Research Reports
Developing Strategies of the Marketing Firms in Common of the Primary Cooperatives
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AuthorHwang, Euisik
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Publication Date2006.11.01
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Original
The objective of the study is to find ways to foster marketing firms in common as agricultural producer shippers that can adequately respond to various requests from the consumer market. The concept of marketing firms in common is newly introduced in the Agricultural Cooperative Act , which was revised to cope with the evolving marketing environment in 2005. In the study, we examined a development plan of share marketing cooperative firm so that marketing function of cooperatives can be transformed into more market oriented marketing business that can create value-added.
Like other countries in the OECD, Korean farmers are experiencing market changes that are mainly driven by consumers. Consumption patterns are shifting to care more about food safety and quality rather than just price. As the market powers of a handful big hypermarket chains are growing with their market shares, small retailers as well as wholesalers and the wholesale market have been shrinking. Recently, the competition among hypermarket chains is getting fierce as more stores from different chains are vying for market share in a given area. Transaction patterns to link producers with consumers have been evolving from the traditional method of auctioning to direct transactions preferred by big hypermarket chains. In this circumstance, producers need to adapt themselves to the demands of big retailers, the request of large volume supply in a steady quality all the year round. Because of the high competition among retailers and changes in consumer preference, producers also need to make their products be differentiated from other products. On top of this, the market opening from trade negotiations brought more imported agricultural products at lower prices.
New organizations in charge of produce shipping have shown to actively correspond to the request of consumer market. However, joint alliance or integrated cooperatives at regional level have shown their limitations in terms of specialization, enterprising, and the speed of business adjustment. Hence, marketing firms in common was introduced to overcome the limitations and take charge of business activities that are difficult for a individual regional cooperative to fulfill.
By conducting interviews with various agricultural produce shippers including marketing firms in common, we tried to find out what have prevented the development of agricultural produce shippers. The interviews focused on governing structure, capital raising, profit distribution, and related laws including tax. Since there are only ten marketing firms in common nationwide, and most of them were enacted in 2006, we couldn't proceed with quantitative analysis of their business performance of them. Meanwhile, we also reviewed the case of agricultural cooperatives in Japan that have been experiencing marketing reforms. Agricultural cooperatives in Japan have a similar integrated cooperative structure, where a marketing business unit and a financial business unit are dependent upon each other. We figured out how their reform is related with the changes of consumer market and then what are the limitations of their reform.
In the study, we identified the followings: First, we established the vision and status of marketing firms in common, differentiating them with cooperatives mergers and subsidiaries. Second, after grasping the obstacle to the development of cooperatives, we proposed an institutional and legal foundation on which marketing firms in common can be revitalized. Third, we suggested ideal relationships of marketing firms in common with farmers, primary cooperatives, and the NACF.
Researchers: Eui-Sik Hwang, Hogun Chong
E-mail address: eshwang@krei.re.kr
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