4.1. The concentration of the main agricultural products by regions

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1 4. REVIEW OF THE CONCENTRATION PROCESSES IN THE AGRICULTURAL SECTOR AND INSIDE THE DOWNSTREAM SECTORS OF THE AGROFOOD CHAIN One of the main concerns for farmers is the constant struggle to maintain and, if possible, improve market competitiveness. Within an era of liberalisation of the markets, competitiveness will remain a key issue for those involved in agriculture. From this point of view, the Mac Sharry reform has marked a profound change of strategies in the CAP, since agricultural prices will become less administered, but rather and more and more linked to market factors. These comprise not only the set of relationships within the agricultural sector (for example, competition between producers of the same product or between two cooperatives of farmers which sell substitute commodities), but also the sets of transactions between farmers and the operators of the upstream and downstream sectors. A major outcome of an integrated market is the tendency towards specialisation processes and new relationships inside single filiéres. Agriculture is by no means an exception to this rule. Indeed, specialisation and concentration 1 both at farm and geographical level is one of the distinguishing features of present commercialised agriculture. In this chapter, we will examine two elements of the integration occurred within the food industry. Primarily, we will investigate the concentration of agricultural production at regional level; this could be useful since: (a) it could show the distribution at regional level of the financial support allocated through EAGGF Guarantee Section Expenditure. This issue has been analysed in (b) Chapter 3; it could provide precious insights about the competitiveness among regions, which will characterise more and more the EU agrofood market. The analysis has been conducted for the main kinds of agricultural products, by using the Eurostat regional data from 1989 to Concentration indexes by product have been calculated and presented on maps. Secondly, we will have a look at those modifications undergone in the downstream sectors of the food industry. After a brief review of the changes in the relationship between agriculture and food manufacturing and retail actors, we will evaluate which firms and, eventually, which countries get the major advantages from the EU liberalised market within the food industry The concentration of the main agricultural products by regions Our descriptive analysis comes out from measuring the relevance of each EU region for the main agricultural commodities 2. We have considered the concentration of the value of production for the first five regions and then for the first twelve regions. For our purposes, we have selected the most important products of the EU agriculture, such as cereals, cattle, pig, poultry, fresh fruit and vegetables, wine and milk. The importance of these products in the EU Final Agricultural Production has 1 2 Specialisation has to be associated with a gradual disintegration of functions, which has marked the passage from subsistence farming to the present market oriented agricultural system. Concentration is the process related to the sharp decline in the number of buyers or sellers of agricultural and agrofood products. The list of the regions considered for our calculations is presented in Appendix 4.A

2 changed over time; as an overall trend, we note a gradual increase of crop product and a fall of animal products production. The rise of importance of crops is mainly driven by fruit and vegetables, wine and other crops and crop products (like flowers and ornamental plants); cereals is the only crop product for which we record a decreasing share in the EU FAP. As for animal products, we note a steep decline of importance for cattle, combined with a slighter fall for milk; whilst positive developments have been recorded for pigs and poultry production (graph 4.1). Graph 4.1 Changes in the composition of the EU-15 Final Agricultural Production: variation of each product share in the EU FAP [1982/ /98] Cereals Sugarbeet Industrial plants Fresh vegetables Fruit Wine Olive oil Other Crops Cattle Pigs Sheep Poultry Milk Eggs 1982/ /98 Source: our elaborations - Eurostat data From 1989 to 1996, the concentration of the EU agricultural production grew at regional level for all the main products (table 4.1). In 1996, the importance of the top five regions in EU FAP varied from 18% for cereals, which is lowest level of concentration, to 35% for pigs, the highest level. Considerable level of geographical concentration have been recorded for wine, the share of the top five regions is 34,7% in total EU wine production, for fresh fruit, with a share of 34,7% for the first five regions, poultry and fresh vegetables, with shares equal respectively to 29,5% and 27% for the first five regions. Lower levels of concentration have been calculated for milk and cattle; the share of the top five regions in EU FAP is 21,7 for milk and 21,3% for cattle production. In 1996, the importance of the production for the first twelve regions was generally greater than 40% of the EU production, with 54,4% for fresh fruit, 45,9% for fresh vegetables, 58,5% for wine, 38,4% for cattle, 59,5% for pigs, 48,5% for poultry, 40,6% for milk, and only 36,1% for cereals. Table 4.1 Concentration of the main agricultural groups of commodities by regions [% of the first three and twelve regions, ] 1996 cereals fresh fruit fresh vegetables wine cattle pigs poultry milk Cumulative percentage of the top five regions Cumulative percentage of the top twelve regions EU Production (million ECU) cereals fresh fruit fresh vegetables wine cattle pigs poultry milk Cumulative percentage of the top five regions Cumulative percentage of the top twelve regions EU Production (million ECU) cereals fresh fruit fresh vegetables wine cattle pigs poultry milk Cumulative percentage of the top five regions Cumulative percentage of the top twelve regions EU Production (million ECU) Source: Our elaborations - Eurostat data

3 The geographical concentration in agricultural production is significant and has been increasing in the last years. The importance of the principal regions has been changing in different ways for the principal products. From 1989 to 1996, for fresh fruit, the importance of the first five regions has increased by nearly five percentage points, from 28,9% to 34,3%; for fresh vegetables and pigs, the percentage increase has been equal to about 4 points, respectively from 23,1% to 27% and from 31,2% to 35,2%. Lower rise has been recorded for the other products, while it seems that milk production is as concentrated as in the past. A quick view of maps 4.1, 4.2, 4.3 and 4.4 shows that animal products are mainly produced in Northern Italy, Southern and Northern Germany, in Bretagne and in the Pays de la Loire, in Denmark and Ireland, in Vlaams Gewest, in Netherland, in Southern England and, in some cases, in Eastern Spain. Cattle production shows a concentration and localisation which is similar to that of milk: milk and beef production are often linked to each other if they are not conducted in the same farm. In many cases, regions, which are important producer of cattle and milk, cover also a significant share in pig production; whereas poultry production often presents a different localisation from those of the other animal products. By analysing the competitive factors characterising the various regional systems for meat production, Fanfani and Brasili (1995) 3 showed that the exchange of meat products among regions and countries are growing and the inter-branca exchanges are more and more important for consumers. This implies a greater competitiveness in meat production among regional system. As concerns cereals, the production is mainly localised in France (Centre, Picardie, Midi-Pyrénée, Champagne Ardenne, Aquitaine, Pitou Charentes,), in Castilla y León, in Denmark, in Bayern and Baden-Württemberg, in Lombardia and Piemonte, and in some british regions (map 4.5). Wine production has also the geographical core in France (Aquitaine, Champagne Ardenne, Languedoc-Roussillon, Provence-Alpes-Côte d'azur, Bourgogne Rhône- Alpes), in Rheinland-Pfalz. Lower but important levels of production have been observed in Sicilia, Puglia, Veneto, Emilia Romagna, and Baden-Württemberg (map 4.6). Fresh fruit and vegetables production (maps 4.7 and 4.8) are mainly concentrated in Southern Europe, but consistent level of production are also recorded for Vlaams Gewest, Netherlands, Bretagne and Pays de la Loire, Baden-Württemberg and Nordrhein-Westfalen. The main Southern regions in the production of fresh fruit and vegetables are Emilia Romagna and Trentino, the spanish coastal regions, mainly Andalucia and Comunidad Valenciana, Southern France, that is to say in Provence-Alpes-Côte d'azur and Languedoc-Roussillon. As a general trend, mediterranean products have shown to be vital on EU and world markets, increasing also their shares in EU FAP. Anyway, we have to point out two factors: 3 Fanfani R. and Brasili C., 1995, Productive Specialisation and Dynamics in European Regions: the main Meat Producing Sectors, in The Regional Dimension in Agricultural Economics and Policies, edited by Franco Sotte

4 (i) (ii) within the mediterranean regions, some have shown a great capacity to compete on the markets, by concentrating the supply and modernising the logistic and distribution systems. By so doing, spanish farmers have increased their market shares in the export markets; on the other hand, the competitiveness of Southern Italy s agriculture has decreased, mainly because of a scarce capacity of connecting with the other operators of the food chain. As result, the italian shares in fruit and vegetables production have declined while we record considerable improvements for Spain (graphs 4.2 and 4.3). some vegetables, like tomatoes, traditionally produced in Southern Europe, are being cultivated and successfully commercialised by dutch or belgian farmers (graphs 4.2). From a technological point of view, this partial shift of production is due to important innovations, like greenhouse vegetables and new varieties, which make possible practicing the cultivation of some varieties in areas where the climate and soil conditions for centuries have been main natural constraints. In economic terms, technological improvements will make possible the global competitivity by marking the end of comparative advantages based on natural conditions. 35 Graph 4.2 Evolution of the distribution of the EU fresh vegetables production: Member States shares in the EU fresh vegetables production [1982/ /98] B DK D EL E F IRL I L N A P FIN S UK 1982/ /98 Source: our elaborations - Eurostat data

5 40 Graph 4.3 Evolution of the distribution of fruit production within the European Union: Member States shares in the EU final fruit production [1982/ /98] B DK D EL E F IRL I L N A P FIN S UK 1982/ /98 Note: fruit production is the sum of fresh fruit (apples, peaches, pears, nectarine), citrus fruit and grapes Source: our calculations - Eurostat data The delocalisation of agricultural production in relation to natural conditions, and the subsequent relocalisation generated by economic factors, is of big concern for cohesion issues. The main problem is that when the concentration of production is mainly determined by economies of scale at the level of firms, and by economies of scale generated by the interaction with the other economic agents, then the result may be the agglomeration of agricultural production in those areas which are already well endowed in terms of infrastructure, and with advanced links between agriculture and the rest of the food chain. The most recent developments in the genetic industry have created new incentives for the entry of the private sector in agricultural research. This is already leading to a strong expansion of the supply of varieties of plants and animals to reduce costs of production and cut transformations costs. Furthermore, these new elements set up the conditions for substitutions among inputs and for significant shifts in the european and international distribution of the agricultural production.

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