Global warming, regulation affecting food processors, says study

Global warming, regulation affecting processors, says study

By Charlotte Eyre
01/08/2007- Global warming, increasing regulation and greater consumer activism are changing the way the UK food and drink manufacturers operate, according to a Deloitte & Touche study.
The trends have put increased cost pressures on industry. Those that do not react quickly face the risk of being unable to compete in today's markets.
Deloitte and Touche's food and beverage team carried out interviews with executives at more than 70 UK food manufacturers, retailers and food industry companies to discover the industry stance on how these key issues will affect future business.
The analysts noted that the manufacturers have to work hard to keep up with all fast-moving changes that affect them.
"While today traceability, removal of hazardous substances, animal welfare and the vexed question of nutritional laabelling and health warnings dominate the regulatory agenda, tomorrow it could additionally be carbon emissions and carbon labelling businesses are responding to," they said.
Food industry players said that the consumer trend for "health" products has the biggest affect on business today, with 94 per cent of large companies and 61 per cent of small businesses choosing this category as their number one concern, according to the report.
However many of the participating companies recognized that the "perception" of healthy food is more important, as they feel that many customers are actually confused about the nutritional content of the products they buy.
Retailers are also conscious of providing food that doesn't look spoiled or old, with 55 per cent saying that "freshness" is one of their business priorities.
At the other end of the scale, only 11 per cent of the executives questioned said that price-led value was a key priority, suggesting that they are putting consumer satisfaction before their own profits.
Another major concern for businesses is the consumer concern over how greenhouse gas emissions carbon footprints affect the food supply.
According to Deloitte analysts, businesses are currently opting to continue with air freight transport, as consumer desire still veers towards a wide choice fresh food all year round.
However, trends are now shifting towards more "eco-friendly choices", they warned.
The industry will face the tough challenge of reducing their carbon footprint, the analysts said, without removing revenue from poor or developing communities.
"Clearly there may need to be a balance between carbon footprint and support for Fair Trade-style projects to ensure for consumer support," they explained.
Rising costs are also a major concern for 70 per cent of manufacturers.
According to the report, several of those interviewed worry that costs are rising at such an extent that they cannot pass the increases onto customers, and so will have to fund the differences themselves.
While most cost concerns are over energy, fuel, raw materials, rents and utilities, rising labour expenditure is also a worry, the report said.
Industry executives are aware that good service is provided by well-trained and experienced employees, but staff of this calibre require rising wages and the prospect of good career development.
One director in the hospitality sector explained: "Current wage inflation is not sustainable. It is strengthening the focus on operating with fewer but higher calibre staff."
Retailers, manufacturers and food service operators all agreed that tougher legislation is also a growing burden on the industry.
"Hazard Analysis and Critical Control Points (HACCP) remains the primary foundation of modern food safety legislation, this has been supplemented by a growing body of legislation such as the Food Safety Act and Food Allergen Labelling," the Deloitte analysts said.
The allergen ruling is particularly problematic, they added, as manufacturers must now completely remove named allergens from their plants, as well as indicate the possible presence of any potentially allergenic content, such as nuts, on the labels.
Labelling is also a concern to industry executives in regards to nutritional content, as they feel that consumers are confused about how the information is conveyed.
The Deloitte analysts warn that manufacturers need to stop arguing over whether to use the "traffic light" system or the recommended daily allowance approach, or regulatory bodies might step in by introducing even more legislation.
This increasing pressure on manufacturers is due to changing consumer trends, behaviour and attitudes, the report said.
Over the next five years the UK population will age, with the over 60s making up 23 per cent of the population by 2012, representing a growth of 14.5 per cent for that age group when compared with 2004.
The population will therefore include a high percentage of well educated, active and affluent older citizens, who are particular about their individual consumer desires.
Spending power is also on the up, and when the "baby boomers" eventually die they will pass on a lot of wealth to future generations, who will in turn have great spending power, and a tendency to buy premium and luxury products, the analysts said.
The European food industry is undergoing a period of turbulence at the moment, and many key industry figures are anxious for reforms that will boos profits.
The Confederation of Food and Drink Industries of the EU (CIAA) last month set out a number of proposals, including investment in research and development, less red tape, access to cheaper raw materials, and export growth promotion.
It also pushed for more self-regulation, and less legislation.
However, wide-sweeping changes are unlikely to occur any time soon, as the latest round of Doha talks collapsed last month, as the EU is unwilling to drop agricultural subsidies in order to facilitate trade.
The EU's food and drink manufacturing sector has an annual turnover of €815bn, with exports of €53bn. It is a highly fragmented sector, with about 50 per cent of total turnover attributed to small and medium sized companies.
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