A STUDY of the EVOLUTION of CONCENTRATION in the FOOD INDUSTRY for the UNITED KINGDOM Product Market Structure
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COMMISSION OF THE EUROPEAN COMMUNITIES A STUDY OF THE EVOLUTION OF CONCENTRATION IN THE FOOD INDUSTRY FOR THE UNITED KINGDOM Product market structure VOLUME I October 1975 '• The following report is the first volume of Part 2 of a study of concentration in the United Kingdom food processing industry. Part I of the study, entitled "Industry Structure and Concentration 1969-72", which was published in January 1975, dealt with trends in the food industry, structural changes and various indices for assessing concentration in the industry as a whole. Part 2 deals with the structure and level of concentration in a number of product markets and submarkets. Part 2 is itself divided into two volumes, this, the first volume, dealing above all with markets and submarkets in manufactured milk products, infant foods, ice-cream, grain milling products and biscuits. The second volume deals with the markets and submarkets In margarine, sugar; canned, frozen and dehydrated foods, and dietetic and health foods. J ~t- g ((.<- r o) (s 1) + to&. ¥{.jl) COMMISSION OF THE EUROPEAN COMMUNITIES ~ A STUDY OF THE EVOLUTION OF CONCENTRATION IN THE FOOD INDUSTRY FOR THE UNITED KINGDOM Product market structur~ VOLUME I ~~ Ji p October 1975 \ I .I. r' Reproduction authorized, in full or in part, provided the source is acknowledged. I I ~ 3 PREFACE The present volume is part of a series of sectoral studies on the evolution of concentration in the member states of the European Community. Those reports were compiled by the different national Institutes and experts, engaged b,y the Commission to effect the study programme in question. Regarding the specific and general interest of these reports and the responsibility taken by the Commission with regard to the European Parliament, they are published wholly in the original version. The Commission refrains from commenting, only stating that the responsibility for the data and opinions appearing in the reports, rests solely with the Institute or the expert who is the author. Other reports on the sectoral programme will be published by the Commission as soon as they are received. The Commission will also publish a series of documents and tables of syntheses, allowing for international comparisons on the evolution of concentration in the different member states of the Comruunity. 4 This Report commissioned by the Directorate-General for Competition of the Commission of the European Communities has been carried out by Development Analysts ltd., under the direction of R.W. Evely, B.Sc. (Econ), in consultation with Professor P.E. Hart, B.Sc. (Econ), of the University of Reading, and Professor S.J. Prais, M.Com., Ph.D., Sc. D (Cantab) of the City University, london and the l\lational Institute of Economic and Social Research. Thanks are a Iso due to the staff of Development Ana Iysts ltd., more particularly to Mrs. J.A. Carter, B.Sc. (Econ), Miss B.A. Playll, B.A., and Mr. A.J. MacNeary, B.A., who contributed greatly to the study. 5 CONTENTS VOLUME 1: 1 • Introduction 7 2. Manufactured Milk Products 13 3. Infant Foods 105 4. Ice-Cream 123 5. Grain Mi IIi ng 155 6. Biscuits 205 7 CHAPTER 1 INTRODUCTION 1 . 1: This Report presents the results of the second stage of a Study of Concentration in the UK Food Processing Industry, commissioned by the Directorate-General for Competition of the Commission of the European Communities. The first stage of the Study was published in January 1975 as Part 1: Industry Structure & Concentration, 1969-72, and dealt with the trends in the food processing industry, changes in its structure, and measures of concentration at the industry scale • . 1 .2: The second stage of the Study has been concerned with the structure and level of concentration in a number of industries and product-markets specified by the Directorate-General. There were nine such industries and product-markets originally listed, but in August 1975, another was specified, namely dietetic and health foods. 1 .3: The results of the studies form the main body of this Report, which is itself being published in two volumes. In this volume, apart from the Introduction, there are five chapters dealing with: Manufactured Milk Products Infant Foods Ice-Cream Grain Milling Biscuits In the remaining volume, there ore another four chapters covering the following trades or markets, together with a final chapter summarising the sa I ient features of a II: Margarine Sugar Canned, Frozen and Dehydrated Foods Dietetic and Health Foods 1 .4: The trades or product markets studied vary considerably in their size, scale and complexity. Four of them correspond to Census of Production industries, namely, Grain Milling, Biscuits, Margarine and Sugar, and while they range in terms of net output in 1973 from £19.3 8 millions (Margarine} to £128.2 millions {Grain Milling), and in their employment from 3,800 {Margarine) to 45,000 {Biscuits) they together comprise about 17 per cent. of the tota I net output and 14 per cent. of employment in the UK food processing industries. 1 .5: The other trades and product-markets are less easily related to Census industries. The commodities covered under the heading of manufactured milk products, together with ice-cream and some infant foods, all come within the scope of the Census Milk and Milk Products industry, but they do not comprise the whole of that Census industry since a large part consists of the processing of liquid milk. Canned, frozen and dehydrated products are to be found among the principal products of more than one Census trade, but are mainly classified to the Fruit and Vegetable Products and Bacon curing, meat and fish products' industries. Finally, dietetic and health foods are not always readily distinguishable from the more norma I product-I ines of the industries that produce them, and are part of the principa I products of a number of industries, among them biscuits, grain milling, fruit and vegetable products, margarine, manufactured milk products and soft drinks. 1 • 6: However, it is I ikely that these trades and product- markets account for a further 40-45 per cent. of net output and employ ment. In combination, the industries and product-markets specified by the Directorate-General comprise about 60 per cent. of net output and 56 per cent. of employment in the UK food processing industries in 1973. 1. 7: Taken together, the trades and product-markets covered by the second-stage of our study represent an interesting cross section of the food processing industries as well as illustrating a variety of characteristics. Some are industries which are traditional food trades and whose present structure has evolved over a long period of years; examples are flour milling and biscuits. Others are much more recent in their development and growth, as for example, infant foods, frozen and dehydrated foods, and dietetic and health foods. State intervention has shaped and moulded the structure of the industry in the case of sugar-refining, and the direct as well as indirect influence of government is a Iso an important factor for the manufactured milk products trade. Some industries, like margarine and breakfast cereals have been highly concentrated almost since inception; in others, the present level of concentration has come about by mergers and acquisitions at varying times both before and since World War II. 9 1 .8: While the time-scale of our industry-scale study was 1969-72, it would have been quite inappropriate to confine our attention to that most recent and short period as far as the product market studies were concerned. Indeed, it is often necessary to retrace the history of the trade and the leading companies within it in order to understand or assess their present position and the factors underlying it. 1 • 9: The approach that we have adopted in studying the structure and concentration of the industries and product-markets has followed a certain pattern. In the first place, as much relevant information as possible has been assembled and collated from published sources, including industry studies, company histories, company reports and financial accounts, works of reference, statistical sources and press cuttings. In many cases, too, approaches have been made to the leading companies in one or perhaps several of the industries under con sideration, and their assistance sought in establishing or confirming points of substance in relation to their activities. The response has varied considerably, but where firms have been willing to cooperate, their assistance and advice has been substantial and much appreciated. 1 . 10: There are a number of general points that should be noted in relation to some of the statistics that are common to most chapters of this Part II of our Report: (a) Consumption and spending per head. For the most part, the data on consumption-levels and spending per head given for individual products have been taken from the Annual Report of the l\lational Food Survey Committee entitled Household Food Consumption and Expenditure. These data relate to Great Britain and not to the United Kingdom (i.e. Northern Ireland is excluded), which means that they are not strictly comparable with most other statistical material which covers the United Kingdom. In addition, the data shown in the tables do not always precisely correspond with those in the Report for the stated year, since a change in the definition of a household occurred in 1972. An adiust ment has, therefore, been made to the figures for 1968-71 inclusive to make them comparable with those for 1972 and 1973. 10 (b) Brand shares. For a number of products, data are given on the shares of the retail market represented by sales of different brands.