Competitiveness of the EU dairy industry

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Competitiveness of the EU dairy industry

No evidence has been found that innovative firms have higher profit margins.

There is evidence, however, that the larger companies have a higher added

value in turnover. This finding can be due to data problems, but it could also

suggest that profits from innovations are quickly transferred down the chain of

competitive markets and that the consumers are the main beneficiaries of the

innovation.

The EU has more innovations than all other benchmark countries: the UK,

France and Denmark are leading in this respect. This supports the view of experts

in the industry that the EU industry is innovative and even exports these

innovations to for instance the US market.

The mean size of micro enerprises shows a declining trend. Small and medium

enterprises are increasing in size very slightly while for large enterprises

the change in mean size is cyclical, but on average strongly increasing. The average

size of a large enterprise dropped between 2000 and 2003 but rised

onwards in the last 5 years. The concentration of the industry is - in the investigated

countries - highest in the Netherlands and lowest in Italy.

Large companies have grown in the last couple of years and they tend to

merge and acquire companies that do interesting innovations. Entrance into the

market is mainly the case on primary level were farmers start to process milk to

end products themselves. The exits are mainly primary farmers that stop processing

themselves and mergers of large firms.

In the period 1996-2004 the profit margin and the return on total assets

(ROTA) dropped after 2003 drastically, the EBITDA remained almost on the

same level). It is not surprising that profitability increases from micro to large

enteprises as the scale of production increases the production cost goes down.

The large companies dominate the market in the EU. In some EU countries medium

and small countries also have a substantial position in the market. In

France, Italy and Spain the companies with fewer than 20 employees have a

substantial position. In Germany, France, Italy, Spain and the United Kingdom

medium-sized companies still have altogether a substantial part of the market.

In all other countries 'economies of scale' dominates as a business strategy,

which implies that entrance to the market needs large set up costs or - for small

and medium enterprises - should be based on a different business strategy. This

development is also reflected in the turnover figures of the large companies;

most large companies have improved their turnover since 2004.

In the large majority of countries the labour productivity of the dairy industry

has improved as well as the production value. The added value has not im-

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