An Outsider's View of the Dutch Auction System (part 2) - March 2001

In my January column, I promised to tell you what the Dutch auction/exporter system has done in the last year that I think is so bad for growers.

First, I will tell you what I think works well in their distribution system. The cash and carry outlets that sever small retailers make a great deal of sense to me. They offer the real convenience of one-stop shopping for the florist or independent garden center. They do not overly increase the price through markups. It could be interesting for some larger growers to come together and make one of their own. Just kidding-if growers owned it, they would ask fair prices year-round and we know that is not allowed under the Dutch system.

Now, what is so bad for growers about eh Dutch auction/exporter duopoly? At the beginning of 2000, the auction raised the annual membership fee quite a bit for buyers on the clock. This was to increase the speed of the product flow on the clock. The idea is that the smaller buyers were only going to buy what they need and that would be one or two shelves off a trolley, not a whole trolley. The truth is that the exporters did not want those independent buyers driving up the prices.

What is so bad about that? If exporters buy in volume, every day, why should they have to wait for the little guys to finish paying too much before they can begin to buy? The exporters are buying exactly and only what they have sold. You can see them in their seats on the clock every day with a list of needed product. On the same shopping list, they include the names of one or more sources where they can buy direct from a grower at a fixed price. If the exporter can pay less on the clock, he buys on the clock. if the clock is not cheaper, he uses his phone to immediately call the grower and buy the product direct. The exporter has already made a price for the customer based on the highest direct price, so any money he can save on the clock goes in his pocket. The grower receives the lower price, whatever it is.

Now that the auction has gotten rid of those annoying high price paying buyers, there is more fun for the exporters. When you consider that the average minimum exporter markup is 30% to good customers, any low prices on the clock are very good for them. When I talk to growers and ask them what they think exporters mark up products, the always say only a very few percentage points due to the heavy competition. Wake up and smell the strong Dutch coffee! The auctions are so afraid of these guys that they kicked out the customers that pay high prices; anything is justifiable when it comes to keeping exporters from "going direct" to growers. But what the auction's recent actions have actually accelerated the number of growers going direct to exporters, since the clock has fewer buyers.

If the auctions want to serve their owners (the growers), they would increase the number of buyers by opening the auction up to the international buying world and smaller domestic buyers. This would surely upset the exporter, so the possibility may not be spoken about. As an outsider, it is quite strange to see growers enslaved by an organization they own and that should be acting in their best interest. It is also interesting to see the auction system enslaved by the organized export community, who are only going to act in their own extreme self-interest. The terrifying truth is that the only two parties that really matter are the producer and the final consumer. Everyone in between is an added cost.

The retailer is most likely always necessary, but neither the auction nor the exporter must exist to make the business mover forward. Yet, they are now sitting on top of the food chain. Growers must do more than just rattle their chain or they will only get more and heavier chains as a gift from their masters, the incestuous auction/exporter duopoly.