The competitive capacity of traditional small-scale Spanish citrus producers has been conditioned by increased market liberalisation in the sector. This change in the external business environment is forcing citrus producers to become concentrated in fewer larger productive units as demand has failed to increase. These larger productive units have a greater competitive capacity than traditional small scale producers due not only to greater negotiating power with distributors but also to greater ability to penetrate new export markets.
This article will examine competitive options open to Valencia's small-scale citrus growers to avoid being crowded out by new larger producers. The article will show how competitive options such as strategies of integration, fusion, concentration or creation of co-operatives can help traditional small-scale citrus producers compete in this new market context.
Central Markets, Penetration Strategy, Alliances/Co operation Agreements, Logistic, Trade Barriers, Distribution Strategies.
Over the last decade, overproduction, nationally and internationally, together with changes in fresh fruit consumption patterns, have resulted in an intensification of competition in the citrus sector. The competitive effects of these changes in the Spanish citrus sector have been exacerbated by the highly fragmented nature of this sector. Small citrus producers are been progressively crowded-out by fewer and larger producer units capable of competing with large distributors. In other words, as supermarkets continue to squeeze the margins of small suppliers driving them out of business, the remaining (more resourceful) producers are being forced to resort to integration, fusion, joint ventures, buy-outs or co-operation strategies in order to survive. Only as larger units, will they be able to access greater financial resources and achieve greater negotiating power with distributors domestically and internationally.
The extent to which joint-ventures, strategic alliances or franchising agreements can be used as marketing and distribution instruments by small scale citrus producers against the oligopolistic power of large scale producers, will have to examined. In this respect, it is interesting to note that, in the Valencia citrus sector, co-operatives more than any other type of integrating strategic option, seems to have captured the interest of producers, researchers and policymakers in this last decade.
Distribution patterns and Market penetration options
The need to differentiate, as a necessary precondition to compete in this sector is perhaps the single most important reason for a rise in the level of concerted action amongst traditional rivals in the Valencia citrus sector.
The growth in importance of supermarket chains as distribution channels for exporters, simply confirms the producers' need to confront an increasingly more organised concentration of demand with an equally strong concentration of supply.
While in 1997, supermarkets in the UK, for example, marketed 44% of total fruit and vegetables, today, six major supermarkets alone, market more than 60% of total fruit and vegetables, leaving independent retailers with an increasingly smaller and poorer share of the fruit and vegetable market. This situation is likely to worsen as the number of supermarkets, at least in the UK, increases at a rate of three to four percent per year (Dei Campo and Julia, 1998).
Although central markets are mostly used by wholesalers representing the interest of a large number of small retailers, large Spanish exporters like Anecoop or Pascual Hermanos SA, only use them as a source of price reference for Spanish fruit in foreign markets. This, unfortunatelly, is not only a Spanish phenomenon, since most large exporters today, market their produce through large distributors. These large exporters increasingly use their own wholesale representatives  to market their own produce directly to large supermarkets who become their major clients. This system, allows exporters to be better informed about the characteristics and changes in the spot/cash market while helping producers/exporters formulate concrete strategies to achieve greater market penetration and optimise cash prices (price at de/ivery) in all open market operations.
The result of these practices, particularly in the British market, has been a weakening of the competitive position of many small independent Spanish exporters since their access to adequately organised distribution infrastructures has been reduced. Central markets inability to act as distribution instruments together with their failure to guarantee small scale producers not only better prices, but also payment for their produce, has resulted in greater price instability for citrus.
Price instability for citrus is the result of most trade in central markets being carried out through small independent wholesalers facing liquidity problems and forced to pay exporters (in the best of cases), after thirty days in line with the fluctuation in their receipts from small retailers with liquidity problems. This creates a chain effect that is responsible for a large number of bankruptcies amongst small independent Spanish exporters when their foreign wholesalers fail to meet their payments for delivery.
The convenience however of trading in central markets is that "everything goes" in terms of volumes traded, quality standards, packaging characteristics and so on. In these markets there is very little transparency in price formation as the ability, skill and knowledge of the wholesalers allow them to "lock-in" a price that does not usually respond to very clear criteria of product characteristics and quality (Del Campo and Julia, 1996). These markets have then become a vehicle for sub-standard products that find their way into the market through small retailers that end up distributing inferior low quality products in a parallel cheap market. This has led central markets to specialise on the low end of the market, distributing low quality fruit and vegetables, while the best quality fruit that fetches the highest prices, is marketed separately by large supermarkets and hypermarkets. The high prices of these distributors have led many small scale producers frustrated with low prices to join co-operatives to specialise in supplying these distribution chains .
Suppliers in this new context, need however to comply with a logistic pattern that demands traceability of every unit supplied. Suppliers must guarantee that when the fruit arrives in the country it...