Knocked by an economic slowdown and the strength of the Euro against the US dollar, growth in turnover for the European food and drink industry rose by a 1.9 per cent wisp from 2002 to 2003, concludes a new report from the US government, Lindsey Partos takes a look.
The salient points listed below feature in the latest GAIN report on the food processing ingredients sector, collated by the US department of agriculture.
Structure Accounting for 13.6 per cent of the total EU-15 manufacturing sector in 2002, the EU's food and drink (F&D) industry is still the largest manufacturing sector in the EU.
As the demand forfood products is relatively static, the F&D sector's activity is less cyclic and more constant than manufacturing in general. The F&D sector is less affected by economic fluctuations than other sectors but also shows more modest growth.
The turnover of the F&D industry in the EU25 amounted to €799 billion in 2003, on the back of slow growth of turnover, 1.9 per cent in 2003.
Reflecting their demographic weight, France, Germany, UK, Italy andSpain are the leading producers in the EU. Together, they represent around 65 per cent of total EU turnover and 50 per cent of the employment.
A relatively fragmented sector, a few multinationals - Unilever, Diageo, Danone, Cadbury Schweppes for example - compete on the global market with global brands and a large range of products, while smaller enterprises serve local markets and concentrate on regional preferences.
With 4.1 million employees, the F&D industry is a major employer in the EU with 61 per cent employed in small and medium sized businesses. But this figure has dropped: in 2001 99 per cent of the companies in the F&D sector were SME's with less than 250 employees.
Food and Drink Sectors The EU F&D industry traditionally has four major sectors: "various or other food products", beverages, meat processing and dairy products, that together represent around 80 per cent of the EU's F&D sector's total turnover.
With €65 billion in 2001, the "various foods" category is the largest contributor to the EU-25 value added. A heterogeneous group, products in the category include bakery, pastry, chocolate and sugar confectionery products, noodles and pasta, tea and coffee, plus all other non-defined or relatively new food processing activities.
The manufacture of bread, fresh pastry goods and cakes was the largest activity in this category.
Meat processing sector generated €31 billion in profit on a turnover of €161 billion; and despite facing several animal and human health safety crises such as dioxin contaminated poultry, BSE, foot and mouth disease, Avian Flu, the sector has maintained and even improved its position within the F&D sector.
Dairy products brought in €18 billion in profit on a turnover of €117 billion.
"Facing a saturated final market, the dairy sector responded to changing consumers' demands by introducing low-fat products and fresh products in most product segments and uses health claims as a marketing tool for product differentiation," say the report authors.
On €118 billion turnover, the beverage sector generated a value added of €31 billion in 2001, with the largest product segment in volume terms being packaged water.
The beveragesector is marked by a strong differentiation of products and has, in contrast to many other food products, high advertising budgets. Multinational corporations dominate the beverage market and typical for the EU beer market are exclusive distribution contracts whereby brewers control a network of outlets to exclusively sell their beer brands.
Consumption According to 2001 estimates, 13 per cent of household budgets in the EU15 was spent on food and non-alcoholic beverages, but the share of the budget spent on food fell between 1995 and 2001, mainly as a result of increasing available household income. Logically, the share varies with GDP per head: the lower GDP per head of a country, the higher the share of money spent on food.
For the EU25, factors such as culture, tradition, household composition, income and degree of urbanisation can influence habits in each member state.
"The enlargement of the EU with 10 new member states has made these variations even more prominent than before," comments the report .
Consumer patterns across theenlarged EU reflect income differences but also the availability of goods and services. In the 1990's, the share of the household budget spent on housing increased in the EU-15 while the share spent on food dropped proportionally.
This is not the case in the new member states where food is still the largest expenditure, largely due to lower income levels.
Food choice Food choice is not only based on individual preferences but is also determined by social, cultural en economical circumstances. Population studies have indicated that there are clear differences in social classes with regard to food and nutrient intakes.
"Low-income groups have a greater tendency to consume unbalanced diets. As the price premium on healthy foods in also greater in low-income groups, there is a stronger reliance on energy-rich but nutrient-poor foods. This leads to both under-nutrition and to overweight and obesity," claims the report.
As expected, the report underlines nutrition and health as major driving forces for research and the development of new products within the EU F&D industry.
New ranges of low-calorie products and products with lower levels of fats, sugars and salt are being developed to cater to diet-conscious consumers. Other major drivers for food innovation are pleasure, ethics, well-being and convenience.
According to figures from the CIAA , 'pleasure' has the top driver for innovation, representing a considerable 46 per cent share of the main drivers in Europe. Convenience has a 25 per cent slice, followed by health and well-being with 16 and 12 per cent respectively. Ethics represents a tiny 1 per cent share of main drivers for innovation.
Among the 'most innovating categories' in Europe, dairy runs at the top with 12.4 per cent, followed by cheese, ready made meals and frozen products with 6.6, 6.4 and 6.2 per cent respectively.
In 2003, the value of total EU exports of food and drink products amounted to €44.5 billion, a slight decrease compared to 2002 (-4 per cent).
With total EU imports amounting to €38.7 billion in 2003, there was a positive trade balance of €5.8 billion.
The US is still the main export destination for European food and drink products, accounting for 21 per cent of total EU exports. Other important markets are Japan, Russia and Switzerland. Brazil, Argentina and the US are the main suppliers of food and drink products to the EU. Imports from Brazil and Argentina are mainly soybean oilcakes used in animal feed.
The two most important categories in terms of exports are beverages and various food products, which covers chocolate, biscuits, confectionery and food preparations. Together they represent more than half of total EU exports of food and drink products.
Contrasting with the strong performance of the various foods category (+3.4%), exports of the meat sector, in particular poultry meat (-20 per cent) suffered on competitive world markets. Exports for meat fell from €4.45 billion in 2002, to €3.9 billion in 2003.
And exports of grain mill product, starches and starch products fell 6 per cent to €1.75 billion in 2003, down from €1.86 billion the previous year.