The future of agriculture and food industry. Agenda. Europe and EU-28. Share of turnover in EU manufacturing industry

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1 Share of turnover in EU manufacturing industry The future of agriculture and food industry Other Food and drink (%) Presentation for: Department of Agricultural Economics and Rural Development, School of Economics, University of Economics Ho Chi Minh City, Vietnam Automobile (2%) Henning Otte Hansen University of Copenhagen April 26 Basic metals Chemicals Machinery and equipment Coke and refined petrolium Fabricated metal products Agenda The structure and development of food industry: European and global perspective Challenges for the food industry Food industry and food markets in the future Farms in future structural developent in a global perspectivr Value added in food industry (% of total manufacturing industry) Country % Greece 28,2 Croatia 26,4 Lithuania 2,2 Ireland 2, Spain 9,8 Bulgaria 7,8 Latvia 7,6 France 7,2 Poland 6,7 Netherlands 6,7 United Kingdom 6,6 Portugal,9 Denmark,2 Romania, Belgium 4, Estonia,9 Italy,9 Austria 9,9 Hungary 9,8 Finland 9, Czech Republic 8,8 Slovakia 8,7 Slovenia 7,4 Sweden 7,3 Germany 7, EU-28 2, Norway 8,6 Switzerland 7,7 Europe and EU-28 Top-2 European food companies No. Company Country Bill. Products Nestlé CH 74,9 multi-product 2 Anheuser-Busch InBev B 3, beer 3 Unilever Plc NL/UK 24, multi-product 4 Groupe Danone F 2,3 dairy, water, baby & med. nutrition Heineken N.V. NL/UK 8,4 beer 6 SABMiller UK 6,9 beer 7 Lactalis F F,7 dairy 8 Diageo Plc UK 3,3 alcoholic beverages 9 Associated British Foods UK,8 sugar, starch, prepared foods Friesland Campina NL,3 dairy Vion NL 9, meat, ingredients 2 Carlsberg DK 9, beer 3 Arla Foods DK 8, dairy 4 Pernod Ricard F 8,2 alcoholic beverages Ferrero I 8, confectionery 6 Südzucker D 7,9 sugar, multi-product 7 Danish Crown DK 7,6 meat 8 Sofiprotéol F 7,3 vegetable oils, multi-product 9 Kerry Group IRL,8 multi-product 2 Tereos F, sugar, multi-product

2 Food share of total consumption in United States, Canada and Denmark 3 Food industry: A stabilizing sector 3 2 Denmark 2 United States Canada Production in the EU manufacturing industry, Index Jan. 28 = 3 2 Pharmaceutical products Food and drink 9 8 Basic metals 7 Manufacturing Computer etc. 6 Automobile Food s share of total consumption and level of economic development GDP per capita (US$) (log. scale) Food industry will play a decreasing role during economic development Food industry and agriculture: Changing roles 2

3 Distribution of value added in parts of the food sector in Europe Long term development of food industry companies 6 6 Agriculture 4 Food industry Total number of agricooperatives in the U.S. Number of cooperatives Number of dairy cooperatives in Denmark Dairy cooperatives Structural development of European food industry: Number of companies Total number of food companies in the U.S.. companies Number of food industry companies in Denmark Dairies.2 Pigmeat Structural development of European food industry: Size of companies 6 4 Poultrymeat 7 6 Feed and fertilizer

4 Average size of food companies in Denmark, Index 96 =. Food companies in U.S: Top and top share Top Top Top : Excluding alcohol Cooperative dairies: Average size in the U.S. and Denmark Million kg. per company Denmark U.S Average concentration in Danish food industry Top 4 Top The biggest (Top ) and four biggest (Top 4) companies share of total turnover in the sector. Weighted average. Structural development of European food industry: Concentration Structural development of European food industry: Ownership 4

5 Dairy cooperatives in EU and other countries (%) Ireland Sweden New Zealand Norway Finland Austria Denmark Netherlands Portugal United States Luxembourg Kenya Poland U.K. Belgium Gernany France Brazil Italy Canada Spain Greece EU-country Cooperative intake share of total milk supply Percent Structural development of European food industry: Globalization Market shares for dairy cooperatives in USA and Denmark Denmark U.S.A Global trade (per cent of world production) Soya beans Average Beef and veal Poultry Pork Strategic steps in development of companies Foreign investments and M&As Agriculture and food: Production and cross border trade 7 Index 9 = Domestic consolidation Export Many European co-ops in this phase Difficult for co-ops Cross border trade Production

6 International trade and foreign direct investment (FDI) stock Flower production - Kenya % of GDP International trade FDI Global outsourcing Production of vegetables - Kenya Foreign country Global outsourcing within food and agribusiness Production of vegetables - Kenya Pigmeat: Slaughtered in Europe, processed in China Fish: Caught in Europe, processed in Asia Flowers: Production moves from Europe to Africa etc. 6

7 China and foreign investments in food sector Driver: Access to food resources /3 of farms for sale on New Zealand: Chinese investors Investments in Africa > % of investments in Africa: Natural ressource sector USD Biillion FDI flows to Africa China: FDI flows to Sub- Saharan countries USD billion * Structure development in European food industry Size Number Concentration Globalisation Ownership Foreign direct investment (FDI) Liberalization -> globalization of food industry and markets The agenda for European food industry Market price support to agricultural products in EU and OECD, Nominal Protection Coefficient,9 Retail industry European food industry: Threats to growth and profits,8,7,6, EU Transport costs Labour costs Input prices No support,4,3,2 OECD,, Food standards GMO Animal welfare % of respondents Based on interviews with managers of European food companies 7

8 Top- biggest companies: Total turnover Billion US$ Retail industry Food industry Market share of top- European retailers Turnover by top- European food and retail companies (24) Million Euro 3 European retail chains: Foreign sales (% of total sales) Delhaize Metro 4 3 Carrefour Auchan Tesco 2 Walmart Food companies Retail companies Development in retail concentration Consumers Forbrugere USA Customers Kunder Brazil Korea Market shares of top-3 or top-4 retail companies Food Chain in Europe Outlets Butikker 7. Supermarkeds- 6 markets kæder Magt Buying Indkøbs- alliances alliance Manufactures Forædler 8.6 Semi- Industriel Manufactures producent 8. Suppliers Udbyder 6. Landmænd/ 3.2. Farmers Producenter 8

9 Market share for private labels in the food sector Retail market power Market power Schematic diagram illustrating the development of power structure in the food sector The political consumer Agriculture Landbrug Wholesale Fødevareindustri Food Retail Consumers Forbrugere industry % 9% 8% 7% 6% % 4% 3% 2% % % Private Label (PL) and Brand market share, and 22f Value PL and hard discount Mainstream PL Premium PL B-Brand A-Brand Super Premium Economic development Brands Private labels Retail market power through private labels 9

10 Schematic diagram of the structural development in food retail trade Number of units Specialised shops with food products Food service Schematic diagram of the structural development in food retail trade Number of units Specialised shops with food products Food service Time Time Food retail - supermarkets Schematic diagram of the structural development in food retail trade Number of units Specialised shops with food products Supermarkets Supermarkets Supermarkets Food service Time

11 Food service European food industry and markets in the future * From a producer to a consumer orientation * A greater focus on qualitative parameters * Food Safety * Origin * Health * Convenience * Eating out * Functional foods * Non-Food * Global markets and global consumers Retail power: What can food industry do? * Production of private labels for retailers * Closer cooperation with retail chains * Development of own strong brands * Low-cost strategy * Match the retail chains in size * Match the retail chains geographically * Alliances with competitors * Forward integration * Direct sales * Niche orientation * Segmentation - specialisation in product areas Eating out as a percentage of the total USA 3 Canada 2 Denmark 2 U.K European food industry and markets in the future * Increasing globalization * Bigger companies * Fewer companies * New niche-oriented companies will arise * Cooperatives will remain some will change * Increased vertical integration * More global strategic alliances * Conglomerates will come back * More non-european ownership The future of agriculture - structural development in a global context

12 The structure (size) of farms is very different around the World Place and date Canada Slide 7 dairy farm 4 cows New Zealand - Dairy farm > cows Place and date Slide 68 Canada dairy farm 4 cows Place and date Slide 69 New Zealand - Sheep farm Place and date Canada Slide 72 dairy farm and dairy (8 cows) 2

13 Canada dairy farm and dairy (8 cows) Place and date Argentina Slide 76 dairy farm and dairy. > 4 cows Canada family farm poultry production Place and date Slide 77 Argentina dairy farm and dairy. > 4 cows Uruguay extensive cattle farm > 2 animals Place and date Slide 7 Canada large scale tomatoe production Low labour cost, high capital cost per kilo of tomatoe 3

14 Typical Danish pig farm Canada large scale tomatoe production Place and date Canada: Slide 8 Large scale technology -> economies of scale Tanzania dairy cows Typical Danish cattle farm Indonesia goat farm 3 goats per farm 4

15 Kenya labour vs. technology Kenya large scale coffee production foreign ownership Yes, different structures... and it depens on: Natural conditions Price of labour and capital Infra structure Access to technology Etc. Place and date Slide 86 Kenya intensive family farming for export Structural development of farms: The general picture: Farms grow bigger in developed countries..... and smaller in developing countries. Place and date Slide 87 Kenya large scale tea production foreign ownership

16 Structural development of farms: Economies of scale Structural development will be lagged from country to country.... Cost pr. unit produced We can use the development of these pioneers to predict the future structural development in other countries Av. size of farms J VTN Gr I F US Optimal size of company Size Time Structural development of farms: Developing countries can utilize economies of scale and benefit from structural development Livestock per farm Economies of scale: Potential to utilize Economies of scale: Fully utilized Time Total economically active population in agriculture ( farmers ), 98-2 Million persons World Least developed countries Asia Europe N America Million persons What is economies of scale? Number of farms 6

17 Development in the number of farms in selected countries 92 = 2 Size of farms 8 6 Denmark 4 Sweden USA Number of farms 94 = Farm structure: Arable land per farmer Index 94= 4 Hectare per person,6 Hectare per person Egypt Philippines India,4,2,8,6 World Asia Europe Least developed countries USA Netherlands Denmark ,4 4, change in number of holdings 99-2 and GDP per capita change Developed countries: Less but bigger farms Farm structure: Average number of hectare per holding Hectare per holding 2 2 Europe - Developing countries: More but smaller farms Asia World -... US$ (2)

18 Size of farms and herds and GDP per capita Hectare per holding Chickens per holding Hectares S. Africa Australia Saudi Arabia Chickens Algeria Number of pigs per herd in Canada, the Netherlands and Denmark Pigs per farm (log. scale). Denmark Japan.,... Cattle per holding US$ (2) Cattle... Pigs per holding US$ (2) Pigs Netherland Canada... US$ (2)... US$ (2) Global pattern In particular for livestock there is a clear correlation between countries' economic welfare (GDP per capita), and the herd size. Overskrift her Tekst starter uden punktopstilling For at få punktopstilling på teksten, brug forøg indrykning Number of dairy cows per herd in USA, New Zealand and Denmark Dairy cows per farm (log. scale) New Zealand For at få venstrestillet tekst uden punktopstilling, brug formindsk indrykning For at ændre Enhedens navn og Sted og dato : USA Denmark Klik i menulinjen, vælg Indsæt > Sidehoved / Sidefod. Indføj Sted og dato i feltet for dato og Enhedens navn i Sidefod Farm sizes (hectare per farm) in Denmark, USA, Sweden and Canada. Index 92 = 4 4 Index 92 = Overskrift her Tekst starter uden punktopstilling For at få punktopstilling på teksten, brug forøg indrykning Specialization 3 3 USA Canada 2 2 Sweden Denmark For at få venstrestillet tekst uden punktopstilling, brug formindsk indrykning For at ændre Enhedens navn og Sted og dato : Klik i menulinjen, vælg Indsæt > Sidehoved / Sidefod. Indføj Sted og dato i feltet for dato og Enhedens navn i Sidefod 8

19 Specialization Less mixed production Less diversified Farmers specialize focus on one sector Increase size and economies of scal How to measure concentration? For example: The share of the top-2 percent Share of farms with poultry Sweden Denmark USA Concentration and inequality in EU agriculture in terms of land size Top-2% Gini-coefficient Gini-coefficient, So concentration may fall during economic GDP per capita development (USD) in EU,6,4,2,8,6 Concentration Vertical integration: Cooperatives and contract production 9

20 Why cooperatives?? A way to organize the value chain Giving farmers profit earned in processing Giving farmer more (equal) market power Farmer cooperatives are most important within livestock Farmer cooperatives are most important in developed countries Contracts between farmers and processing companies More and more common Reduce risk Access to raw materials Examples of the significance and spread of cooperatives (I) In Argentina, there are 2,67 co-operative societies with over 9,3 million members In Uruguay, co-operative produce 9% of the total milk production, 3% of honey and 3% of wheat. In Poland, dairy co-operatives are responsible for 7% of dairy production. In Singapore, consumer co-operatives hold % of the market in supermarket purchases In Vietnam, co-operatives contribute 8.6% of the Gross Domestic Product (GDP). In Norway, agricultural co-operatives hold 96% of the market for raw milk and % of the cheese market, 8% of the imber market, over 7% of the egg and fur markets, and 2% of the seed market. Co-operatives provide over million jobs around the world, 2% more than multinational enterprises Agricultural contracts (% of total agricultural production) in USA and EU EU USA Examples of the significance and spread of cooperatives (II) Agricultural co-operatives in the EU have over % share in the supply of agricultural inputs and over 6% share in collection, processing and marketing of agricultural products In Japan, 9% of all farmers are members of agricultural cooperatives In Kenya, co-operatives have 7% of the coffee market, 76% dairy, 9% pyrethrum, and 9% of cotton. In New Zealand, co-operatives are responsible for 9% of the dairy market, 9% of the export dairy market, 7% of the meat market, % of the farm supply market, 7% of the fertiliser market In US, the share of all milk delivered to plants and dealers by cooperatives was 86 percent in 22, up from 48 percent in the mid-93s. Agricultural employment s share of total employment as a function of GDP per capita US$ (22) 2

21 USS Agricultural productivity as a function of GDP per capita Big is beautiful.... Conclusions and lessons... Utilize economies of scale and be more competitive Sometimes small is beautiful; * Small farm -> feed the family * No alternative employment (no pull and push) * Low labour costs... US$ (2) Conclusions and lessons Food industry will play a decreasing role during economic development Increasing retail market power Global trends Conclusions and lessons Developed countries - Number of farms - Size of farms - Specialization - Concentration - Economies of scale - More competitive through size and economies of scale - Agriculture food industry Structure of livestock: Developing countries will follow developed countries in the long run? Structure development in European food industry Size Number Concentration Globalisation Ownership Foreign direct investment (FDI) Thank you for listening Any comments or questions are welcome: Henning Otte Hansen: hoh@ifro.ku.dk 2

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