EU food production responds to global changes

In the five years to 2005, restructuring, automation and offshoring has resulted in the loss of about 89,000 jobs in the EU's food manufacturing sector, with recent industry announcements indicating the downward trend toward decreasing employment -- and production -- is continuing, according to a report from the European Foundation for the Improvement of Living and Working Conditions.

The EU advisory body's report provides an insight into how globalisation, the entry of 10 new EU members to the east, and increased overseas competition are affecting manufacturing throughout the bloc.

In both the original EU15 member states and the 10 new entrants, the manufacture of food, textiles and wearing apparel are among the top 10 losers of job positions during the five year period to the end of 2005.

" These sectors are typically viewed as being among the most low-tech in the manufacturing sector,"​ the foundation notes.

During the period there were 191,000 job losses in agriculture and other related sectors, followed by food manufacturing with 89,000, followed by clothes, textiles, leather tanning, land transport, telecommunications, electricity, and mining, among others.

In 2005 total job losses in the food, beverage and tobacco sectors amounted to 20,505 positions. The foundation calculates that offshoring accounted for 1,035 of those job losses that year, or about five per cent of the total.

Offshoring describes when domestic EU production is replaced by foreign production due to a decision by a EU based producer. The decision allows the EU producer to cease or reduce domestic production in Europe, in order to purchase or outsource production abroad.

The production decline and resulting job losses is partially driven by the introduction of new technologies that can automate production and the entry of new competition from players such as India and China.

Both the relative ease of establishing companies abroad and technological advances have boosted the use of offshoring by domestic EU manufacturers, the foundation notes.

"It is pointed out that while there is a widespread perception that the rate of structural change has accelerated appreciably in recent decades, there is little evidence to substantiate such an interpretation,"​ the report states.

Globalisation is not a new phenomenon, with massive declines in European textiles, iron and steel, and shipbuilding in the 1970s and 1980s. However the current round of globalisation has some unique features, including a rapid recent increase in foreign direct investment. This investment mainly occurs between the EU member states.

A second feature of current globalisation is a significant increase in countries fully participating in world trade, along with a massive increase in the potential global labour force.

"These countries, primarily the Asian giants China and India, are developing rapidly and have the potential to compete in high-skill and high-value added activities,"​ the report stated. "Another important driver is the increased preference of many companies to be based locally, so that they are closer to the customer." ​

The foundation database, known as the European Restructuring Monitor (ERM), has collected 5,351 restructuring cases reported from 2002 across the EU, of which 369 are due to the food, beverage and tobacco sectors. The most recent announcements in the food and drink sectors are from Findus and Unilever, among the seven such notices made in September, of which one included the building a new plant involving the creation of 300 jobs.

On 28 September Sweden based Findus announced it would cut 70 out of 550 jobs at its plant in Bjuv by March next year. The frozen food producer explained the workforce needed to be reduced as a result of the automation of the production processes, the ERM reported, quoting news sources.

Negotiations with trade unions have already started. Findus, which has its headquarters in Malmö, currently employs 1,100 people in Sweden.

Meanwhile Unilever in Ireland announced the same month it would cut 125 jobs in Dublin city following a decision to close its Inchicore plant. The plant will cease operations by the end of March next year. Following the closure, the company will transfer products currently made in Inchicore to other manufacturing sites within Europe.

Unilever has said that the Inchicore plant could not compete effectively with larger scale and more specialised plants in operation worldwide. The decision will mean that the company's current workforce will be cut to 450 from 575 employees.

The Inchicore factory manufactures Knorr soups and sauces, Hellmann's mayonnaise and also blends and packs Lyons Tea.

On 20 September France-based Lactalis said it would relocate its diary production in Poland from Kurów to the other two plants in Siemiatycze and Winnica near Pu³tusk.

The company said the Kurów creamery was profitless as it had a very scattered suppliers network and strong competition from other dairy plants located around Lublin. Some 100 staff are being dismissed, a process that started this month.

In Ireland Lakeland Dairies announced on 13 September it was restructuring at plants in Monaghan, Louth, Cavan and Longford, with the resulting loss of 146 jobs. The co-operative plans to cut costs by closing its milk-drying operations in Monaghan, as well as its agri-stores in a number of locations. The company is Ireland's second-largest milk processor.

The day before Czech Republic authorities approved the merger of Bakeries International Luxembourg and United Bakeries Luxembourg, owners of the two Czech leading baking companies Odkolek and Delta Pekárny.

Both Czech companies will co-operate mainly in restructuring and logistics with the goal to reduce production costs. The new entity Delta-Odkolek will close six out of 18 plants in the country and cut the current staff of 4,000 workers by at least 1,000 people, the ERM reported. The companies expects the merged entity will be able enable to invest more to the modernisation of lines, human capital and innovation.

In France Kraft Foods announced on the 4 September it was cutting 123 jobs at its Suchard Strasbourg unit, which has a manufacturing chocolate plant. The site currently employs 380 people and will shed 123 jobs between October 2006 and December 2007.

The cuts are a result of a decrease in production. In 2006 the plant produced 10,000 tonnes of chocolate, compared to 15,000 tonnes in 2003, the ERM reported.

Not mentioned in the database is Nestle's announcement in September it would close a Smarties production factory in York, the UK and transfer production to Germany. The move means the loss of 645 jobs in the UK. This follows on from a previous announcement of 234 job losses at Nestle's UK headquarters earlier this year.

However, all was not dismal for the industry during the month. On 14 September Sammi Sound Tech., which normally manufacturers loud speakers, said it would build a factory in Bulgaria to manufacture traditional Korean spaghetti. A big share of the production is expected to be directed at the EU market. The € 30m factory is expected to employ 300 workers and be in operation at the end of autumn 2007.

The fortunes of the food industry are following the general decline in manufacturing jobs within the bloc. Between 2000 and 2005, employment shares by economic sector continued to show the long-term trend of economic shifts out of the primary and manufacturing sectors and into the service sectors, the foundation notes.

The substantial loss of employment in agriculture in parts of the EU's 15 original members and in most of the 10 new member states continues, the figures indicate.

Ireland and Spain show high employment growth, which is evenly distributed throughout the countries’ regions. Pockets of high growth are found in parts of France, most notably in the mid-west, Italy, Greece, the UK (particularly in parts of the west coast), and in southwest Sweden.

Among the new member states, employment growth is highest in Cyprus and Latvia.

While the overall picture in eastern Europe is on a downward trend, some pockets of relatively high growth are occuring in Poland's Slaskie region and in Stredni Cechy, the Czech Republic, the report stated.

The most significant decline in employment is to be found in most regions of Poland and eastern Germany. In France, the Lorraine region shows the highest level of employment decline. Pockets of lesser declines can be found in Greece, Italy, the UK and all of Denmark.

The EU's food and drink industry is the largest manufacturing sector in the 25-member bloc, accounting for 14 per cent of total turnover, according to indusry figures. It ranks first, ahead of the automobile and chemical industries.

In 2004, food and drink industry turnover reached €815bn, a two per cent rise compared to the previous year. In total, exports grew by 5.2 per cent in 2005, the highest recorded annual increase since 2000. Meanwhile, imports of food and drink products grew less than in 2004.

The EU food and drink industry now has a trade surplus of €4.5 billion and employs four million people. The sector purchases and processes 70 per cent of the EU's agricultural production.