Food Supply Chains in Lagging Rural Regions of Finland: an SME Perspective
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Ruralia Institute Leena Viitaharju Merja Lähdesmäki Sami Kurki Pauli Valkosalo Food Supply Chains in Lagging Rural Regions of Finland: an SME Perspective Publications 4 Food Supply Chains in Lagging Rural Regions of Finland: an SME Perspective Leena Viitaharju Merja Lähdesmäki Sami Kurki Pauli Valkosalo Seinäjoki 2005 Publisher: University of Helsinki Ruralia Institute Kampusranta 9 FIN-60320 SEINÄJOKI Puh. +358 6 4213 300 Fax. +358 6 4213 301 ISBN 952-10-2562-X (paperback) 952-10-2563-8 (pdf) ISSN 1796-0649 (paperback) 1796-0657 (pdf) Printed by Oy Fram Ab, Vaasa Foreword An essential component of the food production sector in Finland’s lagging regions consists of small-scale enterprises located in rural areas. A high proportion utilise traditional pro- duction methods, emphasising local identity and distinctiveness, thereby differentiating products and servicing niche or segmented markets. Such enterprises frequently integrate with other sectors of the local economy, such as raw material suppliers, distributors, tour- ism and catering, thereby enhancing local activity. Thus the assessment and development of food supply chains from rural small and medium-sized enterprises (SMEs) is crucial, not only from the perspective of SME performance but also for the economic health of the region. The development of marketing and distribution systems for products from SMEs is one of the most essential activities of business operations. A critical problem for many rural SMEs is market access. Distance from major population centres, low output volume and the dispersed nature of enterprises add to the dilemma. The objective of this report is to review and evaluate the factors infl uencing supply chain development and performance in Finland, their likely evolution, and their impact on small-scale food enterprises and rural development in terms of benefi ts and problems. The report starts by introducing the theoretical framework and methodology of the study followed by the food supply chain environment in Finland. Then the different stages of food chains are presented based on empirical fi ndings. The report is concluded by a presentation of different supply chain strategies of rural food SMEs. Various case ex- amples are given to better illustrate the great variety of strategies. These case examples can be called best practices. The aim of these examples is to reveal best practices that are useful to entrepreneurs in the early stages of business in getting new ideas. In addition to entrepreneurs those involved in development work in the SME sector may also fi nd these examples most helpful. This report derives from the EU funded (5th Framework) project: Supply Chains Linking Food SMEs in Europe’s Lagging Rural Regions (SUPPLIERS, QLK5-CT-2000-00841). Collaborating laboratories were: SAC, Aberdeen, UK (Co-ordinator); Coventry Uni- versity, UK; University of Wales, Aberystwyth, UK; Teagasc, Dublin, Ireland; ENITA Clermont-Ferrand, France; University of Patras, Greece; University of Helsinki, Ruralia Institute, Seinäjoki Unit, Finland; and the Agricultural University of Krakow, Poland. The funding enabled the fruitful collaboration between above-mentioned universities. Technical realisation of this report has been taken care by Jaana Huhtala and Jari Eloranta at the University of Helsinki, Ruralia Institute. Pia Kattelus has been the co-writer in the Delphi report in Finnish. Thank you for their important contribution to this report. The authors want to thank all the representatives of different processing businesses, intermediary businesses, commercial customers, institutions and organisations that were interviewed for the study between 2001–2004. They devoted their time and we want acknowledge that their input has been invaluable. Thank you! Director, professor Sami Kurki Table of Contents Abstract ............................................................................................................... 9 1 Introduction ............................................................................................... 11 1.1 Background and rationale of the project ................................................11 1.2 Objectives .............................................................................................11 1.3 Study regions and products ................................................................... 14 1.4 Report structure ...................................................................................16 2 Theoretical framework ............................................................................. 18 2.1 Aims and scope .....................................................................................18 2.2 Agrarian political economy .................................................................... 18 2.2.1 Regulation Theory .......................................................................19 2.2.2 Commodity Chains .....................................................................19 2.2.3 Systems of Provision ....................................................................19 2.3 The Culture economy: socio-cultural perspectives .................................. 21 2.3.1 Commodity circuits ....................................................................21 2.3.2 Network theory ...........................................................................22 2.3.3 Social embeddedness ..................................................................22 2.3.4 Conventions theory .....................................................................22 2.4 The Market economy and supply chain constructs ................................. 23 2.4.1 Development of competitiveness .................................................23 2.4.2 Formation and co-ordination of the supply chain .........................23 2.4.3 Selection and entry into the ‘right’ supply chain. ......................... 24 2.4.4 Chain identity .............................................................................24 2.4.5 Management and performance of the supply chain .....................25 2.4.6 Marketing ...................................................................................25 2.5 Information and communications technology ........................................ 25 2.5.1 ICT adoption ...............................................................................26 2.5.2 ICT in supply chain operation ...................................................... 26 2.5.3 ICT and lagging rural regions ...................................................... 27 2.6 Rural development in LRRs and linkage with supply chain organisation ..28 2.7 The SUPPLIERS theoretical framework ....................................................29 2.7.1 Selecting food supply chains ...................................................... 29 2.7.2 Putting theory into practice ......................................................... 30 3 Methodology ............................................................................................. 33 3.1 Overview of methods ............................................................................ 33 3.2 Description of data collection ................................................................ 33 3.2.1 Theoretical framework ................................................................33 3.2.2 Supply chain environment objective ............................................ 34 3.2.3 The Delphi method ..................................................................... 34 3.2.4 Surveys of different chain members .............................................35 3.2.5 Workshops ..................................................................................37 4 The supply chain environment ................................................................. 38 4.1 Review of the food supply chain environment in Finland ........................38 4.1.1 Developments in the macro environment .................................... 38 4.1.2 Developments at the consumer level ........................................... 40 4.1.3 Developments at the primary producer level ................................ 41 4.1.4 Developments at the processor level ............................................42 4.1.5 Developments at the wholesaler level ..........................................43 4.1.6 Developments at the retail level ...................................................44 4.1.7 Developments in the food service sector ...................................... 45 4.1.8 Summary of supply chain environment review ............................. 46 4.2 Review of study regions and their food production and marketing systems .................................................................................48 4.2.1 Geographical features ................................................................. 48 4.2.2 Socio-demographic and cultural conditions ................................. 49 4.2.3 Economic environment ................................................................50 4.2.4 Food supply chain characteristics in the study regions ..................52 4.2.5 Summary of study regions review ................................................ 54 5 The SME producers’ perspective .............................................................. 56 5.1 Producer characteristics .........................................................................56 5.2 Food supply chain characteristics ........................................................... 61 5.3 ICT in food SMEs ...................................................................................65