7. iCOOP’s Development Strategies: Concentration in Business, Division in Organization iCOOP KOREA adopted a policy of gradually dividing the primary co-op to be closer to local communities while carrying out businesses collectively to take advantage of economies of scale. Each cooperative has thousands of members and its operations are centered on their respective board of directors elected by their members. As results, members’ participation and social interaction in local co-op is enhanced, co-ops spread more locally. 75 member co-ops in iCOOP 5 co-ops &2 quasi co-ops in Seoul 18 co-ops in Gyeonggi Province 8 co-ops in South Gyeonsang province 7
  8. 8. iCOOP’s Development Strategies: Membership dues system iCOOP KOREA member cooperatives’ basic operation budgets are derived from monthly membership dues not from business profits. This is founded on the belief that members should be directly involved in their co-ops’ operations. Democracy is enacted in the cooperative by directly involving members in drawing up and in paying for operation costs. iCOOP, in exchange, does not charge a service fee for supplying its products to members; thus, the more goods members consume the greater benefits come from their membership dues. As a result, more money is spent at iCOOP by its members than that spent at other consumer cooperatives in Korea by their members. USD9.2million membership dues from individual members allocated to union activities , donation to the Co-op Institute, a mutual fund, store fund, price stabilization fund in 2012 . Each member co-op decides own amount of member dues autonomically, but allocation rate to union level is decided in the Annual meeting of representatives of iCOOP member co-ops. 8
  9. 9. iCOOP’s Development Strategies: Building iCOOP KOREA food clusters called Natural Dream Park The concept behind iCOOP KOREA’s PB products is “ethical consumerism:” products are locally grown, environmentally friendly, fair traded, and in solidarity with the social economy. To create competitiveness of Natural Dream brand, we plan to establish a food industrial cluster for manufacturing and producing the iCOOP brand of processed goods and an eco village, “the Natural Dream Park” in Gurye, South Jeolla Province and Goesan,North Chungcheong Province. The Gurye Natural Dream Park(149,335 ㎡ )is set to complete March 2014; 16 companies’ food processing factories and a distribution center will be constructed. Goesan Natural Dream Park (628,497㎡))will be completed in 2017. 9
  10. 10. Chicken processing plant Starting its construction in May 2011, Gurye Natural Dream Park will completed in May 2014. Dormitory Cold storage warehouses Milling factory Support facilities 10
  11. 11. iCOOP’s Development Strategies: A Unique Price system of agricultural products composed by 3 elements Basic idea • Agricultural products in iCOOP are cultivated in small scale farms (average of 1.5 hectares) and in a manner as to lessen the burden on the environment. • Our context: productive capacity of organic farming is not high, the cost is high, rapidly aging farmers in production site vs. consumers experience price fluctuations of environmentally friendly and organic agricultural products brought upon by climate change, natural disasters, and a complex distribution structure. • iCOOP KOREA’s solution to both these problems is production and consumption based on a long term relationship with producers • through its “sales agency- flexible pricing system + price stabilization fund + the pre-purchase of domestic grain fund.” • This guarantees a reasonable rural household income for producers – thus retaining current farmers and attracting a new generation of them – and makes available environmentally friendly and organic agricultural products for consumers at a stable and reasonable price. 11
  12. 12. iCOOP’s Price system of agricultural products: Sales agency-Flexible pricing system iCOOP ’s partner producers (there are required to be a member of iCOOP Association of Producer Groups) commit to providing an agreed upon amount. • iCOOP is responsible for selling the full amount, iCOOP has the freedom to set the price consumer’s pay. • iCOOP determines the price based on the harvest, changes in consumer demand, and fluctuating market prices. • The three elements of the sales agency-flexible pricing system • Advance payment: At the beginning of production, iCOOP KOREA pays 1015% of the basic price within the sale agency system to the producers. • Producer’s income formula = [selling price – production cost (i.e. the producer’s commission)] ±± (price stabilization fund saving or payment) • Flexible pricing system: A basic and target price are set; when the selling price drops and the basic income of producers isn’t secured, iCOOP KOREA injects the price stabilization fund and deposits the damage. 12
  13. 13. Target price: a standard price used to decide administration of price stabilization fund. When a product is sold at higher than this price, 20~30% of the difference is placed into the price stabilization fund. The target and basic price are decided every year by iCOOP’s Association of Producer Groups. Situation A: Selling price A Farmers income level Target price 1 20~30% of difference A-1 goes to PSF PSF Basic price 2 Injection of PSF, secure basic price to farmers(2=B+PSF) Situation B: Selling price B Basic price: is the sum of the cash costs of production – such as the cost of seeds, labor (excluding the farmer’s own labor), and other inputs, and an additional 10~20%. iCOOP KOREA guarantees this price whether or not the sales target is achieved 13
  14. 14. iCOOP’s Price system of agricultural products: Sales agency-Flexible pricing system The impact of the sales agency-flexible pricing system When we surveyed iCOOP’s 25 partner producers, the money they received after the implementation of the sale agency-flexible pricing system was 66~73% of the selling price to consumers. This was higher than the money received by the typical farmer, 60% of the selling price to consumers. 14
  15. 15. iCOOP’s Price system of agricultural products: iCOOP Price Stabilization Fund(PSF) iCOOP operates PSF to guarantee a producer’s income when the market price of agricultural products falls sharply. Producers, processing producers, and consumers join to raise funds as follows: • Producers: saving 20~30% of the difference when an agricultural product is sold at higher than the target price • Processing producers (food manufacturer): saving 0.9% of total delivery price • Consumers: saving 500 won (0.5 dollar)/month per person This fund stabilizes prices for consumers and producers when the price of agricultural products increase sharply – as with the 2010 cabbage crisis – or when they plummet – as with the 2011 foot and mouth disease outbreak. Thus, both consumers and producers are guaranteed a stable, just, and sustainable price. The benefits of this mechanism have attracted great attention especially from the government and media. In 2012, the fund raised 5 billion won (5 million dollars) and spent 2.5 billion won (2.5 million dollars). An increase in 23% (compared to 2011) used to help producers secure a reasonable income. 15
  16. 16. iCOOP’s Price system of agricultural products: Pre-purchase of domestic grain fund A member-consumer pays for a product before receiving it. This system makes production to be stabilized and needed money(farming fund) is available for producers when beginning cultivation or harvesting. This mechanism reduces the amount of outstanding on-line accounts and also reduces credit card fees since it bypasses the use of a credit card. As of Dec.31 2012, the amounts of the fund reached 25 billion won (25 million dollars), total number of participants are 122,079. Pre-purchase fund campaign posted at back of the cashier in Natural Dream store. 16
  17. 17. A impact of iCOOP’s Price system of agricultural products The price fluctuation of iCOOP KOREA’s environmentally friendly cabbage (in green), the market’s environmentally-friendly cabbage (in red), and ordinary cabbage (in blue) Source: LEE, Geumno(2013), “Characteristics and Accomplishment of Price Decision in Consumer Cooperatives – A focus on iCOOP KOREA” ,Consumer Research 2013, Korea Consumer Agency 17
  18. 18. Conclusions • iCOOP KOREA’s PB products is “ethical consumerism:” products are locally grown, environmentally friendly, fair traded, and in solidarity with the social economy. • The purpose of the pricing system of agricultural products – sales agency (or consignment sales), the flexible pricing system, Price Stabilization Fund, and the pre-purchase of domestic grain fund – is to build sustainable structure of food production and consumption in the context of ethical consumerism. • This is achieved by transforming a market based antagonistic relationship between producers (seeking to sell at the highest price possible) and consumers (seeking to buy at the lowest price possible) to a win-win cooperative price system based on mutual trust and cooperation with common interests. 18
  19. 19. Thank you for your attentions! For details, hyungmikr@gmail.com www.icoopkorea.coop 19