Micro processing and increased productivity to boost industry

By Ahmed ElAmin

- Last updated on GMT

Related tags Food European union Eu

Boosting innovation, improved processing techniques and
productivity, better access to foreign markets and raw materials,
and reducing the impact of safety legislation and retailer power,
are some of the issues the EU needs to address according to a major
report into the food sector.

The 328-page report, released by the European Commission at an industry conference last week, forecasts that the competitiveness of the EU food sector will continue to decline relative to other regions unless specific actions are taken by governments and industry. It could eventually lead to policy decisions affecting all industry. The report, completed by three independent researchers, warns of the "diminishing capability of this sector to generate innovation and enough profit to allow for adequate re-investment to maintain or even conquer market share in domestic and/or foreign markets"​. They conclude that the global food industry is challenged by changing consumer preferences, globalisation, and major changes in technologies that are leading to new products, manufacturing processes and methods to organise the supply chain. They also note that over the last decade, the market power of the large retail chains has increased. In most EU countries the top five supermarkets have a market share of around 70 per cent. One of the major issues holding industry back is the lower productivity growth of the sector compared to the rest of the world, the researchers stated. Competitiveness will continue to deteriorate unless productivity is boosted and trade negotiations are opened up with other countries to further liberalise the food and drink trade, they conclude. "The European food industry is weak in economies of scale and in labour productivity,"​ according to the researchers. "However it showed it strengths in attracting sufficient capital and labour, has an openness to the world market -- export and import grew simultaneously -- and is in an open competition -- many enterprises."​ While the EU's food sector is made up of some large and dominant companies, and many smaller ones, as a whole the sector could exploit its economies of scale to increase productivity. The use of new technologies, such as micro-machine processing, and meeting consumer preferences for differentiated and healthy products can be achievied by exploiting such economies of scale. Technology development increases the efficiency and efficacy of raw material use, the researchers stated. The use of biotechnology could help industry produce more functional foods, but the issue is controversial in the EU. A market responsive to the food chain could stimulates the process of technology development, the researchers suggest. The increasing scale of the retail chain will also be a threat, if the food industry scale isn't at the same level, they also noted. Achieving economies of scale will contribute to low costs and countervailing power against the supermarkets, the researchers recommned. "In Europe the economies of scale are not yet fully exploited," they stated. "The US enterprises have an historical advantage on this issue. Low cost prices are very important for competitiveness worldwide. Lower population growth in Europe should be compensated by price leadership on the world markets." Countervailing power will be necessary due to the ongoing concentration of supermarket chains. They forecast that in Europe about 10 supermarket chains will shape the retail sector. Small businesses can compete by focusing on more value added products and niche markets. Small scale processors have traditionally earned their skills with specialty products, being market-oriented without relying on the mass marketing methods of the global companies; They also need to exploit the possibilities of micro-machine processing. "The disadvantage of the industry structure fits well with the technological development of micro-machine processing,"​ the researchers stated. "This strengthens the differentiation strategy. Although small companies exist all over the world, Europe should be an early adopter to gain the first mover advantage."​ Governments should also explore encouraging a knowledge exchange within industry and and the creation of "food valleys" - regional groupings of small and medium sized businesses (SMEs). "A close cooperation between research groups such as universities supports the knowledge transfer to SMEs,"​ the researchers stated. "A food valley approach fosters the innovation and new businesses and acts as an incubator and science parks. It supports the aforementioned 'value added' and 'micro-machine' strategies."​ The EU is the world's largest exporter and importer of food products. However the level of research and development expenditures in the food industry is rather low compared to total manufacturing, the researchers found. Current innovation is more process, marketing and management -oriented and less a technology-push based on basic science, they stated. Technology transfer to the mass of SMEs is a challenge due to limited management capacity and demanding management tasks in several fields. Meawhile the researchers found that EU food legislation is seen as a positive development in general by the industry, but as a difficult area for SMEs to comply with. "It is not considered as a major factor hampering competitiveness, nor is the EU system seen as inferior to the US-system,"​ the researchers found. Criticism of the legislation focused on the details with "quite a few improvements" seen as possible. "Improvements would be welcomed in stability, clarity and accessibility of both legislation and authorities,"​ the researchers stated. "The biggest burdens for SMEs are experienced from food hygiene and labelling legislation."​ Pre-market approval procedures are restrictive to major players in the market due to the time and costs involved. "Due to the costs and time involved, it is very hard for a regular food business to bring a new additive, novel food, GMO or health claim to the market,"​ the researchers found. "For those who are in a position to follow such a procedure, it is not always clear precisely which procedure applies, what requirements must be met, how long the procedure will take and if a favourable outcome may be expected."​ EU and national authorities need to assist companies in negotiating the procedures and to comply with legal requirements. On the global market, EU authorities can increase their support for the European industry by engaging in export negotiations and by recognising scientific assessments performed under the jurisdiction of "well equipped" foreign authorities, they recommended. They noted that the European Commission has undertaken to reduce administrative costs across all industries by 25 per cent. "To achieve this ambition, audacious and radical steps are called for,"​ the researchers stated. "Improvements are possible on the EU system of legislation as such and on EU food legislation in particular."​ The recommendations are directed to enterprises, government and researchers, the researchers stated. At the EU level, the researchers recommend that:

  • agricultural policy and trade policy should support the food industry by creating cheap access to more abundant raw materials.

  • trade promotion should target rich markets overseas

  • enterprise policy should support cross border mergers and acquisitions more easily

  • a true common market for services should be created, with more IT and electronic based business chain supply systems

  • better and simplified food legislation be promoted, with impact assessments with independent quality control,

  • reduction of administrative costs, technical simplification and co-regulation using existing independent standards instead of new EU standards

  • a public-private initiative on reducing and standardising the large number of self-control systems

The food and drink industry in Europe is made up of about 280,000 companies, of which half are considered SMEs. The industry has an annual turnover of about €800bn. The conference on the promotion of the EU's agro-food industry was held in Brussels on 15-16 November. The report is available here: http://ec.europa.eu/enterprise/food/index_en.htm​.

Related topics Processing & Packaging

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