report
2.4.1 Brief market description

The European food industry is with a share of 1.9% in the value added of the total economy (14.5% of the total manufacturing) and 2.2% of the employment (14% of the total manufacturing) Europe's second largest manufacturing sector after the metal industry. Reflecting the country size Germany, the United Kingdom and France together produce over 51% of the EU's value added. The EU is also the largest exporter and importer of food products. On the other hand, the competitiveness of the European food industry is weak compared to the US and Canada.[1]

The European food industry is weak in economies of scale and in labour productivity. However, it is powerful in attracting sufficient capital and labour, is open to the world market and is in an open internal and external competition.

The food industry is characterised by a considerable diversity of products and firms. It is made up of about 310 000 companies. There are few European multinational companies competing worldwide with a wide variety of products. In terms of turnover, the biggest food companies in the EU are in the United Kingdom (Unilever, Diageo, Cadbury-Schweppes), France (Danone) and the Netherlands (Heineken). In addition to a relative small number of very large multinational companies 99% of all enterprises in the food sector are small and medium sized enterprises (SMEs). Therefore, SMEs play an important role in the European food industry (dominantly in the southern part of Europe). The food industry sector is thus relatively traditional and relatively less impacted by advanced technologies.

According to the study of Wijnands, van der Meulen and Poppe, 2006 the European food industry is shaped by the following external factors:

• § Lower population growth in the EU compared to the US and other countries, which results in a lower growth of demand for processed food in the EU.
• § Consumers prefer more convenient and healthy food and ethical issues are becoming more important: both in relation to higher levels of income and wealth.
• § Although the technology development increases the efficiency and efficacy of raw material use and biotechnology enables production of functional food, use of new technologies is controversial in the EU.
• § Innovation (including micro-machine processing) stimulates product differentiation in the market responsive food chain. The level of R&D expenditures in the food industry is rather low compared to total manufacturing. However, it should be recognised that R&D is important in the food industry, but its character is different. Innovation in the food industry is more process, marketing and management oriented and less technology-push based on basic science. R&D investments are relatively (in a % of production value) higher in major EU exporting countries like France, UK, the Netherlands (0.6%) and Denmark than in the US (0.35%). In Germany and Italy the R&D investments are relatively lower.
• § The philosophy of the Common Agriculture Policy shifted from market price support to income support decoupled from production but coupled to public goods. As a result, product price gaps between EU and world market levels have declined substantially.

[1]   For the comparison see e.g. Wijnands, van der Meulen and Poppe, 2006.