1. Competitiveness of the European Food Industry – An economic and legal assessment (2007) European Commission FOODIMA – Food Industry and Methodological Advances 5 th meeting - Prague

2. Aim of the research To assess the actual competitiveness of the EU food industry, compared to other leading countries To assess the actual competitiveness of the EU food industry, compared to other leading countries To develop a competitiveness model of the food industry sector and evaluate future scenarios To develop a competitiveness model of the food industry sector and evaluate future scenarios To make an impact assessment of the existing European legislative framework on the competitiveness of the food industry To make an impact assessment of the existing European legislative framework on the competitiveness of the food industry

3. Structure of the report The external environment of the food industry The external environment of the food industry EU food law – as perceived by industry EU food law – as perceived by industry Competitive position of the EU food industry sectors Key success factors and policy scenarios

4. The external environment of the food industry Developments shaping the food industry include: Developments shaping the food industry include: 1. Low growth of population – lower growth of demand than in the benchmark countries 2. Consumer preferences (health/ethical issues) 3. Technology development 4. Innovation stimulating product differentiation

5. Status quo Population annual growth in EU-25 is 0.22% (1999-2004) compared to 1.04% (US), 1.18% (AUS), 1.25% (BRA), 0.91% (CAN), 1.12% (NZ) Population annual growth in EU-25 is 0.22% (1999-2004) compared to 1.04% (US), 1.18% (AUS), 1.25% (BRA), 0.91% (CAN), 1.12% (NZ) Changing lifestyles characterised by individualism and hedonism make issues like convenience, pleasure and health very relevant to the food industry Changing lifestyles characterised by individualism and hedonism make issues like convenience, pleasure and health very relevant to the food industry Distribution channels – Wholesalers/retailers (number, concentration) Distribution channels – Wholesalers/retailers (number, concentration)

6. Competitiveness Indicators (based on O’Mahoney and van Ark, 2003) Growth of real value added of a specific industry in the total food industry Growth of real value added of a specific industry in the total food industry Growth of Balassa index Growth of Balassa index Growth of export share on the world market Growth of export share on the world market Growth of the real labour productivity Growth of real value added reflecting the dynamism of the whole industry

7. Competitiveness of the European food industry Benchmark countries: USA, Australia, Brazil, New Zealand, Canada Benchmark countries: USA, Australia, Brazil, New Zealand, Canada I. The growth of the share of valued added of the food industry in total manufacturing is second to the US II. The growth of the Balassa index (export specialisation) is very weak in the EU III. The world market share growth is better only to the one of the US Overall findings show a weak competitive position for the European Union. Indicative reasoning: smaller scale of enterprises, restricted availability of raw materials (quota system), low population growth

8. Competitiveness of the sub-sectors (1) Meat products Meat products The EU is a net exporter for pork and poultry and a net importer for beef. Competitiveness is weak because of third countries’ competitive advantage (cheap inputs like feed or labour) labour) Fish and seafood industry The sector remains very fragmented. EU-15 is the largest exporter (23% of the total world exports but only 4% to non-EU countries). Weak competitiveness to US or CAN. Spain the most competitive among EU countries. Competition in terms of access to global sources, market access, cost of processing

9. Competitiveness of the sub-sectors (2) Processed fruit and vegetables Processed fruit and vegetables EU competitiveness stronger than the one of US or Canada. However, less than 5% of global production of fruit and vegetables is traded between countries. Belgium, Spain and Germany are relatively strong in terms of competitiveness. Oils and fats Three of the nine biggest oil and fat companies come from the EU. Competitiveness is weak than in the US with regard to the production of crude oils and fats. However, Europe produces more products that can be marketed against higher values.

10. Competitiveness of the sub-sectors (3) Dairy products Dairy products Even with half of the world’s top 20 dairy companies being European, EU competitiveness is weak compared to the US due to the slower growth of labour productivity, real value added and also the growth of the value added compared to the total food industry. Grain based and starch products Consolidation, internationalisation and specialisation will continue, also resulting in a more concentrated grain-based industry in Europe. The EU competitiveness is weak as compared to the US, but equally strong as Canada and stronger than Australia.

11. Competitiveness of the sub-sectors (4) Beverage industry Beverage industry The industry structure depends on the product: many small producers in wine, some large breweries, large scale spirit producers. EU competitiveness is low due to the slower growth of labour productivity and real value added. The development of the share in the total food industry and export specialisation is positive Sugar The EU sugar industry had a production value of almost 12 billion Euros in 2003. This is 70% above the US and 125% above Brazil’s production in 2002 or 2003. However, the production value in the EU decreased in five years’ time, whereas the production value in the US and Brazil increased. EU competitiveness is weak compared to the US and Brazil

12. EU food legislation (as perceived by the industry) Research questions Research questions How is the present legal framework perceived by the food companies Analysis of relating costs and benefits influencing competitiveness Research methods Survey research Questionnaire measuring businesses’ appreciation, semi structured and open interviews, expert meetings

13. Main results on legislation General conclusions General conclusions The companies included in the survey have a positive view on the effects of food legislation The level of food law is assessed to be fairly good

14. Recommendations - Legislation Pre-market approval schemes Pre-market approval schemes The current system is probably the greatest barrier to innovation in EU food legislation. Six measures can be taken: harmonisation, depolitisation, introduction of fatal deadlines, clear responsibilities, fast track procedures and compliance assistance Labelling Labelling Self-regulation Self-regulation Administrative practices Administrative practices

15. SWOT analysis Strengths in: attracting capital and labour, open to the world market, usually open to competition Strengths in: attracting capital and labour, open to the world market, usually open to competition Weaknesses in: economies of scale, labour productivity Weaknesses in: economies of scale, labour productivity Opportunities arising from: increasing income and wealth, economies of scope Threats: low growth of value added, consolidation of the food industry, industrial policies

16. Confrontation matrix Economies of scale and growth in labour productivity should be enhanced Economies of scale and growth in labour productivity should be enhanced Economies of scope should be exploited Economies of scope should be exploited Reshaping food industry through early adoption of new technology Reshaping food industry through early adoption of new technology Enterprise and trade policies Enterprise and trade policies

17. Main conclusions The EU is the largest exporter and importer of food products (even excluding intra-trade). The value added in the food industry grew annually 5.1%. Growth in total turnover looks healthy. However, the overall competitiveness is rather weak, particularly compared to the US and Canada The EU is the largest exporter and importer of food products (even excluding intra-trade). The value added in the food industry grew annually 5.1%. Growth in total turnover looks healthy. However, the overall competitiveness is rather weak, particularly compared to the US and Canada The food industry in Europe is experiencing a period of structural adjustment and the current competitive position is partly a reflection of that. European companies are still busy reaping the gains of market integration, the introduction of the Euro and enlargement. Imports and exports respond quite fast to such changes, but foreign direct investment, mergers and acquisitions and relocation of manufacturing take some time to bear fruit. These ongoing changes make innovation an important issue in the food industry. The food industry in Europe is experiencing a period of structural adjustment and the current competitive position is partly a reflection of that. European companies are still busy reaping the gains of market integration, the introduction of the Euro and enlargement. Imports and exports respond quite fast to such changes, but foreign direct investment, mergers and acquisitions and relocation of manufacturing take some time to bear fruit. These ongoing changes make innovation an important issue in the food industry. Legal uncertainty is a major issue in the EU food industry, due to the overhaul of legislation also as a reaction to various food scandals. Research shows that in principle the current, modernised legislation is seen as effective, providing the benefits of harmonisation and being relatively easy available on the internet. Legal uncertainty is a major issue in the EU food industry, due to the overhaul of legislation also as a reaction to various food scandals. Research shows that in principle the current, modernised legislation is seen as effective, providing the benefits of harmonisation and being relatively easy available on the internet.

18. Recommendations Business oriented: further explore economies of scale, more added value, innovate through the use of new technologies (e.g. micro-machine processing), explore knowledge exchange Business oriented: further explore economies of scale, more added value, innovate through the use of new technologies (e.g. micro-machine processing), explore knowledge exchange Policy oriented: improve productivity through good functioning of labour markets, economies of scale/lower costs, value added, monitor and research Policy oriented: improve productivity through good functioning of labour markets, economies of scale/lower costs, value added, monitor and research Research can contribute to further understand the driving forces of competitiveness regarding innovation or institution building concerning property rights Research can contribute to further understand the driving forces of competitiveness regarding innovation or institution building concerning property rights