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«Innovative Practice Hungary AVIUM agricultural cooperative and AVIUM 2000 poultry processing cooperative: Successful cooperatives in the Hungarian ...»

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Regoverning Markets

Small-scale producers in modern agrifood markets

Innovative Practice


AVIUM agricultural cooperative and AVIUM

2000 poultry processing cooperative:

Successful cooperatives in the Hungarian

poultry sector

Anikó Juhász and Györthy Kürthy

Agricultural Research Institute, Hungary



AVIUM agrigcultural cooperative and AVIUM 2000

poultry processing cooperative: successful

cooperatives in the Hungarian poultry sector Anikó Juhász Györgyi Kürthy.

Agricultural Research Institute (AKI), Ministry of Agriculture and Rural Development 2006 Regoverning Markets Regoverning Markets is a multi-partner collaborative research programme analysing the growing concentration in the processing and retail sectors of national and regional agrifood systems and its impacts on rural livelihoods and communities in middle- and low-income countries. The aim of the programme is to provide strategic advice and guidance to the public sector, agrifood chain actors, civil society organizations and development agencies on approaches that can anticipate and manage the impacts of the dynamic changes in local and regional markets.

Innovative Practice series Innovative Practice is a series of country case studies from the Regoverning Markets programme providing examples of specific innovation in connecting small-scale producers with dynamic markets at local or regional level. Based on significant fieldwork activities, the studies focus on four drivers of innovation: public policy principles, private business models, collective action strategies by small- scale farmers, and intervention strategies and methods of development agencies. The studies highlight policy lessons and working methods to guide public and private actors.

The case studies were coordinated by:

Julio Berdegué, RIMISP - Latin American Centre for Rural Development, Chile (contact:

jberdegue@rimisp.org) Lucian Peppelenbos, Royal Tropical Institute (KIT), Netherlands (contact l.peppelenbos@kit.nl) Estelle Biénabe, Centre de Coopération Internationale en Recherche Agronomique pour le Développement (CIRAD), France (contact: estelle.bienabe@cirad.fr) Other publication series from the Regoverning Markets programme Agrifood sector studies These studies look at specific agrifood sectors within a country or region. Research studies have been carried out in China, India, Indonesia, Mexico, South Africa, Turkey, Poland and Zambia covering the horticulture, dairy and meat sectors. The sector studies describe the observed market restructuring along the chains, and the determinants of that restructuring.

Agrifood empirical studies These empirical studies follow up on the agrifood sector studies, exploring impacts of agrifood restructuring on farmers. Using quantitative survey techniques, they explore the impacts on marketing choices of farmers, and implications for rural development.

Innovative policy These are short studies addressing a specific policy innovation in the public or private sector that improves the conditions for small-scale producers to access dynamic markets at national, regional and global level.

Country studies These provide a summary of market changes taking place at national level within key high- value agrifood commodity chains.

Further information and publications from the Regoverning Markets programme are available at:


Authors Anikó Juhász and Györgyi Kürthy Agricultural Research Institute (AKI) Ministry of Agriculture and Rural Development.

Hungary Contact: Anikó Juhász: (papirbirka@t-online.hu); Györgyi Kürthy ( kurthy@akii.hu) Acknowledgments

Funding for this work was provided by:

UK Department for International Development (DFID) International Development Research Centre (IDRC), Ottawa, Canada ICCO, Netherlands Cordaid, Netherlands Canadian International Development Agency (CIDA) US Agency for International Development (USAID).

The views expressed in this paper are not necessarily those of the funding agencies.

Citation: Anikó Juhász & Gyöngyi Kürthy (2007). AVIUM agricultural cooperative and AVIUM 2000 poultry processing cooperative. Successful cooperatives in the Hungarian poultry sector, Regoverning Markets Innovative Practice series, IIED, London.

Permissions: The material in this report may be reproduced for non-commercial purposes provided full credit is given to the authors and the Regoverning Markets programme.

Published by:

Sustainable Markets Group International Institute for Environment and Development (IIED) 3 Endsleigh Street London WC1H 0DD www.iied.org Tel: +44(0)20 7388 2117, email: sustainablemarkets@iied.org

–  –  –

1. Summary___________________________________________________ 1

2. Background ________________________________________________ 6

3. Literature Review ___________________________________________ 8

4. Methods __________________________________________________ 13

5. Results and discussion ______________________________________ 15

5.1 Innovation: history and operation of the AVIUM and AVIUM 2000 cooperatives _____________________________________________________15

5.2 The innovation timeline ___________________________________________21

5.3 Forms of inclusion in the vertical chain and the governance of the cooperatives _____________________________________________________23

5.4 Vertical and horizontal connections of AVIUM and AVIUM 2000 _______26

5.5 General characteristics of the cooperative members: inclusion conditions and motives______________________________________________________33

5.6 Specific characteristics of the farmers: two clusters of future anticipation _36

5.7 Cost and income factors of the cooperative membership _______________40

6. Conclusions and recommendations___________________________ 48

6.1 Sustainability and uniqueness ______________________________________48

6.2 SWOT analysis and the possibilities of developments, up-scaling and replication __________________________________________________________50

7. References ________________________________________________ 53

1. Summary The Regoverning Markets programme seeks to help in securing the place of SME farmers in the dynamically changing agrifood markets of developing and transition economies. In this case study prepared for the programme, examining AVIUM agricultural cooperative and AVIUM 2000 food processing cooperative, we aimed to find examples of how certain conditions and possibilities allow SME farmers to join the modern food supply system, which has suffered drastic and ongoing changes over the last fifteen years.

Production in the Hungarian poultry industry started to recover in the mid-1990s after the serious depression caused by the multiple effects of political transition. A rising demand in western Europe and renewed sales to the post-Soviet states (especially Russia) helped production return to previous levels. The 1998 financial crises in Russia had a strong braking effect upon this upward tendency and were a dramatic setback for the performance of the sector. After the turn of the millennium, production started to increase again, mainly due to broadening domestic consumption. Domestic consumption not only increased but its structure also changed so that the share of chicken rearing in the poultry sector increased considerably. However, the ratio of chicken in overall production fell continuously;

the apparent contradiction can be explained by the composition of exports in the sector, dominated by water poultry for western markets’ specific requirements.

Looking at the poultry sector, the two most important input areas – baby chickens and feed – are well organized, with only occasional problems. The quality of input materials provided is generally sufficient for profitable production and the concentration level allows healthy competition. At the same time, if we examine the producer and processor levels in international comparison we find a less concentrated sector that is not price competitive and stands in a fairly difficult market position. On the other hand the retailing connecting production to consumers is an ever-concentrating, well-organized sector, where two specific types, the discounters and the hypermarkets, are rapidly gaining importance.

Throughout the whole vertical chain, income percentages confirm the aforementioned situation: the farmers, despite their high costs, even in the most favourable years only kept about 3 per cent of the profits, while in most of the analysed years they are in the red. In the meantime, retailers kept more than 50 per cent of the profits and processors also made acceptable profits although in 2005-2006 the demand shrinking and price decreasing effect of Avian Influenza (AI) cut this margin completely.

1 As a method for our study, we analysed literature and the secondary data and completed structured interviews and surveys. The composition of the surveys, interviews and analyses followed the general framework described for the whole programme (Berdegué et al 2005). To reach our results we used only the simplest mathematical tools and although participation in the survey was high the cooperatives have only a low number of members. The main results of the case study are: a description of the innovation and success factors of the cooperatives, the forms and costs/benefits of SME farmer inclusion in the cooperatives and the possibilities of production sustainability and up-scaling.

The poultry farmers around Besnyő founded AVIUM agricultural cooperative in 1993 after the new cooperative law was accepted by the parliament. AVIUM aimed to concentrate the supply of live chickens and to organize joint procurement of inputs. Two large processors were already operating in the region where AVIUM was set up, but small/medium sized ones were not present (in contrast to the eastern part of the country). To fill this market niche and to acquire the market security and profit surplus provided by the processing stage of the vertical chain, a few members of the agricultural cooperative later founded AVIUM 2000 poultry processing cooperative.

Of the four defined innovation types (public policy, business model, collective action of SME producers and strategies and methods of development agencies), AVIUM agricultural cooperative belongs to the third category, i.e. the collective action of SME producers. Originally, the vertically linked operation of AVIUM 2000 poultry processing cooperative also belonged to this type, but due to the ownership separation in recent years it is now more likely to be classed as a business model.

In the governance of both cooperatives strategic and operational decision-making is separated. Final decisions on strategy are made in both cooperatives by the General Assembly (GA) - with the participation of every member – who usually convene once a year, or more frequently in the case of extraordinary situations. All members can propose changes but strategic plans are mainly initiated by the management of the processing cooperative since they usually experience the direct impacts of the market or public policy. Operational decision-making is completely delegated to the management.

AVIUM 2000 buys the fattened chickens exclusively from the AVIUM members and AVIUM members only sell their live poultry to AVIUM 2000. The formal relationship between the two cooperatives is based on the yearly contract also negotiated in the General Assembly. The contract describes the quality parameters and the planned quantity and transport dates for each farmer, and outlines the payment system. This is complemented by a weekly operational relationship 2 coordinating the farmers and communicating the processors’ needs to the farmers and back.

Once in a while, or if there is any kind of problem with the stock (e.g. health problems), an expert from the agricultural cooperative pays a visit to members, giving advice on rearing and medicating issues. This coordination is perceived more as professional help than as a negative control. On receipt of the fattened chickens, quality control dominates; control parameters are based on waste ratios and the production diary that accompany the stock throughout its entire life. Every farmer has his/her own identifier code, which is the basis of the traceability system jointly operated by the cooperatives.

The retail partners of AVIUM 2000 poultry processing cooperative belong to more than one category in the evolution of supply chain described by Berdegue at al (2005). The most important buyer is a specialized chain store (meat store) using distribution centres, the second main buyer is a domestic mini chain food store belonging to a buyer group and maintaining a regional preferred supplier relationship with AVIUM 2000. Apart from these two important partners all the other purchasers are independent food or specialist stores where the cooperative provides traditional wholesale services, supplying self-produced chickens and all the other poultry products.

The most important conditions for inclusion in the AVIUM agricultural cooperative were geographical location and the personality and professional background of the farmer. In the case of the investment-intensive AVIUM 2000 processing cooperative, the financial contribution proved to be the most relevant aspect. After revealing the condition of inclusion we also searched for the most important requirement for stable cooperation: this proved to be reliability, which was the first priority not only for the cooperatives but also for the trading partners.

In the case of the AVIUM agricultural cooperative, there have been only three incidents of exclusion: two were members who terminated their membership because they were ceasing poultry rearing; and the third was a non-member supplier (not exclusively producing for AVIUM) whose yearly contract was not renewed by the cooperative due to problems with the reliability of the farmer. More inclusions are highly improbable in the near future because current depressed market conditions do not allow for further expansion of the processing cooperative, thus no excess capacities have appeared for possible new members.

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