EU food R&D spend behind competitors

In 2004, the R&D intensity, expressed as expenditure in the food and drink industry as a percentage of industry output, was, on average, 0.24 per cent, according to figures released this month by the Confederation of Food and Drink Industries (CIAA).

This percentage is below the spending by the food and drink industries of its main competitors.

The equivalent figures for the US is 0.35 per cent, Australia at 0.40 per cent and Japan tops out at 1.21 per cent.

The figures are particularly relevant as the EU market share of the global exports market is shrinking.

It was 20 per cent in 2005, compared to 24 per cent in 1997, the CIAA stated.

Exports totalled €48 billion in 2005, a gain of 5.3 per cent compared to 2004, while imports added up to €43 billion, a gain of 5.5 per cent.

Within the food and drink sector, Nestlé was the world's biggest R&D investor in 2005.

Unilever ranks second, although its R&D figure includes all the company food and non-food activities.

Apart from these enterprises, three EU and four non-EU companies spend over €100m on R&D in 2005.

Worldwide R&D investment continues to be concentrated in technology hardware, pharmaceuticals, biotechnology and automobiles.

The food sector ranks 15 th in the industrial sectors by aggregate R&D from the global top 2000 companies.

The CIAA found that innovation targets five trend categories: pleasure, health, fitness, convenience and ethics.

North America is the only region in the world where health-driven innovation is dominant, accounting for 32.4 per cent of spend, the CIAA stated.

The notion of pleasure as a driver for innovation in Europe is slightly above the world average, according to the study.

The convenience category is loses importance both in the EU and in the US, when measured by R&D spend, the CIAA stated.

In Europe, innovation spend on foods targeting the diet trend increased in 2005 and became the second dynamics for innovation before the convenience trend, according to the CIAA report.

Worldwide, the dairy sectors continue to be leaders in innovation.

Frozen products, biscuits and groceries for aperitifs registered increases while cheeses fell from the third to the sixth place.

Innovations in water and soft drinks also decreased, the CIAA stated.

The amount of innovation undertaken by firms tends to increase with firm size, the CIAA stated, refering to a large European study on the role of small and medium sized (SMEs) businesses.

"Nonetheless, a number of indicators demonstrate that most food companies, including SMEs, are genuine innovators and look continuously for opportunities to innovate," according to the CIAA analysis.

Two categories can be distinguished within companies that innovate.

These are the "big innovators," large and medium-sized companies that invest many resources in R&D and frequently introduce new products on the markets.

The second category of companies, the "small innovators", are those that innovate without introducing radical changes and that are mostly small enterprises.

Of the 85 per cent of all firms that carry out product and process innovation, at least 40 per cent do not have a department dedicated formally to R&D.

Instead the decisive factor is the percentage of qualified personnel, the CIAA found.

Product improvement is the top activity for SMEs.

Such innovations lead to a quick improvement in those characteristics of a food product immediately related to satisfaction in terms of taste and nutritional value.

Process improvement comes second among the changes pursued by SMEs, the CIAA stated.

"By contrast, major product and process innovations are relevant for a majority of large companies," the report stated.

"These innovations are targeted at the introduction of technical changes with substantial effects on the industrial activity of companies."

The number of patents owned by each company is a frequently used indicator to assess the propensity to innovate in an industrial sector.

Patents are possessed by a small number of companies, generally large ones but not so infrequently by medium firms.

The study on SMEs was funded by the EU.

It looked at innovations within the food industry across 11 member states.

About 1,200 SMEs took part in the project.

In a majority of member states, the food and drink sector features in the top three manufacturing industries in terms of turnover.

In at least 10 countries, it ranked first.

The "various food products" category is the largest sector of the food and drink industry, accounting for 26 per cent of total turnover and 42 per cent of the workforce.

This category includes bakery, pastry, chocolate and confectionery products, pasta and baby food.

The meat sector, beverages and dairy products are also key branches of the industry and, together with the "various food products" category, represents 77 per cent of the total turnover and 84 per cent of the total number of employees.

About 60 per cent of the turnover in the meat, dairy, various food products and beverages categories is processed in four member states.

France ranks first in the meat and dairy sectors, while Germany dominates the "various products" category and the beverages sector.

Overall turnover was €836 billion in 2005, a growth of 2.6 per cent compared to 2004, making the EU's food and drink industry the single largest manufacturing activity in value added and employment terms.

However, labour productivity in the sector is considerably lower than in most other industries.

"Due to a relatively high proportion of part-time employment and a comparatively low percentage of higher-level skills, the personal cost per employee in the food and drink industry is below the figures registered for most other sectors," the CIAA noted.

However gross operating rate, which is one indicator of profitability, is relatively high in the food and drink industry due to lower personnel costs and relatively high value added products.

SMEs make up 99.1% of the food and drink business population.

These 282,600 companies generate 47.8 per cent of food and drink turnover and employ 61.3 per cent of the sectorial workforce.

Meanwhile large companies account for just 0.9 per cent of all food and drink enterprises but provide 52.2 per cent of the turnover, 53.8 per cent of the value added and employe 38.7 per cent of the employment.