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Welcome to the 2nd lesson of module 1 - Challenges and Trends in the agro-food value chain.
In this lesson I'll give you an introduction to the challenges and
trends and the agro-food value chain in the European Union.
The agro-food value chain contributes significantly to the European economy.
In addition the sector plays an important cultural and societal role and contributes the vitality of rural communities.
It is critical for food security and food traditions.
The sector contributes 6% of all gross value added in the EU economy: Value added means
the value of goods and services produced minus the cost of the raw materials
and other inputs used to produce them. The sector generates 11% of
all EU employment with a large portion of this employment being in the distribution of its products.
In 2013 the sector's export was 120 billion euros
with a positive trade balance of almost 19 billion euros.
This means that the EU agro-food sector exported significantly more than what it imported.
Even though this sounds positive, the competitiveness of the EU agro-food sector
has been a matter of concern for several years.
In 2007 a study initiated by the EU Commission found that the competitiveness
of the European food industry is weaker than that of the US and the Canadian food industry
and approximately equivalent to that of Australia. The level of competitiveness in this study
was measured via a series of indicators that
capture various aspects of the growth in value added, export shares, and
productivity in the sector. These indicators are
the growth and real value-added of the manufacturing sector in the food industry.
The growth of the Balassa index. This index reflects the export specialization level in one category of goods from one country.
The growth of the export share on the world market.
The growth of real labor productivity.
This affects the unit labor costs and in this way the relative process.
And the growth of real value-added which reflects industrial dynamism.
In order to identify why the agro-food sector is underperforming, it is important to
understand the trends and challenges of the sector in the last few decades.
The agro-food sector has changed significantly over the last few decades.
This is manifested through important trends, which include: globalization, structural changes
(especially with regard to farms and the retail sector), changes in consumer preferences
and environmental awareness, advances in biotechnology and
in information and communication technologies, and finally demographic changes.
We will now explain and discuss these trends and the challenges they bring in more detail.
The agro-food sector is becoming increasingly global
This is driven by decreasing transportation and transaction costs and
by trade liberalization thanks to the efforts of the World Trade Organization.
With increasing globalization, many EU agro-food businesses face increasing
pressure from new competitors, specifically, from emerging economies such as Brazil and China.
While the EU is lagging behind, these emerging economies
are gaining shares on the food export market. In addition, there are still some
barriers for the sector within the EU: for example, the lack of harmonization of
regulations across countries makes it costly for some businesses to expand
into new markets. The agro-food sector is also undergoing important structural
changes, particularly in the primary and the retail sector.
EU agricultural statistics reveal that in the primary sector farm numbers are continuously decreasing.
At the same time one can observe a gradual transformation of
farms into small companies managing large operations.
In the retail sector concentration is also increasing but at a much higher level.
This is happening because large firms are growing even larger, and large firms are
acquiring smaller ones. This increasing concentration places retailers in a
strong position in their business relationship with suppliers.
The strong position of retailers towards suppliers is also reinforced by retailers forming buying groups.
An example of a buying group is CORE, a group formed by the
German retailer REWE, the Belgian discounters Colruyt,
the Italian cooperative CONAD and the Swiss cooperative COOP.
In the EU (as in other developed countries), consumers are the main drivers of the development of the agro-food value chain.
As the basic calorie needs for a large share of the population are satisfied
consumer demand is becoming more sophisticated.
The price continues to be an important element in consumer decision making when it comes to buying food.
However, consumers are increasingly interested in high quality,
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diversified and healthy food. Consumers also show preferences for sustainable
and ethical production systems, partly because consumer environmental awareness is on the rise.
The fact that consumers environmental awareness is rising is
relevant for the agro-food value chain, because the chain contributes
significantly to the environmental impact in greenhouse gas emissions.
For example, it has been estimated that agriculture alone contributes 9% of the
total EU greenhouse gas emissions. At the same time 70 to 80 percent of deforestation
is driven by the conversion of forests into arable land.
Changes in consumer preferences and in environmental awareness
resulted in additional and more stringent EU legal legislation.
Aiming at preserving the environment, ensuring food safety, fighting obesity,
and improving animal welfare and working conditions for employees.
are at the center of these EU legislation. However stakeholder of the agro-food value chain
also indicate that the additional regulations have significantly increased
the administrative burden on firms. The possibilities of bio technologies and
information and communication technologies, short ICT, are growing.
These developments have the potential to reduce the environmental impact of the
agro-food value chain, improve consumers health, and enhance productivity.
However, taking advantage of these developments often requires an upfront
investment in infrastructure, which not all firms can afford.
Also not all kinds of bio technologies are accepted by the general public, as in the case of GMO in the EU,
and not all ICT are easy to adopt by an aging workforce.
Finally, the last trend identified is the demographic and labor supply change. EU statistic say
that by 2050 about 27% of the EU population is going to be older than 65.
The aging population implies that there are more people moving out of the
workforce then moving into it, which creates a shortage of labor supply.
This is particularly difficult for the agro-food value chain as young people
are more attracted by new industries. The farming sector is an
extreme example, in which currently the average age of EU farmers is already 55 years of age.
But this is not only a challenge, but also an opportunity, especially for
young people with an interest and a good education in the agro-food value chain.
The EU has recognized this problem and
sponsors initiatives to address it. This online course is one of them.
With this slide we conclude Lesson 2 of Module 2. Thank you for your attention
Hannes LangResearch Associate
Luisa MenapaceProfessor
Faical AkaichiResearch Economist
Francesco BimboResearch Economist
Montserrat Costa-FontResearch Economist
Carlo RussoAssociate Professor
Chenguang LiResearch Economist
