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Manufacture of Food Products, Beverages and Tobacco

June 2007

Introduction

The food and drink processing industry occupies a powerful position within the food chain, linking primary producers with retailers and final consumers. The economic role of the industry is basically that of adding value to agricultural produce and other material ingredients through the application of various processing and packaging techniques and technologies in order to convert these ingredients into finished consumer-ready products or into intermediate products used in further processing and non-food industrial activities. It can also entail product research and development, testing and marketing. Virtually all agricultural commodities incur some degree of processing before reaching their final use.

The industry is typically divided into numerous sub-sectors based mainly on the nature of the commodity product, e.g. the production, processing and preserving of meat and meat products; processing and preserving of fruit and vegetables; manufacture of dairy products; manufacture of flour and sugar confectionery, etc. The sector also includes prepared animal feedstuffs, both for farm animals and for pets as well as an increasing range of specialist products to meet various dietary requirements, lifestyle, religious, cultural and personal preferences. Most food and drink processing sectors have some representation within Lancashire, the main exceptions being grain products and starches, sugar, tea and coffee and crude oils and fats. There are also no longer any tobacco product manufacturers based within the County, nor distilled alcoholic beverages or wine producers.

Employment

About 340 food and drink manufacturing companies provided jobs for some 11,700 people in Lancashire in 2005. This represented 11.4% of the manufacturing workforce compared with a somewhat higher share of 13.9% in Great Britain and 14.8% in the North West. In employment terms, the manufacture of food products and beverages is Lancashire's second largest manufacturing industry behind aerospace. Male employees account for nearly 70% of the workforce, the majority of these being on a full-time basis, though the share of 30% taken by women is above the manufacturing average. In total more than 90% of all jobs in the local sector are of a full-time nature (Table 1). Self-employment is uncommon in the sector – only around 3% of all in employment are self-employed.

Bar chart showing the number of employee jobs in the food and beverages sector for Lancashire local authorities in 2005 - see text for details Source ONS - Annual Business Inquiry

All parts of the sub-region have some employment representation within the food and drink industry though more than a half of the jobs are based in South Ribble, Blackburn, Pendle and Blackpool (Figure 1). Locally, food and drink industry jobs form a very significant slice of some districts' manufacturing base: in South Ribble and Wyre districts for example the industry provides for more than one in five of all local manufacturing jobs whilst in Blackpool the share rises to nearly a third. Conversely, the industry comprises less than 4% of local manufacturing jobs in Fylde and Hyndburn.

Structurally the industry reveals tendencies towards both concentration and fragmentation. Although statistically the "average" establishment size within the sub-region is 34 employees, more than two-thirds of the workforce are in establishments employing more than 100 people and 55% work in establishments employing more than 200 people (Table 2). A high proportion of these are subsidiaries of national or multi-national groups. At the same time, however, there is also a long tail of much smaller mainly local and often family-owned producers with two-thirds of firms employing fewer than 10 people, although these account for only 8% of the total industry workforce.

Map showing the location of Lancashire's food and beverages establishments - see text for details Source ONS - Annual Business Inquiry 2005

Major food and drink manufacturing employers within the sub-region include a number of well-known national or regional branded manufacturers as well as own label producers. These include major biscuit manufacturers such as (External) Burton's Foods , (External) Fox's Biscuits and (External) Farmhouse Biscuits ; pie and pudding manufacturers (External) W Holland & Son and (External) Ashworth Pies Ltd ; (External) Kepak (UK) and (External) Rose County Foods producing meat products; (External) InterLink Foods , a leading manufacturer of cakes and pasties; (External) Frederick Dairies , producing ice-cream products; pizza manufacturers (External) Schwan's Consumer Brands ; (External) Tangerine Confectionery and the (External) Glisten Co. producing sugar confectionery; (External) Interbrew (UK) and (External) Daniel Thwaites producing beers and lagers; (External) Macaw (Soft Drinks) ; bread bakers (External) Warburtons , award winning Farmhouse Fare desert puddings and (External) Lofthouse of Fleetwood , suppliers of the well-known "Fishermans Friend" lozenges.

Made in Lancashire logo

As well as its extensive company base of food producers, Lancashire has a strong core of more traditional craft and farmed-based food enterprises offering a huge range of locally produced foodstuffs. Many of these are listed by "Made in Lancashire" , a membership organisation based at Myerscough College that focuses on helping such small food producers. "Made in Lancashire" is the stamp of recognition of "all foods that have been grown, reared, caught, brewed, pickled, baked, smoked or processed in Lancashire".

Employment Trends

Operating in a relatively low growth and mature product market, the food and drink industry has traditionally had a fairly stable employment base in Lancashire (Figure 3). Though subject to some cyclical trends and changes in the composition of some of its constituent sectors, total employment fluctuated between about 15-17,000 over much of the post-war period. It experienced some downturn in the difficult economic conditions post-1970 and again post-1980 but unlike many other manufacturing sectors, bounced back quite strongly. The past few years have also proved difficult for some sectors and as well as ongoing structural changes through mergers and acquisitions there were a number of closures of long-established companies, notably in poultry processing, the crisps and snacks market and in prepared animal feeds

Graph showing how the number of employee jobs in Lancashire's food and beverages industry has changed from 1950 to 2005 - see text for details Source Ministry of Labour/ONS - ERII Employment Records

The pattern of broad sectoral employment changes within the local industry over the decade since 1995 is shown in Table 3. Against a backcloth of generally falling job opportunities in the industry few sectors recorded net job gains. Surprisingly in view of problems associated with BSE and the foot and mouth epidemic, employment in both primary meat production and meat processing operations held up well, though this was partly offset by falls in poultry meat production. Despite its exceptionally strong horticultural base, Lancashire has never had a particularly large fruit and vegetable processing industry though with the exception of potato processing which suffered from the demise of crisp and snack manufacturing, this too held up reasonably well. Modest job gains were also enjoyed in the chocolate and sugar confectionery sector that has long had a presence in the County through its links with the local tourism market and in "other" or miscellaneous foods reflecting a growth in niche food products.

Photograph of Fredericks Dairies in Simonswood, West Lancashire

On the downside, job numbers have fallen substantially in the dairy products sector both in the case of liquid milk production and cheese production where rationalisation, including some company closures has occurred (though the small ice cream manufacturing sector has remained stable), in the previously quite large prepared animal feeds industry and, to a lesser extent, in beer production, the latter due to increased automation – though there was some compensating growth in soft drinks. Job numbers in the County's two largest sectors – bread and pastry goods and biscuit manufacture – also fell, with the biscuit side especially being affected by some capacity reductions. Geographically, the main beneficiaries of the structural changes occurring in the industry over the past decade have been Pendle and to a lesser extent, Blackburn and Chorley. Blackpool, Fylde, Hyndburn, Lancaster and West Lancashire incurred the greatest job losses.

In terms of the actual number of production units engaged in food and drink manufacturing, total numbers fell by 75 or by 18% between 1998-2005. The reduction was particularly marked in establishments engaged in the manufacture of bread, cakes and fresh pastry goods, followed by the processing of fruit and vegetables, dairy and cheese manufacture and prepared animal feeds. The only substantial gain was in production units engaged in the manufacture of miscellaneous food products, presumably reflecting the tendency towards small-scale niche food and drink product marketing.

General Characteristics

Producing largely for direct consumption in an increasingly competitive market, the industry comprises component sectors with very different structural and operational characteristics stemming from the diversity of market demand and size and the technologies and traditions particular to each sector. The largest local sub-groups in order of employee job numbers are bread and pastry goods, biscuits (in which Lancashire retains a sizable national presence), meat products, beer, chocolate and sugar confectionery, the production of meat and dairy products.

Nationally the food and drink processing industry is one of the largest manufacturing sectors in the UK. With annual turnover in 2005 of about £82bn and gross value added of £22bn the industry comprises about 7,000 enterprises and employs some 470,000 people. Its purchases, amounting to £50bn per annum account for about two-thirds of all the UK's agricultural produce. Total exports in 2005 for food and drink came to £9.9bn (of which nearly two thirds goes to EU countries), though this was dwarfed by imports of £22.3bn.

Graph showing how turnover, purchases, gross value added and net capital expenditure in Lancashire's food and beverages industry have changed from 1994 to 2004 - see text for details Source ONS - Annual Business Inquiry

In Lancashire, Food and Beverages is the sub-region's second largest manufacturing industry by sales with estimated turnover in 2004 of £1.8bn (0r 13% of the manufacturing total and reflecting in part high value raw material purchases) and gross value added of £565m or 11.1% of the County's manufacturing total (UK=15.3%). The industry enjoyed fairly steady output growth over much of the 1980s and early 1990s due in part to increased inward investments and new business creation within the industry. Over the past ten years trends have been more volatile, associated with on-going rationalisation and a number of major company closures, but since 2001 most measures of performance have been rising steadily (Figure 4). The industry is a relatively capital intensive and technology-orientated one and net capital expenditure averaged £70m per annum over the decade to 2004, equivalent to £5,270 per employee. This was well above the Lancashire manufacturing industry average and slightly above that of the industry nationally. Labour productivity levels (measured as gross value added per head) have risen in tandem with this expenditure and in 2004 was close to the national industry average. This represented a considerable success story for the local industry which for much of its history showed a marked dependency on lower value added commodity-type and slower growing food sectors which competed in the market place mainly on the basis of price.

In general, expenditure on food represents only a small and diminishing share of consumer expenditure and generally speaking, food sales tend to remain fairly stable over the economic cycle as demand for necessity purchases of foodstuffs is usually quite inelastic. Given such demand conditions it is not surprising that the industry is characterised by extremely strong competitive pressures, leading producers to squeeze profit margins in order to capture or preserve market shares. The bargaining power of the major retail chains and the proliferation of modern retail formats is a further pressure adding to shrinking margins.

Photograph of Interbrew UK's Samlesbury brewery

The increase in such competition has already led to rationalisation of much manufacturing capacity through mergers, acquisitions and closures, particularly at the commodity end of the business. It has also pushed producers to respond through the introduction of labour saving technologies, increased marketing and the improvement of logistic and distribution channels. It has too, enhanced the trend as evident in Lancashire to move up-market away from commodity markets with the industry repositioning itself to meet shifts in consumer preferences towards higher quality processed and ready-to-use products exhibiting such qualities as variety, convenience, healthiness, and novelty. There is increasing demand for functional foods – items that claim to give some kind of specific benefit, organic production and authentic regional ingredients and for regional speciality and ethnic foods. Foodstuffs exhibiting such qualities constitute the growth and profitable sectors of the market. Such changing patterns of demand are steadily fragmenting large parts of the food market and providing new opportunities for smaller and more flexible firms providing specialist food products to exploit. However, such is the competition that even in quality niche markets suppliers are still feeling the squeeze.

As well as the direct commercial pressures the industry also has to respond to public worries from salmonella and BSE to genetically modified foods and the use of new processing technologies as well as to national and EU legislation concerning hygiene, safety standards and animal welfare. As a major energy intensive sector, pressure is now also mounting on food and drink producers to reduce their energy requirements and also to improve resource efficiency through waste reduction.

This page was compiled by Peter Kivell .

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Any other questions about the content of this page may be sent to EconInfo@lancashire.gov.uk .

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