How competitive is the EU in food processing and marketing? And within the EU, which member states are most competitive in the various food and drink sectors?

These questions were tackled by a Dutch economic research team in a recent report, which makes interesting reading. The researchers are from the reputable LEI institute at Wageningen University. 

When assessing competitiveness, they compared performance (exports and market share, growth in value added and in productivity of labour) over the period 2008 to 2012 with performance in several major food producing regions outside the EU (the USA, Brazil, Canada and Australia).

They had previously carried out a similar study covering the period 2003 to 2007.

Their main finding is that the overall competitiveness of the food processing industry in the EU is weak.

Brazil is the most competitive of the major nations examined, while the position of the USA improved compared with the previous study. Canada is also weak.

Within the EU, the animal feed and dairy processing sectors were the only two sectors to show significant improvement in competitiveness, compared with the earlier period. Bakery and drinks showed marginal improvement, while other sectors declined.

Who exports the most?

In 2012, the EU 28 exported $160bn worth of food and drink, and accounted for 14.2% of world food and drink exports (internal exports from one member state to another, which amount to $425bn, are not included).

The USA exported just a little more, at €161bn. Brazil is next at $84bn, followed by China at €64bn, and Canada at €56bn.

(Unprocessed agricultural materials such as cereals, fruit and vegetables are not included).

All of these countries also import foods. Brazil’s imports are quite small relative to their exports, the country has a major export surplus.

The EU also has an export surplus, as have Argentina and Thailand. But the USA imports more food products than it exports.

During the period 2003 to 2007, the EU lost share in export markets but gained it (despite its strong position in the market), during the period 2008 to 2012 — but not by as much as the USA did.

Productivity and scale

Value added and labour productivity in the European food industry did not grow as fast as in competitor countries.

While the EU food and drink industry is the largest in terms of turnover, number of enterprises, and employment — it is one and a half times the scale of the US food industry – the average turnover per enterprise is very small, and only 10% of that in Brazil and 15% of that in the USA. 

This small scale of enterprise may be inhibiting competitiveness, with 90% of enterprises in Europe accounting for only 10% of turnover.

Within the EU

As would be expected, the five largest member states in terms of population dominate the production of food within the EU.

The turnovers of all the food processing firms in Germany and France were respectively €187bn and €178bn, in 2012. By contrast, the turnover of the Irish industry was only €26.4 bn.

Italy, the UK and Spain also had turnover levels over €100 bn.

So Ireland, despite the priority for agriculture and food in public policy, and recent achievements, is still a small player in the overall EU market.

However, turnover per enterprise in Ireland is highest of all EU countries at €43.5m (for 607 enterprises), which is almost three times greater than the next member state, Denmark, with an average turnover per enterprise of €15.2m. So the scale of Irish food firms is not an issue in general.

However, when the Dutch economists looked at the general competitiveness of the food sector within the EU, they found the competitive position of the food sectors in the Netherlands and Italy to be strong. 

Ireland had an average position, while Germany, France and Denmark were weak. Our scale advantage did not apparently compensate for other weaknesses.

These results for the period 2008 to 2012 contrasted with those for 2003 to 2007, where both the Netherlands and Italy were weak, while Spain and Poland held top positions.

Such dramatic changes in “competitiveness” over such a short period are in my opinion, unlikely, and raise questions about the methodology or the data.

Report sheds interesting light on food processing industry

Dutch researchers say the EU food processing sector was relatively uncompetitive in the 2007-2012 period, despite its large share of world export markets.

They found equally interesting results in the individual sub-sectors, such as meat, dairying, fish processing.

Meat:

The EU meat sector has a turnover 40% greater than the USA, four times that of Brazil, and 12 times that of Australia. However, it is growing more slowly than all of these competitors. Its exports were growing at a faster rate over 2008 to 2012 than those of its competitors. Remarkably, there is very little growth in internal EU trade.

Ireland is estimated to have an average competitive position in the more recent period, but was more competitive in the 2003 to 2007 period.

Fish:

The EU fish-processing sector has a turnover three times that of the USA and 24 times that of Brazil. Likewise, it employs 3.5 times more people than the USA, and nine times that of Brazil. Nevertheless, it incurs a trade deficit of nearly €12bn.

Canada is the only major region included in the study which has a trade surplus in fish products. Within the EU, Ireland is judged to be most competitive, in the most recent period.

Dairy:

Combined turnover of dairy companies based in the EU was €140bn in 2012, compared with €85bn in the USA, and €11-15bn for each of the other three regions examined.

EU companies exported €37.7bn, but €29.5bn was to other member states, leaving exports to the world market at about €8.3bn.

The USA exported €3bn, but imported €1.4bn, for a net export surplus of €1.6bn.

Australia had a net export figure of €1.2bn, while Canada and Brazil were net importers of dairy products.

Despite having milk quotas during the period analysed, the EU increased its exports and its share of world markets.

As in other sectors, the size of enterprises in the EU is small, with an average turnover of €11.7m, compared with €77.6m in the USA and €27.1m in Australia. There were almost 12,000 dairy enterprises in the EU in 2012 (of which 55 were in Ireland).

The Dutch economists then proceeded, as for other sectors, to analyse the competitiveness of the dairy sectors within Europe. Their results for the period 2003 to 2007 had Poland and Ireland as the most competitive nations.

While Poland’s position is a mild surprise, the Irish position is in accordance with my expectations. Italy has the weakest position, followed by Germany, among the nine nations examined.

However, the results for the second period are startling and, to me, unbelievable, raising questions about either the methodology or the data. Doctors differ and patients die. Economists also differ, without the same consequences.

In the second period, Italy has suddenly become the most competitive dairy nation in Europe. And Ireland is a bad last, among the nine countries. I do not believe (and I was once a researcher in this area) such dramatic changes in competitiveness of nations can occur in such a short time period.

I have a theory which may account to some degree for the apparent poor performance. More than a third of Irish dairy exports in recent years are in the form of ‘fat filled powders’ and infant milk formula (see accompanying table).

This development of added- value nutritional products is one of the success stories of the Irish industry, which in the not too distant past was selling whey as a waste product to pig farmers, and selling thousands of tonnes of skim milk powder to intervention.

However, these added-value nutritional products appear in the trade statistics under quite different headings than butter, cheese and yoghurt.

Similarly, their production may be classified in the census of industrial production as ‘other food products’. So the statistics on the dairy sector may not be taking into account this movement into high added- value products by our industry. 

Beverages:

The beverages industry includes water, beer, wine and spirits, but not fruit juices, milk or coffee. In terms of turnover, it is the third largest sector in the EU after meat and ‘other foods’, with turnover of €148bn, against €84bn in the USA, and €24bn in Brazil. Of this, beer accounts for €47bn; water and soft drinks for €44bn; and spirits accounts for the biggest share of exports.

As with other sectors, the scale of European industry is small, with average turnover per enterprise eight times larger in Brazil and three times larger in the USA. The EU is the largest exporter, and the USA the largest importer among the major regions. Ireland and the UK are judged to be the most competitive of the EU countries.

This report is available online at http://edepot.wur.nl/369980 (Competitiveness of the EU food Industry by Jo Wijnands and David Verhoog of the LEI institute at Wageningen University, an internationally leading, independent socio-economic research institute).

It set one thinking.


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