Food sector falling behind in competitiveness, Commission warns

By Ahmed ElAmin

- Last updated on GMT

Related tags: Cent, Industry

The EU's food industry is falling behind in comparison to its main
competitors, such as the US, and is especially weak on the use of
information communications technology, investment in researchand
development and innovation in products and processes, according to
a European Commission report.

The Commission report highlights the food and life sciences sectors in a bid to tackle some of the cross-industry issues affecting a range of companies. The aim is to eventually create anintegrated approach for industrial policy for 27 industry sectors.

Out of 27 manufacturing sectors classified by the Commission, the food and drink industry ranks as 15th in competitiveness. Mechanical engineering and the chemicals industries are rated as the toptwo.

The report outlines the Commission's plans for better regulation, more research and development, along with the increased protection of intellectual property rights and financing for small andmedium sized food and drink companies.

The food industry is the largest manufacturing sector in the EU's original 15 members, accounting for 13.6 per cent of total turnover, 13 per cent of employment and 11 per cent of added valueproduction.

Germany, France, Italy, Spain and the UK account for about 70 per cent of the turnover in the EU's 25 member states. The new members account for about 7.5 per cent of turnover.

However the industry has had a relatively limited but stable production growth over the past 10 years. Production growth averaged about 1.8 per cent over the past 10 years while value added growthaveraged a 1.1 per cent rise.

Falling employment has boosted productivity growth rates, the Commission noted. Labour productivity growth was only 0.8 per cent from 1995 to 2001, compared to an average of 2.7 per cent in theprevious five years.

"The investment rate is relatively low and labour costs are high,"​ the Commission stated in outlining the problems facing the industry. "The EU food industry sector isextremely fragmented and dominated by a very large number of SMEs (small to medium enterprises) that are less permeable to innovation than big multinational companies."

In turn the low labour productivity growth means information communications technology is not used as much by food and drink companies compared to other industry sectors. Only 19 per cent ofcompanies are using online procurement and business to consumer electronic services are limited.

The industry is also not innovating fast enough to create new products and production processes, particularly in the area of biotechnology. The EU makes 30 per cent less biotechnology patentapplications than the US, according to the Commission.

In response the Commission has developed a technology programme called "Food for Life" that aims at funding research in nutritional sciences and food technologies.

The EU food and drink industry accounts for six per cent of manufactured exports. The EU's 15 original members is the world's second largest food exporter after the US and has a 12.6 per cent shareof total world trade.

However, the recent fall in import prices by 2.9 per cent and the rise in production prices by 1.5 per cent has boosted the rise in imports into the EU. Other food markets are also becoming morecompetitive, particularly in Latin America and Asia.

The result EU exports have fallen by about 3.8 per cent, the first decrease in a decade. More imports are also arriving in the EU's borders. The Commission notes that sugar prices in the bloc arethree times higher than international prices while buttern prices are 35 per cent higher.

Skimmed milk and cereal prices have come into line with international prices.

The Commission points to the recent reforms of the bloc's Common Agricultural Policy (CAP) as the means of bringing down production costs for food and drink companies.

To address the problems the Commission says it will begin working on a set of cross-sectoral policies. An intellectual property rights and counterfeiting policy to start in 2006 will crack down onimports of counterfeit products.

In the area of regulation, the Commission noted the new food legislation addressing safety concerns and access to the bloc's single market. The sector has become one of the most regulatedindustrial sectors.

"For some domains, such as GMO's and labelling, the legislation may be seen as a considerable regulatory burden, which might hamper innovation, particularly in an industry dominated by SMEs,but this needs to be put into context of ensuring that the legitimate health and safety concerns are taken into account,"​ the Commission stated.

The industries also rely upon the continued adaptation and updating of regulations to keep up with technological progress, whilst ensuring health and safety, the Commission stated. Internationalregulatory convergence is also an issue for many sectors.

In particular the food industry is having to deal with new environmental and market access problems, the Commission stated. EU waste regulation has been identified as a major problem with complexrules posing a challenge for industyr.

The Commission plans to launch a new legislative simplification programme sometime this month.

A study on how industry is managing structural change in manufacturing will be launched at the end of this year, along with proposals for an integrated European approach to industrial research andinnovation.

The new industrial policy is available by clicking here​.

Related topics: Processing & Packaging

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