The Outsider's View of the Dutch Auction System (part 1) - Jan. 2001

For close to 25 years I have been exposed to the Dutch horticultural market. While most of my exposure has been as a customer, I have sometimes been a seller, and I have always been a student of what to do and sometimes what not to do. My first impressions were made when the guilder was a very weak currency. The plants coming across the auction seemed almost free. There were huge numbers of exporters competing for the world's business and they seemed to be getting it.

A few short years later, many big export companies were broken. From the outside, the reason looked the same: Companies were able to buy unlimited amounts of very cheap product at the auction and then sell at gigantic profit margins to foreign clients. Unfortunately for the exporters getting the big profits, the customers accepting the offers never intended to pay for the product. The remaining exporters learned who to sell to and who not to sell to.

In the past, growers only needed to concern themselves with the most efficient possible methods, as sales and payments were guaranteed by the auction system. For many years, the only customer was the auction; after all, the growers own the auction and it would always act in the best interest of the owners. If the prices were below the cost of production in the summer, it was not the auction's fault. There was just too much supply for the demand and profits would be made at the other times of the year. The only important thing for growers to do was to become more efficient than their neighbor so they could break even at ever-lower prices. In other words, which grower could endure the most pain for the longest time?

Today, these qualities are still considered virtues among growers. Each grower feeds from the same kettle, each trying to make a bigger and better spoon, but the kettle is not getting any bigger. Very efficient over supply was the market reality for many years. Worker rules became more difficult for growers to afford and environmental regulation became crazy, as if the Dutch government had decided to kill the industry slowly and painfully. At least the growers had the auctions to take away the danger of the marketplace and all of the efficiently-produced plants would be sold, somehow. (Well, if for some reason they did not sell, the grower would not be charged a large fee to dump the plants. This did not happen often, after all it is not the auction's fault if too many ferns or roses were bought to the clock that day.) And the growers have no other choice because they sign something saying they will sell only to the auction.

I used to think that the auction was a huge savings to the growers because the cost of selling directly to retailers is so high. But then you must calculate the rental fee for the trolley, the rental fee for the the tray or bucket, the handling fees per trolley, the transport cost to the auctions and, of course, the auction's well-deserved commission. The auction becomes neither a cheaper sales vehicle nor is it more efficient than direct sales. All this could be reasonable if the auction helped the growers get good prices for their products. But the growers very often do not get good prices for what they produce. The fees and commissions are set at a fixed rate, so low prices compound the grower's loss. When growers can get more from exporters directly without the price risk of the clock, the paper they signed is not so important. If they auction did its job, the growers would not be forced to sneak around them. Perhaps that is why we see so much more product going from the growers directly to exporters.

As someone who has only sold directly to retailers, the complex Dutch system has always been questionable. In this last year it has become abusive to the growers. In my March column I will tell you why.