Spring 2009

Times of hardship and change

Recessions are times of economic hardship, increased social pressures and uncertainty. But they are also times of change and in their aftermath emerge new industry structures, new patterns of ownership and new champions. Understandably senior managers focus on the short term but in doing so they are in danger of missing the harbingers of longer term change. One area of change that pre-dates the recession but which we believe is gathering momentum is the changing ownership structure of food processing companies.

Foreign investment

In recent years much of the investment at this processing stage has come from overseas. This investment has not only increased the extent of foreign ownership of the food chain in Britain but also it has been made primarily by two types of organisations; farmer controlled businesses from continental Europe such as Arla, Danish Crown, Vion and Union InVivo; and privately owned businesses such as Cargill, Lactalis and Müller. In a globalizing world increased foreign direct investment is to be expected but we believe it also raises a number of issues that need to be carefully considered, including some longer term implications for the food chain.

Investment opportunities

Arguably the most fundamental question raised by the growing involvement of foreign investors is what strategic opportunities do they see that are being missed or dismissed by British investors? British food companies have a good record of investment and reward but overwhelmingly this activity is downstream of the processing stage. First stage processing tends to be viewed as a commodity operation lacking scope for the value creation and capture generated by brands. But enterprising processors can leverage their position to develop downstream opportunities.

Three key factors for investment

We explain why first stage food processing offers opportunities for profitable investment and we go on to identify three factors that we believe are lacking amongst British investors and financial institutions that consequently limit domestic funds for such investments. These factors are: a good understanding of the links between farming and the food sector; a longer term outlook; and a lack of specialism in this area within the financial sector.

Figure 2: Agricultural gross output, household expenditure and food eaten out of the home
Table 1: Gross Value Added by sub-sector 2001 – 2007 (£M)
Figure 3: Key dairy processors in the GB supply chain by market share
Figure 4: Key meat processors in the GB supply chain by market share

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