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Summary report on the transformation and distribution of biological products in six Community regions: Lombardy, Tuscany, Rhone-Alpes, Paca, Catalunya, Murcia

1. Analysis of the sampling approach used to survey the six Community regions

Analysis of sample dimensions

The qualitative analysis carried out was based on a total sample of 304 companies, stratified on the basis of the 6 regions involved in the action. Each region therefore identified approximately 50 units.
Of the total, 67% are transformation companies with the remaining 33% being distribution companies (fig. 1.1). However, it is important to emphasise that this rigid classification comprises a variety of situations which include, in parallel with each other, different production, transformation and commercialisation activities. In such cases, which were numerous in some regions, for example Tuscany and Murcia, the activity which appeared to be dominant was the one chosen.

More than 80% of the transformation companies are classified in the alimentary sector, while the Health-Wellness-Cosmetics sector constitutes 17% of the relative total (fig. 1.2). There are also 4 companies interviewed, from Rhone-Alpes, which involve the animal feed sector, seeding and nurseries and which have been classified under the heading, "other".

Distribution activities were subdivided into supermarkets and chain stores and specialist stores, which represent 8% and 92% respectively. Within the latter category, moreover, it is possible to subdivide the units interviewed into shops that commercialise alimentary products and products in the H.W.C. sector. In this sense, from fig. 1.3 it is possible to note that 16% of the said activities fall within the second category, while a percentage equal to 76% specialise in Food.

However, the different regions considered display considerable disparity due, on the one hand, to the different situations present in each area; and on the other, to the material impossibility of identifying samples that are perfectly representative of the regional situation due to the refusal, on the part of some companies, to answer questions.First and foremost, one notes (fig. 1.4) that Catalunya and Paca have a sample percentage composition that is almost evenly balanced between transformation and distribution industries. Lombardy and Murcia, on the other hand, display samples that are representative of activities that are more actively engaged in transformation. This can also be seen in fig. 1.5, which displays the number of transformation companies in the different regional sample strata.

Within the transformation companies, the position of Rhone-Alpes stands out, achieving the greatest number of questionnaires relative to the H.W.C. sector, followed by PACA, while Murcia and Lombardy exhibit the largest number of companies that produce alimentary products (fig. 1.6).

As regards commercialisation, of the 92 specialised stores, no less than 76 sell alimentary products and 16 sell products relative to the H.W.C.Of the first, more than 30% were interviewed by the PACA region (fig. 1.7), followed by Catalunya (with 19 interviews) and Tuscany (with 11 interviews). For specialised commercialisation in the H.W.C. sector, the most numerous companies are again located in Rhone-Alpes, followed by Tuscany. As regards this sector, however, it was not possible to find any representative activities in Paca.

Finally, it is important to report the results of the sampling approach relative to the number of supermarkets and chain stores that also distribute biological products: in three regions, for different reasons, it was not possible to obtain interviews with these activities, with information obtained only from Rhone-Alpes, Lombardy and Paca (fig. 1.8).

1.2 Specificity of individual regions

Despite the objective of making the regional samples as homogenous as possible, from a quantitative and qualitative point of view, the different nature of the activities forming the subject of the analysis nevertheless produced considerable divergences among the six samples considered.
Catalunya, in point of fact, generated a sample characterised solely by two sectors; the first, corresponding to zootechnical activities, such as meat, dairy-cheese products, eggs and honey; the second, relative to aromatic and medicinal plants (AMP) plus some companies that produce natural cosmetics.
In Lombardy, the percentage subdivision among sectors reproduced, as far as possible, the existing structure, in order to identify different typologies of companies, in which the following compartments were taken into consideration: bread, pasta, dairy-cheese products, fruit and vegetables, meat, oil, wine, animal feed. The H.W.C. sector, on the other hand, is present with a single transformation company and two distribution companies. This is due to the limited presence of this sector in the Region, as well as the lack of willingness, on the part of the said economic activities, to take part in the survey.In the Murcia region, approximately 3/4 of the sample companies carry out, at the same time, activities in all or in two of the three production, transformation and commercialisation phases. In this case, as already mentioned, an attempt was made, where possible, to indicate the dominant activity among those carried out. Again within this region, moreover, it can be seen that the majority of companies belong to the fruit and vegetable sector.
Paca, on the other hand, relative to the results emerging from the quantitative analysis, generated a sample with an equal number of transformation and commercialisation companies, thereby attributing considerable significance to the latter activity, analysed to a lesser extent by other regions. That apart, the sectorial subdivision exhibits considerable differentiation.
With regard to the sample from the Rhone-Alpes region, the same is characterised by being, with respect to the others, particularly representative of the H.W.C. sector, relative to both the transformation phase and that for distribution, both clearly distinguished among companies.
Finally, the data relative to Tuscany displays, as in the case of Murcia, a high percentage of economic activities that integrate the various phases, from production to commercialisation. It is in point fact well known that this Region has numerous agritourism activities, focusing, in a non exclusive manner, on biological products. In this case too, to make it possible to compare the results with interviews in other regions, a kind of reclassification has been carried out on the basis of the dominant activity pursued by the individual company in question.

2. I risultati per le imprese della distribuzione

Production features

In the six regions forming the subject of the survey, the underlying motivations which encourage distribution companies to commercialise biological products are mainly related to the commercial decisions aimed at increasing the range of the products offered (fig. 2.1). Some 33% of distribution companies declare that they choose biological products in order to increase the diversity of their offer. Within the overall context, environmental (24%) and food safety (19%) considerations are also significant.

With respect to the average datum of the sample area, it is possible to note diverging attitudes among the individual regions (tab. 2.1). In Lombardy, the decision of companies to commercialise biological products is supported, in 44% of cases, by environmental motivations; food safety, on the other hand, represents the dominant motivation observed among companies in Tuscany (50%) and Catalunya (29%). Less closely related to motivations of an ethical type, on the other hand, are the Rhone-Alpes, Murcia and Paca regions, which favour the distribution of biological products in order to increase the range of products they offer on the market, with 69%, 50% and 29% respectively of the preferences expressed in the questionnaires.

Product supplies

Supplies of biological products, on the part of distribution companies, assume different connotations in different regions. In Tuscany, 22% of product purchasing involves the local market. Indeed, the very significant presence of agritourism activities encourages local production and direct sales of products. As in the Tuscany region, in Murcia too the local purchasing market is significant (22%), an element which, in this case, makes it possible to contain product placement costs on the market. In Rhone-Alpes, product supplies constitute a weak point in that at times a level of demand that is greater than supply may be noted.
In overall terms, biological products purchasing on the part of distribution companies is influenced by a series of elements (Fig. 2.2 e Tab. 2.2).
First and foremost, the price of the items involved. In the six regions analysed, some 35% of companies indicate the purchase price of products as the limiting factor relative to an adequate development of their activity. In Spain, in the Murcia region, the percentage of distribution companies that view the high cost of raw materials as the crucial factor relative to their relations with suppliers stands at 65%, as against 50% in Tuscany and Lombardy, and approximately 30% for Paca and Catalunya. In Rhone-Alpes, on the other hand, only a small proportion of companies (12%) see price as a limiting factor.
According to distributors, of those factors that condition relations between suppliers and distributors, in addition to the price of raw materials, organisational matters could certainly be improved, especially as regards both product delivery times, where 17% of companies complain of long delays, and with reference to the reliability of agreed delivery times (and the service quality level), with 21% of companies indicating a lack of respect for agreed delivery schedules.
With reference to the latter two aspects, it is important to highlight how the regional data indicates diverging trends. In Catalunya and Tuscany, 40% of companies complain about suppliers due to long delivery times, as against 10% and 7% for Murcia and Paca, respectively. In Lombardy and Rhone-Alpes, on the other hand, no company complains of the said problem, while approximately 37% of companies highlight, as a crucial factor, the reliability of suppliers with respect to agreed times and/or the quality of the service.
The effect of the rate of new products introduction is also significant: 18% of distributors complain of poor levels of innovation. Demand on the part of the market for new products enjoys particular significance in the French area, both in Rhone-Alpes and Paca, with values of approximately 43% and 26% respectively.In all the regions analysed, the importance of relations that link distributors and suppliers appears to be practically irrelevant as regards variations in pre-established agreements, with reference to both delivery schedules and the logistics process.

Commercial features

The analysis of commercial features in the distribution sector is set out below with reference to price increases applied to biological products with respect to traditional products.
In the area subject to analysis, the premium-price most frequently applied by distributors ranges from 10 to 40%. In particular, 46% of the companies declare that they apply a price increase, with respect to traditional products, of 10-20%, while 40% apply increases of 20-40% (Fig. 2.3). No company applies increases greater than 100%. An very small proportion (8%) of distribution companies that trade in biological products declare that they do not apply any premium price.

With respect to the average data for the survey area, major regional variations can be noted relative to companies in Rhone-Alpes and Catalunya (tab. 2.3). In the first region, 87% of companies apply increments of 10-20% while in the second approximately 85% of companies are positioned in the category immediately above this (i.e. increases of 20-40%). Finally, the data relative to non application of the premium price appears significant in the two Italian regions (Lombardy 28%, and Tuscany 10%).

Strategic and competitive decisions

Strategic decisions planned for future years by distribution companies mainly focus on consolidating production and commercialisation for biological production (Fig. 2.4). Some 45% of companies interviewed consider the quality of production and the relative production technology to be an advantage in characterising the sector. The main weakness, on the other hand, mainly involves the purchase/production cost and the biological products sale price (54%).
The supplies and commercialisation channel, brand image and customer services, on the other hand, split the survey sample in two, perceived at one and the same time as both advantages, for 33% of companies, and weaknesses (25%).

In four regions (Lombardy, Tuscany, Catalunya and Paca), continual growth experienced by the market is viewed as an advantage. The Murcia region, on the other hand, bases its growth expectations on the few, but strongly motivated, local consumers who promote and sustain associations that seek to further diffuse the 'culture' of biological products, within a context where, to date, the low level of consumer appreciation relative to biological products represents a source of weakness.
A similar situation may be noted in Paca, where expectations are focused on the presence of structured young and dynamic networks.
In almost all the regions analysed, a lack of awareness on the part of consumers concerning the advantages of biological products is cited as a limiting factor relative to further sector development. This aspect is confirmed by a need to both clarify the position of biological products and rationalise the extent and use of brands/logos, which tend to generate confusion among consumers (Rhone-Alpes, Paca). A poor level of awareness regarding the benefits of biological products (Murcia) is also indicated, together with a need to activate/increase marketing and promotion actions (Tuscany, Catalunya).

3. Results for transformation companies

Production features

In overall terms, relative to the six Community regions, among the companies interviewed that carry out, as their prevalent activity, the transformation of biological products, only 28% operate exclusively in the transformation phase, while a significant proportion of companies (32%) flank their main transformation activity with that of commercialisation, and 27% of companies focus on all three phases: production, transformation and commercialisation (fig. 3.1).
More specifically, Tuscany, Paca, Catalunya and Lombardy display a significant number of companies that operate in both transformation and commercialisation, while in Murcia no less than 59% of companies interviewed carry out production-transformation-commercialisation activities (tab. 3.1).
This particular form of "vertical integration", which can be observed in Community biological companies, can be related to a very specific activity, and hence to the prevalent specialisation of companies in the biological sector and, in general, the limited dimensions of the companies themselves.

One of the crucial problems that emerges from the survey involves a guarantee of qualitative levels for biological products, since quality is an essential feature for these products. Indeed, consumers who choose biological products are prepared to pay higher prices relative to those for conventional products, but particularly insist that products respect requirements relative to food safety, display high quality features and are the result of processes that have a low negative environmental impact. All of which leads to a need, on the part of companies, to provide a series of instruments to guarantee product quality.

In this regard, one may note how, in the six regions overall, some 54% of companies have adopted more restrictive production standards that those set out in Community regulations. In addition, no less than 90% of companies carry out quality controls, either through their own internal laboratories or by availing themselves of external services. On the other hand, ISO 9000 certification still appears to be limited in its diffusion, and has been adopted by 31% of companies (fig. 3.2).
In terms of individual regions, production regulations are particularly widespread in Rhone-Alpes, Lombardy and Murcia. On the other hand, the two regions in which a significant number of companies have adopted ISO certification are Lombardy and Rhone-Alpes.
In addition, for the biological cosmetics sector, specific standards are required relative to quality specifications, as can be seen in Paca and Catalunya.

Raw materials supplies

In the sample of the six Community regions, 45% of companies use biological agricultural raw materials for the transformation process, to which one may add a further 27% which also use semi-finished items together with agricultural raw materials. Hence, the percentage of companies that have a direct connection with agriculture is equal to 72%. On the other hand, 22% of companies for the most part use either semi-finished items or finished products, carrying out a second transformation or packaging phase activity (fig. 3.3).

It is therefore possible to say that, in general, biological production chains display a degree of vertical integration between agricultural production and more intensive industrial transformation, with respect to conventional chains, indicated by the high level of purchasing relative to raw materials and agricultural semi-finished items.More specifically, in Lombardy, Tuscany and Murcia supplies for more than 60% of companies are based on agricultural raw materials, while in Rhone-Alpes some 78% of companies use both agricultural and semi-finished products (tab. 3.2).

The geographical markets on which companies purchase their supplies are mainly represented by national markets (31% of companies in the Community sample) and by local markets (30%), though the local market also appears significant (22%) (fig. 3.4).

On the other hand, the role of foreign markets appears to be quite limited relative to supplies purchasing: only 16% of companies state that they carry out most of their procurement abroad. As regards imports, it is important to consider quality problems due to different regulations in Community and non-Community countries.
However, in the case of Rhone-Alpes, foreign procurement assumes a greater degree of relevance, since it is the path chosen by 35% of companies (tab. 3.3). In Paca too, procurement abroad appears to be significant (24% of companies), though in this region, 48% of companies carry out their purchasing on the national market. On the other hand, procurement via the local market is especially prevalent in Tuscany (47%) and Catalunya (59%).

As regards supplies modalities, the majority of companies in the Community sample (55%) use, for input purchasing, supply contracts (fig. 3.5). While procurement based on "spot markets" is an important modality for 23% of companies.
It should also be noted, in this regard, that contracts between agricultural companies and transformation companies represent an instrument that encourages a strong production connection between the two phases of the production chain, permitting a greater degree of vertical coordination, which also makes it possible to specify quality features for the raw materials.
Within the context of individual regions, contracts are particularly important in two Italian regions (70% of companies) and in two Spanish regions (51% of companies), while the "spot market" (tab. 3.4) enjoys greater significance in the French regions.

Commercial features

The most important commercialisation modality for Community sample companies is represented by stores that specialise in biological products, given that 29% of companies for the most part use this channel (fig. 3.6)
Specialised stores are particularly significant in regions such as Paca and Catalunya, especially as regards some products.
Direct sales also play a significant role in commercialisation, with 25% of companies; next come supermarkets and chain stores, used by 21% of companies.
Of the remaining commercialisation modalities, one should note wholesale trading (14% of companies), while canteens, restaurants and agritourism activities constitute channels that are not widely used for biological products.
In addition, with reference to commercial channels, it is important to remember that exports can represent a very important outlet for biological products, as in the case of Rhone-Alpes and Paca. In Murcia too, a significant proportion of biological production, given greater regional demand, is assigned to the Community market. On the other hand, in the case of Catalunya, the low level of exports represents a disadvantage for the biological sector, relative to both aromatic and medicinal plants, and meat, whose production is greater than the level of consumption.

It is interesting to note that, relative to those companies that supply supermarkets and chain stores, in 63% of cases there is a specific contract that governs commercial relations for biological products (tab. 3.5). In Rhone-Alpes and Paca this figure rises to 100%, while in Lombardy it stands at 73%. For biological transformation companies, contracts with supermarkets and chain stories make it possible to reduce the level of risk relative to sales, and help to define qualitative specifications for products - though it is also important to take the favourable position enjoyed by supermarkets and chain stores into account as regards their bargaining power.

A crucial aspect relative to biological products is represented by their higher prices with respect to those of conventional products (fig. 3.7). In the survey it may be noted that for 37% of companies, in the Community sample, the premium-price is positioned between 20% and 40%, while for 36% of companies the said price increase ranges from 10% to 20%. On the other hand, for 17% of companies no price increase is practised.
With reference to individual regions, increases in prices of between 20% and 40% are noted by 72% of companies in Catalunya and 43% of companies in Rhone-Alpes, while increases of between 10% and 20% characterise the majority of companies in Murcia, Paca and Lombardy (tab. 3.6). In addition, in the two Italian regions, approximately 30% of companies state that they have not noted any price increases for biological products with respect to conventional ones.

Innovation and strategic and competitive decisions

With regard to vertical relations in production chains and especially as regards relations with distribution, the majority of companies in the sample (60%) have not indicated any excessive bargaining power on the part of their customers (tab. 3.7). The same can be explained by the significant diffusion of commercial channels, represented by specialised stores, which do not exercise strong vertical competition, and by direct sales.However, in the case of Murcia, 79% of companies consider their customers' bargaining power to be excessive, with the same true of Lombardy, where 53% of companies voiced this opinion, and which may be explained by the fact that supermarkets and chain stores are prevalent in this region.

It is interesting to note that no less 75% of companies in the Community sample intend to develop biological products in the future, indicating that this market enjoys possibilities for further growth (tab. 3.8). In this regard, in Rhone-Alpes, companies carry out market studies, while in Tuscany, through companies expect further growth in demand, they lack the information needed to define company strategies.
The number of companies that intend to increase biological products is particularly high in Murcia and in French regions (more than 80%), while it appears to be limited (51%) in Lombardy, where the market is to some extent saturated.

The development of biological production is above all based on new products (47% of companies) and on new markets (24% of companies) (fig. 3.8).

Finally, as regards innovation, one may note, in the survey, that 60% of companies in the Community regions have carried out, over recent years, research and development activity, based above all on internal resources (44%), though external resources have also been used (16%) (tab. 3.9).
More specifically, a distinctly high number of companies have carried out research activities in Rhone-Alpes and Paca, followed by Murcia and Lombardy.