This chapter will provide a brief introduction to the EU food sector. The food sector encompasses several stages of the food supply chain: the agricultural inputs industry, the agricultural sector, food manufacturing, food wholesale and food retail. In this chapter, the focus will be on the downstream segments of the food supply chain. The agricultural inputs industry will not be discussed. Sections 1.2 and 1.3 will present figures on the structure and competitiveness of the EU food manufacturing sector. Section 1.4 will discuss developments in the food retail sector and the functioning of the food supply chain as a whole.

The EU food sector has undergone tremendous changes in the post-war period under the influence of technological developments, improvements in people’s standards of living and the increasing globalisation of food supply chains. Examples of technological improvements that allowed for more convenience in food preparation at home included, for instance, the invention and spread of microwave ovens in household kitchens. These developments, together with rising incomes and an increase in the number of women on the job market, triggered rapid developments in the food processing and retail sectors such as the increased offer of convenience foods and pre-cooked meals (Nisbets 2019). A parallel development since the end of the 1960s was the increasing popularity of dining out and the subsequent rise in the food service sector (Nisbets 2019). The latter developments are directly linked to the increasing living standards of European citizens in the post-war period. In line with the increase in wealth, the share of total household expenditures on food has decreased from over 30% at the end of the 1950s to around 12% (EU average) by 2017 (BBC 2018; Eurostat 2018). Still, the EU average hides wide diversity across member states. For instance, the share of food in total household expenditures is almost 28% in Romania, while it is only 8% in the United Kingdom (Eurostat 2018). A major driver of change in the food sector in recent years results from changing consumer preferences towards sustainable and ethical consumption practices.

The EU food sector had a total turnover of 1109 billion Euro in 2016 (up from 1061 bio Euro in 2012) and employed over 4.6 million people (up from 4.5 mio people in 2012) (ECSIP Consortium 2016; FoodDrinkEurope 2018). Small- and medium-sized enterprises make up 48% of the sector’s total turnover and 61% of total employment (FoodDrinkEurope 2018). The EU food sector is a major player on global markets: total exports amounted to 110 billion Euro (17.9% of global exports) and total imports to 75 billion Euro in 2016 (FoodDrinkEurope 2018). The main sub-sectors in the EU food industry are the bakery, meat, dairy and drinks sectors. Together they accounted for about 60% of the total turnover, more than 70% of total employment and more than 50% of the export market share in the food sector in 2015 (FoodDrinkEurope 2018).

The member states with the largest food sectors are France, Germany, Italy, the United Kingdom and Spain. Also Poland has a substantial food sector, employing almost 10% of all EU food sector employees. Table 1.1 provides an overview of the main structural features of the food sector in these six main food manufacturing member states. France has the largest food sector in terms of both turnover and in the number of employees, followed by Germany. Food companies in Germany and the United Kingdom are larger in scale compared to the other main food-producing member states and compared to the EU as a whole.

Table 1.2 benchmarks some of the characteristic features of the EU food industry against a number of its main competitors. We observe that the EU food industry is larger in terms of both turnover and employment compared to the benchmark countries. On the other hand, the productivity of the food sector, measured as the total turnover per enterprise, is lower in the EU than in the benchmark countries. Especially food companies in Brazil (ten times) and the United States (seven times) have a much higher turnover per enterprise than EU food companies. This observation can be linked to the relatively small size of EU food companies. In terms of the number of employees per enterprise, EU food companies are on average four times smaller than their US counterparts and more than 20 times smaller than Brazilian food companies.

Competitiveness of the EU food sector can be assessed based on different indicators: as a share of value added in the manufacturing industry, labour productivity, relative trade advantage, world market share or degree of innovativeness. Wijnands and Verhoog (2016) have made an assessment of the overall competitiveness performance of the EU-28 for the food and drinks industry and conclude that the EU’s competitiveness is low compared to especially Brazil and the United States. Interestingly, using the insights from Wijnands and Verhoog (2016), ECSIP Consortium (2016) shows that the competitiveness of the EU food sector improved between the periods 2003–2007 and 2008–2012 when looking at the relative trade advantage and the world market share. However, indicators of the EU food sector’s share in total manufacturing, labour productivity and value added worsened compared to the benchmark countries (United States, Australia, Brazil and Canada) over the same periods. While these observations seem counterintuitive, a potential explanation can be that the competitiveness of the EU food sector is based on product differentiation through quality (ECSIP Consortium 2016). Successful quality differentiation can earn a price premium for EU food products, and cost-related competitiveness indicators such as labour productivity will have less of an influence in international markets. The focus on the quality of EU food production is also found in the EU regulatory framework, for example, the EU Food Safety Law (see Chap. 16) and the EU Food Quality Policy (see Chap. 17).

The competitiveness of the food sector can also be assessed based on the degree of innovativeness. In general, the food industry is regarded as being less innovative than other industries, when comparing the shares of patent applications with the European Patent Office in total patent applications of the manufacturing sector. For instance, the share of patent applications by the food and drinks sector is only 2–3%, while it is 8–10% for the automobile and pharmaceuticals sectors (INNOFOOD-SEE 2013). Figure 1.1 shows that the EU food (and drinks) sector has a relatively low R&D investment intensity, that is, the share of R&D investment in total output of the sector, compared to a number of other food industries around the world. Especially the food industries in Australia, the United States, Japan and South Korea outperform the EU in terms of innovativeness. However, a large diversity also exists across member states within the EU. Figure 1.2 provides an overview of R&D intensity per member state. This shows that Finland and the Netherlands are frontrunners in food innovation within the EU, and their performance comes close to matching that of the best performing global benchmark countries. On the other hand, Romania, Bulgaria, Slovakia and Cyprus have a very low degree of R&D investment in the food sector.