The sustainability of European food supply chains A report by Ethical Corporation March 2006 1 Executive summary......................................................................................... 3 Section 1........................................................................................................ 13 Food Value Chains........................................................................................ 13 The ‘Value Chain’ ........................................................................................ 14 The first link in the demand chain ................................................................................ 17 ‘Value chain governance’ … ........................................................................................ 17 How to turn a supply chain into a demand chain.......................................................... 21 ‘Credence claims’ ......................................................................................... 23 Traceability ................................................................................................... 27 Standards: the codification of retailer demand. ............................................ 34 Contracts ....................................................................................................... 45 Vertical Coordination ................................................................................... 59 ‘Forward Integration’.................................................................................... 67 Buyer Power.................................................................................................. 71 Private Label ................................................................................................. 88 Summary – the hourglass.............................................................................. 99 Section 2 A sustainable system?............................................................... 101 Environmental impacts of the modern food industry. ................................ 102 Agriculture .................................................................................................. 111 Impact 1 – pollution.................................................................................................... 116 Impact 2 – loss of ecosystems and biodiversity.......................................................... 123 Impact 3 – soil degradation......................................................................................... 135 Impact 4 – water stress................................................................................................ 140 Plenty more fish in the sea? ........................................................................................ 148 Distribution ................................................................................................. 159 2 Food miles................................................................................................................... 160 Production and storage................................................................................................ 174 Processing ................................................................................................................... 180 Consumption............................................................................................... 183 Waste........................................................................................................................... 183 Human health.............................................................................................. 194 Appendix:.................................................................................................... 197 the food supply chain – in detail................................................................. 197 Retailers ...................................................................................................... 198 The Four Trends: Globalisation, Horizontal integration, Concentration and Internationalisation ..................................................................................................... 198 Top transnational retailers: company profiles............................................................. 208 A closer look at Europe’s food retail market.............................................................. 210 Expansion into Central and Eastern Europe (CEE) .................................................... 216 Discounters ................................................................................................................. 221 Processors ................................................................................................... 228 Trends ......................................................................................................................... 228 Top transnational processors: the company profiles.................................................. 232 Processors in the US: leading the way in concentration............................................. 236 Concentration in Europe ............................................................................................. 238 Input Suppliers............................................................................................ 239 Agrochemicals ............................................................................................................ 239 Seed Companies.......................................................................................................... 241 Producers..................................................................................................... 245 Trends ......................................................................................................................... 245 Concentration.............................................................................................................. 246 Europe......................................................................................................................... 247 Food Service Sector .................................................................................... 256 Trends ......................................................................................................................... 257 Concentration.............................................................................................................. 258 Executive summary Introduction 3 In today’s European food system – • Large retailers are dominating... • Small retailers and manufacturers are going under... • Farmers everywhere are struggling... • Consumer choice is contracting... • Energy that produces food is running out… • Food is travelling thousands of miles… • Fish stocks are vanishing... • Desert is spreading into farmland... • Animal species and plant varieties are endangered... • Water is over-used and polluted... • Waste mountains are rising... • Human health is being threatened... ...and these are just some of the major problems. 4 Scope This report examines the sustainability of European food supply chains. It describes the structure of these supply chains and how they operate. It also considers the environmental impacts of food production, distribution and consumption. Food supply chains, or value chains, cover every stage of the food system from production through to final consumption. Or all that happens ‘from farm to fork’. This report focuses mainly on Europe. But a European food supply chain will soon be a thing of the past. As European retailers expand internationally, the links in the chain are lengthening. Food is sourced all year round from all over the world. We are moving rapidly towards a global food supply chain. The sustainability of the food system is considered in terms of its energy consumption and emissions. It also covers the environmental impacts of intensive farming, which are threatening long-term food production. Actors in food value chains Retailers – also referred to as ‘supermarkets’. They control the ‘point of sale’ where food is sold to consumers. Processors – food and drink manufacturers, whose business is to alter the composition of raw ingredients to create new types of food products. Producers – farmers who grow the food. Suppliers – all actors in the chain who supply products for retailers to sell. Suppliers can cover exporters / importers, wholesalers, processors and producers, depending on the product. Structure The first section of this report – Food value chains – examines the relationships between the different actors in the value chain. It describes how a few, large retailers coordinate the activities of other actors along the chain. Section two – A sustainable system? – looks at the broader impacts of current food production. It considers the environmental impacts of the food system at its various stages, from agricultural production to household waste. It provides clear evidence that 5 the current system, given its rate of energy consumption and use of natural resources, is unsustainable. The appendix takes a more detailed look at the food system. It provides facts and figures on retailers, processors, producers and food service. It also highlights the consolidation trends that are affecting the industry as a whole. Summary The changing structure of European food supply chains… From supply to demand… Retailers were once the final link in a supply chain. Now they are the first link in a demand chain. Power concentrates at the most strategic part of the value chain. The actor who occupies this