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,