ACCESS TO RAW MATERIAL

1
ACCESS TO RAW MATERIAL

• Food industry facing new challenges

2
1st short sight to Lactalis
2nd Food Company in France 1st Cheesemaker in the
world 2nd Dairy company in the world 8 Billion
litres of milk processed 9,5 Billion
turnover 32 500 employees worldwide
3
LactalisPrestigious brands
















4
Activities (2006)
5
A rear sight on history of CAP

• CAP has been settled in the 60s to modernize
  European agriculture
• The objectives were clear
• Modernize agriculture and allow farmers to be
  competitive
• The principles were simple
• Very high prices comparatively to world prices
• Guaranteed by intervention
• No quantity limit for sales to intervention

6
The successes of CAP

• Europe has become rapidly self-sufficient
• The productivity of agriculture has been rapidly
  improved
• The farm restructuring has been slow, allowing to
  maintain many middle-size farms
• Responding to the necessities of land occupation
• Slowing the rural exodus during the 60s and 70s
• Politically, it was a success

7
The disadvantages of CAP

• The intervention systems have been successful and
  efficient
• but so much efficient that they have brought out
  huge excess of production
• and consequently huge expenses for CAP
• and critics from third countries due to
  distorted competition
• and critics from consumers and importing
  countries within the EU
• Was it good or bad for food industry ?

8
Food industry and CAP

• Such protective environment has been comfortable
  guaranteed prices help to have predictable
  business
• With perverse effects
• High prices for cereals lead to expensive inputs
  for meat products beef, pork and poultry
• No necessity to be competitive Europe is
  protected and restitutions help to
  competitiveness
• Trade barriers are very efficient to protect from
  imports

9
The food companies policies until the 90s

• In the sectors where CAP was implemented, many
  food companies have been modelled on a strategy
  of volume instead added value
• No necessity to add value with marketing and
  innovation
• Emergence of big co-operatives which deal with
  subsidies and deliver products to intervention
  they only have to manage a strategy of volume,
  permitted by growth of production
• Addiction to subsidies
• Weakness of marketing expenses an RD less
  necessary
• Few companies invest to create brands and added
  value, except multinationals

10
The food companies policies until the 90s

• High prices for raw material gives an easier
  return, it favours trade between EU member states
• For instance
• Total world cheese trade 1,6 MT
• Intra EU cheese trade 3,4 MT
• Similar for sugar
• The strength of the single market allows small
  companies to be maintained without external
  competition

11
The changes in the 90s

• Due to external (and budgetary !) pressures, EU
  begins to reform the CAP
• Lower farm prices and direct subsidies to farmers
  are implemented
• Limitation of restitutions
• From 2000, less access to intervention
• Big changes for many companies which were not
  ready

12
The changes in the 90s

• The limitation of restitutions changes the scope
  of food industry
• Less competitive on basic products
• Less access to third countries markets
• The products with high added value and brands are
  only able to compete
• Necessity to turn to EU domestic market
• But which products to be sold if the company has
  always dealt with commodities ?

13
The changes from the 90s

• For many companies within the EU, the time has
  come to change their strategy
• Three simple solutions
• Create added value shifting from subsidised
  commodities to consumer products
• Concentrate in big companies within Europe
• Delocalize outside Europe
• Some  small  problems
• Which products ?
• Which brands (private labels ?)
• Which approach to retailers ?

14
The changes from the 90s

• The changes are considerable for many companies
• Delocalization for sugar and poultry
• Concentration for all basic industries
• Outsourcing for multinational companies
• These changes have to be managed in the framework
  of a global reform with less subsidies, and
  increased competition from third countries
• Many companies in difficulties mergers and
  creation of big players

15
The new agrofood situation

• Price decreases lead to a weakening of the
  structures of production in countries where the
  restructuring has not been strong enough (France,
  Germany)
• Agricultural activity is less attractive, and
  producers are prompted to change their production
  with new decoupling rules
• Many farmers think agriculture has less future
  and want to give up

16
The new agrofood situation

• At the turn of the century, food industry faces
  new challenges
• Necessity to find new outlets within EU
• New challenges about nutrition in sugar, dairy,
  meat industry
• Weak competitiveness on world market for
  commodities
• Weak competitiveness on prices due to small
  agricultural concerns
• Is it so serious, doctor ?

17
New challenges

• Agrofood industry is able to cope with these
  challenges
• A strong image of quality products from Europe
• A strong network of middle-sized companies with
  high added value
• The surge of big companies in many sectors which
  are able to compete and develop
• A strong and competitive retail sector

18
The new challenges

• All that is true, but the weaknesses remain
• Many small farm structures
• Consequently, high prices to be paid to farmers
• Still many small companies
• Restructuring has still to be maintained
• Prices have still to be lowered
• Until the surprise of 2007

19
The  surprise  in 2007

• Competition from biofuels lead to competition for
  land
• Weather conditions have lead to a decrease of
  production
• Decoupling had strong effects
• Prices of cereals are booming
• Prices of milk climb to new highs
• What may be the consequences of this new
  situation ?

20
The new situation

• It proves that Europe has still many assets
• Capacity to be a reliable provider of raw
  material
• Capacity to be competitive on world markets
• Industrial facilities with a good potential
• It proves that price decrease had economic limits
  
• But it does not solve the main questions

21
Some questions for the future

• Localisation of production will still change
• For instance, where is the potential for milk
  production ?
• In Holland, Denmark and Poland
• In these conditions, where will be our factories
  ?
• Prices will remain highmainly for meat products
  which will be disadvantaged
• Added value is more than ever a priority taking
  into account the new competition from developing
  countries
• However, the domestic market is strong and vast,
  with high purchase power consumers

22
Trying to conclude

• Europe has a weak competitiveness in terms of raw
  material
• It has to improve its performances in terms of
  structure and price
• But it has many assets, the main ones are
• Added value, even if to be improved
• Image
• Consumers
• People who are real entrepreneurs
• Sufficient for a bright future !

23
Many thanks for your attention and dont
worry,we will be competitive !