Food manufacturers eye processing efficiency in the east

The European Commission said in its November report that the state of food safety in the Czech Republic was the biggest remaining problem before the country's entrance to the EU in May. But now that the transition has happened, is Eastern Europe's food production finally up to scratch?

According to the Czech state veterinary institute, about 2,800 food-processing plants have now been examined for compliance with EU provisions. Over 500 of these sites fell short to meeting the standards, almost 400 of which were meat-processing plants.

The problem for many processors in the accession states has been a lack of capital. Many plants have been unable to make the necessary upgrades, while some simply underestimated how strictly EU regulations would be applied.

"Undoubtedly accession will mean a number of processing businesses will not be able to meet requirements,"​ said Pär Söderlund, Tetra Pak's vice president of commercial operations for Europe and Africa. "These businesses will either close permanently or else be bought out by other related businesses. However, a lot of these players are very small or else the processing facilities are too outdated to make them viable business propositions."​

Some eastern European dairies have managed to get up to EU standards quickly by being taken over by a western company, and businesses in the EU have certainly not been slow off the mark to capitalise on the liberalisation of trade in the former eastern bloc. In the last few years, numerous dairy companies have been snapped up by western corporations, and from their point of view, 1 May has not represented a sea change so much as a long-anticipated easing of trade restrictions.

And now many western food producers see huge potential advantages in the east. French retail giant Auchan, which has a major presence in both Hungary and Poland - the two largest economies of the ten new Member States - has big plans for the future. According to company spokesperson Katalin Gillemot, Auchan Hungary is aiming to increase its sales to HUF 50 billion (€20m) in the course of the next five years.

This is a relatively ambitious plan given that, presently, the division's exports are relatively negligible - limited to just a small amount of wine and some canned produce.

"We have been working with our food producers for six years now and we are confident that the quality is acceptable for export markets,"​ said Gillemot. "We will be looking to export long-life goods, including some of Hungary's famous wines, canned foods and processed meats."​

Major western retail chains operating out of Poland are also looking for similar dividends. Andrezej Falinski, secretary of the Polish Trade and Distribution Organisation believes that overall food exports from Poland will grow by 10 per cent in the coming year. He says that this is a figure set to grow and one that will be fed by western retail chains.

In Poland, both Tesco and Metro have small but well established export markets to their outlets throughout the EU. Metro says it is planning to make significant increases in its exports of processed chicken, while Tesco aims to increase exports of fruits and vegetables. Other western European supermarket retailers looking to increase their exports from Eastern Europe include the Casino Group, Lidl and Portuguese group Jeronimo Martins.

But as the closures in the Czech Republic demonstrate, enormous structural challenges lie ahead for food processors in the east. To benefit from increased access to the new markets, improvements in structure, productivity and knowledge will have to be made.

"Take Poland's dairy industry for example,"​said Joop Kleiveuker, secretary general of the European Dairy Association. "You have about 1.2 million of what you could call dairy farms, and only 380,000 of these deliver to the dairy industry. The others all produce milk that is consumed locally. This is totally different to the situation in the old Member States."​