EN    EN EN 
 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 28.10.2009 
SEC(2009) 1445 
COMMISSION STAFF WORKING DOCUMENT 
The evolution of value-added repartition  along the European food supply 
chain  
 
Accompanying document to the  
 
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMI TTEE OF THE REGIONS 
 
A better functioning food supply chain in Europe 
  
{COM(2009) 591 final}  
 
EN 2   EN TABLE OF CONTENTS 
1. Introduction and background ....................................................................................... 3 
2. Methodology for analysis of value-added evolution.................................................... 4 2.1. Definition of value-added ............................................................................................ 4 2.2. Analysis of value-added evolution............................................................................... 4 2.3. Sharing value-added within a sector ............................................................................ 5 3. Evolution of value-added in the EU food supply chain ............................................... 5 3.1. Repartition of value-added along the food supply chain in the EU ............................. 5 
3.2. Evolution of repartition of valu e-added along the food supply chain.......................... 7 
3.3. Recent evolution within the European food supply chain ........................................... 9 4. Potential causes of evolution of value-added............................................................. 10 4.1. Price and volume growth components ....................................................................... 11 4.2. Price component of value-added growth.................................................................... 12 4.3. Volume component of value-added growth............................................................... 13 5. Evolution of labour and capital compensations ......................................................... 15 5.1. Evolution of labour compensation share in value-added ........................................... 15 5.2. Evolution of profits along the value-chain................................................................. 16 6. Conclusion.................................................................................................................. 18 
7. ANNEXES ................................................................................................................. 20 
 
EN 3   EN COMMISSION STAFF WORKING DOCUMENT 
The evolution of value-added repartition along the European food supply chain 
1. INTRODUCTION AND BACKGROUND  
The Communication on "A better functioning the food supply chain in Europe" and its 
supporting Working Documents on "Analysis of Price transmission along the food supply 
chain in the EU" have contribut ed to better understand the price transmission mechanisms 
from agricultural commodity pr ices to food consumer prices . However, potential market 
malfunctioning still needs to  be identified more precisely in order to lead to actionable policy 
recommendations to improve the functioning of the supply chain.  
Since the summer 2008, the sharp decline in agricu ltural commodity prices has affected first 
and foremost the agricultural sector. Ensuring the supply chain is well functioning should 
remain a key priority of the Eu ropean Union, in order to prot ect both consumers, with lower 
food prices and actors  along the chain, through value-ad ded growth across sectors and 
sustainable sharing of profits. It is thus tim ely to focus on the repartition of value-added 
within the food supply chain a nd to better understand how valu e-added is shared between 
sectors of the chain. 
The value-added of a sector is defined as the difference between its gross output (total 
production value of the sector) and its intermediary inputs (c osts of production inputs). It 
measures the amount of value created by the sector , to be then shared between labour (wages 
and compensations), capital (rem uneration of capital and profits) and taxes. Value-added of a 
sector is a good proxy for its economic importance and its evolution provides insights on the sector's economic health. Moreover, within a s upply chain, the value-added of the different 
sectors are linked since gross out put of the upstream sector is a component of intermediate 
inputs of the downstream sector. Comparing evolution of the re partition of value-added along 
the food supply chain can then be informative on the evolution of bargaining power along the 
chain and on the inability for a sector to main tain its value-added faced with an increase of 
costs of intermediate inputs. The objectives  of the analysis ar e then threefold: 
– Describe how the repartition of value-adde d between the 3 main sectors of the food 
supply chain (agriculture, food industry a nd distribution) has evolved over time, 
– Gain a better understanding of key factors explaining this evolu tion and especially 
the impact of the evoluti on of prices along the food supply chain (agricultural 
commodity prices, food producer pri ces and food consumer prices), 
– Derive key insights on the functioning of the food supply chain and potential policy 
implications. 
The analysis of evolution of repartition of value-added along the food supply chain will rely 
mostly on the EU KLEMS database – see box 1.  
Box 1: Data coverage and limitations of the EU KLEMS database 
The EU KLEMS database is the result of a th ree year European Com mission funded research 
project publically available for free public use at http://www.EUKLEMS.net . Its purpose is to 
provide data for growth accounting in order to  better understand components of growth in 
value-added at sector level (NACE rev. 1.1. cla ssification). For each sector, variables covered 
by the database include value-added, gross output, intermediary inputs and a set of 
 
EN 4   EN explanatory variables to their evolution, most importantly pri ce and volume components and 
labour information (labour productivity, labour inputs). 
The time period covered is 1995-2005. Geographical coverage includes all countries of the 
EU, with the exception of Romania and Bulgaria; value-added will be analysed for the 4 main 
following country-aggregates: the EU25, EU 15, EU10 and Euro Area (EA12). The food 
supply chain is defined as conne cting the 3 following activities: agriculture (sector 1 in NACE 
rev. 1.1. at 2-digit level classi fication), the food and bevera ge industry (15), and the 
distribution sector, composed of wholes ale trade (51) and retail trade (52). 
The major limitations in the use of the EU KLEMS database for th e study of value-added 
evolution along the food supply chain are the following: 
(i) Data are only available for the total w holesale and retail se ctors and not at the 
disaggregated food wholesale a nd retail level. Complementary data from EUROSTAT will be 
used to assess value-added fo r food distributi on activities, 
(ii) Data from EU KLEMS focus on local pr oduction and thus reflec t local value-added 
created by a sector, not taking into account potential change s in integration patterns, 
(iii) No consistent data are available across the sectors of the food supply chain on gross 
output and intermediary inputs values. The anal ysis will thus focus on value-added evolution 
only. 
The methodology used to analyses value-added a nd its evolution along the chain is presented 
in Section 2. Section 3 describes the actual evol ution of value-added by  sector of the food 
supply chain over the 1995-2005 period. Potential cau ses of value-added evolution in the food 
supply chain are discussed in Section 4 and the breakdown of distribution of value-added 
between labour and capital is  analysed in Section 5. The last section concludes. 
2. METHODOLOGY FOR ANALYSIS OF VALUE -ADDED EVOLUTION  
2.1. Definition of value-added 
The value-added of a sector (VA) is defined as the difference between its gross output (GO) 
and its intermediary inputs (II): 
 II GO VA−=  (1) 
Thus, a decrease of the value-added of a sector can thus either relate  to a decreasing output 
(either through lower volumes or lower prices) or to increased co sts of intermediary inputs.  
2.2. Analysis of value-added evolution 
Value-added growth can be disaggregated in to several growth components that provide 
interesting insights on the cause of value-adde d evolution. A first disaggregation aims at 
differentiating the impact of price and vol ume evolutions on total growth. With PVA and VVA 
the price and volume indices for value-added, and with δ the growth rate, we have: 
 VA VA V P VA ∂+∂≈∂ (2) 
However, one should pay attention that the valu e-added price index is a proxy for the relative 
evolution of output pric es of the sector ( e.g. for the food industry, pr ices of producer food 
prices) vs. the intermediary inputs prices ( e.g. for the food industry, prices of agricultural 
commodities, prices of energy…). It is thus ne cessary to compare growth of output and input 
prices to understand the evoluti on of the value-ad ded price index. 
 
EN 5   EN The value-added volume index can also be  broken down into two components: labour 
productivity and labour input. A decreasing value- added can thus be linked to a decline in 
labour productivity or in the number of peopl e involved in the activ ity - See figure 1. 
Figure 1: Structure of analysis of val ue-added evolution for a given sector 
 
VALUE-ADDED 
GROWTH
Volume Growth 
ComponentPrice Growth 
Component
Labour 
Productivity 
Growth         
(in volumes)
Labour Input 
GrowthPrice Growth 
of Output
Price Growth   
of Intermediary 
Inputs• Increase in price of 
output leads to 
increase in value-
added
• Increase in price of 
intermediary inputs 
leads to a decrease in value-added
• Labour productivity 
as total value-added 
volume produced per 
labour input unit 
(hours worked)
•Labour input as total 
hours worked in the 
sectorsIndicates the effect of indicator increase on value-added growth
 
2.3. Sharing value-added within a sector 
The value-added created by a sector is then shared between labour (LAB) and capital (CAP) 
compensations: 
 CAP LAB VA +=  (3) 
Capital compensation includes remuneration of capital invested in the sector, tax 
compensations and profits distri buted within the sector. Cons equently, a decrease in value-
added can lead to lower compensations for the wo rkers active in the se ctor, or lower capital 
remunerations – e.g. lower investments, lower profits,… 
The evolution of labour compensations across s ectors will be analysed  through the evolution 
of unit labour compensation (labour compensation per hour worked).  
3. EVOLUTION OF VALUE -ADDED IN THE EU FOOD SUPPLY CHAIN  
This section shows the different sizes of sector s of the food supply chai n and presents how the 
repartition of value-added has evolved with in the food supply chain over the decade 1995-
2005.  
3.1. Repartition of value-added along the food supply chain in the EU 
The total value-added of sector s composing the food supply chain in Europe represented more 
than €1 150 billions  in 2005 in the EU25, i.e. ~11% of total EU25 valu e-added. In the new 
Member States, this share is slightly higher, amounting to ~13%. Approximately 90% of the 
food supply chain value-added in Europe is created in the old Member States.  
 
EN 6   EN Value-added of the agricultural sector in th e EU25 was ~€130 billions in 2005 (1.2% of total 
value-added). Value-added of the food and be verages industry was 1.4 times bigger, with 
~€180 billions (1.9% of total). The total distribut ion (wholesale and retail trade) sector value-
added amounted to ~€860 billions, almost 3 times as much as the agricultural and the food 
industry sectors combined. Howe ver, the value-added of the distribution sector of food 
products only is much smaller: based on estim ations from EUROSTAT data, food distribution 
amounts to 25% to 30% of total distributi on activities – see box 2 for more details.   
Box 2: Share of food distribution in total distribution in the EU25 
Wholesale RetailTotal 
Distribution Wholesale RetailTotal 
Distribution
Value-added 18% 34% 25% + 0.3% -1.8% -0.7%
Turnover 19% 38% 28% -0.4% + 0.2% 0.1%
# of persons employed 22% 38% 32% 0.0% + 0.4% 0.3%
Personnel costs 19% 38% 28% -0.3% + 2.6% 1.3%Share of food distribution in total 
distribution (2005)Variations in share of food distribution 
in total distribution (2000-2005)
 
Source: EUROSTAT Structural Business Statistics; the food wholesale sector incl udes G512 (Wholesale of 
agricultural raw materials, live animals) and G513 (Who lesale of food, beverages and tobacco); the food retail 
sector includes G5211 (Retail sale in  non-specialized stores with food be verages or tobacco predominating) and 
G522 (Retail sale of food, beverages, tobacco in specialized stores). 
Value-added of food distribution activities n the EU25 represents approximately one fifth 
(18%1) of total wholesale trade and one third (34%) of total retail trade. Data for other 
indicators (turnover, number of persons employ ed) are of similar magnitude, suggesting that 
distribution of food products is similar to other distribution act ivities in terms of business 
model. However, a closer look to results su ggests that food distribution is more labour 
intensive than average distribution (higher shar e of persons employed than of value-added) 
and that the food retail activity creates less value-added than av erage retail activity  per euro of 
sales. The fact that the share of food wholes aling in total wholesale is significantly smaller 
than the share of food retail in total retail al so indicates that the f ood supply chain is less 
fragmented vertically than othe r retail chains, with a higher share of direct sales between 
producers and retailers. 
The dynamic vision of the share of food distri bution in total distri bution also provides 
interesting insights on the trends affecting the distribution sector. The share of food wholesale 
value-added over total wholesale has been al most stable over the 2000-2005 period (+0.3% in 
5 years) while the share of f ood retail value-added has been decreasing (-1.8% in 5 years). 
However, the share of food retail in total turnover has remained stable; this might indicate that 
food retail is becoming less efficien t than other reta il activities. 
The repartition of value-added between the se ctors of the food supply chain is presented on 
figure 2 for the year 2005 and the 4 ma in geographic aggregates considered. 
                                                 
1 This 18% figure includes the wholesale trade of ag ricultural products (3% of total wholesale trade). 
 
EN 7   EN Figure 2: Repartition of value-added in  the food supply chain for EU25, EU15, 
EU10 and EA 
24% 23%29%25%33% 34%30%33%13% 14% 9%15%30% 29% 32%27%
EU25 EU15 EU10 EA122005 data; € billions (current)
Food retail
Food
wholesale
Food
industry
Agriculture100%= 537 472 64 390xx%Share of food supply chain
in total value-added
5.2% 5.1% 6.4% 5.3%
Source: EU KLEMS, EUROSTAT Structural Business Statistics 
Total value-added for the food supply chai n in the EU25 in 2005 was ~€540 billions, i.e. 
5.2% of the total value-added of the European  economy. The agricultural sector represented 
24% of this total, the food industry 33% and th e distribution sector 43% (13% for wholesale 
and 30% for retail). The value-added of each sector is thus increasing moving downwards 
along the chain: in 2005, the f ood industry value-added was 1.4 bigger than the value-added 
of agriculture and the distribution sect or was 1.3 bigger than the food industry. 
The structure of the food value-chain is hom ogeneous across the main considered country 
aggregates. The repartition in th e new Member States (EU10) is  nonetheless slightly different 
than in old Member States (EU15): agriculture has a higher weight (29%  vs. 23%), equivalent 
in size to the food industry sect or. The breakdown of the distribut ion sector is also specific 
with a much weaker wholesale sector (9% vs. 14%) and consequently a larger retail sector 
(32% vs. 29%). Moreover, the weight of the food supply chain in the economy of new 
member states is higher than  in old member states (6.4% vs. 5.1%). 
3.2. Evolution of repartition of value -added along the food supply chain 
The food supply chain has overall been grow ing at a low pace over the 1995-2005 decade in 
the EU25 at 1.2% per year, significantly belo w the growth of the total EU25 value-added 
(3.2%). In all geographic aggreg ates, total value-added growth has been higher than food 
supply chain growth. The difference is the lowe st for new Member States where growth has 
also been the highest (3.1% for the food supply chain vs. 4.7% for the overall economy)2.  
However, each sector of the chain has experienced a different growth pattern. Agriculture 
value-added has declined over the 1995-2005 decad e, with a 1.5% per year decrease. One 
should note that 2005 has been a bad year for th e agriculture sector wi th a 13% value-added 
                                                 
2 See Annexe A.1 for more details. 
 
EN 8   EN decrease in one year compared  to 2004. However, notwithstandi ng the temporary effect of 
year 2005, it still remains that the agricultural s ector has experienced ne gative growth in the 
period3. In the meanwhile, the other sectors of the chain have grown over the period, though 
none of them has significantly overcome the to tal growth of EU25 value-added: +1.9% per 
year for the food industry, +3.3% for the food w holesale sector and +2.3% for the food retail 
sector – See figure 3. 
Figure 3: Evolution of value-added within  the EU25 food supply chain between 1995 
and 2005 
31%29%24%31%31%
33%11%11%13%27% 28% 30%
1995 2000 2005EU25; 1995-2005 data; € billions (current)
Food retail
Food
wholesale
Food
industry
Agriculture100%= 476 522 537
2.3%xx% 1995-2005 annual growth rate
3.3%
1.9%
-1.5%1.2%
Source: EU KLEMS, EUROSTAT Structural Business Statistics 
Consequently, the pattern of distribution of  value-added across the food supply chain has 
significantly changed in the EU25 during th e 1995-2005 decade. The share of agricultural 
industry has consistently decr eased under the combined effect  of its negative value-added 
growth and the much more dynamic growth of th e other sectors. The sh are of agriculture in 
food supply chain has decreased from 31% in 1995 (equal to the share of the food industry) to 
24% in 2005 (with a food industry at 33%). The di stribution sector has in creased its share in 
the same period by 2% for the food wholesale sector (from 11% in 1995 to 13% in 2005 and 
by 3% for the food retail sector (from 27% to 30 %). It is then interesting to note that the 
relative size of sectors has incr eased downwards along the chain. In 1995, the ratio of the food 
industry value-added over agriculture value-a dded was 1.0; it has increased up to 1.2 in 2005. 
The ratio of food distribution value-added over food industry value-added has increased from 
1.2 to 1.4 in the same period. In summary, each s ector has increased its size compared to the 
sector directly upwards in the chain. 
This pattern of increasing differenc es in size of sector at each interface of the value-chain is 
pervasive across all geographic aggregates considered – see annex A.2. The share of 
                                                 
3 The start in 2005 of the implementation of CAP refo rms aiming at decoupling direct aid to farmers has 
further amplified the measured drop in value-added in  the agricultural sector. Fo r the sake of clarity, the 
reference period has been kept as 1995-2005 – however, all analyses in this paper have been conducted 
as well for the period 1995-2004, confirming the results  and trends presented relative to the agricultural 
sector.  
 
EN 9   EN agriculture value-added in th e food supply chain value-added has decreased by 7% in the 
EU15, 12% in the EU10 and 7% in the EA12. Th is share has been taken up by the food 
industry (+2% on average) and by the distribu tion sector (+6%). The New Member States 
have however experienced an even stronger incr ease of the share of food retail in the supply 
chain (+9% over the period). 
3.3. Recent evolution within the European food supply chain  
The EU KLEMS database does not contain data for years after 2005. However, the analysis of 
short-term business statistics can provide insigh ts on the potential evolution of value-added in 
the most recent period from 2005 to 2008.  
The Economic Accounts for Agriculture provid e data for the evolution until 2007. Value-
added growth rate in the EU25 for the Agri culture sector between  2005 and 2007 has been 
declining at -0.4%, at a lower pace than in  the 1995-2005 period. Similarly to the 1995-2005 
decade, the decline has been sharper in  the EU15, with a -1.2% growth rate.   
Figure 4 describes the respective evolution of value-added and turnover for the food industry, 
food wholesale and f ood retail sectors. 
First, it is interesting to note that in the 1995-20 05 period, value-added and turnover follow 
similar trend in each sector. The analysis of turnover evolution during 2005 and 2008 can then 
be used as an indicative proxy towards value-ad ded evolution in each sector – assuming that 
average prices of inputs in each industry has not significantly changed in the period. For all 
sectors downwards in the food s upply chain, turnover has increased faster in recent years than 
in the 1995-2005 decade: at ~7% per year between 2005 and 2008 for food retail and 
wholesale compared to ~5% between 1995 and 2005, and at ~5% for the food industry 
compare to the previous 2%. It  is then likely that  value-added for the food industry and the 
food distribution sectors has kept  on increasing at steady rates above 2% in recent years. 
Moreover, value-added in the food industry may ha ve increased faster th an in the distribution 
– retail and wholesale – sectors. 
 
EN 10   EN Figure 4: Comparison of value-added and turnover growth rates between 1995 and 
2005 in the EU25 food supply chain  
 EU25; 1995-2008 data; annual growth rateGrowth in value-added 1995-2005 
Growth in turnover 1995-2005
Growth in turnover 2005-2008
5.1%6.9%6.6%
1.9%4.8%4.6%
1.9%3.3%2.3%
Food industryFood wholesaleFood retail
Source: EUROSTAT Short-Term Statistics  
As a conclusion, the analysis of recent trends  confirms the growing gap between agriculture 
and the rest of the food supply chain in terms of value-added growth. However, the increase 
in relative size of the food distribution sector and the food industry might have come to an end 
given the very high turnover growth of the food industry in the past three years. 
Key insights provided by the analysis of repart ition of value-added within the food supply 
chain are summarised in box 3. Given the str ong changes undergone by the food supply chain, 
it is important to understand what factors have b een at play and what ca n explain the relative 
decline in agricultu ral weight within the food supply chain. 
Box 3: Key messages on the evolution of repartition of value-added along the food 
supply chain in the European Union 
The Food supply chain makes ~5% of total valu e-added in the EU25 and ~6% in the new 
Member States and is thus an important se ctor of the European economy, however growing 
slowly compared to the overall European economy (+1.2% per year vs. 3.2%). 
In 2005, value-added was distributed between the 3 main activities of the chain according to 
the following pattern: agriculture (24%), f ood industry (33%) and distribution (43% – 13% 
for wholesale and 30% for retail). Thus, downwar ds sectors of the chain create more value-
added than their upwards counter part in the food supply chain. 
Moreover, this situation  has become more marked over time between 1995 and 2005. The 
relative size of food industry vs. agricultural sector and the relative size of distribution vs. the 
food industry have increased. This highlights the fact that more and more of the value-added 
of the chain is created downwards along the chain 
4. POTENTIAL CAUSES OF EVOLUTION OF VALUE -ADDED  
The aim of this section is to  provide complementary analyses  to understand why the different 
sectors of the food supply chain have experien ced significantly different value-added growth 
 
EN 11   EN rates over the 1995-2005 period. The methodology disc ussed in section 2 w ill be leveraged to 
break down value-added growth into a pr ice and a volume growth component. Each 
component will then be analysed separately. Gi ven the availability of data in EU KLEMS, 
indicators for total wholesale and total reta il will be used as proxy for food wholesale and 
food retail. Given the discussi on in box 2 on relative evolution of food distribution and total 
distribution, this should not di stort conclusions significantly.  
4.1. Price and volume growth components 
The analysis of price and vol ume contribution to value-adde d growth provides valuable 
insights to understand the decline of agricultural shar e in the food supply chain value-added – 
see figure 5.  
Figure 5: Volume and price growth componen ts in value-added growth by sector of 
the food supply chain in the EU25 
EU25; 1995-2005 annual growth rate
Price component of growth
Volume component of growthValue-added growth
-1.5%1.9%3.0%3.3%
AgricultureFood 
industryWholesale Retail-2.6%1.1%
-0.3%1.2%
AgricultureFood 
industryWholesale Retail
1.1%
0.7%3.3%
2.1%
AgricultureFood 
industryWholesale Retail
Source: EU KLEMS• Value-added growth for total wholesale and 
retail sector (not only food) since no price x 
volume growth breakdown available for food 
distribution
• Food wholesale value-added annual growth 
1995-2005 is 3.3%; food retail is 2.3%Indicates the effect of indicator
increase on value-added growth
 
Agriculture is the only sector of the chain where the value-adde d price index has significantly 
declined over the 1995-2005 decade (-2.6% per year). The volume growth of the agricultural sector has not been high enough (1.1%) to compen sate this price decrea se. The food industry 
growth has been driven by si multaneous growths of price a nd volume indices (respectively 
+1.1% and +0.7%). Last, growth in the distribu tion sector, and especially in wholesale, has 
been driven by a strong volume growth (+3.3% in wholesale and +2.1% in retail). Thus, three 
simplified patterns of value-a dded growth have occurred be tween 1995 and 2005 within the 
food supply chain. Value-added decrease in the ag riculture sector driv en by price decrease, 
value-added increases in the food industry driven by simultane ous price and volume increase 
and value-added increase in the distribu tion sector driven by volume increase. 
The dynamic has been slightly different in the New Member States than in the rest of the 
Union – see Annex A.3. In all sect ors, contribution of growth in volumes has been much more 
important than in old Member States (+2.3% vo lume growth in the agricultural sector, +3.7% 
in the food industry, +6.9% in wholesale and + 4.1% in retail). Contribu tion of price growth 
has been similar to the ones observed in the rest  of the EU with the notable exception of the 
 
EN 12   EN food industry, where price growth has been null. Thus, in the EU10, the main factor 
explaining value-added growth  is the volume component. 
As a conclusion, it seems that an important factor  of the decline in the relative share of value-
added has been a decline in the relative prices of agricultural commodity prices vs. 
agricultural input prices. 
4.2. Price component of value-added growth 
Since the price component of value-added growth is an indicator of th e relative evolution of 
output and input prices of a se ctor, the significant decrease in  value-added price component 
over the 1995-2005 decade (-2.6% pe r year) suggests that agri cultural commodity prices 
(gross output prices of the agri cultural sector) have increased much less than prices of inputs 
to the agricultural sector over the period. This decline in agricultural value-added price index 
is similar in each of the country-aggregates analysed (-2.6% in the EU27, EU15 and EU10), 
potentially illustrating the integration of the ag ricultural sector, both in terms of output prices 
and of input prices (energy, othe r agricultural commodities…).  
On the contrary, the food industry value-adde d price index has grown ~1% per year over the 
period, probably benefiting from lower input prices (and among them ag ricultural prices). 
However, one can note an important differenc e for the food industry in the new Member 
States, where value-added price indices have been stable for the past decade whereas the 
increase amounts to 1.1% or 1.2% per year in the EU15 and the Euro Area4. The price 
evolution of the distribution sector is more difficult to interpret since the data presented 
include the whole distribution sector, a nd not only the food distribution sector. 
In order to validate these assumptions, it is inte resting to compare actua l variations of output 
and input prices for each sector of the supply chain. For the sake of simplification, only 3 
sectors are considered: agricultu re, food industry and distribution. The output of one sector of 
the chain is assumed to be the main input of the downward sector of the chain. Thus, 
agricultural commodity price indices are used to  assess evolution of both output price of the 
agricultural sector and i nput price of the food industry sector. This analysis pr ovides insights 
on whether the evolution of value- added price index stems from a va riation in output prices or 
in input prices5 - see figure 6. 
                                                 
4 A potential explanation for this difference would be  a lower food producer pr ice increase in the new 
member states than in the rest of Europe over the period. 
5 For evolution of price indices along the period considered, see annex A.4. 
 
EN 13   EN Figure 6: Decomposition of price component of value-a dded growth in the EU25 
EU25; 1995-2005 annual growth rate
* 1996-2005
** Goods and services onlySource: EU KLEMS; EUROSTAT Short-Term StatisticsOutput price growth (nominal)
Agriculture 
(Agricultural commodity price index)Food industry
(Food producer price index)Distribution*
(Food consumer price index)0.2%1.2%1.9%
Value-added growth price component
-2.6%1.1%
0.5%
Agriculture Food industry DistributionIntermediary Inputs price growth (nominal)
Agriculture
(means of 
production price index**)Food industry
(Agricultural com-
modity price index)Distribution 
(Food producer 
price index)0.2%+5.1%
1.1%Indicates the effect of indicator
increase on value-added growth
 
The sharp decrease of the value-added price inde x in the agricultural sector has been due to 
the conjunction of a very sharp increase in pric es of agricultural means of production (+5.1%) 
and of stable agricultural commodity prices. Th is has in turn benef ited the food industry, 
which has been able to increas e its value-added prices by incr easing its output prices by 1.2% 
per year over the 1995-2005 period. Last, the retail sector, faced w ith increasing inputs prices 
has also increased its output prices (by 1.9 %) to reach a low value-added growth price 
component of 0.5%. This relative ev olution of output prices in the sectors of the supply chain 
partly explains the evolution of value-added repa rtition within the chain and the fact that more 
and more of the supply chain value-added is  created moving downwards along the chain.  
4.3. Volume component of value-added growth 
The volume components of value-added growth  have all been positive along the food supply 
chain over the 1995-2005 period – see figure 6. Vo lume growth has been larger in the 
distribution sector (+3.3% for w holesale and +2.1% for retail) th an in the upward sectors of 
the chain (+1.1% for ag riculture, +0.7% for the food indu stry). This volume growth has 
originated in labour productivity growth in al l sectors of the chain (from 1.5% in the food 
industry to 3.2% in the agricu ltural sector – as a point of comparison, overall labour 
productivity increase in the EU25 be tween 1995 and 2005 amounted to 1.7%). 
A major cause of differing value-added growth s across sectors has thus been changes in 
labour inputs in the sector. Labour input (in to tal hours worked) has thus declined by 2.0% per 
year in the agricultural sector  – see box 4, while it was increas ing by respectively 0.6% and 
0.3% per year in the wholes ale and retail sectors. 
 
EN 14   EN  
Box 4: Decrease in labour input in the agricultural sector 
Total hours worked in the agri cultural sector is declining both in the EU15 and the EU10. 
This is mainly due to the decline in the number of persons engaged in the sector. In 1995, ~11 
millions persons were working in the agriculture  sector in the EU25; this number has fallen 
down to ~9 millions in 10 years. The number of hours worked by person engaged has on the 
contrary remained stable over the period. One should also note that within the food supply 
chain, people engaged in agriculture work on av erage 15% more hours per year than in other 
sectors (~2 000 hours per year vs. ~1 700). 
Effects of labour productivity and labour input gr owth on value-added growth in each sector 
of the supply chain are summarised in Figure 7.  
Figure 7: Decomposition of value-added volume growth in the EU25 food supply 
chain 
 EU25; 1995-2005 annual growth rate
Source: EU KLEMSLabour productivity growth (volumes)
Value-added growth volume component
Labour input growth1.1%
0.7%3.3%
2.1%
AgricultureFood 
industryWholesale Retail3.2%
1.5%2.7%
1.8%
AgricultureFood 
industryWholesale Retail
AgricultureFood 
industryWholesale Retail-2.0%-0.8%0.6%0.3%
 
Three different patterns of value-added growth can be de rived for the agriculture, food 
industry and distri bution sectors: 
– Agricultural sector: strong increase in la bour productivity and sharp decrease in 
labour input leading to medium value-added growth in volumes, 
– Food industry: medium increa se in labour productivity bu t slow decrease in human 
resources leading to medium value-added growth in volumes, 
– Distribution sector: signifi cant increase in labour produc tivity and low increase in 
human resources leading to si gnificant increase in valu e-added growth in volumes. 
The data presented on figure 6 relate to th e total distribution sector. However, as 
analysed in Box 2, the share of persons em ployed in wholesale trade active in food 
wholesale has been stable, indicating that labour input and labour productivity for 
food wholesale trade are similar to those in wholesale trade. The share of people 
 
EN 15   EN active in the retail sector has on the contrary slightly decreased, suggesting the labour 
productivity of the food retail ac tivity has increased less than that of total retail trade. 
These volume growth patterns ar e consistent across all geogra phical aggregates – see Annex 
A.5. Higher growth of value-added in volume for sectors of the food supply chain in the New 
Member States is explained by significantly hi gher labour productivity volume growth in all 
sectors (from +0.4% in the agricu ltural sector to +3/4% in the distribution sector compared to 
the EU15). The main potential f actors explaining different value- added growth by sector of 
the food supply chain are summarised in box 5. 
Box 5: Key messages on causes of evolutio n of value-added within the European food 
supply chain 
A major explanatory factor of the increase in  the dispersion of repartition of value-added 
along the food supply chain is the relative evolution of output prices in each sector of the 
chain. Moving downwards along th e chain, output prices have increased more than input 
prices, leading to an increase in value-added. 
All sectors have experienced labour productivity  growth over the 1995-2 005 period; however, 
the decrease in labour inputs in the agricultural and food industry sectors has mitigated this 
effect on value-added growth.  
The value-added growth patterns have thus been very specific to each sector of the chain: 
(i) The decline in agriculture value-added ha s originated primarily in the conjunction of 
input costs increase and stability of agricultura l commodity prices; it has been accentuated by 
the decline in labour input, 
(ii) Food industry has been able  to increase output prices mo re than intermediary prices, 
thus increasing its value-added; however, a relative loss in efficiency has mitigated this 
increase, 
(iii) The key driver for value-added growth in the distribution sector has been volume 
output growth while maintaining its relative prices.  
5. EVOLUTION OF LABOUR AND CAPITAL COMPENSATIONS  
5.1. Evolution of labour compensation share in value-added 
2 main factors impact the share of value-added redistributed as  labour compensation: apparent 
labour productivity (gross valu e-added per hour worked) a nd unit labour compensation 
(labour compensation per hour worked). The sh are of labour compensation in value-added 
decreases when labour productivity increases fa ster than unit labour compensation. Figure 7 
describes apparent labour productivity and unit labour compensation growths in the sectors of 
the food supply chain. 
 
EN 16   EN Figure 8: Unit labour compensation and a pparent labour productivity growth rates 
in the EU25 for sectors of the food supply chain 
 EU25; 1995-2005 annual growth rate
0,5%2,7%
2,4%3,0%
2,6%2,9%
2,5% 2,4%
Agriculture Food industry Wholesale RetailApparent labour productivity growth (value-added over hours worked growth)
Unit labour costs growth (labour compensation over hours worked growth)
Source: EU KLEMS  
Interestingly, unit labour compensation has increase d in similar magnitude in all the sectors of 
the food supply chain, from 2.4% in retail to 2.9 % in the food industry along the pace of the 
overall labour compensation in the European  economy during the period (2.5% per year). 
However, the food industry and the distributi on sectors have matched this increase with 
increased apparent labour pr oductivity, whereas the agricult ural sector apparent labour 
productivity has been lagging.  
Thus, the share of labour compensation in value-added has significantly increased in the 
agricultural sector (~+20% in 10 years), reducing capital compen sation and decrea sing profits 
and investments. The only sector of the suppl y chain where the share of labour compensation 
in value-added has indeed decreased is the retail sector, where appa rent labour productivity 
growth has been 0.6% higher than unit labour co mpensation growth. This evolution pattern is 
clearly amplified in the new Member States, where the ga p between labour  productivity 
growth and labour compensation growth is ove r 4%, compared to only 0.9% in the EU15. 
As a conclusion, the evolution of respective sh are of labour and capital compensations has 
evolved in the agricultural sect or at odds with other sectors of  the chain. In the agricultural 
sector, value-added has been de creasing due to slow  apparent labour productivity growth and 
unit labour compensation has been maintained, thus leading to an increasing gap in capital compensation, reducing investments and profit s. The other sectors of the chain have 
maintained over time the share of labour compen sation; the retail sect or has even increased 
the share of value-added available for profits and investments. 
5.2. Evolution of profits along the value-chain 
Assessing how profits have evolved in each sector of the value-chain over time is a 
complicated task due to the lack of relevant and comprehensive data. Moreover, profits – or 
profit margin – can be a misleading indicator fo r how a sector performs and how much of the 
value-added of the chain it creates since each  sector has its own business economics and 
specific uses of capital resources. The analysis  presented here shows how two profitability 
 
EN 17   EN ratios – profit margin and ROCE , Returns On Capital Employed6 – have evolved in each 
sector of the value-chain over the peri od 2003-2007. Data are drawn from the ORBIS 
database that collects financial information at firm-level across Europe. An important 
drawback of the analysis is that it only includes large and very large firms7 active in each 
sector of the food supply chain and thus provi des only a partial view of the evolution of 
profits in each sector. Profits margins are usua lly higher for larger and more efficient firms 
benefiting from economies of scale; these firm s may not be representative of the average 
profit margin of the sector, all the more so in sectors where a large number of SMEs are 
active, such as the food and beverage indus try. For example, in the food and beverage 
industry, SMEs represent 99% of  the total number of  companies and gene rate ~50% of the 
sector turnover8. 2007 profitability ratios and the 2003-2007 changes ar e displayed in Figure 
9. ORBIS database only enables to go back up to 2003 since for the years before, the sample size of firms for the sectors of the food suppl y chain are not large enough (less than 1 000 
firms per sector). Moreover, data for agricultur al undertakings were not included for the same 
rationale. 
Figure 9: 2007 Profit Margin and ROCE and 2003-2007 changes for large and very 
large firms by sector of the food supply chain in the EU27 
Profit margin
Return on capital employed
* Food retail: NACE G471 & G472; Food wholesale: G463; Food industry: C10 – excluding beverage industry
** Firms come from all EU27 with some countries over-represented (FR: 24%; IT: 16%; ES: 14%) and other under-
represented (DE: 4%; PL: 6%; UK; 8%)
Source: ORBISEU27; 2003-2007 data for large and very large firms; %
Food 
industry*Food 
wholesale*Food 
retail*1.4%
-0.5%
1.5%
-0.7%
1.5%
0.9%3,4%
13.0%
2,1%
15,1%
5.8%
14.3%2007 Profitability ratio 2003-2007 ChangeNumber of firms 
in sample**
~5 250
~6 900
~7 250
 
Profit margins for large and very  large firms of the food supply chain are above 2% and have 
increased since 2003. The food industry experiences the highest profit margin in the chain at 
5.8% while margins in the distribution sect or are somewhat lower – over 2% for food 
wholesale and over 3% for retail – reflective of  the distribution business model. Growth in 
profit margins has been very similar in the thre e sectors for large and very large firms in the 
                                                 
6 Profit margin is defined as profit before tax over turnover; ROCE is defined as profit before tax over 
total assets (capital employed). 
7 Very large companies are defined by a turnover of over €100 million (or over 1 000 employees); large 
companies are defined by a turnover of over €10 million (or over 150 employees). 
8 See the Report on Competitiveness of the European Agro-Food Industry of the High Level Group on 
the Competitiveness of the Agro-Food Industry, March 2009. 
 
EN 18   EN past years. The profitab ility picture is slightly  different when considering the indicator Return 
on capital employed where the difference betw een sectors is less pronounced, with ratio 
varying from 13% for food retail to 15% fo r food wholesale. Interestingly, ROCE has 
decreased by around 0.5% betw een 2003 and 2007 in the distribut ion sectors while it has 
increased by almost 1% in the food industry ove r the same period. However, when looking at 
the evolution of ROCE year by year9, there does not seem to be  a consistent pattern of 
differentiated evolution between  the sectors of the chain. 
These results, albeit very limited in scope, are insightful since they highlight that there has 
been no significant differences in profit margin s evolutions between the food industry and the 
distribution sectors over the period 2003-2007. As expected by the trends outlined in the 
previous section, these sectors of the chain ha ve been able to transform their increase in 
value-added in increased profits. It is moreover hard to assess any significant differences in 
profit margins and ROCE evolution across sectors. 
Box 6: Key messages on evolution of labour and capital compensation 
Labour compensation has evolved according to the same pattern than value-added in the 
downwards sector of the food supply chain in the EU25 – food industry and distribution. Unit 
labour costs (labour compensation over hours worked) and apparent labour productivity 
(value-added over hours worked) have experienced  similar growth rates of ~2.5%-3%. This 
has not been the case however  in the agricultural sector  where unit labour costs have 
increased much faster (2.6%) than apparent labour productivity (0.5%). 
The evolution of labour compensation and value- added in the food supply chain suggests that 
profits should have increased or remained stable in the food industry sector and the 
distribution sector but d eclined in the agricultural sector. Th is has been confirmed for the food 
industry and the distribution sect or by the analysis of profit margin and ROCE evolution of 
large and very large firms in the EU27 betw een 2003 and 2007, which have shown a moderate 
increase in profit margins of around 1.5% in 4 y ears. However, the analysis of evolution of 
profit margins and ROCE over the period does not yield significant conclusions towards 
differentiated evolution of  profits in each sector. 
6. CONCLUSION  
The food supply chain has undergone important st ructural changes over the past years while 
value-added of each sector of the chain ha s grown at different pace. Value-added is 
increasingly created in sectors downwards in the chain, primarily in the distribution sector and 
to a lesser extent in the food industry. A major explanatory f actor of the increase in the 
dispersion of repartition of value-added has be en the relative evolu tion of output prices by 
sector. Moving downwards along the chain, output prices have  increased more than input 
prices, leading to an increase in value-added fo r sector downwards in the chain and a decrease 
for the agricultural sector. 
This evolution helps us to better understand the different economic dynamic experienced by 
the sectors of the food supply ch ain in Europe. The distributi on sector and the food industry 
have experienced a good economic outlook, with growing value-added a nd profits, driven by 
growing volumes and prices. At th e other end of the chain, the agricultural sector has been 
struggling to maintain unit labour compensation in a context of declin ing value-added. This 
                                                 
9 See Annex A.7. for detailed evolutions of profit margins and ROCE along the food supply chain. 
 
EN 19   EN should have in turn led to a decrease in ca pital compensation and profits, especially for 
smaller agricultural undertakings. 
 
EN 20   EN 7. ANNEXES 
Figure A.1.: 1995-2005 growth rates of the food supply chain value-added and total 
value-added for selected country aggregates 
1995-2005 growth rate
2.8%4.7%3.0%3.2%
1.1%3.1%1.0%1.2%
EAEU10EU15EU25Food supply chain
Total value-added
 
Source: EU KLEMS, EUROSTAT St ructural Business Statistics 
Figure A.2.: Change in shares of each s ector of the food supply chain by country 
aggregates between 1995 and 2005 
1995-2005 change
3%9%3%3%
2%1%3%2%
2%2%2%2%
-7%-12%-7%-8%
EAEU10EU15EU25Agriculture
Food industryFood wholesale
Food retail
 
Source: EU KLEMS, EUROSTAT St ructural Business Statistics 
 
EN 21   EN Figure A.3.: Volume and price growth contri bution to value-added growth by sector 
and by geographic aggregates in the food supply chain 
1995-2005 growth rate
Agriculture
-2.4%-2.6%-2.6%-2.6%
1.0%2.3%1.0%1.1%
EAEU10EU15EU25Price
Volume
 1995-2005 growth rate
Food industry
1.2%1.2%1.1%
0.4%3.7%0.4%0.7%
0.0%
EAEU10EU15EU25Price
Volume
 
1995-2005 growth rate
Wholesale
-0.5%0.0%-0.3%-0.3%
2.9%6.9%3.0%3.3%
EAEU10EU15EU25Price
Volume
 1995-2005 growth rate
Retail
1.1%1.2%1.2%
1.4%4.1%1.9%2.1%
1.2%
EAEU10EU15EU25Price
Volume
 
Source: EU KLEMS 
Figure A.4.: Evolution of nominal price indi ces along the food s upply chain in the EU25 
E volution of nominal price indices in the food supply chain 
1995-2005
80859095100105110
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
 
Source: EUROSTAT Short-term Statistic s, Agricultural price statistics, Harmonized index of consumer prices; 
Base year of agricultural commodity price index: 2000; base year of food producer and food consumer price 
indices: 2005 Agricultural commodity 
Food producer prices 
Food consumer prices 
 
EN 22   EN Figure A.5.: Contribution of labour producti vity and labour input growths in value-
added volume growth by sector of the supply chain 
1995-2005 growth rate
Agriculture
3.3%3.8%3.4%3.2%
-2.2%-1.4%-2.3%-2.0%
EAEU10EU15EU25Labour productivity
Labour input
 1995-2005 growth rate
Food Industry
0.9%5.5%0.9%1.5%
-0.5%-1.7%-0.5%-0.8%
EAEU10EU15EU25Labour productivity
Labour input
 
1995-2005 growth rate
Wholesale
2.1%6.5%2.3%2.7%
0.8%0.4%0.7%0.6%
EAEU10EU15EU25Labour productivity
Labour input
 1995-2005 growth rate
Retail
1.1%4.1%1.5%1.8%
0.3%0.0%0.4%0.3%
EAEU10EU15EU25Labour productivity
Labour input
 
Source: EU KLEMS 
 
Figure A.6.: Differences in 1995- 2005 growth rates of apparent labour productivity and 
unit labour costs within the food supply chain 
Differences in growth rates
0.3%0.1%0.5%0.5%
-0.1%-0.6%-0.2%-0.1%
0.0%-0.2%-0.2%-0.2%
-0.5%-4.2%-0.9%-2.1%
EAEU10EU15EU25Agriculture
Food industryWholesale
Retail
 
Source: EU KLEMS 
 
EN 23   EN Figure A.7.: Evolution of profit margins and ROCE of large and very large firm in the 
food supply chain in the EU27, 2003-2007 
Profit Margins
0%1%2%3%4%5%6%7%
2003 2004 2005 2006 2007Food industry
Food retail
Food wholesale
 
ROCE
0%2%4%6%8%10%12%14%16%18%
2003 2004 2005 2006 2007Food retailFood wholesale Food industry
 
Source: ORBIS