Food Processing Overview

“The food and drink manufacturing sector employs over 40,000 people in the South West. Despite its relatively small size, in terms of employment, the sector provides a greater contribution to the region's GDP than found at the national level. Overall employment in the manufacture of food and drink is set to decline over the next few years as a result of technological development and automation in food processing and packaging. This development has increased demand for level 3 skills in supervisory and managerial occupations but progression into these roles from level 2 has generally been poor. In contrast, the number of small specialist manufacturers is expected to increase as niche markets, such as specialist cheeses and locally produced organic foods, are exploited and the level (and scope) of skills required for these jobs increase. Despite reductions in the number employed within the sector, higher level skills are becoming increasingly important to sustain productivity. In particular, the number of science and technology professionals, business associate professionals and sales occupations are all projected to increase in line with specialisation in production but diversification in job roles. In addition, it is estimated that a third of the existing workforce are aged over 45 and so demand for replacement is moderate." (ECOTEC, 2001)

The food and drink sector is a major UK industry whatever the definition. The industry’s contribution (manufacturing activity) to GDP has risen from less than £13 bn to around £19 bn in 2001. Employment (including some related jobs) is estimated at around 909,000 at the end of 2000 (around 512,000 if occupations exclusively in retailing are excluded).

It is somewhat difficult to estimate exactly the dimensions of a ‘food and drink’ sector for the South West industry, because it ranges from abbatoirs to seafishing, taking in milk delivery and restaurants on the way. The SWRDA definition suggests an industry employing 91,200 people (in 1997) (representing 11% of those employed in the sector across Great Britain), 5% of total employment in the region in around 2,650 firms (NOTE THESE STATS ARE DIFFERENT TO THOSE IN THE FIRST PARA OF THE INDUSTRY SECTION ABOVE – highlights the reported difficulty in defining the sector). The Skills Dialogue for the sector suggests employment of around 44,000 people in ‘Food, Drink and Tobacco’ using an IER estimate but excludes retail operations in this count. 54% are involved in land-based activities and 46% in manufacturing and processing.

What are the primary forces driving the industry – those which affect employment levels and skill needs? Examples are;

Bakery

Growth of supermarket power – in store bakeries – against small independent bakers/retailers.
Growth of substantial ‘chain’ bakers/retailers competing against independent bakers/retailers
Consumer demand for a greater range of specialised products & a trend towards ‘healthier’ products

Meat industry

Health worries: BSE; foot & mouth disease; antibiotics/growth hormones; ‘cooked meat’; ‘red meat’ issues have impacted on public consciousness.
Growth of supermarket power – in store butchery – against independent butchers.
Decline of local abattoirs.
Increasing regulation.
Increasing vertical integration with manufacturers becoming
increasingly involved in slaughtering and wholesaling.

Seafish

Fish stock and quota issues and attendant regulatory pressures.
Decline of local fishmongers in the face of supermarket power.
Increase in farmed stocks (with attendant environmental and quality issues).
Increased consumer interest in products beyond the traditional range of ‘British’ fish and seafood.

Dairy industry

The ‘politicisation’ of milk supply and pricing following industry deregulation in 1994.
Decline of doorstep milk delivery and concomitant rise in supermarket sales, power and price control.
Increased consumer interest in dairy products beyond the traditional ‘British’ cheeses and whole milk.

A range of common themes can be discerned:

Competition and restructuring favours large producers and vertical integration is driving independent operators into craft niches. Batch production methods continue to expand.
Consumer readiness to experiment with new, ‘non British’ foods increases import substitution for traditional British lines.
Heightened concern with food safety driving regulatory frameworks, which because of their costs, increasingly favour large operators against smaller ones
Mergers and acquisitions.

The employment consequences of these changes are broadly:

National increase in productivity in manufacturing (output per employee doubled between 1971 - 2000).
National decline in manufacturing and processing employment from 570,000 people in 1985 to below 500,000 in 2002. Forecast to fall below 450,000 by 2010.

Within food manufacture, the South West has a relative specialism in:

production and preserving of meat
dairies and cheese making
ice-cream manufacture
manufacture of fruit, vegetable juice, cider and wine
feed for farm animals
manufacture of chocolate
bakery
wine making
cider and other fruit wine making.

Future Prospects

Potential changes include:

adding value to production where further processing can ensure additional benefit of farmers e.g. increasing the returns on commodities (such as cheese) could be achieved by making it more differentiated or by attracting added value processors to the region and
improving quality to meet the stringent standards of retailers and caterers. South West producers will need to improve quality of their produce if they are to maintain their current market share. However buyers are likely to seek further price reductions even when quality is improved - only a few producers will be able to secure higher returns on their product though improved quality.

In the future innovative approaches are needed to enable owner managers and people working in small firms to have access to training. Computer based learning may play a significant role as it is often too difficult for small businesses to release staff for off-the job training. However, current access to technology and conversance with using it, is too limited.

The production / manufacturing sub-sector of the Food and Drink industry accounts for a substantial proportion of the UK’s exports, mostly in the form of value-added processed products (though the current strength of sterling has reduced commodity exports recently). Whilst employment is falling in agriculture and manufacturing as a consequence of technical innovation, it is increasing in the higher value-added and service side of the sector. This is also an area where employment is rising.

There needs to be better transference of technology, particularly to small and medium sized enterprises and the identification of processes from other manufacturing sectors, which may have value in the food sector. Better infrastructure is needed between primary research and the market and new ways of interacting with customers, for example, selling over the Internet and farmers markets where farmers can sell direct to consumers.

The South West has a solid base of large innovative Food and Drink manufacturers (with the likes of Cadbury Ltd in Bristol and Ginsters in Cornwall) which have seen increasing employment in recent years. These manufacturers are seeking to remain at the forefront of technology and innovation. Smaller Food and Drink companies may have greater difficulties in keeping up with the competition and need to increase their customer base by using internet shopping, or moving into organic produce and, where suitable, diversifying into new products and services. Help will also be required for suitable co-operative ventures to prevent further erosion of this sector on which the South West is reliant and enable producers to spread both the risk and cost of new ventures and take advantage of economies of scale. Such co-operatives are already evident in the region (e.g. Torridge Vale creamery in Devon) and may provide a template for other to follow. The RDA has a role to play in encouraging farmers to come together to form co-operatives and perhaps facilitate their creation, perhaps through initiatives like SWARD (South West Agricultural and Rural Development Project) which seeks to disseminate best practice and information on a variety of agricultural related subjects.

The longer term outlook may offer some new opportunities for the region as growth in agricultural biotechnology is likely to continue, driven by new environmental biotech. Advances in biomass and food preservation techniques are likely to be growth areas along with bioremediation of air, water soil etc. i.e. the use of living organisms to remove dangerous pollutants and hazardous waste. The applications of biotechnology in agriculture are many in number. Advances are likely, for instance in the engineering of new types of crops which are resistant to disease and pests or which can adapt to unfavourable land conditions. Other advances are possible in animal husbandry with the introduction of genetically modified animals that grow faster than normal livestock. There are also links from agri-biotech into pharmaceuticals with fields of research devoted to producing animals which themselves produce pharmaceutical products or medicines.

A Profile of the food and drink sector in the south west

Definition: The food and drink sector is a large one which includes 47 individual activities as defined by the Standard Industrial Classification (SIC) codes. Broadly, the sector can be divided into two separate sub-sectors - land-based activities and food processing and manufacturing:

(i) the land-based sector

agriculture (crops and livestock)

the equine industry

fisheries management

fish farming

game conservation

horticultural production

Land based activities also include environmental conservation, countryside recreation, game conservation, the landscape industry and turf culture, but these activities are not clearly identifiable from the SIC codes available.

(ii) all types of manufacture and processing of food and drink products.

The sector therefore covers a wide range of diverse activities with varying requirements and pressures. The food and drink sector also has a number of important linkages to other sectors. For example, the food and drink industry is a major customer for the packaging industry (e.g. Pacific Packaging and Davis S. Smith in Bristol), while tourism is an important customer for food and drink in the region. While these activities are not directly discussed in this paper, the importance of these linkages should not be underestimated.

Sector Characteristics

The characteristics of the food and drink sector in the South West are in large part determined by the region’s geography e.g. the diary sector benefits from its wetter, west coast location. Tourism is also an important driver for the food and drink sector with the region’s many seaside and rural locations boosting craft industries in niche sectors and speciality foods.

SWOT Analysis

Key issues that need to be addressed to foster the development of the food and drink industry in the South West, identified through consultations and literature review can be divided into strengths, weaknesses, opportunities and threats:

Strengths

The South West has a strong base of firms engaged in food manufacturing and processing activities and also has significant natural resources and an excellent environment for farming which is the major input to the sector (though there is an issue concerning the co-ordination of these two facets of production in the region)
The regions (and specific parts of the region) already have a reputation for producing quality food, though the number of different local initiatives may lead to some confusion.

Weaknesses

For small firms in the sector compliance with legislation will continue to be an issue. There is perceived to be a lack of skills in the region to tackle these issues and this is one area in which additional training / assistance could be provided.
There is also an issue of remoteness. Firms located long distances away from training providers may find it difficult to access this training. This suggests a role for the LSCs in making training more responsive to the needs of the sector in the South West through the use of flexible training and distance learning tools. This is a particular issue for SMEs in the sector rather than larger firms.
The multitude of small firms in the sector and the fact that activities are dispersed widely across the region discourages networking and joint action.

Opportunities

The need for improved technology transfer activity holds true in the South West as it does nationally. In this regard there are some organisations in the region which are working towards addressing this need. The Food Technology Centre is one, core funded by MAFF and providing a link between university resources and SMEs e.g. information sources for legislation, training, product development and innovation, access to Government support schemes. Capitalising on these existing facilities could bring significant opportunities for new business to the region.
There is an opportunity in the region to establish a Centre of Excellence in Food Production building on the themes of central government policy.
Growth in agricultural and food related biotechnology are significant growth areas and ones where the South West could work to capitalise on its existing strengths.

Threats

Training - it is important that training needs are tailored to local needs, and requires the various NTOs in the sector to work closely with the new Learning Skills Councils (LSCs) and the RDA. At present there is not perceived to a lack of training per se in this sector but that firms face problems in funding training, and hence it tends to be the larger firms who are more active in training staff in accredited qualifications such as NVQs.
Failure of the sector to adapt to changing market conditions could lead to a worsening of its competitive position.

Competitive Positioning

The figure below summarises the overall competitive position of the food and drink sector in the South West:

	Well Structured Local Firms with Robust Strategies & Strong Rivalry
Resources or Factor Strengths, Physical and Human	• Highly fragmented industry, many small firms, limited interaction between them • Intense competition usually on the basis of price and quality	Sophisticated, Demanding Customers in Easy Reach with Increasing Requirements and Funds to Satisfy Them
• High quality environment for farming • Weakness in IT, communications and management skills		• Strong brand images (but many different local initiatives) • Increasingly demanding customers, seeking higher quality • Constant demand for new product development and improved production techniques
	Internationally Competitive: Supporting and Related Industries and Institutions
	• Struggling to achieve price competitiveness in traditional markets • Fragmented, widely dispersed industry discourages networking and joint action • Strong HE/FE base with food and drink specialisms

Summary: Sector has mixed prospects, facing continuing decline of agricultural sector and growth potential of the food processing sector. Sector must adapt to market changes by focusing on the development of higher value added food processing activities.

Sector Development Priorities

Specific actions which the RDA could take as identified through the consultations are as follows:

The economic development infrastructure serving the Food and Drink industry in the South West does not provide a 'joined up' service. Need additional business support in the region. Gap between the completion of training and the implementation of new technology, particularly in small firms, has been identified. Requirement for business incubator facilities in the region and an organisation such as the Food Technology Centre is well placed to operate such schemes if suitable funding could be secured. EU structural funds may be one source of such funding with Objective 3 support for training and Objective 1 support in Cornwall and Scillies. EU Rural Development Regulation (RDR) (an integrated funding package for environment and rural development measures) is also a potential source of funding.
Opportunity to establish a Centre of Excellence in Food Production building on the themes of central government policy to provide a range of services to businesses in the region including information provision, training, technology transfer, equipment and premises and assist the academic community to identify research opportunities and secure funding for research. In pursuing the creation of a Centre the RDA would be a key stakeholder and has the potential to co-ordinate other stakeholders and drive the process forward. The creation of such a Centre would serve as a focus for development activity in the food and drink sector and help in the creation shaping perceptions of the region as a centre of food excellence.
There is a case to be made for the development and promotion of a South West brand for its food products. While there is scope for a regional brand, there are already numerous local and county brands in the region (e.g. Made in Devon) and there is a danger of there becoming too many and causing confusion amongst consumers. Research currently being commissioned by A Taste of the West and MAFF (and part funded by the RDA itself) to investigate this issue should provide a better understanding of the type of brand that might be pursued.
The critical factor in improving the competitiveness of the Food and Drink sector in the South West will be the extent to which the industry itself "buys in" to the strategy and action plans being prepared. Without the RDA (and others) working with the industry (and preferably with industry taking the lead) it will be difficult to have any real impact on the sector. In this regard the appointment of a Food and Drink Executive for the region is a significant step forward. It is essential that holders of this post actively pursues links with industry to maximise the potential for buy-in to the strategy.