Food companies are expecting a tough year in 2005 with competition and price pressures in the food chain rising to the surface as the key issues, reports Lindsey Partos.
Competition came out as the number one concern facing the food industry in a recent survey of over 300 industry professionals. The finding is in sharp contrast to last year where the issue failed to even reach the top ten list of concerns.
"This confirms the difficult conditions faced by both retailers and manufacturers," said food business network CIES, and author of the survey.
Ingredients suppliers and food makers have recently felt the squeeze of lower shelf prices and high commodity prices on their margins.
A gain in critical mass through consolidation, and economies of scale are two of the only routes open to them, providing sufficient leverage to meet the price challenge.
"Pricing has been the centre of attention, increasing pressure in retailer-supplier relations," adds the CIES report.
"Perennial tensions between retailers and suppliers have been exacerbated by downward pressure on prices," they add.
In a clear example of constructing largeness to face industry pressures, earlier this year ingredients giant Danisco acquired the ingredients unit of French chemical firm Rhodia.
The €320 million deal instantly leapfrogged the Danish firm into the number two cultures position from world four.
"One of the key questions from our customers is 'can you follow our growth?'" Fabienne Saadane-Oaks, president of the new Danisco Cultures unit said recently to FoodNavigator.com.
By acquiring the leverage, ingredients firms build a stronger position to face the growing pressure from their international customers, as they also consolidate and build new markets.
In a further example, at the end of last year two leading European dairies, Campina of the Netherlands and Denmark's Arla Foods, which own DMV International and Arla Food Ingredients respectively, announced their intention to merge.
"In price terms, consumers' reference point is now often the discount store and this is expected to remain the case even as the economic climate improves," reports CIES, suggesting price will continue to dominate the landscape for the food industry.
Perhaps surprisingly, the CIES survey found that food safety issues fell this year to a number seven ranking from number four in 2004.