Agri-food Sector – Three European Champions in the Spotlight

  • European agriculture is in crisis for many reasons, as highlighted by the COVID-19 epidemic.
  • Deregulation of the world market, climate change and ecological demands are putting strong pressure on farmers and the food industry.
  • However, some companies are doing well, to the benefit of European food safety. Here are three of them.

The European agricultural world is in crisis, but not all players have been equally affected by events. Certain industry champions are standing up, ensuring the continent’s agricultural resilience and contributing to its present and future food security.

Although consumers might not realise it, the European agriculture sector has faced a torrent of strife and regrettable circumstances in the years since the 2008 recession. Following the sting on exports of Russia’s 2014 agricultural import ban, 2015 saw the dairy industry further thrown into disarray by deregulation, with long-standing quotas and minimum pricing being jettisoned by the European Commission in favour of liberalisation of the market.

European producers have been facing increasing pressure to reduce and go “green”.

Hard times

In 2017 it was the sugar industry’s shot on the block. Deregulation destabilised market conditions there as well, generating a mess for domestic sugar-beet producers.

Adding to their woes, European producers have been facing increasing pressure to reduce and go “green”. Farmers of every kind have had their profits leeched away by changes to subsidies funding and carbon-neutrality targets imposed due to sustainability objectives.

“We cannot survive without direct payments,” said dairy farmer Benjamin Meise. When the latest revision comes into law, he suggested that he would have to declare bankruptcy. The European milk industry has already suffered three crises inside of eight years, he explained.

On top of these self-prescribed injuries, member states have been struggling as a result of foreign competition, as developing nations with lower-wage costs and less stringent domestic requirements eat away at the European market.

And climate change is, of course, far more than a simple regulatory issue: heat waves and severe droughts in 2018 damaged crop production across Europe, devastating profits.

Despite the challenging waters, there are companies who have managed to steer themselves steadily through these markets. For each of them, industry specific complications have had to be tackled, strategies for success adopted, and opportunities seized.

Deutsche Milchkontor

In the dairy industry, a sector besieged by calamity, the German leader Deutsche Milchkontor (DMK) has absorbed the many blows of deregulation, milk price crashes, and market turbulence, demonstrating remarkable resilience and adaptability, choosing to deploy most recently a strategy of restructuring to get the job done.

When deregulation upended the European dairy industry in 2015, many farmers literally resigned from the industry. Profitability seemed impossible for a great many of them. DMK is a cooperative, so as a result of this exodus, the company suffered production disruption of 1.7 billion kilos of milk over the ensuing two years.

Unsurprisingly, 2016 was a crisis year by the DMK’s own admission. What was needed was triage, stoicism, and a willingness to make the necessary changes.

DMK deployed its MOVE strategy in order to stimulate change. The four goals of the program were to create a leaner organisation, implement better raw materials planning, establish and maintain a more focused portfolio, and pursue an optimised expenditure structure.

“The change processes are sometimes painful, but they are putting our company on course for the future,” said the cooperative’s CEO, Ingo Müller.

In 2017, this resulted in the closure of at least three sites. At the same time, investments have been made in other stronger areas, for instance with the acquisition of Alete for the cooperative’s baby foods division. With these kinds of changes, the cooperative aims to remain competitive and efficient, despite production challenges.

The gambit has paid off. Not only has DMK maintained its position as market leader in Germany in the years following this crisis, it enjoyed modest sales growth through 2019 amounting to €5.8 billion. This was up from €5.6 billion in 2018. Despite the hellish industry winds, the company is financially healthy thanks to a pragmatic strategy that has undoubtedly contributed to the food sovereignty of Germany, and more broadly, food security in Europe.

Tereos is the largest sugar producer in France, and second largest in the world.

Tereos

Another sector hurting from the liberalisation of the European market is the sugar-beet industry. 2017’s deregulation was unkind to sugar prices, as quotas were abolished. On top of this, internal competition by design intensified, and with non-EU sugar producers from countries like Argentina, Brazil, Paraguay and Uruguay entering a free trade agreement with the EU — Europe saw sugar prices hitting unprecedented lows.

Tereos is the largest sugar producer in France, and second largest in the world. However, seeing the need for proactivity to combat an increasingly bitter hand, the cooperative’s management embarked on a strategy of international development. The crisis also demanded diversification of the company’s activities and industrial development within France and other territories, such as Brazil.

“In a European market marked by a structural drop in sugar consumption, only an international development and growth strategy can preserve future prospects,” said Alexis Duval, chairman of the executive board at Tereos.

In place of retreat, the company took an aggressive, forward-facing stance, which has been its hallmark for some 20 years. The key-stone was self-evident: diversification.

“Diversification that gives resilience, but also which bears financial fruit, because since it was set up, it has enabled the payment of 275 million euros in dividends,” the chairman explained in September 2019.

He has subsequently said that to maintain Tereos’s activities on French soil, it is necessary to have a competitiveness on par with the best in the world while, at the same time, increasing export outlets and growing markets. Otherwise, he feared, European sugar would condemn itself to a “vicious cycle of restructuring.”

Evidently, fortune favours the bold. Tereos’s financial results for 2019, as well as early quarter 2020, demonstrate that the strategy was a clear success. In a year where other French producers such as Cristal Union and Saint-Louis Sucre could do nothing to prevent plant closures, Tereos has shown sound financial performance and growth, and continues to look for new avenues for innovation and expansion within its native territory.

Duval has spoken at length on the merits of food sovereignty in this new age, and through supporting its member’s activities the cooperative goes a long way towards contributing to this ideal in France. This has been highlighted by the lack of plant closures by the cooperative, and indeed by the innovations it is bringing to the French market. Tereos’s gains in diversification internationally furnish it with the know-how to deploy cutting-edge optimisation practices throughout its French operations.

One example is the factory 4.0 pilot, which was first experimented with in Brazil and is now being introduced in France at the Connantre site for the 2020-2021 campaign. Through digital initiatives for the management of data, the group believes that it can improve productivity and logistical efficiency at the factory by a full 5 percent. With plans for universal rollout for 2022, the group’s beet farmers are showing signs of optimism. Their confidence is reflected in the continuation of their beet production contracts, and the 3 percent increase to 2019-2020 beet crop hectares they achieved.

Planet Farms

Italy has suffered from locust plagues for many years, with locals in Sardinia struggling against the pests to protect their crops. Spikes in temperature intensify problems, whilst also creating other issues for all kinds of horticulturalists.

One of the current trends to solve these and other issues is the turn towards vertical farming. However, this industry is littered with bankruptcies, with companies ladened with power and maintenance costs, and the labour-intensive requirements of precision farming.

One group keeping hope in this new industry alive is Planet Farms from Milan. Through numerous partnerships the company is building the largest vertical farm in Europe.

The facility will be in Cavenago in Italy, and represents the flagship project for Planet Farms’s growth and global development strategy. Understanding the need for a global mindset, the company’s aim is to turn the region into a production hub for Italian exports.

The new facility will be illuminated by a Dynamic Philips GreenPower modular LED lighting system from the company Signify, and will be powered by Repower, the international electricity operator with an emphasis on “green” energy. The precision technology and data infrastructure will be implemented by Sirti and 255 HEC, making use of an Internet of Things networks, data systems, industry 4.0 concepts, and even Blockchain technology for tracing information relating to the different phases of produce development.

“Vertical farming is to agriculture what Formula 1 is to cars,” Planet Farms founder and co-CEO Luca Travaglini has said.

Planet Farms represents one of the most ambitious, technologically advanced sustainability projects in Europe. After construction is completed in Italy, the company along with its partners, intends to begin building facilities in Switzerland and the UK.

The innovation and research coming as a result of these undertakings look set to bring agriculture forward a long way. The company’s hyper-efficient innovative processes contribute significantly to the prospects of food security in Europe, whilst balancing the many demands of sustainability targets and climate related challenges.

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Jeremy Williams

 Jeremy Willliams is an all-rounder with experience in the territorial civil service, mid-sized companies and international organisations, and is now an independent organisational consultant.

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