Features of Vertically Integrated Agribusiness Corporations in Western Europe Countries

In order to ensure the region's population with food promising direction of development of agro-industrial complex is the vertical integration. The article summarizes foreign experience of vertically integrated structures formation in the agro-industrial complex. Special emphasis is made on the methods and ways of small agriculture producers’ integration into agro-business. Authors studied the indexes of the current condition and agro-industrial complexes (AIC) development tendencies in the EU countries, agro-holdings dynamics, as well as the structure of used farmland in the EU countries. Authors also present the results of the largest multinational corporations’ activity, formed due to active integrating processes in agro-business sphere. Authors underline the peculiarities of integration bonds formation in the EU countries’ agro-industrial complex. The author believes that the further development of the vertical integration depends on the process of institutional mechanisms perfection. They provide the enlargement of small farms’ participation in the present-day AIC market.


The Concept and Essence
Agro-industrial complex (AIC) is one of the main generators of employment and profit and plays the major role in food provisions manufacture and the problems of undernourishment solvation.Agro-industrial complex is a combination of industrial branches dealing with production, processing and sale of agricultural products as well as of the branches serving functioning of agricultural enterprises including agricultural machinery.Agro-chemical manufacture, melioration branch and so on.
The term 'agro-business' stands for collective entrepreneur activity in the sphere of agro-industrial complex (AIC), including supply of agricultural raw materials, manufacture and processing of agricultural products and its distribution among the final consumers.
The main condition of agro-business activation can become the development of integration processes.Joining up of the enterprises, participating in different kinds of activity in AIC field, allows to use various kinds of resources (manufacturing, financial, investing, human resource, raw materials and others) more effectively, to use the scientific technical potential, to provide competitiveness of agricultural production and food products.
Integration processes development in agro-industrial complex is a global regularity.Developed countries experience shows that at present only large agro-manufacturing joints, including different forms of manufacturing and trade cooperation (agro-firms, agro-corporations, agro-holdings, agro-concerns and so on), can operate properly.

Reasons of the Necessity for the Integration Process in the Field of AIC
Various directions and forms of integration processes have been developed in Western Europe countries, still the vertical agro-industrial integration has become the most widely spread in the AIC sphere.One of the advantages of this integration type is the enhancement of information exchange, gaining control over critical resources, e.g. over products net cost, noticeable increase of output product quality.
In the conditions of severe competition, the system of promotion of agricultural production to the consumers obtains a huge meaning.Therefore, some structures are formed in which the manufacturer's vertical integration is actualized with logistics and realization organizations.
At present, the vertical integration processes are being actively developed in the Russian Federation as well.In many cases, large vertically integrated corporations make a decisive contribution to the formation of territorial budgets, investment attraction, filling local markets, development of socio-economic infrastructure.That's why the studying of foreign experience of vertically-integrated transnational corporations' construction and functioning in agro-industrial complex appears especially relevant.
The aim of the presented article is to summarize the world practice and to find out the peculiarities of vertically integrated agro-industrial structures development in the Western European countries.

Methods
Approximately up to 50-60-ies of XX century the agricultural manufacture of Western European countries existed mainly in the form of scattered into small fragments (parcels) of natural and later-of petty economies -style peasant farms.
Industrial revolution and formation of large-scale trade, financial and industrial capital resulted in concentration tendency appearing in all the economics spheres including agricultural one.
Historically, the first integration direction in Western European agriculture was vertical integration, which start was connected with buyers of agricultural products appearing in the villages.They had a certain capital and a possibility to buy a ready set of agricultural products, sort the goods out and sell them.Simultaneously, the buyer informed the producers about the market demands and consumers' preferences.Consequently, he managed the specialization of agricultural manufacture and influenced the technological processes.
The integration interaction developed with time.New processes were introduced into integration interaction, including agricultural raw materials processing and ready production selling to the consumers.The manufacturer of the agricultural production as an element of integrated agro-industrial system was economically dependent in everything connected with specialization, selection, supply and selling, technological politics etc.With this, he formally remained autarkic and legally independent.
Thereby, large integrated structures bring small-scale producers under their influence sphere, subdue them, and organize them in necessary scales.
At the present stage of integration processes in AIC sphere, the most intense development is with the vertical bonds of agricultural manufacturers with industrial enterprises.A vertically integrated company is a holding, which structure of assets includes the shares of participation in enterprises, responsible for two or more stages of manufacturing-commercial circuit, in the scope enough for implementation of factual control over their activity.
Integrated systems are formed on the base of certain principles:

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Technological connection of the subjects providing the volume increase and products competitiveness improvement.

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Necessary financial and material support in joint manufacture organization and activity.

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Existence of management company (integrator), which has the experience of business set-up, investment resources management and possibilities of loans attraction.

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Active participation in production-financial processes of all the structural subdivisions of integrated units under centralized management.

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Creation of economic conditions, providing all the integrated organizations with equal possibilities to achieve good results in their production and household activity.

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The process of involving agricultural producers into vertically integrated structure can be actualized in two ways.
The first way is when agro-industrial integration has the form of a concern, i.e. a trust with the single property and centralized management.In this case, two or more different producing processes can be united (for example, keeping the milk cattle flock and dairy products production).Equally, it can be a joint of enterprises, which have a common value chain.For example, breeding livestock is performed at different farming households, while the products processing and meat products are made at a meat-processing plant, which is an enterprise-integrator The second way is to sell the finished products through specialized and universal trade commissary units.In this case the enterprise-integrator can manage the production volumes and control the production-selling activity of the primary agricultural producer (a farmer).
Depending on the integration growth direction, there are two kinds of vertical integration distinguished in the global practice, both of which are applied in agro-industrial complexes:

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Backwards vertical integration -it supposes control acquirement or control increase over suppliers, i.e. agricultural enterprises-producers.

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Direct vertical integration is expressed in the company expansion by means of control acquirement or control increase over the structures, distributing and selling the products.
A consequence of the interaction of contradictory trends of globalization and localization is coming to a regional economic space other regional corporations, formation in agro regions transregional territorial industrial clusters and inter-horizontal and vertically integrated structures for integrating local structures into broader productive systems -inter-regional, national, cross-country, global -and transforming regions into economic entities of the world economy.
Hence, the vertical agro-industrial integration strengthens the competitive advantages in the same sphere either concerning the raw material sources or concerning the direction of ready products promotion and selling to the final consumers.
The main methods of vertical agro-industrial integration are: − Consolidation -amalgamation of the integrated enterprise with the mother company as a branch or a subsidiary.

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Grouping -formation of a special structure consisting of the integrated enterprise and the basic company which has the property commitments (shares exchange), or management commitments (including another enterprise directors into the board of directors), or various services commitments (informing/advertising, technologies provision, etc.).

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Target extension -integration is reached by means of supply contract extension aiming at setting the steady long-term relationships.

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Franchising -passing the rights to use the brand, the business-model of the main company to the integrated enterprise, as well as passing other types of property necessary for setting-up and running the business.
The most widely spread form of agro-industrial integration is contracting, i.e. signing up the contracts between the immediate agricultural producers (farmers) and non-agricultural enterprises.Prices, volumes, terms of products supply, sides' obligations concerning materials supply and production means, production quality indexes as well as technological conditions of production are fixed in the contract [11].As a rule, the contracts are negotiated for the term of 5-10 years, which provides the partners with stable long-term business relationships.
Another direction of agricultural production concentration is agricultural cooperation, which supposes the uniting of separate peasant households in separate kinds of manufacture processes.Organizational-economical result of the agricultural cooperation and that of the vertical integration is the same.The difference lies in diametrically different direction of these processes: vertical integration is actualized top down, (often ignoring the interest of primary producers), while agricultural cooperation is a bottom-up process and takes into consideration the maximum of peasant households interest.

Development Indicators of the Agricultural Sector in the EU Countries
EU is the leading producer of milk, swine, cattle and corn in the world.Table 1 shows the main products, produced in the EU, and their share in the global production.As Table 2 shows, five (not considering the English-Dutch company Unilever) out of 10 largest agro-industrial multinational corporations are from the United Kingdom of Great Britain and Northern Ireland.
The initiator of corporate tradition to control the whole production circuit from growing the raw materials to selling the products to the final consumer is the Unilever Corporation.The company was founded in 1929 by uniting the margarine Union of Holland 'Margarine Uni' and the British soap-producing 'Lever Brothers'.
The first vertically-integrated company Unilever owned the enterprises of processing seeds into oil, packing business, trucking industry, retail net.
Agro-industrial multinationals' structure includes national vertically-integrated companies, distributed according to geographical zones.As a rule, the agricultural sector of multinational corporations' agribusiness relies on the raw material base of the country-recipient.
For example, the Swiss global corporation "Nestle" uses the regional model of interaction with the local farmers in the placement countries.The basis of this model was developed as long ago as 1870.It includes: creation of centers of milk collection providing the quality control and milk safety, its cooling and weighing on the electronic balance; payment for the milk; free technical and veterinary support of milk cattle; providing transport and infrastructure nets; microloans for the farmers (25 mln US dollars per year); in-time payment for every milk delivery.
Danone company, specializing in fermented milk products, realized the strategy of absorption of foreign enterprises, aspiring to increase their economic activity and financial productivity indexes by means of vertical concentration.
The organizational structure is largely decentralized.National subsidiaries follow the same corporate strategy and vision but they possess enough independency in making decisions concerning products adaptation to the local consumers' demands in taste, texture and packing.
One of the key elements of the corporation business-strategy is the development of partner relationship with the suppliers.Thus, for example, Danone company uniting with the French Institute of live-stock breeding 'Institut de l'Elevage' and dairy farmers became a company under the name "Le lait de nos éleveurs" (milk of our dairy farms) aiming at public awareness increase concerning the production quality.One more example is the program "Vertical growth" launched in 2012 by the Group of Companies Danone in Russia.Within this program Danone experts provide their suppliers with consulting services, regularly organize studying trainings in Milk Business Academy (МBА).More than 150 managers of dairy farms from different Russian regions have passed this course.Different programs of motivation, including celebration of "Supplier's Day", are implemented.
It is evident from the above-described information that in the conditions of the agricultural market globalization there's such a widely spread form of vertical agro-industrial integration as a transnational corporation, which influences greatly the development of AIC branches and global economy on the whole.

Discussion
The structure of agriculture in EU countries differs greatly under the influence of such factors as geology, landscape, climate and natural resources.It also depends on the variety of regional events, infrastructure and social customs.The formation of integration bonds in EU countries has a number of regional and industry-sector peculiarities.
For example, in Great Britain the most widely spread form of agro-industrial integration is industrial-trade corporations.
In Western Europe countries, including France, the most widely-spread form of integration relationship is a holding.Integration processes in France primarily touch upon the agricultural enterprises, those of food industry and the sphere of food trade.
Cooperatives in dairy sector have the highest degree of vertical integration, which is connected with the necessity of immediate milk processing.Large cooperatives specializing in dairy products are mostly located in the west of France.Milk cooperatives of other regions supply milk to the plants of other enterprises-cooperative unions (mostly of the union "Sodiaal") or private companies.
Vertical integration in the grain sector happens both with sale and processing of farm products and with supply of manufacture means.Feed compounds manufacture is the most widespread sector of all the grain-processing sectors.A deeper grain processing (flour-grinding, malt production, manufacture of bakery semi-finished products) is spread only in large agro-holdings which structure contains processing subsidiaries.
A harsh contrast between large vertically integrated holdings and cooperatives with a short manufacture chain is present in meat industry sector.Vertically integrated holdings realize the whole chain including fodder production, cattle slaughter, and meat processing and selling.This kind of integration is typical of poultry and swine farming.For meat cattle sector, cooperatives with a short production cycle (primarily cooperatives of cattle sale) are most typical.
Government plays an important role in formation of integration bonds.The Supreme Council for orientation and coordination of agriculture and food industry development is the organ of inter-sector coordination in food complex of France.It includes Ministry of Finance representatives, manufacturers in the sphere of processing and realization of agriculture products and farmers.Its functions are the development of measures concerning enhancement of food sub-complexes organization and management, pursuing the coherent agricultural and food policy.
In Germany as well as in the countries of central Europe special cooperative state unions are created to smooth the relationships between agricultural enterprises, companies selling agricultural products.Their activity sphere touches upon consultancy work on tax law, cooperation matters, cooperative system subjects representation before legislation organs and society, experience exchange.In order to extend the long-term warranty on keeping rather high purchase prices for agricultural goods in Germany they created the Farmers Union.
Processing enterprises are the integrators in formation of partner relationship between the agriculture and other German trades.It's around them, where the agro-industrial integration is put into practice.
In the countries of Central Europe (Denmark, Norway, Sweden, Finland) the dominating form of agro-industrial manufacture is an agricultural cooperation.
In the Finnish and Swedish agriculture there are Central unions of agricultural manufacturers which work in the close mutual collaboration and provide farmers, authorities, economy, professional unions and population representatives with information.Their activity sphere includes negotiation and development of agreements with the government concerning the problems of agricultural goods supply volume planning, food prices and other questions concerning farms profits.
Agricultural cooperatives have the decisive role in working out and performing the state agrarian policy.Subsides to support agriculture are transferred through them.It so happened that agricultural cooperatives have become the most effective form of Scandinavian countries' agro-business integration.They provide the farms with necessary manufacture conditions; guarantee the sales and efficient introduction of agro-industrial innovations.
This way, the results of research of integration processes development peculiarities in the sphere of EU countries AIC let us state that the most appropriate coordination form of large scale manufactures and small scale farming based on the private land property, is the form of agricultural cooperatives.
It should be noted that in many vertically integrated agro-industrial structures problems of providing organizational and administrative and economic unity, equal benefit of economic relations, responsibility and interest of the participants in the final result of combining the activities of the integrated form, as well as the deepening of integration relations are remain unsolved.Overcoming the existing antagonism of economic interests, as well as the disparity of barter relations between agricultural, processing and trading enterprises belonging to the agro holding structure requires scientific study of the system of the inter-economic of the above mentioned integration partners.
Institutional mechanism of AIC diversification is definitely in creation of large vertically integrated agrarian corporations as the most effective form of household organization in AIC.At present, the strengthening of integration processes in agro-industrial complex of European countries is essential for agro-business development.The successfully arranged bond guarantees getting additional cost in agricultural sectors, creating working places and increasing the level of manufacturers' profit.
Petty farmers can't remain the food products only, they'll have to take up an additional role of entrepreneurs and work behind the subsistence farming limits.Besides, agro-industrial companies need reliable local raw material suppliers to increase their international competitiveness.
Modern agro-food system implies intense competitive pressure on all the participants of the cost creation chain.
The necessity to respond to the consumers' demands, processers', retailors', transporters' demands imposes stricter and harder demands on the agricultural suppliers from the point of view of quality, terms, processing, transporting.Small producers, representing the main part of global agriculture, nowadays face the growing problem of following these demands.
The question of small farmers' participation in agro-industrial system is not only the question of the system effectiveness but is also one of the key questions of rural inhabitants' welfare level.Exactly for these reasons, the perfection of institutional mechanisms providing the extension of small farms' participation in the modern AIC market must get all the attention of Food and Agriculture Organization of the United Nations [17].
One of such mechanisms is the contracting of agriculture, which includes several aspects, which deserve a separate study and further enhancement: economic, institutional, social, legislative and others.
The advantages from the contract include extension of the approach to the market for the small farms, credits and technologies availability, risk management improvement, agricultural population employment perfection and successful commercial farming.Now there are five basic models of the interaction of farms and integrator-companies that can define the selection of appropriate mechanisms for the development of contract farming.Enlarged characteristics of basic models of interaction are presented in Table 3. Informal model -is the most short-term and speculative of all models of interaction with the risk of default for the integrator company, and for the farm.However, it depends on the situation: the interdependence of parties of the contract or long-term trust relationship can reduce the risk of opportunistic behavior.Features of the model:

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Small firms enter into a simple, informal contract for seasonal production with smallholders.

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Often, success depends on the availability and quality of external contacts − Typical products: requiring minimal processing / packaging, vertical coordination; for example, fresh fruit / vegetables on the local markets, sometimes the main crops.
Intermediary model involves the integrator company to conclude subcontracts with intermediaries (buyers of The model chosen for the initial phase with the passage of time can and should be adapted and possibly changed to consolidation and extension of scale, respectively, to the higher stage of development.

Conclusion
Thus, the summary of integration processes practice in AIC of EU countries let us make the following conclusion:

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In the integration process of agricultural, processing and sale companies, the system of contracting has become the most widespread in EU countries.

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In the majority of cases the direct initiators and coordinators are non-agricultural companies, at this the object of integration is agriculture.

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There is active development of various forms and structures of agro-industrial unions (from cooperation to agro-industrial multinationals), which affords to consolidate and use the available resources more effectively.

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Vertically integrated structures with a complete circuit are formed-from the agricultural products producer to its selling to the customers.

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In many European countries, the mechanisms of governmental regulation and support are actively applied in the attempts to develop the agro-industrial market.
Vertical integration allowed to extend the companies activity in AIC.Large agro-industrial corporations of EU countries were formed due to the development of agro-holdings and cooperatives.

Table 1 .
Main kinds of agricultural products, made in the EU, and their share in the global production

Table 3 .
Models of interaction and their characteristics.