SOCIETA ITALIANA DI ECONOMIA AGRARIA XLVII Convegno di Studi L agricoltura oltre le crisi Campobasso, settembre 2010

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1 SOCIETA ITALIANA DI ECONOMIA AGRARIA XLVII Convegno di Studi L agricoltura oltre le crisi Campobasso, settembre 2010 CONSUMER FIRST: A NEW APPROACH TO THE AGROFOOD CHAIN IN THE HIGH LEVEL GROUP ROAD MAP Autori: Bertazzoli A. 1, Coomans M. 2, Ghelfi R. 1, Mattas K. 3, Samoggia A. 1 1 Alma Mater Studiorum - Università di Bologna (Italy) 2 European Commission 3 Aristotle University of Thessaloniki (Greece) Abstract: The objective of this work is to offer critical analysis of the emerging issues and the policy approaches adopted in order to improve the competitiveness of the agro-food chain at European level. Results show that only by strengthening and improving agrifood chain integration, Europe s food industry can challenge global competition, rural economies can create and retain value, and there is an increase in economic growth and employment. In particular, the European Commission s High Level Group on Food Chain Competitiveness initiatives at local level pointed out that European food chain competitiveness could be improved if a number of conditions are supported. First, consumers should become the focus of a better integrated and better functioning food chain, approached holistically. Second, stronger R&D investments on food chain initiatives, should also lead to a more environmentally oriented agro-food system. Third, the European Union should promote a CAP demand driven and simplify and harmonize regulations, so to facilitate agro-food SMEs orientation towards innovation and internationalisation processes, which must be promoted to assure competitivity for the future of the whole sector (SMEs represent about the 95% of the total sector). To conclude, there are a number of exogenous challenges to the European agro-food system which should be faced through endogenous initiatives aimed at facilitating systemic relations among companies, based on an innovative, integrated, sustainable food chain approach. Keywords: Agro-food chain, competitiveness, food industry 1

2 1. Foreword Agri-food sector is facing new challenges due to emerging economic and social trends. These are either exogenous to food sector, such as climate change, global economic downturn, and shrinking CAP budget, or endogenous such as consumer concerns on food safety and consumer trust, and an evolving consumer behaviour change - i.e. healthy foods, premium and indulgence foods, ethical, organic and locally produced foods - and concentration of market power on a few retailers. These trends have influenced and transformed the whole food chain. The special role and positioning of the food chain in the EU s socioeconomic environment call for strong attention on preserving sustainability of the food chain, and securing the competitiveness of the food sector in the world market, as the agro-food chain constitutes the backbone of the EU competitive economy. 2. Objectives The main objective of this paper is to carry out a critical analysis of the emerging issues and the policy approaches adopted in order to improve the competitiveness of the agrofood chain at European level. In particular, the paper analyses the outcomes of the regional conferences promoted by the High Level Group (HLG) on the Competitiveness of the Agro-Food Industry, and the HLG Roadmap of Key Initiatives. This analysis allows to identify the main issues considered relevant for the competitiveness of the Agro-Food industry and the factors influencing the competitive position and sustainability of the EU agro-food chain. First, the paper presents the European political framework towards the food chain approach, to understand the role and the importance of the HLG initiative. Then the paper highlights the projects which lead to the HLG regional conferences, sequentially focusing on the issues which are currently at stake in a number of European countries. 3. European political framework towards the food chain approach An increasing interest in food chain issues is witnessed at all EU political and programming levels, that is European, national and regional. At EU level, both DG Agriculture and DG Enterprise are focusing on the competitiveness of the food chain. CAP reforms (2003 and Health Check 2008) are promoting an agricultural sector better responsive to the market by freeing EU farmers from restrictions and prescriptions, thereby creating a CAP geared towards consumers and taxpayers. In addition, as stated in the Community strategic guidelines for rural development programming period 2007 to 2013, approved by the Council, the reformed CAP and rural development can make a key contribution to competitiveness and sustainable development in the coming years. In particular, one of the main lines of activities in rural development policies and plans for 2007 to 2013 is Axis 1: Improving the competitiveness of the agricultural and forestry sector. Community strategic guidelines for rural development state that rural strategies should improve the competitiveness of the agricultural sector by focusing on the priorities of knowledge transfer, modernisation, innovation and quality in the food chain. Thus, a highly integrated EU food sector and well functioned and connected can challenge global competition and contribute to the EU s economic growth. The challenge is quite hard and the tools needed to win it are difficult to set up as well, for 2

3 the predominance of SMEs, which represent 99% of all enterprises and 50% of total turnover. They are key for economic growth and job creation as 62% of workers in the sector are employed in SMEs. Also at EU member states level, the food chain approach is increasingly adopted [3]. Italian Rural Development Plan strongly focuses on food chain as a way to promote development and competitiveness of rural areas and economic actors active in rural territories. Moreover, since 2002 UK national government has supported a public initiative called Food Chain Centre, part of the national strategy to improve the competitiveness and profitability of farming, whose vision is most efficient UK food chain supported by the most effective flow of information. Also UK current Rural Development Plan strongly supports food chain initiatives as a way to foster development and increase chain actors profitability and this list can go on. 4. The High Level Group (HLG) on the Competitiveness of the Agro-Food Industry The most well known and systematic initiative at the EU level to deal with Agro-Food chain competitiveness is the creation (2008) and support of the High Level Group (HLG). The HLG on the Competitiveness of the Agro-Food Industry was set up by Commission Decision of 28 April 2008 (2008/359/EC) and launched officially on the 12 June 2008 by Vice-President Verheugen, following the study "Competitiveness of the European Food Industry - An economic and legal assessment" and the conference: "Promoting the leadership of the Agro-Food Industry" held in November The purpose of the group is to identify the factors, future challenges and trends that can influence the competitive position of the European Agro-Food Industry and to formulate short and long term recommendations for actions and the required regulatory framework. The work carried out is based on an integrated and holistic approach to include all relevant existing policy areas, all sectors and all actors involved through the food chain, adopting the so called from farm to fork approach. To reach its purposes, the HLG put toghether all the actors of the chain, i.e. producer and consumer and, for the first time, retailer, including as well mainly representatives of selected Member States and of civil society 1. The HLG, promoted by DG Enterprise and Industry, is an interdirectorate initiative which sees the involvement of officials from DG Agriculture and Rural Development, DG Consumer Protection and DG Health. In order to feed the discussion and to recommend actions and/or policy measures to the High Level Group, the Food Unit of the DG ENTR assumed a proactive behaviour and arranged a series of regional meetings in a number of Member States from 2008 to Within this framework several interactive conferences were organised in several EU countries, each one focusing on a particular issue of the agrofood sector. The regional conferences were promoted by the European Commission and organised in cooperation with national coordinators. Stakeholders and operators of the food system were invited. Conferences started with a number of presentations carried out by key speakers so to stimulate the following open discussion and SMEs have active role 1 3

4 throughout the conferences. Afterwards, the national coordinators synthesized the discussion in a report. The first conference was held in Brussels, November 2007, focusing on an holistic and chain approach, and designing a framework programme to boost the competitiveness and productivity of European businesses, and especially SMEs. According to the modern SMEs policy some lines of action were considered in order to promote entrepreneurship and skills, improve SMEs access to market and growth potential, endorse better regulation for SMEs and encourage dialogue with the business community as well. The outcome allowed to identify a number of challenges that needed to be addressed in the followed conferences (Appendix 1). The outcomes provided by the Agro-food conferences have been analysed and have been extremely valued as they highlight very clearly the needs, the constraints and the elements required to strengthen food chain competitiveness. First, all regional conferences carried a unique message the whole food chain is an inextricable system that cannot be partitioned and must be seen as a whole via a holistic approach of analysis and policy. That means all relative issues - social responsibility, sustainability, consumer choice, and the biobased economy should be approached including all the actors from farm to folk. In addition, a holistic approach means that the consumer (market) is the main driver and consumers needs shall be placed first to influence and reshape the whole chain. The necessity of redesigning the value chain to gain markets, improve efficiency and effectiveness have been underlined. Buying power in the supply chain is in the buying desk. Operators should accept the demand driven supply chain and understand the consumers (and retailers) needs in order to improve their role in the supply chain. They should accept their role as a basic supplier, a key supplier, or a favourite supplier as well, when retailers become brands themselves and become the major competitor of agro-food SME s Conflicts, mainly with retail stage, may be resolved and turned into cooperation and risk sharing aim. In a consumers driven perspective competition between stages can be alleviated by a cooperative behaviour. Relationships in the chain can turn from competition to coo-petition. Therefore, there is more to be done in the area of communication related to fair contractual relationships to both food entrepreneurs and consumers. Fair and sustainable distribution of added value along the food supply chain is a key factor to raise its overall efficiency, competitiveness and sustainability in the interests of primary producers, processors, retailers and consumers. The chain approach requires an harmonized set of policies. CAP measures must be more coherent within the pillar I and II framework and should pursue market trends. Looking at the future everything seems to indicate that the opening of the EU market will be one of the political lines that will mark its evolution in the next years. However, there have been very few proposals to foster the external dimension of the EU agri-food system. The complexity of the industry really brings various overlaps in legislation. In addition, stakeholders stated that there is a slight attitude towards over-standardisation or strict enforcement of legislation, due also to the lack of adequate cost-benefit appraisal when preparing and implementing guidelines. 4

5 A sustainability policy is both a challenge and a major opportunity for the food chain. Agro-food sector needs to improve its competitiveness investing for innovative environmental solutions and improving energy efficiency. Improvement of transport efficiency and sustainability is essential for the European long-term competitiveness and especially within the food industry. European countries pointed out that the internationalisation processes of agro-food SMEs are weak. There is a need of developing export networks and instruments to promote the participation of agro-food SMEs in global markets. Among the various promoting initiatives, enterprises need better tailored information on international markets and market researches. In addition, there is a weak policy and supervision over international standards, since European exports are affected by both the EU regulation and third countries ones. Finally, regional conferences strongly focused on the R&D issue. Improving the structure of the agro-food sector requires the introduction of research & innovation processes as the main driving force of economic growth and the key factor in business competitiveness. Innovation in production and processing should be stimulated. Investments in R&D and technological change are important pieces for the strategy of the companies to be implemented through EU technological platforms. 5. European food industry system: recommendations for competitiveness The European food industry is an important sector which spans a wide range of economic activities. This industry is characterised by a complex value chain, which links the procurement of agricultural raw materials, through their processing, up to the consumers. A quantity of economic and social interests are strongly interconnected to the sector: a systemic approach is required. Souce: M. Coomans, Competitive Agro-Food Industry -Competitiveness of the European Agrofood Industry, Malmo, October 15-16,2009 5

6 The food system framework is based on the acknowledgements that the agro-food is a strategic industry, with the highest number of employees, unique, as it connects culture, traditions, individual or collective identity and ethics, and finally is complex, as economic and social interests are strongly interconnected to the sector, thereby creating the need to establish a systemic approach to the issue. HLG adopted an holistic approach to his task, so that a number of major policy areas that have an impact on the operation of the European food industry were tackled. The HLG, in March 2009 endorsed a set of thirty recommendations and in July 2009 approved the Roadmap of Key Initiatives, which contains actions intended to implement the 30 recommendations (Appendix 2). These are addressed to policy makers at the European level and focus on the following areas of interest: Agricultural and Environmental Policy; The Internal Market for Food; The Operation of the Food Chain; Research and Innovation; Trade and Exports. 6. The chain approach: consumers first Starting from the consumers and their needs, the EU vision for the agro-food chain founded on the following elements: reconsidering and reengineering the whole chain through an increase in technological efficiency, and enhancing the ability to exploit context situations and new firms organisational forms. The outcome should be an improved overall competitiveness, with respect to Large Scale Retail and foreign markets as well. 6

7 FROM PUSH PULL Agriculture - Processing Retail TO DEMAND DRIVEN Agriculture Processing Retail Consumers The analysis and identification of consumers needs is fundamental and should guide the actions of all the food chain s actors. When the transmission of consumers needs occurs through a hierarchic organisation (from retail to processing, from processing to agriculture) conflicts for power take place. Where some players are very structured, organized and strong, and some players are many, unconnected and weak, the power of negotiation is unbalanced creating unsatisfying production and selling processes. This becomes particularly important now that consumers are evolving their preferences and innovation is needed in order to further improve food attributes, such as quality, safety, ethics, values, etc. 7. Emerging issues The holistic approach indicates that future policies on the agro-food chain should rely on extensive collaboration in the food chain, on social responsibility, sustainability, consumer choice, and the bio-based economy. A holistic approach also means that the consumer is the main driver and consumers needs shall be placed first to influence and reshape the whole chain. Moreover, the debate is still strongly concentrated on how sharing the pie, whereas the EU wants to shift the attention on how to boost the pie. In this view, the general issues that should be carefully considered are the contractualisation of relationships among chain actors, the agrilogistics to boost the efficiency and reduce wastes, and the innovation. With respect to these general issues, some key issues could be taken into consideration: Meet consumers needs, improving communication along the chain and developing the understanding of markets and consumers needs; Improve the food chain integration and optimal functioning, stimulating a pull strategy approach starting from consumers requirements. There is the need to 7

8 promote sustainable and market-based relationships along the food chain and to favour a fair balance of power among stakeholders. Tools and contracts for risk sharing are needed too; Greening the agro-food system, promoting eco-innovation transfer of knowledge and technology to SMEs as well as financial support to foster energy efficiency in the EU agro-food sector; Join the CAP with the demand driven approach, enhancing the CAP to match competition policies and taking into account of the chain approach in the rural development policy; Simplify and harmonize regulations, alleviating regulatory protection certification, simplifying standards, including the novel food regulation, aiming at a red tape reduction; Improve competitiveness in the global arena, improving transparency in trading rules, endorsing the harmonization of sanitary regulation and supporting the creation of export networks; Enhance R&D contributions, improving joint research through the food chain. The food chain integrated approach is really now increasingly being adopted by the European policy makers. The same view shall be applied within the research activities in the fields in order to effectively tackle emerging challenges for this key component of the European economy. 8. References European Commission, Enterprise and Industry Directorate General, (2007), Competitiveness of the European Food Industry: An economic and legal assessment, Brussels European Commission, Enterprise and Industry Directorate General, Food Industry Unit (2009), Report on the Competitiveness of the European Agro-Food Industry, Brussels European Commission, Enterprise and Industry Directorate General, Food Industry Unit (2009), Final Recommendations of the High Level Group on the Competitiveness of the Agro-Food Industry, Brussels European Commission, Enterprise and Industry Directorate General, Food Industry Unit (2009), High Level Group on the Competitiveness of the Agro-Food Industry - roadmap of key initiatives, Brussels Feurer R., Chaharambaghi K. (1994), Defining competitiveness: a holistic approach, Manage. Decis., 32 (2), Hammer M., Champy J. (1993), Reengeneering the Corporation, Harper Business, New York, NY Grant R.M. (1991), The resource-based theory of competitive advantage: implications for strategy formulation, Calif.Manage.Rev., 33 (3), Porter M.E. (1980), Competitive strategy, The Free Press, New York 8

9 Porter M.E. (1985), Competitive advantage: creating and Sustaining Superior Performance, The Free Press, New York Jo H.M. Wijnands, Harry J. Bremmers, Bernd M.J. van der Meulen, Krijn J. Poppe (2008), An economic and legal assessment of the EU food industry's competitiveness, Agribusiness Vol. 24 (4) , Wiley Inc. 9

10 Appendix 1 - HLG regional conferences Slovenia This conference was focused on promoting competitiveness in the agro-food industry. Main specific issues addressed were the access to raw materials, the supply chain integration, the industry relations with the retail sector and the networking and access to know how and information. France The French conference targeted on promoting a competitive European food industry, explored how defining and measuring the competitiveness of the agro-food sector, understanding purchasing behaviour and imagining new organisational innovations, promoting a cluster approach to coordinate actors active in RTD, innovation, business, policy making, etc. The Netherlands This conference, focused on innovation and agro-food logistics addressed three main issues. Agro-food logistics, illustrating value creation via innovative supply chain integration. Biobased economy, whereby industry increasingly makes use of resources in a sustainable way. Food innovation, whereby novel food product properties are combined with consumer appeal attributes. Sweden Focused on new trade opportunities in a globalized world, the conference was concentrated on the importance of quality aspects, the impact of price volatility on the access of raw materials and on the opportunities an implication of the bilateral trade agreements. Greece In the view of promoting and supporting entrepreneurship, the main issues addressed at this conference were agro-food logistic, entrepreneurship, certification and organic products an private label oriented production. Spain The conference, gathered around innovating to differentiate products and gain new markets, covered the main issues of the position, role and the potential development of cooperatives, the role of dimension (size, integration) information strategies for the agro-food sector and the impact of price volatility on the access of raw materials. Italy The last conference, focused on the innovation for the agro-food chain, highlighted that innovation is not only about technology, but also about organisation and new approaches to human resource management. Innovation is really the key development drivers for enterprises equipped to take up new opportunities and tackle market challenges. 10

11 Appendix 2 - Final Recommendations of the High Level Group on the Competitiveness of the Agro-Food Industry 1. Ensure a holistic approach for the European agro-food industry Agricultural and Environmental Policy 2. Continued support for an ambitious development of the CAP 3. Sufficient supply of competitively priced raw-materials 4. Design environmental and sustainable industrial policy to minimize costs and maximize opportunities for the European agro-food industry 5. Promote energy efficiency for the European agro-food industry The Internal Market for Food 6. Promote high quality and comprehensive impact assessments for the European policy and legislative measures 7. Continued harmonised interpretation and implementation of European food legislation 8. Efficient authorisation procedures for novel foods 9. Enhance the European incident management system The Operation of the Food Chain 10. Better support for SMEs 11. Better access to finance 12. Simplify access to funding research programmes 13. Facilitate access of agro-food SMEs to global markets 14. Support effective integration of SMEs in the food chain 15. Ensure proper and optimal functioning of the food chain 16. Study the effect of private labels 17. Increase attractiveness of European agro-food industry 18. Establish a social dialogue in the agro-food industry 19. Encourage ICTs use in the agro-food industry 20. Promote clarity and coherence of information to consumers Research and Innovation 21. Enhance research and innovation efforts 22. Better use the instruments available in research and innovation policy 23. Support development of new food technologies Trade and Exports 24. Pursue the objective of reaching a WTO balanced agreement 25. Seize market opportunities by means of bilateral trade negotiations 26. Better promote international trade standards 27. Enhance respect of intellectual property rights by third countries 28. Define better the position of European agro-food industry in global market 29. Simplify customs formalities 30. Promote a sector-specific approach for the rules of origin 11