Sector report by Bank Austria Economics & Market Analysis Austria:
Austria’s food industry between stagnating demand and successful innovation

  • Weak trends in 2012: output stagnates, sales revenue grows by 3 per cent
  • Improved outlook for 2013: output may grow slightly
  • Growth potential driven by strong exports, especially to Eastern Europe
  • Demographic trend and market saturation dampen domestic growth

The past year was characterised by weak trends in Austria’s food industry. Preliminary figures show that higher food prices led to growth of 3 per cent in sales revenue in nominal terms, to a total of EUR 15.1 billion, whereas output stagnated. This can be seen from the latest report on the food industry prepared by Bank Austria’s economists. Günter Wolf concludes that “results for 2012 are in line with developments in the food industry in the past few years, when the sector recorded no, or only weak, growth of production and sales revenue rose only on the basis of higher prices while costs increased strongly.”

Exports in 2012 were once again the mainstay of the food industry, rising by 4 per cent in the first nine months. Companies’ estimates in the past few months suggest that exports hardly lost momentum until the end of the year. Multi-year trends in food trade show that the export-oriented segment of the food industry performed better than the industry as a whole. Sales generated by the food industry rose by 42 per cent or EUR 5 billion from 2002 to 2011, while food exports increased by 107 per cent or EUR 3.3 billion. Over the past twenty years, the food industry’s export ratio has doubled to 31 per cent. Exports were successful in almost all segments, including those which are close to the agricultural sector. These successes correlate strongly with enhanced quality of the product range.

Output in the food industry is expected to grow slightly in 2013, by between 1% and 2%, after stagnating in 2012. Employment growth stabilised at just under 1 per cent in the final months of 2012, underlining companies’ moderate optimism as reflected in business sentiment surveys. And two factors which have a strong influence on demand for foods will pick up: household incomes and revenues from tourism. While food consumption is hardly dependent on cyclical trends, it is nevertheless also adjusted to changes in income and labour market conditions at short notice. For example, 26 per cent of respondents covered by the Rollama-Motivanalyse 2011 survey said that a “good financial situation” is the main reason for frequent eating out.

Consolidation improves competitiveness
The food industry still accounts for a strong 7 per cent of value added in Austria’s industrial sector, despite extensive restructuring which reduced the number of businesses by 13 per cent and the number of jobs by 11 per cent in the past ten years. With Austria’s accession to the European Union the food industry benefited from access to new markets, and when countries in Central and Eastern Europe joined the EU, Austria also gained access to low-cost raw materials. Measured by the favourable trend in foreign trade, Austria’s food industry has become more competitive in almost all segments – even those closely related to the agricultural sector, i.e. dairy farming, grain processing and meat production. The deficit on food trade has declined by EUR 100 million to EUR 1.1 billion since the middle of the 1990s. In the same period, a significant deterioration has only been seen in the balance of trade in vegetables and fish, whereas the export surplus of meat and dairy products has risen more or less steadily to about EUR 600 million.

Demographic trend and market saturation dampen domestic growth
Demand for food in the long term is strongly dependent on the number of consumers, which is now growing at a slower rate in Austria and in many other European countries. In the next twenty years, Austria’s population will grow by an annual average of 0.3 per cent – after 0.5 per cent annually in the past ten years. Moreover, the growing proportion of older people and progressing saturation of consumers will curb the growth of demand for food. Consumption of packaged food in Western Europe and the US is over 300 kg per capita per annum, far above the figures for all other regions in the world. This compares with about 200 kg in Eastern Europe and 100 kg on a global average.

Demand for food changes with increasing prosperity, a rising awareness of health among the population, and the smaller size of households. This provides opportunities for growth at least in market niches. Overall, however, the food industry cannot expect any strong impetus to come from demand. “Noteworthy increases will be experienced mainly by producers of foodstuffs of exceptionally high quality and/or product innovation with a high value added,” says Günter Wolf.

Food exports will compensate for weak growth in domestic demand only to some extent as spending on food in the major export markets has reached similarly high levels by now. Growth markets for processed food include Eastern Europe, the Middle East, Latin America and Asia. The global market for packaged food will grow by 24 per cent from 2011 to 2015 (after 20 per cent from 2007 to 2011); growth in the US and Western Europe will only be 11 per cent, while growth in Eastern Europe is expected to reach 30 per cent (source: Euromonitor International 2012). “Some segments of the Austrian food industry will benefit from the strong growth expected in Eastern Europe for the next few years and some companies – not only in the beverage industry – will also succeed in overseas markets,” says Günter Wolf.

Enquiries: Bank Austria Economics & Market Analysis Austria
 Günter Wolf, tel.: +43 (0) 50505 41954;
 e-mail: guenter.wolf@unicreditgroup.at

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