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Innovation in the Norwegian Food Cluster

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Innovation in the Norwegian Food Cluster Innovation in the Norwegian food cluster A contribution to the OECD/CSTP NIS programme, the Cluster focus group OECD Cluster workshop Utrecht 8-9 May 2000 Author Thor Egil Braadland Johan Hauknes Project leader Johan Hauknes Funding from the TSER Programme/European Commission and Norges forskningsråd is gratefully acknowledged Preliminary version. Not to be cited Oslo, April 2000 Executive summary The study looks at processes of change in the Norwegian food cluster. The food cluster, employing around 170.000 persons, is highly institutionalised and has traditionally benefited from protection from international competition, for reasons of national food security and rural employment and value creation. In contrast to other Norwegian natural resource based industries (like the petroleum industry or the water power industry), the food industry is still dependent upon foreign technological machinery knowledge: Petroleum knowledge and hydro power knowledge has been imported and developed in a quid-pro-quo arrangement with international suppliers of machinery, allowing national giants like Statoil, Kværner and Norsk Hydro to grow up. However, in the food sector, the domestic agrofood monopolies (Norsk Kjøtt, TINE, Felleskjøpet) have filled the role of technological and economic locomotives, where vertical integration with suppliers of raw materials have provided an alternative system for knowledge development and diffusion. These structures are now challenged from several stances. Increased international adaptation and regulation and trade liberalisation are two of many important changes taking place in the food cluster today. Other changes are ongoing processes of vertical and horizontal restructuring between the different elements in the Norwegian industry, a process of deconstruction of existing agrobased monopolies is unfolding, particularly within the grain and dairy sector, increased professionalisation and organisation among retail distribution (counter-forcing the traditional hegemony among co-operatives and large corporations), increased scientification of the food industry, increased consumer- orientation, internationalisation processes (both in the retail chain groups and in the industry), and restructuring of the size structure, with more employment in the largest establishments than before are also important changes taking place. This paper provides an overview of the Norwegian food cluster, and discuss the trends of change against recent theories of economic development. We claim that there is no simple way to categorise innovation processes in the food industry, innovation activities in the food industry is often regarded as low, due to the fact that the industry overall spend comparatively little money on R&D, and it introduces comparatively few new products and processes. In extention of this argument, the food industry is claimed to be supplier-dominated in their innovation activities, as product and process innovation often are based on inputs from machinery suppliers. We claim that both these interpretations of the food industry innovation processes are misguided, because they are based on an innovation conception where R&D and product and process innovation are regarded as centre of industrial dynamism. Developing new technological products is not a main force in the food industry, the most profound driving force in the food industry seems to be branding and other market oriented innovations, the building up of trade marks and images of product quality and hygiene. iii 1 THE NORWEGIAN FOOD CLUSTER............................................................................................1 1.1 INTRODUCTION AND SUMMARY .........................................................................................................1 The cluster approach.............................................................................................................................2 2 THE NORWEGIAN FOOD CLUSTER............................................................................................5 Quantitative limitation of the cluster.....................................................................................................5 2.1 BACKGROUND ...................................................................................................................................7 Introduction ...........................................................................................................................................7 What is the food cluster? .......................................................................................................................7 Main figures...........................................................................................................................................9 International trade regulations for food..............................................................................................12 2.2 OWNERSHIP STRUCTURE AND DOMINANT COMPANIES .....................................................................12 The largest owner-groups...................................................................... 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Size structure .......................................................................................................................................14 2.3 THE GEOGRAPHY OF FOOD COMPANIES............................................................................................16 Regional innovation systems in the food cluster?................................................................................17 2.4 DISTRIBUTION SYSTEM AND MARKETS.............................................................................................20 2.5 THREE EXTERNAL KNOWLEDGE SUPPLIERS TO THE FOOD CLUSTER .................................................22 Suppliers of machinery and equipment................................................................................................22 Research and development ..................................................................................................................27 Market analysis....................................................................................................................................31 2.6 PRODUCT AND PROCESS INNOVATION PATTERNS IN THE FOOD CLUSTER..........................................33 Product and process innovations.........................................................................................................33 Formal and informal innovations........................................................................................................35 Branding and consumer trust ..............................................................................................................36 Barriers to innovation .........................................................................................................................37 Conclusion: A new concept of innovation? .........................................................................................38 2.7 SUMMARY .......................................................................................................................................38 3 HOW CHANGES IN THE INDUSTRY MAY AFFECT INNOVATION PROCESSES..........41 3.1 INTRODUCTION ................................................................................................................................41 3.2 CHANGE AND INNOVATION..............................................................................................................41 R&D, competitiveness and innovation.................................................................................................41 Corporations, hegemonies and competition ........................................................................................43 Increased chain group powers and innovation....................................................................................45 Restructuring of vertical and horizontal alignments ...........................................................................48 Internationalisation, globalisation and ownership..............................................................................48 3.3 SUMMARY AND POLICY CONCLUSIONS ............................................................................................50 REFERENCES............................................................................................................................................51 Interviewed persons/companies/location/date.....................................................................................54 1 1 THE NORWEGIAN FOOD CLUSTER 1.1 INTRODUCTION AND SUMMARY Few researchers recognise food production as an economically important - not to say a dominant - sector in the Norwegian economy. In an international perspective, the food industry is often regarded as being of little significance to economic growth, and there exists few studies about innovation, technological capabilities in - and economic impact from - this industry. The food industry is normally categorised as a traditional, low-skilled, labour intensive and low-tech sector1, 2. Further, food producers are described as technological laggards. If food companies innovate at all, the most important changes are often said to be supplier- dominated, changes taking place through implementation of new production equipment and machinery3. The food industry is in other words mostly analysed as a technology user, playing a somewhat adaptive role to the dominant developments
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