The EU agrofood sector: facts and challenges

1. The EU agrofood sector: facts and challenges IP Erasmus June 25th 2010

2. P 9 à 15 rapport EU • 25 à 57

3. Agrofood- Agroindustry?… Agro industry Industry dealing with the supply, processing and distribution of farm products. (Source: PHC) Agro Food….. For human food purpose A F I FARM INDUSTRY FOOD Alimentation, ingredients, processing aids, neutraceuticals ENERGY Carburants, Electricity, Heat MOLECULES Pharmacy, Hygien, Cosmetics, Detergents… MATERIALS Construction, Paper, Textile, Plasturgy, Metallurgy, Packaging

4. Definitions • EU AFI: snapshot • EU Agrofood sector– Impact of CAP • Evolution and consequences • EU AFI : today , tomorrow … challenges • What do we observe today? • Strengths & Weaknesses • Threats & Opportunities • An illustration: the meat & poultry meat area

5. EU Agrofood sector Snapshot EU Food & Drink characteristics

6. World exports of Agri Food products Total: 1127,7 mio$ P.prod: 913 % intra region PA 519,3 435,4 81% 178 134,1 42% 39 32% 213 164 56% 53,5 27 33% 125 111 15% WTO 2007

7. 965

8. EU Food & DrinkA heavy sector Largest EU Turnover 965 b € +3,2% Largest EU employer 4,4 million

9. EU Food & DrinksWhat’s in?

10. Share of main sectors in the EU Food & Drink exports -2008

11. EU Agrofood sectorA few « takeaways » • Value added: 2% EU GDP • Largest Manufacturing sector in the EU - 13,5% employment • 12,9% EU Turnover 2008- 965 b € +3,2% • Fragmented market: 310 000 companies, predominantly SME’s • Shrinking share in 17,5% global export markets • Insufficient R&D budget: 0,37% Now: a period of structural adjustment

12. EU Agrofood sector Impact of CAP Evolution and consequences

13. History of CAP • Settled in the 60’s to modernize European agriculture • Clear objectives: • Modernize agriculture • Allow farmers to be competitive • Basic principles: • Very high prices comparatively to world prices • Guaranteed by intervention • No quantity limit for sales to intervention

14. CAP and Agriculture • Europe self-sufficient • Quick improvement of productivity of agriculture • Farm restructuring slow  many middle-size farms kept • Land occupation • Rural exodus slowed down • ( 60’s,70’s) Success for intervention systems, resulting in huge … excess of production … expenses for CAP and critics: from third countries from consumers and importing countries within the EU CAP and AFI businesses Predictability of business……As prices kept stable -Competitiveness: expensive inputs -No need to be competitive Trade barriers Restitutions

15. Food companies policies 90’s 90 90’s  07 07 • CAP  strategy of volume for many companies • Subsidies “addicts” are: • Weak in innovation • Not “incented”to create brands and added value, except multinationals • Easy return • Intra EU trade • Large single protected market- SME

16. The changes in the 90’s Need for many companies to change their strategy 90’s 90 90’s  07 07 • EU begins to reform CAP • Lower farm prices and direct subsidies to farmers are implemented • Limitation of restitutions • Changing scope for AFI • From 2000, less access to intervention

17. EU Agrofood vs Production 90’s 90 90’s  07 07 • Production structures weakened in some areas • Agricultural activity perceived less attractive • Many small farm structures • Consequently, “high” prices to be paid to farmers

18. EU AFI companies policies 90’s 90 90’s  07 07 • Different strategies • Delocalization • Concentration • Outsourcing • Within a difficult context • Less subsidies • Increased competition from 3rd countries • Many companies facing difficulties • Too many SMEs – Restructuring has still to go on • Mergers, emergence of large players

19. EU AFI companies:challenges 90’s 90 90’s  07 07 • Find new outlets within EU • Nutrition challenges in sugar, dairy, meat industry • Weak competitiveness on world market for commodities • A strong image of quality products from Europe • Strong network of middle-sized companies with high added value • Emergence of large AFI cies • Strong and competitive retail sector

20. 2007 shock Possible consequences? 90’s 90 90’s  07 07 • Catalysers for price increases • Competition for land ( biofuels) • Speculation on cereals • Climate • Decoupling had strong effects

21. A few questions for the future 90’s 90 90’s  07 07 • Localisation of production will still change • In these conditions, where to process ? • Prices will remain high • Added value is more than ever a priority • Strong domestic market is still strong and vast, with high purchase power consumers

22. Takeaways • Weak competitiveness in terms of raw material • EU has to improve its performances in terms of structure and price • But holds assets, among which: • Added value, even if has to be further pushed • Image • Consumers

23. EU A.F. I. Today… and tomorrow Challenges

24. EU A.F.I. Today… and tomorrow Challenges What can we observe today?

25. EU Food & Drink industry ranks low Competitiveness of the EU Food industry- 2007 -LEI

26. EU Food & Drink industry ranks (usually low)by sectors Competitiveness of the EU Food industry- 2007 -LEI

27. Open to the World MarketEU: a major exporter – Intra EU share is hig % processed products vs agric prod Agric. Products – export moi$ 2007 Latam Eur NA Asia AME % export-intra zone

28. 31,3% 18,1% Shrinking share in world tradeTOP 10 exporting countries – Food products1967 – 2007

29. Emergence of Brazil and China in Food&Drinks exports

30. Trade balance still positive but…..Trade balance of Food & Drinks industries1999: base 100

31. E 52b€ E 58,2b€ I 48,2b€ I 57,1b€ To be even more accurate..EU Food & Drink trade balance2000-2008 (b€)

32. Importance of Intra EU tradeShare of EU in Food imports by EU member states – 1967/2007

33. Selective evolution per sectorEU Food & Drink sector’s balance2005-2008 – b €

34. Eur Sales 08-09 – 189 b€ WW Sales 08- 09– 557,5 b€ 34% Is « in »… open competition World AgriFood companies- Top 30 by Food & Drink sales WW

35. TOP 30 WW AFI companies

36. Top 30 European AFI companies by european Food & Drink sales

37. EU Agrofood Today… and tomorrow Challenges What can we see today? Why?

38. Value-added is medium, but still growing Indice base 100 -2000- Growth of value added/ employee - CIAA 2008

39. Weak in labour productivity( worldwide comparison)1000€/ employee – 2008 2005, Eurostat, SBS

40. Labour productivity growth 2007-2008(%) +0,1% -1,5% Weak in Labour productivity compared with other industries1000€/ employee 2005, Eurostat, SBS

41. Insufficient R&D expenditures CIAA Report 2009

42. EU Food &Drinks low in economies of scale • Highly fragmented market • 99, 1% companies are SME employing < 250pp But…. high in economies of scope • Cultural differences between • Specialized SMEs • Consumer preference for differentiated and healthy products

43. Small size companies Economies of scope Attractiveness: labour, € Value added Trade driven In open market- large cies in competition Small size companies Economies of scale Labour productivity Too low RD expenditures Exports & Trade balance down To sum up….Strengths & Weaknesses

44. EU Agrofood Today… and tomorrow Challenges Opportunities & threats

45. Population: a low « growth »EU 25 population -1980-2050 Eurostat

46. Population: less spendings in HH expenditures1995 -2008

47. Impact of retailers in EU

48. Increasing scale of the retail chainSales evolution in food retail and food processing 2001/2008 USDA

49. Increasing scale of the retail chainSeen from another angleEx: price evolution along the food chain( monthly price indices)

50. A threat?Comparative trends in retailing sector and AFI( Paris stock exchange-01/91: index 100) Sce: Datastream