competitiveness in the european dairy industries

Competitiveness in the European Dairy Industries

Klaus DrescherDepartment of Agricultural Economics, Christian-Albrechts-University of Kiel, Germany. E-mail: [email protected]

Oswin MaurerDepartment of Marketing and Management, and Department of Agricultural and Resource Economics, University of New England, Armidale, NSW 2351,Australia. E-mail: [email protected]

ABSTRACT

International competitiveness has gained high importance for national food sectors in European coun-tries, particularly initiated by the completion of the European Common Market, the rapid expansionof international business activities of private companies, and the accelerated concentration of food in-dustries. Due to increasing interest in the competitive situation of these industries, the paper investi-gates the international competitiveness of European dairy sectors. After a description of importantstructural features in the milk production, milk processing and food retailing sectors in Europeancountries and the discussion of different approaches to measure international competitiveness, theanalysis is carried out at the meso-economic level by using “Revealed Comparative Advantage Indi-cators” to determine the competitive position of the German dairy industry. In comparison with other EU countries, the German dairy sector seems to have international competitive advantages infresh, dried, and evaporated milk products. The results obtained verify the predominantly qualitativeresults found in the literature on the international competitiveness of this sector. [EconLit cite: L190]© 1999 John Wiley & Sons, Inc.

1. INTRODUCTION

The international competitiveness of industries has again moved into the foreground of sci-entific and economic discussion during the last years (Porter, 1990; Siebert, 1989). Thecompletion of the European Common Market and the ongoing political and economicchanges in Eastern European countries have initiated specific discussion of productionstructures and of the competitiveness of national industries (Bellendorf, 1993). This dis-cussion is also prevalent in the European food sectors, since changes in the political andeconomic framework are affecting this sector to a large extent (Appel, 1990; Hartmann,1993; Hyvönen, 1995; Jensen, Voigt, & Hayes, 1995; Schmitz, 1992; Tefertiller & Ward,1995; Traill & Da Silva, 1994). Within the food industry, the dairy sector comprises an in-teresting case for economic evaluation, since it is subject to specific and dynamic develop-ments (Gloy, 1995). In the following contribution the international competitiveness of theGerman dairy sector is analyzed and discussed. With reference to specific product groupsthis sector will be compared to dairy industries in other European countries. Analyses of the

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international competitiveness of an agribusiness sector, and particularly the German dairyindustries, have been performed on several occasions (Hülsemeyer, 1991; Nickel, 1991;Weindlmaier, 1992), but all existing studies are of a predominantly qualitative nature. Asstated by Hartmann (1993), the theme of international competitiveness of agribusiness sec-tors seems to be highly relevant from an economics and business strategy point of view(Hartmann, 1993). Nevertheless, there is still little empirical evidence which allows thor-ough conclusions to be drawn on the competitiveness of particular agribusiness sectors.Similarly, the application of existing models does not allow the question of internationalcompetitiveness to be addressed in a theoretically satisfying way, since these models aremainly concerned with the analysis of a sector as a whole and do not take subsector analy-sis into account. Following the assumption that subsectors may differ in their internationalcompetitiveness from the competitiveness of the overall sector, the following analysis anddiscussion attempts to overcome some of the shortcomings mentioned and to contribute tothe debate on international competitiveness of national agrifood subsectors.

2. THE TERM “COMPETITIVENESS”

The term “competitiveness” is commonly used in economic research and annual econom-ic reports, but it is rarely found in textbooks dealing with external economic relations (Horn,1985). Literally, the term describes the ability of firms and industries to stay competitivewhich, in turn, reflects their ability to protect and/or improve their position in relation tocompetitors which are active in the same market (Bellendorf, 1993). Therefore, competi-tiveness can be interpreted as the ability of firms to cope with structural change (Beck,1990).

The competitiveness of economic subjects can principally be determined along three dif-ferent levels of aggregation: competitiveness of companies (microeconomic level), com-petitiveness of industries (mesoeconomic level), and competitiveness of national economies(macroeconomic level). In the following, the focus of discussion is on the competitivenessof the dairy industry in Germany. Hence, the analysis is performed at the mesoeconomic lev-el. However, performing an analysis of competitiveness at the industry level results in anaverage measure of competitiveness for the total industry and does not reflect particularstrengths and weaknesses of individual firms (Wetter, 1984). The more heterogeneous thesubindustries and production structures are, and the more companies within an industry dif-fer from each other, the higher is the probability of variations in competitiveness betweenindividual companies within that industry. Therefore, the validity of average values in ex-plaining the competitiveness of a certain sector is limited. This problem can partly be solvedby analyzing the competitiveness of an industry at a disaggregated level, and by taking thetemporal aspects of any industry’s competitiveness into account (Horn, 1985). Therefore, inthe following the analysis is performed along different dairy product groups.

3. STRUCTURES IN AGRIBUSINESS

Before discussing relevant structural features of the dairy industry in Germany and Europe,some brief remarks about the factor market will be made. The element with the most influ-ence on the factor market is a milk quota system, which has been introduced in 1984 andadjusted by EU agrarian reforms and GATT agreements accordingly during recent years.This milk quota system inhibits the necessary structural adjustment at the farm level (Hülse-meyer, 1994), which is reflected in the development of dairy herd sizes in Europe. At

164 DRESCHER AND MAURER

the first glance it looks like that a dynamic process has taken place between 1985 and 1995,with the average herd size growing by up to 90%, as for example in Italy. However, thisrapid growth figures do not take into account the relatively low initial number of cows perherd in these countries. The average herd size in the EU was nearly 16 cows in 1987, butby 1995 the average size increased to 24 cows. However, the herd sizes differ substantial-ly between the countries of the EU, as indicated in Figure 1. The largest herd sizes are foundin Great Britain, Netherlands, and Denmark, while Greece, Spain, and Portugal have thesmallest herd sizes. The average milk yield per cow also differs substantially between EUcountries. The highest milk yield per cow is observed in Denmark and Netherlands (Table1), with Germany placed in the middle section of the scale. It can be argued that althoughGermany could substantially increase the milk yield per cow, it could not close the effi-ciency and therefore the competitive gap to the most efficient countries. Considering thesefew descriptive statistics, an initial conclusion can be drawn: that the German dairy pro-cessing industry has to cope with an input sector that is relatively uncompetitive comparedto the milk production sector in other European countries. Compared to foreign competi-tors which have achieved structural growth during the recent years, the German dairy pro-cessing industry has to contend with several competitive disadvantages, particularly intransaction and transport costs (Murphy, 1989).

However, these structural deficiencies which are leading to competitive disadvantagesare not unique to the German situation and are found in some other European countries: forexample, Portugal, Spain, Italy, and Greece, with respect to transport costs; and in Italy,

EUROPEAN DAIRY INDUSTRY 165

Figure 1 Number of dairy cows per herd in the EU (1987–1995).

with respect to transaction costs. In contrast, transport costs are much lower in Denmark,Ireland, and the Netherlands, mainly due to larger dairy herd sizes, therefore requiring asubstantially lower number of milk collection stops to fill a milk tanker.1

Furthermore, the German sector has also to cope with substantially higher governmentcharges on road transport and higher wages for road transport workers, with both factorsraising transport costs above the transport cost levels in many other European countries. Be-fore analyzing the competitive position and the international competitiveness of the Ger-man dairy sector, some structural data for the European and German dairy processing andfood retailing industries are presented. According to the raw milk input per processing plant,the German dairy processing industry is in an average position compared to its Europeancompetitors. As depicted in Figure 2, the largest structures, with more than 85 to 95% of alldairy plants processing more than 100,000 tons of raw milk per year, are found in Nether-lands, Denmark, and Ireland. In contrast, a classification of dairy processing companies inthe EU according to their size leaves German companies in a comparatively more favor-able position (Fig. 3).

Netherlands also holds the top position in the classification along the processing capac-ity per plant, but the German dairy sector is ranked second together with Ireland. If the re-sults of Figures 2 and 3 are combined the conclusion can be drawn that concentration innearly all European dairy markets is higher than in Germany. While the 10 biggest dairycompanies in Germany comprise about 30% of the market (Hülsemeyer, 1991), the con-centration ratios (CR) in other European countries are much higher. The highest concen-tration can be found in the Danish market with a CR 2 of 80%, in the Netherlands with aCR 3 of 80.5%, and in Great Britain with a CR 4 of 60% (Gloy, 1995; Kirk & Anderson,1995; van der Hamsvoort & de Vlieger, 1995). This fragmentation of the German dairy pro-cessing industry complicates the task of determining its competitiveness compared to thosecountries with a more homogeneous structure, such as Denmark and the Netherlands. How-ever, as pointed out by Nelson and Winter (1983), a structure like the one prevalent in the


1The number of stops required to fill up a milk tanker is the major variable determining transportation costs(Hanf, 1988). In addition, the labor costs and costs for running a truck are relatively high in comparison to mostof the other EC countries (Statistisches Bundesamt).

TABLE 1. Growth Rate of Average Milk Yield per Cow, European Union Countries (1987–1996)

Milk Yield per Cow Increase 1987–1996

Country 1987 1996 percent liters/cow

Belgium/Luxembourg 4018 4900 21.95 882Denmark 5949 6800 14.30 851Germany 4700 5520 17.45 820Greece 2768 3700 33.67 932Spain 3354 4600 37.15 1246France 4450 5700 28.09 1250Ireland 3707 4400 18.69 693Italy 4325 4900 13.29 575Netherlands 5713 6800 19.03 1087Portugal 3400 4900 44.12 1500Great Britain 4737 5700 20.33 963

Source: ZMP–Bilanz Milch, various years.

German dairy sector with its different company types, sizes, and structures, is a prerequi-site to successfully survive in competition.2

The situation described is substantially different in partial dairy product markets wheremuch higher concentration ratios can be found. In the fresh milk segment, the accumulat-ed market share of the top 10 German dairy companies account for about 70% of total freshmilk sales and is even higher for specialty products like fruit yogurts and fresh cheesedesserts (N.N., 1994). Consumer behavior is another factor determining the competitive-ness of the industry, and it is characterized by increasingly heterogeneous consumer de-mand and the ongoing emergence of new consumer groups (Barkema & Drabenstott, 1995).Consumers are better informed on quality, product composition, the nature of ingredientsand the manufacturing processes involved. New information technologies are enablingfood-retailers to constantly monitor changes in consumer behavior, the emergence of newpreferences and the acceptance of new products. Hence, they are increasingly taking overthe function of transforming consumer preferences into product specifications and are there-by enhancing their already powerful position in the food sector. Its position at the interfacewith the consumer provides the food-retailing sector with a strong bargaining position, par-ticularly in terms of supply and pricing conditions. This strong position is particularly pro-nounced in Germany, Austria, the Netherlands, and France (Figure 4). With respect to theyearly turnover of retailing companies in Europe, German- and French-based food-retail-ers are playing the dominant role.

Consequently, German dairy companies have to deal with a strong and well organizedfood-retailing sector which operates at very small profit margins. According to M1M


2To some extend, these structural features are also observable in the French and Belgian sectors.

Figure 2 Raw milk input per processing plant, European Union (1994).


Figure 3 Structure of dairy companies, European Union (1994).

Figure 4 Turnover of top-ten food retailers in Europe (1995).

EURO-DATA, German retailers only achieve 1.5% of their turnover as profits, while re-tailers in the UK achieve profit margins of 7% (N.N., 1995). Thus, the lower margin atthe retail level in Germany has a direct effect on the food industry and, therefore, on dairycompanies. Retailers are increasingly determining supply price levels and due to in-creasing competitive pressures within the retail sector, are constantly trying to reduce thecost of supplies and, therefore, payments to the food manufacturing industries (Schmitt,1995). Furthermore, German dairy companies are facing another specific problem in theirrelationship with the food retailing industry. Retailers increasingly offer dairy productsas specials or bargain buys, often below cost, to attract consumers to their stores. Thismarketing strategy and the uneven power distribution between the retailing and dairy pro-cessing sector increases the pressure on dairy companies to improve their efficiency andminimize production costs. Considering the situation described, the hypothesis can beproposed that the powerful pressure exerted on dairy companies by food-retail firms inGermany results in improved competitiveness of the German dairy processing companiesin the international market place, particularly in those countries where food retailers areless powerful.

4. THE COMPETITIVE POSITION OF THE GERMAN DAIRY SECTOR

4.1. Measuring International Competitiveness—Application of Different Models of Analysis

The international competitiveness of an industry can be measured with different indicators(Horn, 1985). In the following, some results indicating the international competitiveness ofthe German dairy sector are presented, using export shares and “Revealed Comparative Ad-vantage Indicators” (Balassa, 1965). In reviewing this data, it has to be taken into accountthat the competitive position achieved in export markets is not absolute. Changes over timeprovide valuable clues as to how and in which direction the competitiveness of different na-tional dairy sectors is changing. However, some initial conclusions on the competitive po-sition can be drawn from an analysis of export shares.

Since 1984, the German dairy sector has continually lost international market share inmilk and fresh-milk products. This applies to both, the quantity shares and the value shares.However, the decrease in value shares in the product category “fresh milk” has been con-siderably less than the decrease in quantity shares.

This has apparently been due to the substitution of superior fresh milk products for infe-rior ones in this product category. An examination of the development of the terms of tradeconfirms that this substitution took place during the last years of the data series (Figure 5).

As far as quantity is concerned, the market share of German whey was also reduced, butvalue shares stayed constant for this product (Table 2). Value shares increased substantial-ly for dried milk with quantity shares being relatively stable throughout the years. Valueshares also increased for evaporated milk, paralleled by an increase in quantity shares. But-ter and cheese show a constant decline in value, as well as in quantity shares in internationalmarkets. On the basis of these movements in export shares over time, it can be argued thatthe German dairy sector developed competitive disadvantages in international markets forbutter and cheese, and competitive advantages for evaporated milk, dried-milk products,and possibly fresh-milk products. To verify this hypothesis, more refined models are usedbelow.



Figure 5 Development of terms of trade for selected food product groups in Germany.

TABLE 2. Export Shares of the German Dairy Industry for Selected Dairy Product Groupsa

Years

Product 1983/1984 1985/1986/1987 1988/1989/1990 1991/1992/1993

Fresh milk Value 55.27 55.30 47.68 43.03Quantity 61.82 57.71 49.50 46.39

Whey Value 16.94 19.89 14.70 17.37Quantity 22.55 25.14 14.38 18.35

Milk (dry) Value 20.46 22.22 28.09 28.93Quantity 31.79 27.41 29.41 29.84

Evaporated Milk Value 21.05 22.95 27.01 29.60Quantity 23.34 23.67 28.50 34.66

Butter Value 11.65 11.83 9.64 11.11Quantity 13.67 17.30 11.96 12.02

Cheese and fresh Value 21.23 20.32 19.41 17.43cheese Quantity 21.51 20.97 20.14 18.65

Total Value 21.44 22.71 23.00 22.72Quantity 29.11 28.70 25.65 26.65

acompared with exports of the EU, Austria, and SwedenSource: ZMP-Bilanz Milch, various years; FAO Trade Year Book, various years.

Next to export shares, “Revealed Comparative Advantage Indicators” are useful indica-tors of the international competitiveness of a country’s industry (Balassa, 1965). To enhancethe current analysis, a “Revealed Comparative Advantage Export Indicator (XRCA)” forthe German food industry and the German dairy sector, and a “Revealed Comparative Ad-vantage Net Export Indicator (NXRCA)” for the German dairy industry are calculated to

provide a better insight into the international competitiveness of the sector. Country bycountry, data was available for the years 1983 to 1993. Calculations using the “RevealedComparative Advantage Export Indicator,”

(1)

where x is exports (in US$), i is product category, j is country, are presented in Table 3.These indicate a below average competitive position of the German food industry comparedto other EU countries. Furthermore, this weak position of the German food industry has notimproved over the entire period.

Even when using the “Revealed Comparative Advantage Net Export Indicator,”

NXRCAij 5 [NXij 1 (NXij * NXTj)] * 100 (2)

with: Nxij 5 (Xij 2 Mij)/(Xij 1 Mij)

NXTj 5 Sj(Xij 2 Mij)/Sj (Xij 1 Mij)

M 5 Imports

as a measure to assess Germany’s competitiveness, the change in position is almost negli-gible. NXRCA reflects the net foreign trade position of a country corrected by the net for-eign trade position of all industry branches.

The results presented so far correspond closely with empirical findings presented byHartmann (1993) and Traill and da Silva (1994), and are indicated by comparing a fewmacroeconomic indicators with other sectors (e.g., net value added at factor costs per laborunit or company or labor costs as percentage of gross output value). However, if the sameanalysis is performed for the dairy sector only and not, as above, for the total food indus-try, the German position changes dramatically.

In comparison to European countries, according to the XRCA’s, the German sector turnsout to be one of the more competitive dairy sectors in Europe, together with Denmark,Netherlands, Ireland, and Austria (Table 4). In this comparison of European dairy sectors,the dairy industries of Greece, Portugal, Spain, Sweden, and Great Britain are ranked as less


XRCA X X x Xij ij ijj

iji

ijij

=

∑ ∑ ∑∑/ / /

TABLE 3. Competitive Position of the German Food Industry (XRCA), 1983–1993

Country Mean 1983 1985 1987 1988 1989 1990 1991 1992 1993

Austria 0.38 0.43 0.43 0.35 0.35 0.38 0.35 0.32 0.35 0.35Belgium/

Luxembourg 1.01 0.96 1.03 1.01 0.96 1.00 1.00 1.03 1.04 1.07Denmark 2.35 2.57 2.53 2.37 2.39 2.40 2.37 2.27 2.11 1.91France 1.50 1.57 1.57 1.54 1.52 1.51 1.52 1.38 1.35 1.46Germany 0.50 0.51 0.51 0.48 0.50 0.49 0.48 0.53 0.52 0.52Greece 2.99 3.11 2.81 2.86 2.89 3.18 3.10 3.08 3.14 2.80Ireland 2.33 2.50 2.36 2.56 2.46 2.38 2.25 2.16 2.25 1.97Italy 0.66 0.63 0.72 0.63 0.65 0.64 0.66 0.68 0.68 0.68Netherlands 2.14 2.02 1.94 2.21 2.23 2.26 2.29 2.23 2.23 2.04Portugal 0.67 0.89 0.75 0.63 0.65 0.59 0.57 0.62 0.58 0.56Spain 1.44 1.35 1.31 1.60 1.58 1.44 1.43 1.43 1.36 1.57Sweden 0.22 0.26 0.28 0.20 0.20 0.21 0.22 0.20 0.19 0.19Great Britain 0.70 0.65 0.65 0.71 0.67 0.71 0.70 0.72 0.75 0.69

competitive. This result is generally confirmed when measuring the countries’ competi-tiveness with the NXRCA, but Netherlands, Denmark, and Ireland still turn out to be themost competitive countries, with Germany and Austria showing less favorable results.

Both of the Revealed Comparative Advantage Indicators used so far are designed to an-alyze the competitiveness of homogeneous products in a free market setting. Naturally,these criteria are not met in international milk and dairy product markets and a commodi-ty-focused analysis, as presented above, leads to results which are questionable on the prod-uct and/or product group level. Therefore, in the following analysis, the competitive posi-tion is determined for individual product groups, utilizing the NXRCA to depict absolutecompetitive positions in terms of “1”, “2”, “0”.

According to the results presented in Table 5 (XRCA), the German dairy industry has in-ternational competitive advantages in the following product groups: milk, fresh-milk prod-ucts, dried-milk products, and evaporated milk. In contrast, German butter and cheese areat an international competitive disadvantage compared to European competitors (Winkel-mann, Pitts, & Matthews, 1995). A comparison of the results presented in Table 5 (XRCA)and Table 6 (NXRCA) does not allow the drawing of a clear conclusion. The XRCA results(Table 5) indicate that Germany has a competitive disadvantage in whey and butter, where-as the NXRCA calculations (Table 6) do not reveal this disadvantage. However, if the timeperiod under investigation (1983–1993) is divided into two separate subperiods (1983–1987 and 1988–1993), both indicators show that Germany had a competitive disadvantagein whey, butter, and cheese in the second time period analyzed.

These findings correspond to the results of qualitative research by Weindlmaier (1992).Whereas the analysis of absolute competitive advantage of the German dairy industry po-sitions it among the most competitive industries in Europe, the relative competitive posi-tion of the industry is of greater interest. To determine the relative competitive position ona country and product group basis, results of the analysis of absolute advantage have beenclustered.3


TABLE 4. Competitive Position (XRCA, NXRCA) of the German Dairy Industry, 1983–1993

XRCA XRCA NXRCA NXRCACountry Coefficient Ranking Coefficient Ranking

Austria 1.18 5 17.84 5Belgium/Luxembourg 1.09 6 2.66 7Denmark 1.23 4 117.52 2France 0.87 7 57.83 3Germany 1.61 2 8.64 6Greece 0.14 12 280.46 13Ireland 1.70 1 120.42 1Italy 0.35 10 244.05 11Netherlands 1.30 3 45.78 4Portugal 0.31 11 0.09 8Spain 0.11 13 261.39 12Sweden 0.48 9 20.20 9Great Britain 0.49 8 222.44 10

Note: XRCA 5 .1 Competitive advantage, ,1 Competitive disadvantage; NXRCA 5 .0 Competitive advan-tage, ,0 Competitive disadvantage.

3The calculations were made with the statistical package SPSS, in which four groups were given and cluster-ing was done with the Ward method.

Cluster analysis revealed that the best fit is achieved by grouping the data into four clus-ters. Principally, emphasis has been, as suggested by Horn (1985), on the determination ofthe relative position. According to the clustering results in Table 7 and Table 8, the Germandairy sector holds a strong international competitive position in milk. It holds an averageor strong international competitive position in milk and evaporated milk products (Horn,1985). The results confirm the previously proposed hypothesis.

A further indicator used to determine the competitiveness of a subsector is the share ofthose exports not flowing into neighboring countries (Porter, 1990). It considers the factthat, given similarities between neighboring countries, sales into these markets are gener-


TABLE 5. International Competitive Position of German Dairy Products, Based on XRCAResults, 1983–1993

Milk Milk Evaporated Milk AgriculturalCountry (Fresh) Whey (Dry) Milk Butter Cheese Products Products

Austria 2 o(*) 1 2 2 1 1 2Belgium/

Luxembourg 1 2 o 2 1 2 o oDenmark 2 2 o 2 o 1 1 1France 1 1 o 2 2 1 o 1Germany 1 2 1 1 2 o 1 2Greece 2 2(*) 2 2 2 1 2 1Ireland 2 1 1 2 1 2 1 1Italy 2 2 2 2 2 1 2 2Netherlands 2 o 2 1 o o 1 1Portugal 2 2(*) o 2 1 1 2 2Spain o o 1 o o 2 2 1Sweden 2 2 1 2 1 2 2 2Great Britain 1 2 1 o 1 2 2 2

Note: XRCA ,0.85 5 2; 0.85 to 1.10 5 o; .1.10 5 1.*data incomplete

TABLE 6. International Competitive Position of German Dairy Products, Based on NXRCAResults, 1983–1993

Milk Milk Evaporated Milk AgriculturalCountry (Fresh) Whey (Dry) Milk Butter Cheese Products Products

Austria o 1(*) 1 1 1 1 o 2Belgium/

Luxembourg o 2 1 o o 2 o oDenmark 1 1 1 o 1 1 1 1France 1 1 1 1 o 1 1 oGermany 1 o 1 1 o o o 2Greece o o(*) o o o o 2 oIreland 1 1 1 2 1 1 1 1Italy 2 2 2 o 2 o 2 2Netherlands 2 2 o 1 o 1 1 oPortugal o 2(*) o o o o o 2Spain 2 2 o 2 o 2 2 oSweden 1 1 1 2 1 2 o 2Great Britain o o 1 o 2 2 2 2

Note: NXRCA ,0.85 5 2; 0.85 to 1.10 5 o; .1.10 5 1.*data incomplete

ally easier to achieve than it is to build and maintain market share in more distant markets.A high share of sales into “non-neighboring countries” indicates a favorable portfolio of ex-port markets and competitive advantages independent of transport costs. Comparing ex-ports of two countries along this criterion, the geographic location of the countries com-pared has to be taken into account. Considering the geographic proximity of countrieswithin the EU, it seems to be more appropriate to consider exports into non-EU countriesas the criterion to assess international competitiveness.


TABLE 7. Relative Competitive Position (4 Cluster) of German Dairy Products, Based on XRCA-Indicators, 1983–1993

Milk Milk EvaporatedCountry (Fresh) Whey (Dry) Milk Butter Cheese Total

Austria o 2 1 oBelgium/

Luxembourg 1 2 o o 1 2 oDenmark 2 o o 2 o 1 1France o 1 o 2 2 1 oGermany 1 o o o 2 o 1Greece 2 2 1 2Ireland 2 21 1 2 1 2 1Italy 2 2 2 2 2 1 2Netherlands 2 o o 1 o o 1Portugal o 2Spain 21 21 2 2Sweden 2 1 2 1 2 2Great Britain 21 o 1 o o 2 2

Note: 1 5 strong competitive position; 2 5 weak competitive position; o 5 average competitive position; 12

5 Competitive position changed from 1 to 2; 11 5 Competitive position changed from 1 to 11; 21 5 Com-petitive position changed from 2 to 1.

TABLE 8. Relative Competitive Position (4 Cluster) of German Dairy Products, Based on NXRCA-Indicators, 1983–1993

Milk Milk EvaporatedCountry (Fresh) Whey (Dry) Milk Butter Cheese Total

Austria o 12 o oBelgium/

Luxembourg 2 2 o 1 2 2 oDenmark 1 o 1 12 1 1 1France o 1 o 12 o o 1Germany o 2 o 1 2 2 oGreece 2 2 2 2Ireland 12 1 1 21 1 1 1Italy 2 2 2 2 2 2 2Netherlands 2 2 2 1 o 1 1Portugal 2 oSpain 2 2 2 2 2Sweden o o 2 1 2 oGreat Britain 2 2 o 1 2 2 2

Note: 1 5 strong competitive position; 2 5 weak competitive position; o 5 average competitive position; 12

5 Competitive position changed from 1 to 2; 11 5 Competitive position changed from 1 to 11; 21 5 Com-petitive position changed from 2 to 1.

In the following, exports of cheese are used as an example to demonstrate the export sit-uation of EU countries (Figure 6). Denmark (43%), Great Britain (33%), and Italy (3%) areselling a considerably higher share of total cheese exports into markets outside the EU thanall other EU countries. Germany (26%), Netherlands (15%), and France (23%) are on muchthe same level of international competitiveness, while the results for Denmark and Italy cor-respond with the findings of the analysis presented above.

4.2. A Critical Note

As mentioned before, the validity of the indicators used throughout this analysis is basedon the assumptions of free competition and homogeneous products. Both conditions applyonly to a certain extent to dairy products. Furthermore, the issue of trade between “multi-national enterprises”(i.e., trading product between affiliated companies) is neglected andtherefore the effects of direct foreign investment are not taken into consideration (Rama,1992). Empirical data on intracompany trade is difficult to find, particularly at a disaggre-gated level (Traill & Da Silva, 1994). However, an interrelationship between the size ofcompanies and their foreign investment activities can be observed, as well as between thenumber of foreign markets served and the overseas activities of these firms (Bleker & Fein-berg, 1995). With respect to the results presented on the international competitiveness ofthe Dutch, Danish, French, and Italian dairy industries, the indicators tend to underestimatethe competitive strengths of the respective sectors. In all four countries, dairy companies ofconsiderable size are operating, investing and selling into a number of international mar-kets. Given that the extent of foreign direct investments is an indicator of increasing con-centration and therefore competitiveness in the home market (Bleker & Feinberg) this pro-vides more evidence that the international competitiveness of the four countries’ dairysectors is underestimated. Furthermore, “Revealed Comparative Advantage Indicators” ne-glect the importance of domestic demand, the size of the domestic market, and relevant de-


Figure 6 Cheese exports of European Union countries into non-EU markets (in % of total cheeseexports).

velopments within domestic markets. By using a simple example the effect of this failureof the competitiveness assumptions could easily be shown and how results are additional-ly distorted by quota regulations. Also, an evaluation of the number of new products,processes, patents and brands could provide additional insights into the competitiveness ofthe dairy sectors in European countries. However, information available on these topics isoften not sufficiently detailed. Furthermore, an intersectoral comparison between countriesusing these indicators is somewhat problematic (Bellendorf, 1993; von Heusinger, 1995).Further developments in methodology and theory are needed to enhance the analyticaltoolkit for analyzing the international competitiveness of agribusiness subsectors.

5. CONCLUSION

International competitiveness has gained high importance for national food sectors in Eu-ropean countries, initiated particularly by the completion of the European Common Mar-ket, the rapid expansion of international business activities of private companies, and theaccelerated concentration of food industries. Due to increasing interest in the competitivesituation of these industries, the international competitiveness of European dairy sectors hasbeen investigated. The analysis was carried out on the mesoeconomic level and generatedsome interesting results, which verify the predominantly qualitative results found in the lit-erature on international competitiveness. In comparison with other EU countries, the Ger-man dairy sector, although possessing an unfavorable structure, has international competi-tive advantage in fresh-milk products (e.g., yogurt), dried-milk products, and evaporatedmilk. In contrast, dairy companies from Italy, the Netherlands and Denmark have compet-itive advantages in the international markets for cheese.

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Klaus Drescher is assistant professor at the Department of Agricultural Economics, Christian-Al-brechts-University of Kiel (Germany). His Ph.D. is from the Christian-Albrechts-University of Kiel.His current research interests include agribusiness management, cooperation and coordination, rur-al development, industrial economics, and competition in the food industries and retail sector.

Oswin Maurer is professor at the Department of Marketing and Management & Department of Agri-cultural and Resource Economics, University of New England (Armidale/Australia). His Ph.D. isfrom the University of Resource Sciences, Vienna. His current research interests include industrialorganization in agro-food industries, economics of food safety and food quality, supply chain man-agement, and international competition in food industries.


competitiveness in the european dairy industries

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