Advisory report
RLG 01/4a: Agribusiness: more and more business, less and less agri
Advice on business licensing requirements for international agribusinesss
- June 2001
The Dutch Minister of Agriculture, Nature Management and Fishery has
asked the Council for the Rural Area to advise him on the opportunities
and threats of the changes taking place in the production of raw material,
the consumer market for Dutch agribusiness, and on government efforts
to remain an inviting country for establishing agribusiness.
The agricultural sector is composed of a primary (agriculture), secondary
(industry) and tertiary sector (provision of service). The secondary and
the tertiary sectors form the 'agribusiness'.
The agricultural sector is no longer a closed column, so therefore agribusiness
should no longer be seen from the angle of the raw material, but from
its activities. For this advice we refer particularly to: (1) the manufacture
of foods and luxury foods, (2) auction, wholesale trade and commercial
agents and (3) agrologistics.
The agribusiness and its environment
The agribusiness as a whole
SITUATION. The added value of agribusiness is growing, especially on
the basis of foreign raw material. The share in the national economy is
on the decrease (8.5 %, including primary production 11.5 %). The added
value on the basis of foreign raw agricultural material is 23.9 billion
guilders and on the basis of domestic raw material 29.1 billion guilders
(1997).
DEVELOPMENT. The development of a network economy is becoming visible.
Enterprises subcontract activities but they also switch to new activity
combinations. The boundaries of branches are fading and companies are
opting for cooperation. Fixed, structured collaborations are replaced
by looser, and shorter-lived collaboration projects. Entrepreneurship
is becoming more important than the kind of product: 'business' is becoming
more important than 'agri'. Individual businesses are exceeding the branch
boundaries. Unilever makes nutri-ceutics, Nutreco is going to breed salmon,
and in agriculture itself a broadening is taking place as well. The Dutch
Agricultural and Horticultural Organisation (the 'Farmers' Union') and
the Dutch Organisation for Small & Medium-sized Businesses (the organisation
for small entrepreneurs) are looking into collaboration that is based
on the growing similarities between the affiliated entrepreneurs.
Businesses have traditionally accepted the responsibility to contribute
to societal aims. In this 'societal entrepreneurship', the ambition level
is rising along with the developments in society. What is legally allowed,
is not always accepted. The debate will focus on the ethical aspects of
biotechnology, on the working conditions in foreign establishments, on
transportation over long distances and on the quality of the rural area.
The need for certainty about food safety is growing. The combination of
globalisation and food engineering is leading to an exponential growth
of the number of elements in our food, and the risks involved. 'Food scandals'
have made the consumer attentive. Thanks to the media, everybody now knows
that new technological developments and current techniques are open to
objections. The trust in 'expert systems', which so far should have guaranteed
the quality and the safety, has decreased more than it has increased.
The consumer makes great demands upon the whole chain: transparency, full
traceability and strict quality standards and quality monitoring. Against
this background, the 'local for local' is also growing: production and
consumption as close together as possible.
The food and luxury foods industries
SITUATION. The food and luxury food industries have a high added value.
For Europe, the Netherlands is, with a share of 7%, the sixth producer.
Multinationals quoted on the stock exchange are considerably bigger than
the total of small and medium-sized businesses, and also much bigger than
cooperative societies. The multinationals sell 46% of their turnover abroad,
the medium-sized businesses 33% and the small-sized businesses 15%. Some
42% of the total turnover is exported. The number of businesses is decreasing
especially by mergers and by corporate concentrations. The employment
is also decreasing. Slaughterhouses and meat-packing industries offer
the most jobs, and the bread and confectionery industry is a good second.
Strong sectors are cut flowers, fish processing, potatoes and vegetable-based
material. The weaker sectors are meat, dairy and vegetables. Lack of market
orientation, quality and innovation have resulted here in a weak competitive
position in a saturated market. The predominantly cooperative outlet structure
and the high monopolisation level may have caused this.
DEVELOPMENT. The meat processing industry will wane if the local supply
of raw material decreases as a result of the receding primary production
in the Netherlands. Growth in the processing industry is mainly the result
of take-over purchases. Waxing and waning may also be caused by establishing
or by departing businesses, or when growth in the business is moved abroad.
However, it appears that there is no tendency for enterprises to leave
albeit that there are also not many new enterprises. In the field of biotechnology,
much ground has been lost in the last few years.
The pros and cons of setting up a business in the Netherlands will be
felt much more in large (re)investments. This may lead to a change in
(setting-up) behaviour. The first processing operation could be brought
closer to the raw material markets, and further reprocessing closer to
the outlet market. Advantages for competition, such as know-how and educational
level, will decrease as a result of diffusion of knowledge.
Further world trade liberalisation could lead to more import from outside
Europe. This means that Europe will not automatically keep functioning
as a domestic market. At the same time, aiming at sustainability may lead
to closed flows of materials and to reduction of fossil fuel consumption,
which may improve the regional economy. Products that can be transported
on a cost-effective basis will conquer the European market, other products
will be produced more locally.
Auction, wholesale and trade mediation
SITUATION. The trade in agricultural raw materials and end products is
substantial, and belongs mainly to the sphere of activity of small and
medium-seized businesses. Over 10,000 enterprises are active in wholesale
of raw materials and semi-finished products (75,200 employees, turnover
99.2 billion guilders). Wholesale in finished products is growing with
activities of over 77,000 enterprises (74,600 employees, turnover 82.4
billion guilders). A number of functions of the trade is under pressure,
whether or not because of ICT. Larger enterprises will themselves take
care of purchase and quality control of raw materials and will more and
more see to quality control via quality marks.
DEVELOPMENT. Physical trade streams were necessary to bring demand and
supply together and to carry out quality controls. This provided the possibility
to combine products into new ones with a higher value, and so 'Assembly
enterprises' developed around the auction halls. This physical system
is now less inevitable (ICT) which makes that the assembly can only survive
if the costs and expenditure are balanced. Raw material flows are less
and less restricted to the geographical location of the trade mediation
and the control of quality. Therefore trading skills are nowadays determining
factors, which offers prospects for the Netherlands. But as relocation
becomes more and more simple, there will be just as many threats. The
development of trade in the Netherlands in the future is therefore becoming
less certain.
The agrologistics
SITUATION. Agribusiness also includes transport, storing, transhipment
and warehousing. The distribution phase is an important part of the agricultural
production column, though employment opportunities are decreasing slightly
(61,000 employment years). The agricultural part in the total goods traffic
is over 20% and still growing. The supply to agricultural and horticultural
enterprises is important (animal feeds, fertilisers). For domestic transports
of agricultural produce, fresh vegetables and fruits are the most important.
The Netherlands also plays an important role in the transit of agricultural
products and foods, especially to the European hinterland. Of all transits,
over 14% are agrofood products. The agrosector is very much oriented towards
road transport: 52% compared to 22% for all goods. One in three lorries
transports agrofood products.
DEVELOPMENT. Speed and security are crucial. The accessibility of locations
is a problem (especially in the last part of the chain) as well as the
traffic jam problems in and outside the country. The need for speed also
makes high demands on the speed of inspection and the cooperation between
the food inspection department and logistic companies.
Competition in Europe is on the increase and the logistic sector will
have to have more added value. This requires new concepts, such as Fresh
Centres - where suppliers and logistic companies combine their forces
- and multimodal transport systems. For agrologistics this means also
that 'logistics' will be more important than 'agro'. Speedy supplies for
e.g. spare parts are very important and also breaking through the branch
boundaries offers opportunities for applying new logistic concepts more
broadly.
Conditions for establishing a business
Suitable conditions for setting up a business are no guarantee that businesses
will establish, but bad conditions will guarantee that businesses will
stay away or leave. In the Netherlands, the general conditions for starting
a business are good and there are no clear weak spots. The conditions
for establishing a head office, production units, distribution centres
and research departments vary and are more and more often started at separate
locations.
A number of conditions for establishing agribusiness require special attention
and the attention of the Dutch authorities. The Ministry of Economic Affairs
focuses on general conditions for setting up a business, on promoting
innovative capability and on attracting businesses. The Ministry of Agriculture,
Nature Management and Fisheries focuses more on the processes within the
branches of trade via improving the structure and access to the market,
supporting product development, encouraging innovation and improving specific
conditions for setting up a business.
General conditions for setting up a business
• industrial zones
• competent personnel
• labour costs and environmental and working conditions requirements
• social environment
• investment climate
• accessibility and mobility
• ICT infrastructure
• critical domestic market
• international image of the Netherlands
Specific points of interest
• The link with the primary production (local supply of raw material).
Agribusiness is only partly linked with the primary production in the
Netherlands. Slaughterhouses and meat, dairy, sugar and egg-processing
industries obtain their raw material almost entirely from the Netherlands;
the vegetable and fruit processing industries obtain three-quarters of
their material from the Netherlands. In other branches of industry, the
Dutch raw materials hardly play a part, if at all, and the importation
of raw materials and semifinished products will increase further.
Based on Dutch raw materials in the processing industry, employment is
62,000 employment years (as compared to 75,000 for foreign raw materials).
Dutch interest is larger for distribution and supply, and gives employment
on the basis of Dutch raw materials of 194,000 employment years (64% of
the total). If the production of Dutch raw materials decreases, it will
affect specific branches of these sectors.
Of all sectors, the meat sector is most bound to local raw materials.
Waning livestock farming in the Netherlands will decrease the supply of
raw material and relocate these activities, as the supply of live animals
is no option. The chance of a decline in the production of raw material
will be less for milk and eggs. As Dutch farmers are often the owners
of the processing industries through cooperatives, the head offices will
stay in the Netherlands anyway.
The processing industry that is based on regional products is by definition
bound to the Netherlands. Since 1999, there has been a 'recognised local
product' quality mark with criteria for the district of production as
well as the processing and the method of production. The market for local
products is limited but growing. The off-farm sales are approx. 500 million
Dutch guilders but do not include 'local products' only.
The rising organic agriculture is not more tied to the Netherlands than
regular agriculture. The number of processing enterprises is small, the
method of processing is light. Even trade and distribution are small-scaled
and fragmented. To extend this branch, its volume must increase.
• Innovation and cluster forming.
A healthy innovation climate requires stimulating communication between
the relevant parties, research and networks that transcend the sector.
There is cluster forming when there is a geographic concentration of enterprises.
The innovation policy is more and more focused on encouraging cluster
forming.
In agribusiness, the capability to innovate is large, particularly in
the vegetable sectors (potatoes for the retail market, cut flowers, vegetable
produce) as well as in trade and logistics. The Netherlands has more innovative
enterprises than the European average: especially small enterprises with
often low turnovers of new products. The available government funds, which
are modest as compared to the budgets for multinationals, may do a lot
for smaller companies.
Research and development are vital for the innovation climate. In the
Netherlands, the total expenses are with 2.1% of the Gross National Products
(1996) between the EU averages (1.8%) and the OECD Organisation for Economic
Cooperation and Development (2.2%). The Netherlands is surely not at the
forefront, but the position of its molecular sciences and information
and communication technology is good. The networks, however, (agricultural
and non-agricultural research; researchers and users) are developed to
a limited degree. There is also a gap between the agrotechnical and fundamental
scientific research.
For the long term, permanent research and education also deserve more
financial attention. Government spending on education now belongs to the
lowest in the OECD countries.
• Tax climate.
The Dutch tax climate is relatively favourable for international companies,
not so much for the revenue tariff but for dealing with charges. Corporation
tax is average in Europe, both nominal (35%) and effective taxes (31.8%).
The EU aims at tax harmonisation. After VAT charges, the EU now concentrates
on harmful tax competition. The Netherlands is mainly called to account
for collaboration deals and 'ruling' deals with the tax inspector. For
the Netherlands the EU intervention may work out unfavourably but may
also give reason to inform enterprises about the actual favourable situation.
Reduction of tax rates in view of international competition conflicts
with financing collective facilities in the Netherlands. These are also
used by the international business world and these facilities also even
determine the choice of location to set up a business.
• Local government.
Bringing EU economies up to the same level offers enterprises an ever-increasing
choice in possibilities for setting up a business. Small differences and
non-economic aspects, often local in nature, will becoming more and more
important. Competition in Europe takes place between regions and municipalities
from different countries. Large cities have ample acquisition capacity
and even have their own international network, which is limited for smaller
municipalities. Reputation is important. Regional or provincial collaboration
does sometimes take place. There is sometimes specialisation whereby only
certain types of businesses are admitted, which encourages cluster forming.
Acquisition efforts increase, often as a result of the development of
extensive industrial estates. Plots of land are often sold to companies
below costs, with the exception of locations in the west of the Netherlands.
This gives little incentive to use the space efficiently. Moreover, the
price of land seems not to be the decisive factor. There is no lack of
space for enterprises in the country, but shortages may occur regionally.
It is more a matter of local custom-made measures, such as streamlining
administrative procedures and mediation in case of problems, poor services
and communication, and lack of suitable industrial locations. The availability
of relevant and updated information is essential, but for this the municipalities
depend on other authorities.
• Quality of the living environment
When the 'hard' factors have been satisfied, the quality of the living
environment will play an important role. They are, in order of declining
importance: housing (quantity and above all quality), cultural and sports
facilities, educational facilities and the quality of the landscape. The
quality of housing can be somewhat improved, e.g. by refining and expertise.
The Netherlands as a place to live is considered to be (too) full and
busy because of the increasing compression, transection, fragmentation
and fading boundary lines. The surroundings and the green areas and the
relationship between vacant and built-up areas are also important for
offices.
Conclusions
GENERAL ECONOMIC DEVELOPMENT
• Sector boundaries are fading but will still have effect. Agribusiness
is now more business than agri, and no longer holds a special position.
However, the government, the ministries of Agriculture, Nature Management
and Fisheries, and of Economic Affairs and their environment will still
feel the boundaries of the faded sector.
• Market development makes both enterprises and government alert.
The movement in the market will lead to closer competition with what is
now regarded as the home market and will also lead to increased efficiency
in the agribusiness, including the policy on business licensing for corporate
branches. The pressure on quality control will increase at the same time.
DEVELOPMENT IN AGRIBUSINESS ITSELF
• Decrease of primary agriculture threatens part of the agribusiness.
The meat processing industry and the processing industries of cattle feed
and residues are under threat by a waning in livestock farming in the
Netherlands. This prospect is less likely for the dairy industry, which
is just as bound to Dutch raw materials. The other agribusiness may compensate
a receding production by extra imports, assuming that the raw materials
are obtained from the Netherlands.
• Extension of the EU does not lead to growth of agribusiness in
the Netherlands. Eastern Europe is an impulse for the agribusiness. But
the growth of enterprises will more likely take place in that area than
in the Netherlands, since a distance of 400 to 600 km is often the limit
for efficient production and distribution.
• Part of the traditional trade function will be cancelled. The physical
unison of demand and supply will become more often unnecessary. The control
function is an alternative, but is also competition-sensitive and not
so restricted to an area. Keeping the leading position is important -
also with e.g. quality control as a trade function - but success formulas
are easily copied.
• Smaller companies in particular can use a little support. Encouraging
multinationals is hardly useful and almost impossible with the available
government funds. But things are different for smaller companies. Growth
and new establishments of enterprises will be limited even then, but will
be worthwhile as they bring in new network relationships, methods of working
and opinions.
• Staking on brain functions involves risks as well. The economy
becomes less and less dependent on raw materials. Virtual functions have
a higher added value, but can also be easier relocated. Components of
raw materials may have a stabilising effect.
DEVELOPMENT OF THE BUSINESS LICENSING CONDITIONS
• The 'details' are becoming more and more important. Because of
harmonisation in the EU states the most important business licensing conditions
will be evened up. Small differences and non-economic aspects will therefore
become more important, especially local factors.
• New competition advantages must be acknowledged soon. Competition
advantages are not, or are no longer fixed. In order not to lag behind
it is important to acknowledge, encourage and avail new advantages in
time.
• The human factor occupies the centre stage. The human factor will
be decisive, considering the importance of research, innovation climate,
training possibilities and living environment. The importance of cross-connections
between training, research areas and policy sectors is increasing.
RESPONSIBILITIES OF AGRIBUSINESS AND GOVERNMENT
• The agribusiness: undertake socially. Businesses must be held answerable
for their social responsibilities, which go further than compliance with
laws. Points of special interest are food safety and food quality, and
the quality of the rural area.
• The government: keep creating favourable conditions for enterprises.
The government must create the conditions on which Dutch companies can
function and grow optimally and on which foreign companies can set up
a business in the Netherlands. 'Thinking along' with companies must be
restricted to anticipating the future.
• The government: attach conditions to enterprises at the same time.
The government must also control whether agribusiness fits in with society
(space, the environment, working conditions), in addition to guarding
employment, income and food supply. These are the conditions in the sense
of 'on what conditions one is allowed to set up a business'.
Recommendations for the government
BREAKING THROUGH THE SECTORAL BOUNDARIES
• Help the business world break through the sectoral boundaries.
Give impetus to platforms that can find a thematic or spatial connection
between the parties, as the advantages of cross-sectoral initiatives for
individual initiators are not always evident.
• Break through the sectoral boundaries within the government as
well. Screen governmental organisations systematically for remainders
of sectoral structures and methods, and establish whether - and if so,
how - changes or cooperation are necessary and feasible.
Structures to be screened: (1) the departmental organisations of Agriculture,
Nature Management and Fisheries, and of Economic Affairs (including Agricultural
Representatives Abroad and the Commissary for Foreign Investments) (2)
the implementation organisations Syntens and Agro-innovation Centres,
and (3) educational institutes and research institutes within and beyond
the agricultural domain.
Working methods to be screened: rules and regulations, definitions and
standards, and the divisions made when statistic data are generated.
STRENGTHENING THE BUSINESS LICENSING REQUIREMENTS
• Strengthen the conditions for innovation. For the benefit of the
RESEARCH CLIMATE set up a system of social agendas and discussions on
ethical limits and risks, for periodic testing and for updating the codes
of conduct. Encourage research and training institutes to contribute towards
the forming of NETWORKS AND CLUSTERS so that, via platforms, this may
contribute towards passing on knowledge and technologies and mobilising
creativity from the daily practice. Support AGROLOGISTIC INNOVATION by
giving a place - both in space and in policy - to innovative distribution
concepts (such as Fresh Centres) and other collaboration projects (such
as Effort).
• Create a broad innovation fund, with a national and a regional
segment. With innovation funds, opt for broadening and availing opportunities
as its basis and not for direct economic earning power and for solving
problems. Use the fund both on the national and on the regional scale
in a ratio to be fixed beforehand and with separate national and regional
procedures and criteria for assessing the projects.
• Improve the quality of the living environment. Give improvement
of the living environment an extra boost by increased cooperation between
and within the ministries of Economic Affairs and of Agriculture, Nature
Management and Fisheries.
• Prevent the social basis from erosion. See to it that the foundation
for competitiveness does not erode the general public services like education,
health care and social security. The international 'tax race to the bottom'
should also be abandoned for this reason.
ATTRACTING INTERNATIONAL ENTERPRISES
• Make use of the 'agro network' for attracting enterprises. Capitalise
the now favourable business set-up climate. Access to specific networks
is important, also for non-sectoral approaches, and Dutch agricultural
attachés on the embassies abroad may contribute towards attracting
enterprises.
• Support the international activities of the regions. Support local
governments in international acquisition, especially through adequate
information. Indeed, this requires local tailor-made activities: from
interesting enterprises to concrete coaching and granting permits.
COLLABORATION
• Hold strategic discussions on important social themes. Contribute
positively towards strategic discussions on developments, opportunities
and threats in a complex environment, especially by linking up relationships,
which are to be identified by relevant themes, with other social and economic
actors.
• Attune government processes to corporate processes. Streamline
the completion of sampling and granting permits within the agrologistic
chain with a view to the necessary promptness and efficiency, and be attentive
to international rules and regulations.
• Continue together the promotion of interests in foreign countries.
Continue the development of mutual trade missions and other foreign-oriented
strategic activities.