Milk, Pork, Poultry…

Contractualisation is rampant!


 

At the UPA's request, a study was recently conducted by Professor Annie Royer of the Université Laval on the different means of vertical coordination that connect agricultural producers to other partners in the industry's chain. This is a timely study since it comes at a time when there is debate about concepts – coordination, contractualization or integration – still blurry in the eyes of many and resulting in much controversy. According to the collective psyche, these concepts are interfering with every aspect of agriculture and are poisoning our values. Where does the truth lie?
The phenomenon of true integration is a rarity in Quebec agriculture. In truth, integration is experienced when one of the chain's links (for example a processing company) steps into production as it acquires the assets of a farm. However, contractualization, which can take on many shapes and forms, is very common. It may frighten some; however, that is mostly because of its lack of transparency, which seems to sometimes come with it. In this respect, transparency is what sets the cooperative formula apart and that's why cooperation is one step ahead. Contractual agreements concluded within the cooperative pork industry or even through Grains Elite allow Quebec agricultural producers to do better.

Some production contracts outline part of the inputs to be used. Although these conditions are almost completely absent from the dairy industry, they are common in the poultry, milk-fed calf and pork industries to name just a few. However, beyond the lively debates they generate, we all too often tend to forget that the reality of the market combined with animal production is what creates the need for them. For example, let's consider ten dairy farms raising various breeds of cows and serving different types of rations. Variable fat and protein levels are just a few of the differences in the end result. Regardless: All of this milk will end up in the same tank and will ultimately be used to make the same consumer product. It's different in the meat industry. To reach the desired homogeny in slaughterhouses and in the grocery aisles it is essential that all inputs (genetics, feed, breeding management, etc.) be subjected to reliable and consistent standards. This is what our competitors are demanding. A reputed American businessman stated that the market no longer sets businesses against businesses but now opposes one value chain against another.

Seldom are vertical coordination methods espoused by the dairy industry ever mentioned. Is this to say that dairy farmers operate in a more authentic form of independence? Quite the opposite! The dairy industry is very coordinated, particularly when it comes to the relationship between production and processing. In fact, the collective contract that connects dairy farmers to buyers through the intermediary of the Fédération des producteurs de lait provides a strict framework for merchandising conditions (product characteristics, quantities, etc.). Dairy farmers have even given themselves a framework that significantly affects a business' potential to grow. Yet the strength of this collective contract's support structure doesn't keep farmers from holding onto it come hell or high water.

Let's just hope this research provided us with a better understanding of the importance of efficiently coordinating value chains. We should salute all of the players who allowed this study to be completed and it is more than welcome in the current context creating a rift between categories of producers. We should also salute its rigour. Not all studies spoil us in this regard. Thank you Professor Royer. We're looking forward to your future projects.
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