"Economic challenges of the European F&V and potato processing industry"

Xavier Gellynck & David Keirsebilck (2006). UGent: Working Paper 06.03

Introduction

The European fruit, vegetable (F&V) and potato processing industry has undergone significant changes during the last two decades in response to changing consumer demand for new and different products and to the evolution of a more open trading environment. Under the influence of globalization, the processing industry has changed from serving a protected, domestic-oriented market to one that is more open and competitive.

In this report, an overview is given of the current situation in the fruit, vegetable and potato processing industry. Current trends and developments are determined and evolve the identification of challenges for the coming decade.

Methodology

The conceptual framework considers the overview of the determinative future perspectives in the F&V processing industry. A distinction is made between two large groups, namely market conditions on the one hand and production conditions on the other hand. It is the objective to follow this conceptual framework in order to determine the challenges of this part of the agribusiness (Fig. 1; De Groot e.a., 1994)

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DetermingPerspectives

Market

Production

International framework

Marketcharacteristics

Productivity

Technology

Quality

Consumerpreferences

Distributionchain

International developments

WTO & Worldtrade

DetermingPerspectives

Market

Production

International framework

Marketcharacteristics

Productivity

Technology

Quality

Consumerpreferences

Distributionchain

International developments

WTO & Worldtrade

Fig. 1:Conceptual framework (Source: De Groot e.a. , 1994)

Market Conditions

The market conditions are both depending on the developments in an international context and the market approach. The international context is strongly influenced by policy measures and trade regulations, the WTO and the CAP. The market approach discusses the evolutions of consumer preferences and trends. Further on, some global socio-demographic evolution are key driver for changing consumer preferences.

International Framework

International developments

In general, the exchange rate and the gas oil prices have a major impact on the profit margins of food processing companies. External factors such as the concealed threat of terrorism, Iraq, hurricanes and governmental policies are keeping the cost of gas oil high. Since 2002, the U.S. dollar has weakened by as much as 35% against the European euro. China has fixed its exchange rate relative to the U.S. dollar. These factors are weakening significantly the position of the European F&V processing industry. Rising energy costs are related on the production and transportation costs. In particular, on the storage and preservation of frozen commodities, the high steel and aluminium prices are augmenting the costs of canned products. The strong position of the retail, the food-service and inter-company competition inhibits a full-cost incorporation towards the consumer.

There are several international developments having a major influence on the position of the European fruit & vegetable processing industry. The trade liberalization and the Common Agricultural Policy in the EU measures in other regions are examples of institutional factors that play a role in the patterns of global trade in fruits and vegetables.

WTO and world trade

General

Despite the improvement in the overall trade environment for fruits and vegetables, there are still high tariffs and other non-tariff barriers to trade. One of the most common non-tariff barriers is comprised of the various antidumping rules that countries can and do invoke to avoid the influx on imports. Anti-dumping practices affect the patterns of trade in fruits and vegetables and remain a threat to the trade of some commodities in some countries.

The current shift towards liberalisation, the further reduction of trade barriers and the subsidy reduction evolves changes in trade patterns for fresh F&V. Horticultural exports of Central and South America, and the Middle-East and North Africa can be expected to increase, as can be the net imports of the European Union, the U.S. and Japan. China is emerging as an increasingly important horticultural exporter and this role could be boosted should trade be liberalised, especially with increased exports to Japan, Korea and the rest of Asia (Rae, 2004). A similar role can be contributed to India.

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Globalisation

Globalization of the F&V trade has made fresh produce accessible to consumers around the world, overcoming seasonality and smoothing price fluctuations. High income-growth rates in developing countries significantly higher rates of F&V consumption and trade in the future. In the meantime, developed countries will dominate global consumption and trade of fruits and vegetables, not only because of their high income levels but also because of consumers’ increasing concerns about healthy eating, which tend to increase F&V intake in their diets. The United States is well placed to take advantage of the potential for greater horticultural trade, both as an importer and as an exporter, because of its income level, access to advanced technology and transportation, and trade agreements that allow for the freer flow of products around the globe.

The development of some major production countries such as China, India, Turkey and Thailand can change global trade patterns in the coming decade. Traditionally, processed products dominated China’s overall exports of fruits and

vegetables, accounting for nearly two-thirds of expert value during 1998-2000. Japan is the leading market for Chinese exports of processed products. In the 1990s, China’s share of Japan’s import market for processed fruits and vegetables trended steadily higher. China’s share jumped from 24% in 1990 to more than 50% in the beginning of the 21st century (Dyck e.a., 2002; Huang, 2004b; Shields e.a., 2004; Yuman e.a., 2004).

An expert opinion survey has inferred the following trends in the future for fruits and vegetables sector in India: F&V would continue to be harvested manually in the future. While small land holdings and non-availability of good quality planting material have been the major issues of concern, it is expected that quality of planting material would improve in the long run due to selection, hybridisation, breeding and tissue culture.For poor farm management practices, there exists strong need for extension education and training for the growers. Cooperative and contract farming may solve the problems for small land holdings towards improved yield and quality in the long run (TIFAC, 2000).

Application of fungicides/pesticides and chemical preservatives would be phased out and would be replaced by more environment friendly technologies in the long run. While pre-cooling (cold chain) and surface coating are expected to dominate in the short run, new packaging and irradiation technologies are expected to emerge in the long run for preservation and extension of shelf life. Change in consumer taste, food habits & life style, convenience, nutritional value and purchasing power are the likely reasons for preference of processed products. While the level of processing would hover around 5-10% in the next 10 years, 15-20% of fruits and vegetables may be processed by 2010. While the small scale processing units would dominate in the short term, an advent of large/medium scale units is likely in the long term (TIFAC, 2000).

The quality gap between Chinese, Indian and foreign products in international markets may well be closing. This means producers with higher costs will need to compete on the basis of reliability, consistency of product service, and other non-price factors (Huang, 2004)

However, there are some comments to be made. First, South-east Asia and China offer only a few varieties of fruits and vegetables in

large volume for the export market. High quality products are available, but volume is limited and generally predestined for a particular market.

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Secondly, the vegetable and fruit industry dies not use grade standards (e.g. for uniform product size an appearance), which are essential for international trade, although a number of private firms successfully export fresh and processed products based on customer specifications.

Third, China does not widespread use of basic marketing practices, such as modern packing and packaging techniques. The ample supply of labour (and associated low cost) slows adoption of capital improvements that would improve produce quality (Huang, 2004)

Common Agricultural Policy (CAP)

EU preferential trading agreements are an integral part of the management of fruit, vegetable and potato imports by the CAP. For F&V produced in significant quantities within the EU, the CAP maintains relatively high prices by controlling the quantity and pricing of imports. For many products, the CAP establishes minimum import price requirements or restricts imports through quotas associated with the various preferential trading arrangements. Nevertheless the EU remains the world’s largest importer of fruits and vegetables because of limited production potential for many products and strong demand from EU consumers due to high incomes, an aging population that prefers a healthy diet, and a historical preference for high-quality fruits and vegetables (Hasha, 2004)

With fewer constraints and lower transaction costs, firms can design strategies for optimization of sourcing on a global level, not just on a national level. Being a player in an international arena requires more resources than being a player in a national market, but may be necessary to stay competitive in domestic markets. Some types of firms will be better able than others to adapt to the challenges (Huang, 2004)

Socio-demographic developments

Socio-demographic changes are the general starting point of the changing consumer preferences and behavioural aspects. Changing environment and lifestyles are resulting in a series of influencing factors affecting consumer needs and market trends .Coming decades the current socio-demographic tendencies are persistent for population growth, , urbanisation, migration life expectancy, the aging population, household composition, career-women, …

World population growthFig 2 illustrates three scenarios for population change, depending on levels of fertility. World population is projected to increase to 7.8 billion by 2025, and to reach 8.9 billion by 2050, according to the medium scenario where fertility stabilizes at 2.1 children per women. This projection does not correspond with the doubling time of 51 years associated with the annual growth rate in 2000. The projection assumes that the growth rate will drop slightly by 2020 and continue declining as the century progresses. If the growth rate does fall and the world population reaches 11 billion by 2100, the population will have doubled in about 100 years. Because most of the world's population growth is likely to continue to be in less developed countries, Asia will continue to hold the majority of the world's people. Africa and Latin America will gain larger shares than they have at present. The population of these regions may increase by 100 percent by 2100, according to moderate projections. In 2100, nearly 90

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percent of world population could live in countries currently considered less developed, compared with about 80 percent today (UN, 1998).

UrbanisationThe world has experienced unprecedented urban growth in recent decades. In 2000, about 47 percent of the world's population lived in urban areas, about 2.8 billion. There are 411 cities over 1 million. More developed nations are about 76 percent urban, while 40 percent of residents of less developed countries live in urban areas. However, urbanization is occurring rapidly in many less developed countries. It is expected that 60 percent of the world population will be urban by 2030, and that most urban growth will occur in less developed countries.

Aging of peopleThis 21st century phenomenon, shared by many nations, can be attributed to advances in science, technology and medicine leading to reductions in infant and maternal mortality, infectious and parasitic diseases, occupation safety measures, and improvements in nutrition and education. Rapidly expanding numbers of very old people represent a social phenomenon without historical precedent. Today, the number of persons aged 60 years or older is estimated to be 605 million. That number is projected to grow to almost 2 billion by 2050, when the population of older persons will be larger than the population of children (0-14 years) for the first time in human history.

Changes in household compositionAccording to an Irish survey in 2003, following tendencies are noticeable between 1996 and 2002:

increase in number of childless couples with 38,7% increase of lone parents with 24,5% the amount of one person augmented with 14,8%

In addition, the amount of couples with children grew less with 11,1%. Family planning, less adherence to the catholic dogma, increase in female participation in labour force and women that are postponing child bearing were the factors leading to an increase in childless couples.The factors leading to an increase in one person households were the increase in number of singles, the increase in number of separated and divorced people and the significantly growth of the amount of elderly of which 26% life alone. In total, elderly constituted in 2002, 41% op the Irish 1-person households.

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Fig 2. Future of World Population Growth: Three Scenarios, 2000 to 2050. (Source: Untied Nations, World Population Prospects, The 1998 Revision)

Market Conditions

Consumption

PotatoConsumption of potatoes has declined between 1975 and 2003. Consumption of fresh potatoes has halved between 1975 and 2003. Consumption of processed potatoes, of which the main components are chips and crisps, has doubled over the same period of time (UK survey

FruitsBased on data of the National Food Survey (UK, 2003), fresh fruit consumption has risen by over 50 % between since 1975. Among the same period, processed fruit consumption has risen by over 80%, almost exclusively driven by an increase in the consumption of fruit juices which more that off-set decreases in canned, dried and frozen fruit products.

VegetablesThe UK-survey indicated that the fresh vegetable consumption has changed little since 1975 (see figure 5a).. However, there has been a shift within the fresh green vegetable category

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Fig 4a. Fruit, vegetable and potato consumption in UK, 1975-2003, in grams per person per week(source:

Fig 4b. Consumption of fresh and processed fruit products in UK, 1975-2003, in grams per person per week(source:

Average consumption of green fresh vegetables has dropped by 32 % . Over the same period of time, consumption of other fresh vegetables has increased by 25%. Consumption of processed vegetables his risen, however in recent years ht trend seems to have been reversed. In 1996, the consumption of processed vegetables was highest (727g per person per week); it has decreased steadily since then. Consumption of all vegetables including potatoes has increased by 7,7% since 1975

HealthThere is increasing scientific evidence that low F&V intake is a key risk factor for several non-communicable diseases, therefore WHO is planning an initiative which will actively promote increased consumption of F&V (WHO, 2003). A recent published WTO/FAO report commends the intake of a minimum of 400g of F&V per day (excluding potatoes and other starchy tubers) for the prevention of chronic diseases such as heart disease, cancer, diabetes and obesity, as well as for the prevention and alleviation of several micronutrient deficiencies, especially in less developed countries. F&V are important components of a healthy diet, and their sufficient daily consumption could help prevent these major diseases. Overall, it is estimated that up to 2,7 millions lives could potentially be saved each year if F&V consumption were sufficiently increased.

Food scientists have shown that frozen F&V can be an alternative to fresh produce when it is unavailable. Much seasonal produce can be made available throughout the year through the quick-freeze method. Studies are going on and show that by using the quick-freeze method, F&V retain most of their nutrients. Moreover, there are indications that fresh products are not always better than processed and preserved products. In figure 4, an illustration is given considering the degradation of vitamin C content in spinach (Unilever Research, UK). It shows that the quick freezing process retain the amount of vegetables on 70%, whereas a fast degradation if measured in the fresh commodity products.

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Fig 5c. Consumption of fresh and processed vegetables in UK, 1975-2003, in grams per person per week(source:

Potato consumption in a general sense is recommended by health experts, but potatoes are excluded from the fruit and vegetable category by nutritionists (in spite of their vitamin C and potassium content). Potatoes are associated wrongly in the public mind as being fattening. Yet health concerns with body image, weight and obesity have led to the popularity of diets such as Atkins. This has led in some areas to carbohydrates such as potatoes being eschewed in favour of protein based foods.

The processing of potatoes in the form of chips is one area where the product might be considered unhealthy.

The big drive for healthy eating is the consumption of more fruit and vegetables known as s 5-d-ay endorsed by the World Health Organisation and national governments. In the UK this has taken the form of the provision of free fruit and vegetables for all 4-7 year olds. As noted above potatoes are excluded from these categories It is interesting to speculate whether they would have been included in “5 a day” if they were a fashionable middle class staple.

ObesityObesity and anti-obesity measures are expected to impact significantly on future lifestyles and food consumption patters. In Europe as a whole there are 400.000 more overweight children each year and the problem is particularly evident in Southern EU countries of which 30% of the 7-11 year olds have overweight symptoms. There is an emerging drive to counteract this trend in order to prevent associated chronic diseases within the EU and WHO. Food manufacturers need to take account of the marked shift in the way consumers approach weight loss and dieting by emphasising a healthy lifestyle over calorie control. Diet regimes result in changes in consumption of food products. Market research show that people who have gone on diets are eating significantly more fruits (72%), vegetables (70%) and salads (69%). In contrary, due to the growing focus on the issue of obesity, potato product consumption is noticeably affected by diet regimes, the consumption of potatoes declines with 56% and chips with 85%.

AllergiesA growing awareness of the problem among the general public, along with high-profile media coverage, has created an active and growing, if sometimes difficult to understand, market for free-from products. Indeed, foods and beverages specifically made for individuals who have – or believe they have - food allergies remains a fast growing segment. One in three Americans believe that they have a food allergy, even though various government and medical association statistics suggests that the incidence rate is probably closer to one in 25.Food allergies are an increasing health issue in Western societies, presenting a major

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Fig 4: Degradation of vitamin C in spinach, for fresh, chilled and frozen products (Unilever Research, 2003) (source:

challenges for the food industry (UN, 1998)

Whilst only 3% of the European adult population have been diagnosed as suffering from food allergy, the perception amongst customers is that such food reactions are a common condition. Indeed, up to 30% of the population claims to suffer from some form of food allergy; most of this group employs self-diagnosis and consequently implements treatment strategies (usually avoidance of certain foods), which are undersupervised by a medical practitioner. The perception that food allergy is a common condition is heightened by the fact that food allergies, along with other types of allergy, appear to be on the increase. Thus the number of incriminated foods and the frequency of severe reactions appear to be rising rapidly (Mills e.a..)

Consumer preferences

General

The socio-demographic tendencies as discussed above are leading to some trends in consumer behaviour. There is a general shift in food consumption from fresh products to processed products and from home consumption to outdoors consumption. The most important food-related change of the past two decades is probably the increase in consumption of food prepared away from home, whether eaten in restaurants or as take-out or home-delivered meals.

Due to the growth of the overall population and immigration will result in an increase in physical size of the target markets, increase in variety of consumer tastes, needs, lifestyles and habits.

Due to urbanisation the larger proportion of the market is located in urbanised areas, which are more inclined to be more adventurous and less traditional with food patterns. There will be a need for development of new products to meet demand for imaginative, modern dishes and to cater for different needs of population segments.

The increase of the “grey market”, the life expectancy and the growing need for long term care institutions will have following implications;

- production of new products catering to needs of the older population. This trend requires the understanding of the dietary and convenience needs of different segments and a knowledge of the taste of different age segments;

- the knowledge about the future food consumption habits of the grey market. Should companies focus on traditional aspects or on an older version of today’s modernised food preferences? Can we suggest that today’s youth = tomorrow’s elderly. We should understand the changing consumption habits with age.

The changes in household composition results in an increased spread of household sizes, changing family product requirements and the need for a wider variety of pack sizes and for smaller pack sizes and extended product life. Further on, there is an increased demand for convenience products which are easy to prepare and reducing cooking times. There is also a potential growth in smaller market niches, prepared products catering for special needs and demands of different groups (single parents, single persons, elderly). The growing number of women in the work force, the increasing tendency of women to focus on career, the

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fragmented dining habits results in an increased disposable income for the working population. These aspects implicates less free time available for family-oriented activities, including food preparation, and the continuing need for convenience, but not at cost of health and nutrition. Smaller groups are eating together and more individuals eating alone. The increasing spending power makes resources available to purchase value-added products.

A growing awareness of health issues is another trend in consumer behaviour, namely issues on obesity, allergies, low-carb diets, food safety. People are becoming more aware of food scientific aspects and nutritional value. However, based on a study of Verbeke (2005), people’s knowledge on functional ingredients in food is relatively divers. Vitamins, minerals, fibres are relatively well-known. In contrary, only 60% is familiar with beta-carotene and about 41% of the respondents know the existence of anti-oxidants. Less than 20% of the respondents are familiar with the real concept of omega-3.

Fruit & VegetablesBased on focus group sessions, it became clear that the consumer is confronted with a dilemma. Fresh vegetables are perceived on the one hand as the best product in terms of health, quality, nutrition and naturalness. On the other hand, the preparation of fresh vegetables is increasingly considered as too time-consuming, especially by working people. Under these circumstances, the consumer looks for an alternative under the form of processed vegetables: frozen, canned or glass.

The typical consumer of fresh vegetables can be described as a female who corresponds with the traditional mother figure and concentrates on healthy food, containing all minerals, vitamins and energy. Cocooning is a central lifestyle in the life of this person, who is positioned in the second quadrant of the figure.

The consumer of frozen vegetables is defined as someone who wants to serve fresh vegetables but looks for an ideal compromise, which is found in frozen vegetables. This is type of consumer is described as modern, sophisticated and chic – a busy person, working outside the home, who considers cooking a waste of time. Inn the family of the consumer of frozen vegetables, the microwave oven takes a central place. In the figure, the typical consumer of frozen vegetables is situated in the third quadrant.

The typical consumer of canned vegetables is considered as old-fashioned, having no taste. This person is considered as introverted and servile. A typical characteristic of this person is a lack of spending much money on food. The typical consumer of canned vegetables is situated in the fourth quadrant of the figure.

The consumer of vegetables in glass occupies a dualistic position in the upper half of the figure. This person is perceived as active, working outside the home and responsible for a family. Normally, fresh vegetables are preferred, but the typical consumer of vegetables in glass does not like cooking and values personal time. Under these circumstances, vegetables in glass are an ideal alternative. Quality occupies a dominant position related to food choice. The fact that the core product can be seen through the glass helps to evaluate the quality. Another typical characteristic is related to the ideal that vegetables in glass give the possibility of meeting every wish in the family.

Of all processed vegetables, frozen vegetables had the best image in terms of vitamin and mineral content. This attribute was significantly more mentioned by typical consumers of

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frozen vegetables. Frozen vegetables were perceived as easy and fast to prepare, providing variety and ideal for active and modern people. An association with the attribute “industrial” was mentioned. Canned vegetables were perceived as cheap and industrial. Other associations included convenience, speed and variety. Canned vegetables had the image of being the preferred vegetables of single people. Glass vegetables had a less industrial and cheap connotation but a more traditional image than canned vegetables. Apart from offering variety, important product benefits included a good presentation and that quality of the product can be judged visually. A similar response pattern for glass and canned was found for situation and image components. These quantitative results about perception and image of vegetables fully confirm the findings of the qualitative research. That is, frozen vegetables are clearly the preferred alternative for fresh, which can be explained by greater familiarization of consumers with the freezing preservation technique rather than with the vegetable sterilization technique, which was commonly applied in households some decades ago (Viaene e.a., 2000).

The competition of some new industrialised regions is undermining the brand loyalty of customers. In mean time it forces companies to innovate and renew their products. Competition on a global level results in a kind of restructuration of “taste”. Food ingredients from other parts in the world are frequently used in new receipts. Simultaneously, specific production methods and techniques, such as GMO’s and organic agriculture have created a market. It is expected that in some segments, these developments will grow. Tastes are converging.

The intensity and speed of our life style is increasing and consequently enhances the demand for more convenience. The concept of “snack food” anticipates directly to this social development. Simultaneously, an opposite trend is defined as “onthaasting” in which food and dinner has social function. The participation of women in the labour market increases and influences the purchase power of families and the interest in ready-to-eat meals positively. Purchases are done once a week in the super- or hypermarkets. The life style of the modern consumer is highlighted. Changes in the demographic composition, and the phenomenon of the ageing people in particular has an enormous influence on the call for healthy and health

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Fig. 3: Perception of consumers of fresh, frozen, canned and glass-packaged vegetables (Source: Verbeke e.a., 2005)

improving food. Moreover the research for specific physiological issues, such as diabetes has become more important. Vegetarian meals, functional foods, nutraceuticals and pharma-foods are the result of new technological innovations driven by social-economical evolutions.

Potato

According to a survey in Ireland, potatoes are perceived positively because potatoes are safe to eat, healthy in general and versatile. So, the key strength of the potato product is perceived by its natural goodness. Potatoes win out against unhealthy, salt-saturated produce. The versatility fits with consumer demands for convenience. Further on, potatoes have a good nutritional value and a good value for money. This perceived value for money, although a give, can be enhanced via smaller pack sizes.

In contrary, potatoes are seen as unfashionable, unsuitable for weight conscious, fattening and not particularly imaginative. Potatoes have a boring and unimaginative image. The perception of potatoes as fatty and starchy products are weakening the market position in a fat, obese conscious society. Potatoes lose out against pasta and rice for ease of preparation, fashionability and for imaginative cooking.

Other consumer trends are following:- older age groups are heavier consumers of potatoes than younger age groups- potato consumption is particularly high among farming households- younger age groups are more inclined to choose chips/wedges/waffles or pasta and

rice than older age groups. The concept of “snacking” is growing. A 2003 UK survey about snack products eaten after school show that 80% of the respondents are preferring crisps. Fruits are mentioned as fourth (27%) and chips as seventh with 21% of the respondents.

- daily consumption of potatoes is declining- majority of potatoes is consumed with a main meal- conventional cooking methods remain prevalent

Distribution chain

The shift towards internationalisation and consolidation is not only visible in the food-processing industry. More in particularly, this evolution in the retail-business could result in large consequences for the supplying industries. In 2005, it is expected that the top-10 in Europe controls 60 % of the market (in 2000, it was 38%). In the UK increasing concentration has resulted in a top 5, controlling 75% of the grocery market in the UK. In addition this power is spreading beyond food with the result that one of every eight pounds spent in the UK is now spent in Tescos (Caraher, 2004). The new competitive pressures have contributed to retail and wholesale consolidation as firms seek efficiency gains through mergers and acquisitions to strengthen their competitive positions (Cook, 2000). Not only the consolidation and concentration trend has a major effect on the negotiation power, also the appearance of “buying desks”, the growing market share of private labels, the overcapacity at the suppliers’ side and the strong competition in the agro-food business enhances the negotiation power of the retail business (Gellynck, 2005). Further on, the smaller amount of large contracts and delivery and collection issues, influenced by JIT technology are increasing the market power of retailers and the food service sector.

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The answer of the agro-food sector should follow a similar development towards economics of scale and consolidation. Direct communication with the customer by use of several marketing technique and parallel to the retail-sector will be important in order to gain commitment of the customers.

Production Characteristics

In this paragraph, the developments on the production-side or discussed. In this approach, it’s the objective to focus on the developments of some growth inducing subjects, namely quality, technology, productivity and environment.

Technology,

Quality

Food safety is arguably the single most important issue with which the global food industry is currently pre-occupied. Fuelled by the incidence of high profile food safety crises in the 1990s (Salmonella, Listeria, BSE and E. coli O157, dioxin) and polarised views on genetic modification of foodstuffs, all stakeholders in the food chain are seeking more/better information about the provenance of food and they way it has been processed, from farm to fork.

In the 21st century, the food supply chain has become a complex, interconnected system,where consumers play a fundamental role. Development strategies and initiatives mustnow focus not only on traditional economic measures of food demand, but also on issuessuch as food safety that require traceability and assurance protocols.

The potential for increased food-related illnesses from continued increases in internationally traded food will challenge government food safety systems and private firms to develop and implement improvements in prevention, inspection, and control systems.

Consumer groups in developed countries have also brought attention to organic production of food and the topic of animal welfare. One way in which the public and private sectors have

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Fig 6.: Supply Chain Funnel (Source: Carahar 2004)

responded to consumer demand for these quality attributes has been by developing and implementing mandatory and voluntary quality control, management, and assurance schemes.

Quality assurance is the part of the quality management system that focuses on the fulfilment of quality requirements (internal quality assurance) and providing confidence of meeting customer requirements (external quality assurance). The quality assurance in the agro-food business is important due to the characteristics of the production: the variability and perishable aspects, the seasonality and high supplying frequency of the raw material, the numerous and various suppliers, purchasers and the related distribution aspects, the relatively low product value and the hidden safety risks. The different QA-systems, such as GMP/GHP, HACCP, ISO, BRC are part of a total quality management.

The quality assurance schemes could have important impacts on trade in food products. Providing a product attribute that closely matches intermediate customer or final consumer demands may provide a competitive advantage to domestic producers and processors. The trade impacts of food quality assurance schemes will depend on a complex set of factors. Ultimately, the impact depends on the value customers place on particular quality attributes and companies’ relative ability to deliver them. The trade impact will also depend on whether the standards are mandatory or voluntary, and whether they are adopted at the national or European Union (EU) level.

Private-sector approaches are often intertwined with each other (ISO standards often use HACCP, for example) and with multilateral coordination mechanisms (such as Codex HACCP standards). Countries and firms within countries may use private system approaches

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Fig. 5: Different Quality Assurance Systems in the agro-food industry (Source: Food quality Management, Wageningen, 2004).

differently, and this difference influences the marketing of food safety internationally. In general, the greater the coordination of multilateral mechanisms and private approaches among firms and nations, the more they will be able to provide verifiable and valuable information to trading partners and facilitate trade (Buzby, 2001)

Technology

Companies that are marginally profitable and financially unable to upgrade their plants or equipment are susceptible to leave the industry because of intensified price competition, while other firms which have invested in plant and equipment are becoming internationally competitive.

Packaging

Canned

Canning and preserving are traditional technologies that remain the means of choice for bringing processed peas and corn to consumers, although freezing is also used for those commodities. Ultra High Temperature packs are also important for juices and other products. European canning operations generally employ readily available and established processing technology adaptable to the particular requirements of a manufacturer. When a company upgrades a facility, it normally does so by modernizing or replacing older equipment, with an emphasis on higher productivity and better quality control.

Many companies that were marginally profitable and financially unable to upgrade their plants or equipment have already left the industry because of intensified price competition, while other firms have invested in plant and equipment to become internationally competitive.

With today's canned fruits and vegetables, there will be little chance for expansion in the near future in Europe. Market expansion is dependent on producing a quality product which will satisfy consumer's needs and desires. Our research effort should be oriented toward this objective. The consumer wants; the consumer needs and the consumer must have new uses, if we are to increase worldwide consumption.

During the last six years, metal packaging providers constantly tested and created new designs, altering materials and incorporating adjustments to make easy-open ends even more functional and convenient. The “end result” is easy-to-grasp tab designs with larger openings, easier finger access, and a smoother pull requiring less force.In the same study, more than 80% of consumers said they would pay more—from six to eight cents more—for a convenience end on canned food products. And supermarket sales data confirms this. Documented case studies confirm that companies such as Del Monte, Campbell’s, General Mills, Nestlé, and ConAgra Foods have benefited from product conversions or launches with metal packaging that has easy-open ends.

A study by Perception Research Services indicates that processors must chose the toughest packaging they can find for their frozen food products in the hope to retain brand loyalty. PRS found that, of consumers surveyed, 72% viewed the retailers with damaged frozen food packaging as offering lower value products than its competitors. Another 25% said they would question the quality of the brand. This study also indicates that favourable impressions

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of the store and the product diminish with damaged packages. The researchers concluded that brand loyalty does not appear to influence purchasing decisions when a package is damage.

Frozen

The freezing technology in current use is relatively new, and therefore the level of technology employed is generally more sophisticated in freezing than in canning plants.

Much of the machinery used in food processing or in the warehousing of end products is manufactured in Europe or the U.S. Technological changes in the industry are manifested in new packaging processes or new materials, efficient process control systems, automated distribution systems or new product formulations.

The development and use of packaging materials and techniques, such as aseptic or gas-flushed containment, have improved the quality and convenience of foods and beverages. These advances will help to improve prospects for growth in product categories such as fruit juices, solid vegetables, sauces and soups.

Frozen F&V products offer important advantages to consumers whose lifestyles, ages or nutritional requirements make it difficult for them to prepare meals from fresh foods. Appropriate packaging and portions are key competitive advantages. In Europe, an aging population and growing number of single-person households have created a demand for smaller portions and convenient, microwaveable frozen foods.

Leading companies undertake significant research and development (R&D) in product adaptation and production efficiency achievement.

Productivity

Today the acceptance of food fundamentally depends on high quality and other positive features of the goods produced and offered to domestic and foreign consumers and the utility they incorporate for the consumer. First, it seems necessary that the focus on consumer wishes be strengthened and become the ultimate basis for decisions made by the actors in the food chain. To transform consumer wishes into creative products, the expenditures for R&D must be increased. Secondly, in light of various food scandals, it is essential that the consumer can be guaranteed safe, healthy food products. An important step has been taken in this direction by establishing quality management systems. However, it seems necessary that most farmers also establish such systems such as Eurepgap in the future.

For the competitiveness of the value-added chain it is essential that all sub-sectors are themselves competitive. The competitiveness of the whole chain can be significantly improved if the vertical integration of the sub-sectors is intensified. To track the wishes and attitudes from the final consumers through the whole chain makes close co-ordination between the various partners necessary.

It is to be expected that aside from quality, price also will be a key buying criteria in the future. Low prices in combination with sufficient profits for the actors in the food chain can only be realised with high efficiency of the vertically connected enterprises and with an economic framework to produce and distribute food as cheaply as possible. It has been

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mentioned that the professionalism of the participants in the food chain in must be improved. Intensifying education, continuing the training of managers and employees, and a more extensive use of modern decision aids can assist this process. However, in addition to low-cost production and distribution strong efforts are necessary to improve the size structure in agricultural production and the food industry. There are many further necessary steps to improve the competitiveness of the European value-added chain in the future. These include the realisation of economies of scale and scope and of the advantages of large-scale enterprises in R&D and marketing, in addition to the exploitation of learning curve-effects.

Integration processes have to be intensified; for example, by applying the ECR concept to the food trade and the food industry, but also by vertically integrating the food industry and agriculture.

Environment

As a result of changing habits and life styles, the attention for healthy food has increased exponentially. The consumer is critical in his decision making process and in particular for health and price. Healthy food stands for ‘low-caloric’, ‘low-fat’, ‘low-cholesterol’, or ‘low-sodium’. Simultaneously, this evolution encourages producers and governments to have more attention for food safety, e.g. microbiological contamination. Consumers claim food products as natural as possible in relation with the general respect for the environment. Environmental issues are number 1 on the social agenda in developed countries. With reference to the health concept, there is a strong tendency towards food products which have preventive characteristics against illness such as multiple sclerosis, intestinal cancer, and cardiovascular diseases. These developments are fuelled by an essential shift in the care (and its related costs) supported by the society (medical costs, hospitals, etc.) towards the customer. This fits in the phenomenon of the individualization of the society.

De legislation is influenced by the consumer and its increasing requirements for safety. The agrofood-industry is subjected to procedures which slow down the introduction of novel foods. Simultaneously, the investment is tremendous. For example, the introduction of a new food product without clinical test phase results in an expenditure of € 1 million. With the clinical tests, depending on the type of product, the total expenses for introduction can easily increase beyond € 2 million. The rules and legislation to follow are resembling more and more to the introduction of a pharmaceutical product. Only large multinational companies do have the essential financial input. On the level of Quality Assurance, the industry is confronted with several guidelines and systems (ISO 9000, HACCP, FDA in the U.S., BRC in the UK) which differ within countries. The European Food Safety Agency will look on attentively on the implementation and the follow up of these guidelines and procedures.

Expected evolutions in the food industry

Food processing

In Germany it is expected that between 2006-2010 about 50% of the thermal processes in the production and food conserving industry will be replaced by new not-thermal procedures, e.g. high-pressure processes, because they have a favourable influence on quality. The development of new processes will be more based on scientific insights, programming and

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modelling and not only on the basis of empirical research on laboratory level. On the level of frozen processing, ice crystals will be smaller and the nucleation and ice crystal growth will be controlled more efficient.

Public awareness of the purported health benefits of dietary antioxidants has increased the demand for F&V products with recognized and improved antioxidant quality and has created new opportunities for the horticultural and food industry to improve F&V quality by enhancing anti-oxidant content (Kalt, 2005)

During the processing of fruits, e.g. to produce juice and nectars, and vegetables, e.g. to produce prepared potato products there is an abundance of waste material. This waste or by-products of F&V processing are potential sources of natural additives and functional food ingredients. This is particularly valid for phenolic compounds (Schieber e.a. 2001)

Packaging/ Labelling

In 2006, biodegradable packaging will find its application in the food industry. Intelligent packaging that visualizes the quality of the food (freshness, vitamine content, etc.) will be used in practice. In 2007, about 50% of the food products will be packaged with the help of reusable packaging.

Biotechnology

Thanks to biotechnology, it will be possible to tune the food towards the prevention of cardiovascular diseases, cancer, multiple sclerosis (the concept of Neutraceuticals). Within a couple of years, it should be possible to specify this towards ‘genetic subgroups’ and within a couple of decennia, people will have a genomic passport which enables it to balance personalised nutrition.

The use of genetically modified organisms and their products in food widens the availability of resources while also raisin public interest about safety and labelling. The present status of GMO enzymes in food production has to be reviewed and safety issues about GMO use in the food system have to be discussed (Lee, 2004).

Food science & engineering

It is expected that the relationship between the structure of components of food stuff and its characteristics will be understand more in detail. As well it is suspected that a causal link will be found between food and human health. It is of major importance that the research continues on the development of new technologies and procedures in order to understand the effect of e.g. genetic modification, irradiation, micro-wave, … on the human health. Developments in bioscience engineering will lead to better productivity, the introduction of natural and fast processes and a more efficient control on the quality of the input.

The nutritional properties (e.g. bioavailability) of some health ingredients as well as the technological functional properties of all ingredients may change considerably by incorporation into the food product and during processing and preparation of food products. The knowledge concerning the interaction of processing, structural changes and state transitions and changes of functional properties is still limited. It should be improved quality and for suitable technologies (Kunzek e.a., 2001).

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The advent of biotechnology presents fundamental challenges to the global agri-food industry. While the scientific base for agri-food production is being revolutionised, it is not clear if or how the technology will be used. Proponents of biotechnology and a large portion of agri-food policy makers around the world project a positive future in which technology overcomes food shortages, improves the environment, heals or eliminates disease and leads to a prosperous and healthy society. A smaller but significant array of policy makers, citizens and consumers fear that the technology will exacerbate food insecurity, threaten the environment, endanger human health and ultimately impoverish society itself. Although scientists and industry are convinced the fears are unfounded, it is not clear that our social institutions will be able to adapt, adopt and use the technology in a way that will satisfy society and improve social welfare (Phillips, 2002).

Measurement & Analysis

Food science and engineering traditionally have been the basis for the development of the process technology related to the manufacture of foods. While these disciplines remain important, new challenges for the food industry have created an incentive to explore the potential of recent advances in computer-aided engineering. Such challenges include consistent quality, productivity, safety, and environmental and consumer friendliness (Otles e.a, 2004)

Hygiene will be measured with help of a general application of biotechnological analytical methods. The recognition of pathogenic germs and micro-organisms will improve. Online process-sensors will control and monitor the quality-indicators during the production.

The application of Time Temperature Integrators (TTI) for frozen chain management provides a reliable indication for the optimization of the quality at the consumer end. A TTI based management system for frozen product distribution and stock rotation shows consistent acceptable quality and minimization of rejected products at the consumer end (Giannakourou e.a., 2003).

Water purification

New irrigation techniques will be available for arid climates in order to cultivate crops. Decentralised biotechnological purification systems can be put in place and are capable to delete some difficult degradable waste products. Biotechnological purification system will be improved by e.g. better membranes and plasma.

Supply Chain

Improving supply chain management is very important to face the globalisation challenges especially for agro-food industries. A main development on this level is the integration of technologies and systems between the different actors in the supply chain. This integration can be pursued within the organisation itself. As a result, the improvement of efficiency on different levels between and within the organisation is the objective, as well more convenience on global scale.

Implementation of new technology can have a major impact on raw material flows and the organisation of production in the European processing industry (Bendiksen e.a. 2005).

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Information Systems

The communication between supplier and consumer will be intensified. Initiatives as e.g. the Consensus Workshops, financed by the European Commission, with the objective to tune the preferences between consumer and producer will be extended. As in the chemical business, the advanced ‘process control automation’ can play a key role in the future of agribusiness. Systems will be self-teaching while functioning, e.g. production and operational simulation techniques.

Efficient Consumer Response (ECR) is another example of an Operational Strategy. Much ofthe grocery sector uses components such as PoS data, EDI, fast re-estimation and re-orders in order to drive supply to meet demand. A customer can walk into almost any supermarket in the UK and be served by a cashier who is using laser technology to read Universal Product Codes (UPC’s). The data generated from this UPC is passed on quickly and efficiently to the relevant members of the supply chain. A simple example could be the purchase of some frozen vegetables from a local store. Product data and information is transmitted from the store to the manufacturer (2nd tier suppliers) and the growers (1st tier suppliers). Electronic Data Interchange (EDI) facilitates this efficient transmission of data throughout the supply pipeline, allowing the store to link supply with real-time demand. An understanding of exact real-time demand is essential to the grocery industry, as the majority of products sold will have a limited shelf life. to continuously improve the flexibility and responsiveness of their supply systems in order to meet real-time demand exactly, and to move towards the holy grail of mass- customisation (Burgess e.a., 2000).

Systematic and regular performance of receiving in-process and final inspection data of quality systems at every stage of the supply chain is extremely important intended to assure the quality and safety of food. Integration of information is the start for successful integration of supply chain (Van Plaggenhoef, 2005)

Challenges

The international policy has an important influence on the agrofood-business, and the agrosector in particular. With regards to food shortage in developing countries, the attitude of the developed countries is important for the image of the agrofood-business. From this point of view, policy measures are focusing on subsidies, dumping practices, support for third countries. These policy measures of the WTO have a major influence on the food-industry, for instance the environmental production. The enlargement of the European Union and the CAP will reallocate resources and the supply of agricultural products.

Increasing import competition in the European market will necessitate expanding exports if growth is to be maintained. Tariff and non-tariff barriers on canned, preserved and frozen vegetables are being reduced and eliminated under the Uruguay Round and NAFTA and as countries negotiate their entry to the WTO. Processors, modernizing and expanding, will increasingly look to export markets as imports increase. The main challenges for the F&V processing industry are to maintain its share of the domestic market and to increase exports. Firms will develop and market the products that best match the companies' strengths with consumer demand, with convenient value-added items growing in popularity and consumer tastes constantly changing.

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There will be increasing niche markets in the U.S., EU and Japan for quality F&V products tailored to demand. There has been some introduction of new cuts and flavours and even new "healthful" products. To meet competition, processors are enhanced to improve all aspects of their operations. Many have introduced "Total Quality Management" systems to stimulate innovative work environments and improve productivity as well as quality. Raw materials and transportation, in addition to in-plant operations, are among the factors of production addressed by total quality management.

It is the technical challenge to tune the production towards the market conditions. Pressure on margins is expected to continue as retailers work to increase sales of private label products and as Efficient Consumer Response (for "just-in-time delivery") forces processors to tailor their delivery quantities to meet retailers' requirements.

With consumer preferences moving away from canned and toward fresh and frozen products, as well as toward more convenience and value-added items (not to mention new tastes and the changing ethnic mix), processors are juggling a vast array of variables in addition to the ever-present factors of quality and price. Consumer tastes are changing faster than in the past, and processors have to adapt their product lines in response to domestic and import competition as the popularity of both new and traditional products quickly rises and falls. This marketplace is characterized by constant pressure to develop new products and to drop under performing items.

Frozen and canned suppliers need to promote their products as relevant to today’s food market. Mintel has decided to address the following hypothesis that: "the frozen and canned F&V sector needs to take its cues from the wider food market in order to promote the product range as convenient and healthy. Suppliers need to tap much more into consumer lifestyles to help developing strong and powerful brand propositions. Consumer research shows that more convenient and easier-to-eat fruit and vegetables will continue to be well received, boosting the numbers of consumers who aim to meet the recommended 'five portions a day'. This underlines the vital need to increase penetration among younger consumers in order to maintain the market in the longer term.

Overall, there is a trend to internationalize regulations, and the industry will face the challenge of looking at regulations that could be harmonized, either bilaterally or multilaterally through the World Trade Organization and Codex Alimentarius.There is a need to relocate or rebrand the health messages around potatoes. The ‘nut industry has done this, from being previously seen as a source of high fats now nuts are healthy options in the diet due to the marketing which now emphasises that nuts can contribute to the lowering of serum cholesterol and heart disease.

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Technological Research Technological Challenges ??

General- Optimisation of quality assurance systems and food safety

o Contaminants (pesticide residues, nitrate, bvb wortelen in België)- Food science en engineering

o Nutritional properties (bioavailability) of health ingredientso Knowledge concerning interaction of processing, structural changes, state

transitions and changes in functional properties (e.g. Ice crystal growth and nucleation)

- Biotechnology (nutraceuticals, functional foods ,agronomy)- Waste Management (by-products, water purification systems- Information technologies (ECR, ERP, EDI, LSFO,…)

ERP : Short for Enterprise Resource Planning software. ERP software aids and controls the ERP management system, which is a system that integrates and automates all facets of business operations. This includes planning, manufacturing, and sales, while more recent ERP software products encompass marketing, inventory control, order tracking, customer service, finance and human resources as well.

Potatoes

- Improved preparation of tuber material, processing and packaging systems- Cultivation

o Sugar content & low-carb cultivars- More sophisticated storage systems

o Energy-efficiento Monitoring indicatorso Tuber-dormancy, bruising texture, waste

- Introduction of new technologieso Slicingo Use of additives and flavouringso Preservation – prevention of photo-oxidationo Replacement of current generation of fats/oilso Acrylamide- reduction with asparaginase

- The potential for non-food products, medicinally related products and multi-purpose potato crops

Fruit and Vegetables

Cultivation of cropsIn the context of the cultivation and supply of raw materials, interaction farmer-processing companies. The severe legislation on pesticides, residues and other contaminants. A few weeks ago, some carrot fiels were subjected to a wrong application of the pesticide (Dursban). From the perspection of food safety it’s important to have a very good view on the practices

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of the farmers and it’s interesting to group them and motivate them for better practices. As we consider the use of DDT and Temik in the cultivation of crops in China, we have to be …

Food nutrition-retention of nutrients

The retention of nutrients in the processed product depends on many factors: the type of processing and the related leaching effects (in function of time-temperature), storage conditions, nutrient stability, type of fruit or vegetables (structure, nutrient distribution, presence of protective skin and others) and the interaction between nutrients.

The stability of nutrients is rather variable, of which the soluble vitamins are most sensitive and the fat soluble vitamins are somewhat more stable.

Processing of fruit and vegetables results in nutrient loss, but this is also the fact for ambient or chilled storage of fresh products. An investigation of the Unilever Research department in the UK analyzed the retention of Vitamin C in spinach. It is noticed that once the product has passed the process of freezing, the Vitamin C retention rest stable. In contrary, rentention of vitamin C is noticeable decreasing in ambient and in a lessen way in chilled conditions. The break-even point-is given after 2 days (Dewettinck, 2005). In this context, it is important to manage efficiently the supply of raw materials in order to optimise the loss of nutrients during storage.

Research has indicated that with respect to nutrients, vitamins are most studied and most sensitive to degradation. Minerals and trace elements are less affected, the main losses are due to leaching. Nowadays, there is still limited information of other constituents like dietary fibre and bioactive compounds like polyphenols (Dewettinck, 2005)

Furthermore, the effect of processing on natural antinutritional factors (e.g. lectins) has not been thoroughly studied. Some of these factors are present in fresh products. Some beneficial effects may be expected particularly by heating. Even less information is available on the effect of processing on bioavailability of nutrients (e.g. vitamins). It is known that there are interactions of antinutritional factors with nutrients during processing and finally some suitable techniques are available to measure the bioavailability (Dewettinck, 2005)

As an overall conclusion, processed fruits and vegetables contribute in a significant manner to the intake of essential nutrients in our diet. This conclusion is even more valid when compared with fresh products after food preparation (Dewettinck, 2005)

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