iCOOP KOREA’s pricing system for sustainable food production and distribution

1. iCOOP KOREA’s pricing system for
sustainable food production and distribution
A3 – BUILDING SUSTAINABLE SUPPLY CHAINS
A CO-OPERATIVE DECADE IN ACTION
ICA General Assembly, Cape Town, 3 November 2013
KIM, Hyungmi
Managing Director, iCOOP Co-operative Institute

2. Overview of iCOOP KOREA(1998~)
Outlook for 2013
Turnover
USD 420million.
Membership
200,000
:189,589
individual
members
With 2,909
producers and
1,468 employees
in Sept.
As of 2012
fiscal year..

3. We have 25 corporations
The
Consumer’s
invested
part
•
•
•
•
iCOOP UNION
iCOOP Consumer Activities
iCOOP CDC
iCOOP Co-operative
Institute
• COOP Store
• COOP SERVICE
• KCOD
• iCOOP Seed Foundation …
Total 12
Invested and operated by 75
nation-wide member coops and members
The
Producer’s
invested
part
•
•
•
•
•
•
•
iCOOP Association of
Producer Groups
iCOOP Agricultural
Production
iCOOP Fruits & Vegetable
iCOOP Organic Food Supply
iCOOP Ramen
iCOOP Livestock Products
COOP Bakery…
Total 13
Led by iCOOP Association of
Producer Groups
iCOOP
KOREA
A co-operative
group based on
consumer cooperation

4. Our Growth has been constantly continued since 1998
Global
financial Crisis
Red bar number of members (unit in thousands)
Blue Line rate of increase
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5. Business of iCOOP KOREA- Store(70%) & Home delivery(30%)
Our store & premium brand are Natural Dream
Natural Dream Store is operated by iCOOP KOREA members’ joint investment. :
Number of stores: 135(as of July 2013)
The number of sale items : about 2,000
Categories : organic foods, bakery/pizza, fair trade products , café, daily necessities
Average store size: 193m2 (The biggest: 495m2, The smallest :50m2)
Names of members who invested

6. 6

7. iCOOP’s Development Strategies:
Concentration in Business, Division in Organization
iCOOP KOREA adopted a policy of gradually dividing the primary co-op to be closer
to local communities while carrying out businesses collectively to take advantage of
economies of scale.
Each cooperative has thousands of members and its operations are centered on their
respective board of directors elected by their members. As results, members’
participation and social interaction in local co-op is enhanced, co-ops spread more
locally.
75 member
co-ops in
iCOOP
5 co-ops &2
quasi co-ops
in Seoul
18 co-ops in
Gyeonggi Province
8 co-ops in South
Gyeonsang
province
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8. iCOOP’s Development Strategies:
Membership dues system
iCOOP KOREA member cooperatives’ basic operation budgets are derived from monthly
membership dues not from business profits. This is founded on the belief that members
should be directly involved in their co-ops’ operations.
Democracy is enacted in the cooperative by directly involving members in drawing up and in
paying for operation costs. iCOOP, in exchange, does not charge a service fee for supplying
its products to members; thus, the more goods members consume the greater benefits come
from their membership dues.
As a result, more money is spent at iCOOP by its members than that spent at other consumer
cooperatives in Korea by their members.
USD9.2million membership dues from individual
members allocated to union activities , donation to the
Co-op Institute, a mutual fund, store fund, price
stabilization fund in 2012 .
Each member co-op decides own amount of member dues autonomically, but allocation
rate to union level is decided in the Annual meeting of representatives of iCOOP member
co-ops.
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9. iCOOP’s Development Strategies:
Building iCOOP KOREA food clusters called Natural Dream Park
The concept behind iCOOP KOREA’s PB products is “ethical consumerism:” products are
locally grown, environmentally friendly, fair traded, and in solidarity with the social economy.
To create competitiveness of Natural Dream brand,
we plan to establish a food industrial cluster for manufacturing and producing the iCOOP
brand of processed goods and an eco village, “the Natural Dream Park” in Gurye, South Jeolla
Province and Goesan,North Chungcheong Province.
The Gurye Natural Dream Park(149,335 ㎡ )is set to complete March 2014; 16 companies’
food processing factories and a distribution center will be constructed.
Goesan Natural Dream Park (628,497㎡))will be completed in 2017.
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10. Chicken processing plant
Starting its construction in May 2011, Gurye Natural
Dream Park will completed in May 2014.
Dormitory
Cold storage warehouses
Milling factory
Support facilities
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11. iCOOP’s Development Strategies:
A Unique Price system of agricultural products composed by 3
elements
Basic idea
• Agricultural products in iCOOP are cultivated in small scale farms (average of
1.5 hectares) and in a manner as to lessen the burden on the environment.
• Our context: productive capacity of organic farming is not high, the cost is high,
rapidly aging farmers in production site vs. consumers experience price
fluctuations of environmentally friendly and organic agricultural products
brought upon by climate change, natural disasters, and a complex distribution
structure.
• iCOOP KOREA’s solution to both these problems is production and
consumption based on a long term relationship with producers
• through its “sales agency- flexible pricing system + price stabilization fund + the
pre-purchase of domestic grain fund.”
• This guarantees a reasonable rural household income for producers – thus
retaining current farmers and attracting a new generation of them – and makes
available environmentally friendly and organic agricultural products for
consumers at a stable and reasonable price.
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12. iCOOP’s Price system of agricultural products:
Sales agency-Flexible pricing system
iCOOP ’s partner producers (there are required to be a member of iCOOP
Association of Producer Groups) commit to providing an agreed upon amount.
• iCOOP is responsible for selling the full amount, iCOOP has the freedom to set
the price consumer’s pay.
• iCOOP determines the price based on the harvest, changes in consumer demand,
and fluctuating market prices.
•
The three elements of the sales agency-flexible pricing system
• Advance payment: At the beginning of production, iCOOP KOREA pays 1015% of the basic price within the sale agency system to the producers.
• Producer’s income formula = [selling price – production cost (i.e. the
producer’s commission)] ±± (price stabilization fund saving or payment)
• Flexible pricing system: A basic and target price are set; when the selling price
drops and the basic income of producers isn’t secured, iCOOP KOREA injects
the price stabilization fund and deposits the damage.
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13. Target price: a standard price used to decide administration of price stabilization fund.
When a product is sold at higher than this price, 20~30% of the difference is placed into
the price stabilization fund. The target and basic price are decided every year by
iCOOP’s Association of Producer Groups.
Situation A: Selling price A
Farmers
income
level
Target price 1
20~30% of difference A-1 goes to
PSF
PSF
Basic price 2
Injection of PSF, secure basic price to
farmers(2=B+PSF)
Situation B: Selling price B
Basic price: is the sum of the cash costs of production
– such as the cost of seeds, labor (excluding the
farmer’s own labor), and other inputs, and an
additional 10~20%. iCOOP KOREA guarantees this
price whether or not the sales target is achieved
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14. iCOOP’s Price system of agricultural products:
Sales agency-Flexible pricing system
The impact of the sales agency-flexible pricing system
When we surveyed iCOOP’s 25 partner producers, the
money they received after the implementation of the sale
agency-flexible pricing system was 66~73% of the selling
price to consumers. This was higher than the money
received by the typical farmer, 60% of the selling price to
consumers.
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15. iCOOP’s Price system of agricultural products:
iCOOP Price Stabilization Fund(PSF)
iCOOP operates PSF to guarantee a producer’s income when the market price of
agricultural products falls sharply. Producers, processing producers, and consumers
join to raise funds as follows:
• Producers: saving 20~30% of the difference when an agricultural product is sold
at higher than the target price
• Processing producers (food manufacturer): saving 0.9% of total delivery price
• Consumers: saving 500 won (0.5 dollar)/month per person
This fund stabilizes prices for consumers and producers when the price of
agricultural products increase sharply – as with the 2010 cabbage crisis – or when
they plummet – as with the 2011 foot and mouth disease outbreak. Thus, both
consumers and producers are guaranteed a stable, just, and sustainable price. The
benefits of this mechanism have attracted great attention especially from the
government and media.
In 2012, the fund raised 5 billion won (5 million dollars) and spent 2.5 billion won
(2.5 million dollars). An increase in 23% (compared to 2011) used to help producers
secure a reasonable income.
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16. iCOOP’s Price system of agricultural products:
Pre-purchase of domestic grain fund
A member-consumer pays for a product before receiving it. This system makes
production to be stabilized and needed money(farming fund) is available for
producers when beginning cultivation or harvesting.
This mechanism reduces the amount of outstanding on-line accounts and also
reduces credit card fees since it bypasses the use of a credit card.
As of Dec.31 2012, the amounts of the fund reached 25 billion won (25 million
dollars), total number of participants are 122,079.
Pre-purchase fund campaign posted
at back of the cashier in Natural
Dream store.
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17. A impact of iCOOP’s Price system of agricultural products
The price fluctuation of iCOOP KOREA’s environmentally friendly cabbage (in
green), the market’s environmentally-friendly cabbage (in red), and ordinary
cabbage (in blue)
Source: LEE, Geumno(2013), “Characteristics and Accomplishment of Price Decision
in Consumer Cooperatives – A focus on iCOOP KOREA” ,Consumer Research 2013,
Korea Consumer Agency
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18. Conclusions
• iCOOP KOREA’s PB products is “ethical consumerism:” products are locally
grown, environmentally friendly, fair traded, and in solidarity with the social
economy.
• The purpose of the pricing system of agricultural products – sales agency (or
consignment sales), the flexible pricing system, Price Stabilization Fund, and the
pre-purchase of domestic grain fund – is to build sustainable structure of food
production and consumption in the context of ethical consumerism.
• This is achieved by transforming a market based antagonistic relationship
between producers (seeking to sell at the highest price possible) and consumers
(seeking to buy at the lowest price possible) to a win-win cooperative price
system based on mutual trust and cooperation with common interests.
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19. Thank you for your attentions!
For details,
hyungmikr@gmail.com
www.icoopkorea.coop
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