China to put pressure on European ingredients industry

Related tags Investment China

Top line growth for suppliers to the food industry will have to be
delivered through innovation and focused branding strategies, finds
a new report, at the same time stressing that emerging markets
could threaten the ingredients industry.

The warning from investment bank Goldman Sachs comes after a tough 2003 when retailers continued to tighten the screw on their supplier base, a trend likely to continue into 2004, said the report.

This need is likely to increase as the ever more cost-conscious consumer continues to put the pressure on.

'Not only will manufacturers be grateful for cost-savings programmes as a method of paying for brand investment and boosting growth, but they may also be grateful for these savings as a way of offsetting increased input costs,'​ write the report's authors.

Lacking the pricing power and strong brands of European giants such as Cadbury's, Danone or Nestle, the smaller players - Geest and Northern Foods, for example - will be particularly keen to reduce input costs and put the pressure on the suppliers.

Highlighting areas of growth, the report points to the long-term 'bull case' for international food stocks as its ability to tap into the GDP of emerging markets.

'We believe that 2004 promises a better year in Latin America and a continuation of the recovery in Asia,'​ cites the report.

But not all emerging market stories are necessarily positive. Increased exports from China threaten profitability in many product areas - notably for ingredients.

For the food companies China has not been so problematic, as food production tends to be domestically based. However, we are beginning to see a threat in ingredients, claims the report.

According to Goldman Sachs, both global ingredients leader Danisco and UK company Tate & Lyle have commented on increased competition from China as having a negative impact on their ingredient operations.

'If China's ingredient industry expands at the breakneck speed of the rest of the economy then we might expect further margin pressure from this area,'​ warns the report.

In 2003, a raft of ingredients companies announced moves to lay down roots in China. But as the report reveals, the need to accelerate developments in this burgeoning economy must be a top priority for leaders in the ingredients industry keen to hold onto their market share both at home and away.

Related topics Cereals and bakery preparations

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