The food processing sector essentially involves transforming agricultural products into other forms of food, and adding value to raw products. The sector is under a great deal of pressure, however, as changes in the world’s population affect food systems directly.
In the next 30 years, the world’s population is expected to reach 9.7 billion, according to the UN, an increase of about 25.9% on 2020 figures. It isn’t just the growth in the population that presents a challenge to those in the food industry, however, as a shift is taking place in where these populations are concentrated.
Populations are becoming more urbanised, but are demanding more agricultural products, and this means that food needs to be easily stored and transported. In 2018, 55% of the world’s population lived in urban areas, a figure that is expected to increase to 68% by 2050, which will add another 2.5 billion people to urban areas. This poses myriad challenges to the food processing industry and will be a key factor in the transformation of food systems, according to a report on the future of agriculture and food by the UN’s Food and Agriculture Organisation (FAO).
How the US leads the way in food processing
Using a database developed by Dealogic looking at cross-border mergers and acquisitions (M&A), Jibran J Punthakey analysed the role of FDI and trade in agro-food global value chains in an OECD paper, including FDI in the food processing sector. According to Punthakey’s analysis, the US, the Netherlands, Brazil and the UK lead the way when it comes to FDI inflows in the food processing sector.
In 2019 in the US, the agricultural and food sector was responsible for 22.2 million full and part-time jobs, 10.9% of the total workforce in the US, according to the Department of Agriculture. Food and beverage manufacturing represented 1% of this. In 2018, the largest share of the agricultural and food sector workforce in the US was employed in meat and poultry farms, followed by bakeries and beverage factories.
According to SelectUSA, a programme that promotes investment into the US, food FDI was the second-fastest growing manufacturing FDI industry in the country during the period from 2010 to 2015 with a compound annual growth of 18%, behind only the chemicals industry with 25%.
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Innovation at the heart of the Netherlands’ food output
Innovation is at the heart of the Netherlands’ recipe for success in the food processing sector. Offering incentives in agritech and agrifood R&D, which is propelling the country’s booming market for plant-based foods, is putting the country at the epicentre of one of the growing trends in agribusiness.
According to a report by the Foreign Agricultural Service of the US Department of Agriculture (FAS USDA), based on data from the Dutch Central Bureau of Statistics, net sales in the Netherlands’ food processing sector during 2019 reached about $91.6bn, and have been growing at an average of 3% since 2014.
According to the report, the Netherlands is likely to continue to pour both money and time into sustainable approaches within the food processing industry, especially in reducing carbon dioxide emissions and being more energy efficient.
Trends are worldwide in the sector
The largest economy in Latin America, Brazil is another giant of FDI in the food processing sector. In 2019, 10% of the country’s GDP corresponded to the sector, employing 1.6 million workers.
According to a Brazil country report by the FAS USDA looking into the food processing sector, the value of the sector in 2019 was $177bn (R$699bn) and included more than 36,100 companies, mostly SMEs.
Like its counterparts in developed economies, Brazil’s food processing sector has witnessed significant change in the past decade, moved by consumer tastes shifting towards healthier foods and an increasing demand for sustainability. According to the US report, labelling food as gluten-free, lactose-free, or with added fibres and minerals is becoming evermore popular, which in turn is driving companies to invest more in innovation and technology.
Plant-based products are also becoming more prominent in the food processing sector in Brazil, with 14% of the population declaring themselves vegetarian in research conducted by the Brazilian Institute of Public Opinion and Statistics in 2018, an increase of 75% from the previous survey in 2012. Meat is still important in the country, however, and it remains the largest exporter of poultry in the world, according to the FAO.
Challenges facing the UK’s food industry
In UK manufacturing, food and drink processing is the largest sector, according to an analysis by Santander and Make UK – a body that represents British manufacturers – contributing 15.1% of gross value added worth about $100.11bn (£73.1bn) a year.
However, the report highlights that food and drink manufacturing in the UK “lags behind other manufacturing sectors in terms of technology adoption and process engineering”. The report also points at packaging as one of the main challenges for the sector in the UK as it strives to come up with sustainable solutions. Brexit further complicates FDI in the food processing sector in the UK, and although an agreement on a trade deal was reached in late 2020, many are looking on to see how the food processing industry will come out of the deal.
FDI in the food processing sector is likely to reflect wider global trends, such as an increase in protectionism and regulation, further slowing recovery from the Covid-19 pandemic.
With populations growing and consumers showing an increased appetite for healthier and more sustainable choices, the food processing sector is steadily shifting to meet such demands. What long-term effect Covid-19 has on FDI in the food processing sector remains to be seen.