The shrinking export share has led to calls by the association for a greater share of public research and development money, less burdensome regulations and community programmes to reduce raw material prices.
In its report released yesterday, the Confederation of the Food and Drink Industries of the European Union (CIAA) said it will produce this year for the first time a competitive benchmarking report for the sector as a means of getting a better grasp on the issues facing the industry.
The association noted that the bloc's global share of the export market had been falling for the past 10 years, while countries such as Australia, New Zealand, China and Brazil had boosted theirs.
Meanwhile exports of EU food and drink products rose in 2004 and continued to grow in the first nine months of 2005, following a slight drop in 2003.
In the first nine months of 2005, exports grew by 4.8 per cent, while imports grew by 3.2 per cent. The trade surplus, which decreased substantially in 2003 and 2004, registered a 23 per cent increase in 2005.
The association described 2005 as a challenging year for the European Union, marked by the decision of voters in France and the Netherlands to reject the draft constitution, a "less than ambitious" agreement by the European Council on a financial programme for the bloc, and slow progress of world trade negotiations.
"Despite this and growing global competition, most food and drink sectors' growth and production value measures remained positive and stable, underlining the resilience and competitive potential of our industry which topped the European manufacturing league again last year," the association's president, Jean Martin, stated in his introduction.
The CIAA has been working on formulating proposals to increase the competitiveness of the bloc's food and drink industry since 2004. The organisation produced a discussion document at the end of 2005, highlighting problems specific to the sector and proposing solutions, including legislative ones.
The inadequate level of quantitative information for a specialised analysis of the sector has led to an EU programme to produce a study of the EU's food and drink industry.
"Fully developing the food and drink industry's potential for growth requires action at several levels," Martin stated. "This objective also requires a regulatory framework which is clear, effective, avoids unnecessary complications and establishes administrative procedures that are more rapid and less costly. It is also important that this framework does not put a brake on innovation in Europe."
The appeal is consistent with a CIAA report last year that low spending on developing new products and processing techniques coupled with sluggish export growth, has made the industry vulnerable to increased global competition.
The organisation calls for an increase in overall research and development spending to support innovation and promote a shift to higher value added food production.
The EU's research funding programme should provide a higher share of funds to the food, agriculture and biotechnology sectors, the CIAA stated.
Martin said the key challenge in 2005 was the European Commission's programme to improve diet, physical activity and health.
The CIAA has created a programme, called 'Food for Life', to focus the its members efforts on promoting the industry's image and efforts in relation to reducing obesity.
"Food and drink manufacturers are doing their part, voluntarily and responsibly, not just in terms of increased choice and reformulated products, but on all relevant fronts, including advertising, promoting physical activity, consumer education and information, as well as partnerships with public authorities and research," he stated.
The EU food and drink industry is the largest manufacturing sector in Europe, with an annual production valued at €815 billion. The sector employs four million workers.
However the sector is characterised by a high fragmentation of its structure, with a few large companies with a big piece of the pie, and many small businesses operating in niches.
According to a CIAA document published previously the bloc's spending on research and development (R&D) remains lower than in other economies when expressed as a percentage of output. The figure is known as "R&D intensity".
Even though the amount spent on R&D in the EU rose by 20 per cent between 1997 and 2001, it accounted only for 0.24 per cent of output in 2001, far beyond the average of 0.35 per cent of its main competitors, the CIAA stated.
Food companies in Australia, Japan, Norway and the US all spend relatively more on R&D than the EU. Japan sits on top of the pile with an R&D intensity reaching almost 0.8 per cent.
Within the EU R&D spending diverges from country to country. The Netherlands and Finland achieve an R&D intensity in the food and drink sector of about 0.50 per cent while new member states are characterised by very low levels. Food and drink companies from large member states, such as Italy, remain below average.
About 77 per cent of food products launched in 2004 were innovative in formulation and only 1.5 per cent of them were innovative in technology, the CIAA noted. Innovation on formulation increased to 77 per cent in 2004, from 66 per cent in 1999 while innovation on both packaging and positioning decreased.
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. It ranks first, ahead of the automobile and chemical industries.
In 2004, food and drink industry turnover reached €815 billion. It registered a two per cent rise in annual turnover compared to the previous year.
Membership of CIAA is made up of 24 national federations, including two observers. There are 32 EU sector associations, 21 major food and drink companies grouped together in a Liaison Committee.
The CIAA will hold its next international congress 26-27 October in Brussels.