Key factors influencing economic relationships and communication in European food chains (FOODCOMM) : review of sausage and rye bread chains in Finland

Finnish agri-food chain is going through many structural changes. Incomes of farms have decreased and thus the number of farms has declined. However, the average size of farms and numer of animals have grown. Production of rye has decreased but production of pork meat has increased steadily. Feed, bakery, meat, wholesale and trade sectors are concentrated and mostly national, but the market entry of foreign traders and processors has increased significantly suring last decade. Although large processing companies dominate in the sausage and rye bread markets, the significant majority of companies are small or medium-sized. The Finnish food markets are stable and saturated and the consumption do not increase, but food habits are becoming more uniform with those of other European consumers and health issues as well as organic food have become important factors in consumer choices. Globalisation, the tight competition situation and changes in consumption habits put also pressures on the Finnish agri-food chain. Thus, the Finnish pigmeat sector and bakery sector are relevant cases in point due to their recent structural changes and present market situation. Pork meat to sausage chain in Finland Structural features: The pigmeat chain has undergone significant structural changes in the past decade. The number of pig farms has declined and the trend is predicted to continue. At the same time, the number of sows and fattening pigs sold per farm has increased to achieve greater efficiency. Surplus production is mainly exported, because the pigmeat market in Finland is saturated. The price of pork meat largely corresponds with the EU average. The primary sector is seeking routes through which to achieve greater efficiencies due to problems of profitability. The processing industry and the retail sector are also continually seeking greater efficiency, for example through joint ventures abroad. Economic relationships: Pig producers are generally well organised with strong horizontal and vertical links. They have horizontal organisations, which represent their interests and raise their professional skills at the national and local level. Producers are owners of three dominant Pigmeat processing cooperatives who act as intermediaries for the commercialisation of meat between farmers and processors and processors and the retail trade. Also other private processors and producers have close and deep relations. In general the relationships are stable and confidential and both are eager to have close relationships to predict production and permit better negotiation with the trade. Also considerable development work, collaborations and integration can be found especially in cooperatives. Furthermore, both formal and informal relationships exist in the horizontal and vertical relations. In terms of producers and processors, the relationship includes almost always written and long-term contracts and there is a mutual trust between partners. With processors and retailers, the contracts are also written but with less trust and less balanced negotiation power than in producer – processor relationship. Still, trust is the important element, although the negotiations have become more complex and price dominates negotiations. However, the relationships are stable because of mutual dependency especially between big processors and retailers and quite long-term or at least there is a certainty of continuation. Communication: Written contracts are common in the Finnish pig chain, but personal contacts are appreciated among all partners because of feedback and deep information. The communication is often personal and regular, especially among farmers. Technology is widely used in communication in farms but also in pig houses and business: processors and retailers have electronic data exchange systems and the computer handles many routines especially in big enterprises. Information and communication technology (ICT) will be also part of the efficiency strategy which the Finnish sausage chain needs to stay in business. Influencing factors: The main influencing factors for the Finnish sausage chain are developments towards concentrations in the feed, the processing and the trade sectors. Also structural changes and competitiveness of domestic primary production and reductions of the financial support are very important. However, it is expected that consumers prefer to buy domestic sausage and pig meat in consumer packages from a multiple retail chain also in the future, as sausage is an important part of Finnish cuisine. Rye corn to rye bread chain in Finland Structural features: Rye consumption is the highest in northern growing areas, where rye is used in bread. While rye production in Finland has increased slightly in recent years, it has decreased on the long term. Because of low profitability, rye production is nowadays low compared with consumption of rye bread. The Finnish bakery industry consists of many small local bakeries, few medium-sized and few big bakeries. There are a few nationally known brands or products but people also prefer local products. The processing sector is going through structural changes because of overproduction and efficiency problems. Also the retail sector is suffering from price wars and hard competition, but it has resources to facilitate large horizontal or vertical collaborations. Economic relationships: Horizontal relationships among rye producers are strong. The relationship between producers and processor is also personal and stable and there is a certainty of continuation partly because of lack of actors. The power is not always in balance especially in a spot market situation, where more mistrust exists. Usually rye farmers trade with one or a few malt houses or mills and quite often they have written contracts. Contract relationships are often personal, stable and long-term or there is a certainty of continuation. Also mutual trust and collaborations among producers and between producers and processors are common. The relationships between bakery industry and mills can be characterised as stable, long-term, informal, confidential and personal. This might also be due to the lack of actors or because of habits and long-term personal contacts. Although bakeries and mills have a tendency to maintain stable relationships, the competition situation has put pressure on price negotiations. Two big bakeries dominate more than half of the market, although their power is limited. Horizontal cooperation among bakeries is insignificant. However, the relationship between retailers and processors is strong and strategic, for example there is information exchange regarding sales, trends and consumer behaviour. Retailers have very stable relations with local bakeries because of mutual dependence. Mutual trust and confidence, for example in delivery certainty are seen as important elements of a satisfying relationship. Many relationships are long-term, although contracts are not always long lasting. Because of tough competition, the negotiations between bakeries and retailers are complex, but the situation is hardest among small local bakeries. The retail sector has the highest negotiation power. Communication: Written contracts are common in the Finnish rye bread chain, but personal contacts are still appreciated among all partners because of feedback and deep information, for example in research and development (R&D). Contacts are often personal and regular, especially among farmers and between bakeries and retailers. Compared with the pig chain, the information flow is not as efficient and producers need to be more active in the search for information. Technology is widely used in communication and manufacturing processes. Processors and retail have electronic data exchange systems and computers handle routines especially in big enterprises. Influencing factors: The sustainability of rye production depends on price of rye and on the agricultural support received by farmers. A reduction in support or price will have significant consequences for the mill, malt and bakery industries because then nearly all raw materials have to be imported. Other threats to the rye-bread sector are a) centralisation of trade, b) hard competition between domestic and imported raw materials and products, c) high production costs in Finland, d) high costs of raw materials and e) decrease of consumption. However, consumers are interested in functional products, health issues and pre-cooked products. This coupled with consumers’ predilection for domestic products will be an important competition factor for the Finnish rye bread chain