Commission Staff Working Document - The evolution of value-added repartition along the European food supply chain  - Accompanying document to the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - A better functioning food supply chain in Europe {COM(2009) 591 final}
Date: 2009-10-28
Institutions: European Commission
Subjects: agri-foodstuffs, competition, consumer price, food price, foodstuff, impact study, price fluctuation, price of agricultural produce, restriction on competition, supply

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COMMISSION OF THE EUROPEAN 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 COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

A better functioning food supply chain in Europe 

{COM(2009) 591 final} 

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TABLE OF CONTENTS 

1. 

2. 

2.1. 

2.2. 

2.3. 

3. 

3.1. 

3.2. 

3.3. 

4. 

4.1. 

4.2. 

4.3. 

5. 

5.1. 

5.2. 

6. 

7. 

Introduction and background ....................................................................................... 3 

Methodology for analysis of value-added evolution.................................................... 4 

Definition of value-added ............................................................................................ 4 

Analysis of value-added evolution............................................................................... 4 

Sharing value-added within a sector ............................................................................ 5 

Evolution of value-added in the EU food supply chain ............................................... 5 

Repartition of value-added along the food supply chain in the EU ............................. 5 

Evolution of repartition of value-added along the food supply chain.......................... 7 

Recent evolution within the European food supply chain ........................................... 9 

Potential causes of evolution of value-added............................................................. 10 

Price and volume growth components ....................................................................... 11 

Price component of value-added growth.................................................................... 12 

Volume component of value-added growth............................................................... 13 

Evolution of labour and capital compensations ......................................................... 15 

Evolution of labour compensation share in value-added ........................................... 15 

Evolution of profits along the value-chain................................................................. 16 

Conclusion.................................................................................................................. 18 

ANNEXES ................................................................................................................. 20 

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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  contributed  to  better  understand  the  price  transmission  mechanisms 
from  agricultural  commodity  prices  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 agricultural commodity prices has affected first 
and  foremost  the  agricultural  sector.  Ensuring  the  supply  chain  is  well  functioning  should 
remain a key priority of the European Union, in order to protect both consumers, with lower 
food  prices  and  actors  along  the  chain,  through  value-added  growth  across  sectors  and 
sustainable  sharing  of  profits.  It  is  thus  timely  to  focus  on  the  repartition  of  value-added 
within  the  food  supply  chain  and  to  better  understand  how  value-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  (costs  of  production  inputs).  It 
measures the amount of value created by the sector, to be then shared between labour (wages 
and compensations), capital (remuneration 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  supply  chain,  the  value-added  of  the  different 
sectors  are  linked  since  gross  output  of  the  upstream  sector  is  a  component  of  intermediate 
inputs of the downstream sector. Comparing evolution of the repartition 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 maintain its value-added faced with an increase of 
costs of intermediate inputs. The objectives of the analysis are then threefold: 

– 

– 

– 

Describe how the repartition of value-added between the 3 main sectors of the food 
supply chain (agriculture, food industry and distribution) has evolved over time, 

Gain  a  better  understanding  of  key  factors  explaining  this  evolution  and  especially 
the  impact  of  the  evolution  of  prices  along  the  food  supply  chain  (agricultural 
commodity prices, food producer prices 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 three year European Commission 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. classification). For each sector, variables covered 
by  the  database  include  value-added,  gross  output,  intermediary  inputs  and  a  set  of 

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explanatory variables to their evolution, most importantly price 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,  EU15,  EU10  and  Euro  Area  (EA12).  The  food 
supply chain is defined as connecting the 3 following activities: agriculture (sector 1 in NACE 
rev.  1.1.  at  2-digit  level  classification),  the  food  and  beverage  industry  (15),  and  the 
distribution sector, composed of wholesale trade (51) and retail trade (52). 

The  major  limitations  in  the  use  of  the  EU  KLEMS  database  for  the  study  of  value-added 
evolution along the food supply chain are the following: 

Data  are  only  available  for  the  total  wholesale  and  retail  sectors  and  not  at  the 
(i) 
disaggregated food wholesale and retail level. Complementary data from EUROSTAT will be 
used to assess value-added for food distribution activities, 

Data  from  EU  KLEMS  focus  on  local  production  and  thus  reflect  local  value-added 

(ii) 
created by a sector, not taking into account potential changes 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 analysis will thus focus on value-added evolution 
only. 

The methodology used to analyses value-added and its evolution along the chain is presented 
in  Section  2.  Section  3  describes  the  actual  evolution  of  value-added  by  sector  of  the  food 
supply chain over the 1995-2005 period. Potential causes 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): 

VA

=

GO

−

II

(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 costs of intermediary inputs.  

2.2. 

Analysis of value-added evolution 

Value-added  growth  can  be  disaggregated  into  several  growth  components  that  provide 
interesting  insights  on  the  cause  of  value-added  evolution.  A  first  disaggregation  aims  at 
differentiating the impact of price and volume 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
∂

∂≈

P
VA

∂+

V

VA

(2) 

However, one should pay attention that the value-added price index is a proxy for the relative 
evolution  of  output  prices  of  the  sector  (e.g.  for  the  food  industry,  prices  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 necessary to compare growth of output and input 
prices to understand the evolution of the value-added price index. 

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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 people involved in the activity - See figure 1. 

Figure 1: 

Structure of analysis of value-added evolution for a given sector 

Indicates the effect of indicator increase on value-added growth

VALUE-ADDED 
GROWTH

Price Growth 
Component

Volume Growth 
Component

Price Growth 
of Output

• Increase in price of 

output leads to 
increase in value-
added

Price Growth   
of Intermediary 
Inputs

• Increase in price of 
intermediary inputs 
leads to a decrease 
in value-added

Labour 
Productivity 

Growth         

(in volumes)

• Labour productivity 

as total value-added 
volume produced per 
labour input unit 
(hours worked)

Labour Input 
Growth

• Labour input as total 
hours worked in the 
sectors

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: 

VA

=

LAB

+

CAP

(3) 

Capital  compensation  includes  remuneration  of  capital  invested  in  the  sector,  tax 
compensations  and  profits  distributed  within  the  sector.  Consequently,  a  decrease  in  value-
added can lead to lower compensations for the workers active in the sector, or lower capital 
remunerations – e.g. lower investments, lower profits,… 

The evolution of labour compensations across sectors 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 sectors of the food supply chain and presents how the 
repartition  of  value-added  has  evolved  within  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 sectors composing the food supply chain in Europe represented more 
than €1 150 billions  in 2005 in the EU25, i.e. ~11% of total EU25 value-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. 

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Value-added of the agricultural sector in the EU25 was ~€130 billions  in 2005 (1.2% of total 
value-added).  Value-added  of  the  food  and  beverages  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.  However,  the  value-added  of  the  distribution  sector  of  food 
products only is much smaller: based on estimations from EUROSTAT data, food distribution 
amounts to 25% to 30% of total distribution activities – see box 2 for more details.  

Box 2: Share of food distribution in total distribution in the EU25 

Share of food distribution in total 
distribution (2005)

Variations in share of food distribution 
in total distribution (2000-2005)

Wholesale

Retail

Total 
Distribution Wholesale

Retail

Total 
Distribution

Value-added

Turnover

# of persons employed

Personnel costs

18%

19%

22%

19%

34%

38%

38%

38%

25%

28%

32%

28%

+ 0.3%

-1.8%

-0.7%

-0.4%

+ 0.2%

0.1%

0.0%

+ 0.4%

0.3%

-0.3%

+ 2.6%

1.3%

Source:  EUROSTAT  Structural  Business  Statistics;  the  food  wholesale  sector  includes  G512  (Wholesale  of 
agricultural raw materials, live animals) and G513 (Wholesale of food, beverages and tobacco); the food retail 
sector includes G5211 (Retail sale in non-specialized stores with food beverages 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 employed) are of similar magnitude, suggesting that 
distribution  of  food  products  is  similar  to  other  distribution  activities  in  terms  of  business 
model.  However,  a  closer  look  to  results  suggests  that  food  distribution  is  more  labour 
intensive  than  average  distribution  (higher  share  of  persons  employed  than  of  value-added) 
and that the food retail activity creates less value-added than average retail activity per euro of 
sales.  The  fact  that  the  share  of  food  wholesaling  in  total  wholesale  is  significantly  smaller 
than  the  share  of  food  retail  in  total  retail  also  indicates  that  the  food  supply  chain  is  less 
fragmented  vertically  than  other  retail  chains,  with  a  higher  share  of  direct  sales  between 
producers and retailers. 

The  dynamic  vision  of  the  share  of  food  distribution  in  total  distribution  also  provides 
interesting insights on the trends affecting the distribution sector. The share of food wholesale 
value-added over total wholesale has been almost stable over the 2000-2005 period (+0.3% in 
5  years)  while  the  share  of  food  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 efficient than other retail activities. 

The repartition of value-added between the sectors of the food supply chain is presented on 
figure 2 for the year 2005 and the 4 main geographic aggregates considered. 

1 

This 18% figure includes the wholesale trade of agricultural products (3% of total wholesale trade). 

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Figure 2: 
EU10 and EA 

Repartition  of  value-added  in  the  food  supply  chain  for  EU25,  EU15, 

2005 data; € billions (current)

100%=

537

Food retail

30%

Food
wholesale

Food
industry

13%

33%

Agriculture

24%

EU25

5.2%

472

29%

14%

34%

23%

EU15

5.1%

xx%

Share of food supply chain
in total value-added

64

32%

9%

30%

29%

EU10

6.4%

390

27%

15%

33%

25%

EA12

5.3%

Source:

EU KLEMS, EUROSTAT Structural Business Statistics

i.e. 
Total  value-added  for  the  food  supply  chain  in  the  EU25  in  2005  was  ~€540  billions, 
5.2% of the total value-added of the European economy. The agricultural sector represented 
24% of this total, the food industry 33% and the 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 food industry value-added was 1.4 bigger than the value-added 
of agriculture and the distribution sector was 1.3 bigger than the food industry. 

The  structure  of  the  food  value-chain  is  homogeneous  across  the  main  considered  country 
aggregates. The repartition in the 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  sector. The breakdown  of the distribution  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 growing at a low pace over the 1995-2005 decade in 
the  EU25  at  1.2%  per  year,  significantly  below  the  growth  of  the  total  EU25  value-added 
(3.2%).  In  all  geographic  aggregates,  total  value-added  growth  has  been  higher  than  food 
supply chain growth. The difference is the lowest 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  decade,  with  a  1.5%  per  year  decrease.  One 
should note that 2005 has been a bad year for the agriculture sector with a 13% value-added 

2 

See Annexe A.1 for more details. 

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decrease  in  one  year  compared  to  2004.  However,  notwithstanding  the  temporary  effect  of 
year 2005, it still remains that the agricultural sector has experienced negative 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  total  growth  of  EU25  value-added:  +1.9%  per 
year for the food industry, +3.3% for the food wholesale sector and +2.3% for the food retail 
sector – See figure 3. 

Figure 3: 
and 2005 

Evolution of value-added within the EU25 food supply chain between 1995 

EU25; 1995-2005 data; € billions (current)

xx% 1995-2005 annual growth rate

100%=

476

Food retail

27%

Food
wholesale

Food
industry

11%

31%

Agriculture

31%

1995

522

28%

11%

31%

29%

2000

537

1.2%

30%

2.3%

13%

3.3%

33%

1.9%

24%

-1.5%

2005

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  the  1995-2005  decade.  The  share  of  agricultural 
industry  has  consistently  decreased  under  the  combined  effect  of  its  negative  value-added 
growth and the much more dynamic growth of the other sectors. The share 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 distribution sector has increased 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 increased downwards along the chain. In 1995, the ratio of the food 
industry value-added over agriculture value-added 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 sector has increased its size compared to the 
sector directly upwards in the chain. 

This pattern of increasing differences 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 reforms aiming at decoupling direct aid to farmers has 
further amplified the measured drop in value-added in the agricultural sector. For 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.  

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agriculture  value-added  in  the  food  supply  chain  value-added  has  decreased  by  7%  in  the 
EU15,  12%  in  the  EU10  and  7%  in  the  EA12.  This  share  has  been  taken  up  by  the  food 
industry  (+2%  on  average)  and  by  the  distribution  sector  (+6%).  The  New  Member  States 
have however experienced an even stronger increase 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 insights on the potential evolution of value-added in 
the most recent period from 2005 to 2008.  

The  Economic  Accounts  for  Agriculture  provide  data  for  the  evolution  until  2007.  Value-
added  growth  rate  in  the  EU25  for  the  Agriculture  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 food retail sectors. 

First, it is interesting to note that in the 1995-2005 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-added 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 supply 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 have increased faster than in the distribution 
– retail and wholesale – sectors. 

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Figure 4: 
2005 in the EU25 food supply chain 

Comparison of value-added and turnover growth rates between 1995 and 

 EU25; 1995-2008 data; annual growth rate

Growth in value-added 1995-2005 

Growth in turnover 1995-2005

Growth in turnover 2005-2008

Food retail

4.6%

2.3%

Food wholesale

4.8%

3.3%

6.6%

6.9%

Food industry

1.9%

1.9%

5.1%

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  repartition  of  value-added  within  the  food  supply 
chain are summarised in box 3. Given the strong changes undergone by the food supply chain, 
it is important to understand what factors have been at play and what can explain the relative 
decline in agricultural 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  value-added  in  the  EU25  and  ~6%  in  the  new 
Member States and is thus an important sector 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%),  food  industry  (33%)  and  distribution  (43%  –  13% 
for wholesale and 30% for retail). Thus, downwards sectors of the chain create more value-
added than their upwards counterpart 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 experienced significantly different value-added growth 

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rates over the 1995-2005 period. The methodology discussed in section 2 will be leveraged to 
break  down  value-added  growth  into  a  price  and  a  volume  growth  component.  Each 
component  will  then  be  analysed  separately.  Given  the  availability  of  data  in  EU  KLEMS, 
indicators  for  total  wholesale  and  total  retail  will  be  used  as  proxy  for  food  wholesale  and 
food retail. Given the discussion in box 2 on relative evolution of food distribution and total 
distribution, this should not distort conclusions significantly.  

4.1. 

Price and volume growth components 

The  analysis  of  price  and  volume  contribution  to  value-added  growth  provides  valuable 
insights to understand the decline of agricultural share in the food supply chain value-added – 
see figure 5.  

Figure 5: 
the food supply chain in the EU25 

Volume and price growth components in value-added growth by sector of 

EU25; 1995-2005 annual growth rate

Indicates the effect of indicator
increase on value-added growth

Price component of growth

1.1%

1.2%

Value-added growth

3.0%

3.3%

1.9%

-1.5%

Agriculture

Food 
industry

Wholesale

Retail

• 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%

Source:

EU KLEMS

-0.3%

-2.6%

Agriculture

Food 
industry

Wholesale

Retail

Volume component of growth

3.3%

2.1%

1.1%

0.7%

Agriculture

Food 
industry

Wholesale

Retail

Agriculture is the only sector of the chain where the value-added 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 compensate this price decrease. The food industry 
growth  has  been  driven  by  simultaneous  growths  of  price  and  volume  indices  (respectively 
+1.1%  and  +0.7%).  Last,  growth  in  the  distribution  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-added growth have occurred between 1995 and 2005 within the 
food  supply  chain.  Value-added  decrease  in  the  agriculture  sector  driven  by  price  decrease, 
value-added increases in the food industry driven by simultaneous price and volume increase 
and value-added increase in the distribution 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 sectors, contribution of growth in volumes has been much more 
important than in old Member States (+2.3% volume growth in the agricultural sector, +3.7% 
in the food industry, +6.9% in wholesale and +4.1% in retail). Contribution of price growth 
has been similar to the ones observed in the rest of the EU with the notable exception of the 

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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 the relative evolution of 
output and input prices of a sector, the significant decrease in value-added price component 
over  the  1995-2005  decade  (-2.6%  per  year)  suggests  that  agricultural  commodity  prices 
(gross output prices of the agricultural 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 agricultural sector, both in terms of output prices 
and of input prices (energy, other agricultural commodities…).  

On the contrary, the food industry value-added price index has grown ~1% per year over the 
period,  probably  benefiting  from  lower  input  prices  (and  among  them  agricultural  prices). 
However,  one  can  note  an  important  difference  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, and not only the food distribution sector. 

In order to validate these assumptions, it is interesting to compare actual variations of output 
and  input  prices  for  each  sector  of  the  supply  chain.  For  the  sake  of  simplification,  only  3 
sectors are considered: agriculture, 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 input price of the food industry sector. This analysis provides insights 
on whether the evolution of value-added price index stems from a variation in output prices or 
in input prices5 - see figure 6. 

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5 

EN 

A  potential  explanation  for  this  difference  would  be  a  lower  food  producer  price  increase  in  the  new 
member states than in the rest of Europe over the period. 

For evolution of price indices along the period considered, see annex A.4. 

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Figure 6: 

Decomposition of price component of value-added growth in the EU25 

EU25; 1995-2005 annual growth rate

Indicates the effect of indicator
increase on value-added growth

Output price growth (nominal)

Value-added growth price component

1.1%

0.5%

1.9%

1.2%

Food industry
(Food producer 
price index)

Distribution*
(Food consumer 
price index)

0.2%

Agriculture 
(Agricultural 
commodity 
price index)

-2.6%

+5.1%

Intermediary Inputs price growth (nominal)

Agriculture

Food industry

Distribution

*

**

1996-2005

Goods and services only

Source:

EU KLEMS; EUROSTAT Short-Term Statistics

0.2%

1.1%

Agriculture
(means of 
production 
price index**)

Food industry
(Agricultural com-
modity price index)

Distribution 
(Food producer 
price index)

The sharp decrease of the value-added price index in the agricultural sector has been due to 
the conjunction of a very sharp increase in prices of agricultural means of production (+5.1%) 
and  of  stable  agricultural  commodity  prices.  This  has  in  turn  benefited  the  food  industry, 
which has been able to increase its value-added prices by increasing its output prices by 1.2% 
per year over the 1995-2005 period. Last, the retail sector, faced with 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 evolution of output prices in the sectors of the supply chain 
partly explains the evolution of value-added repartition 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.  Volume  growth  has  been  larger  in  the 
distribution sector (+3.3% for wholesale and +2.1% for retail) than in the upward sectors of 
the  chain  (+1.1%  for  agriculture,  +0.7%  for  the  food  industry).  This  volume  growth  has 
originated  in  labour  productivity  growth  in  all  sectors  of  the  chain  (from  1.5%  in  the  food 
industry  to  3.2%  in  the  agricultural  sector  –  as  a  point  of  comparison,  overall  labour 
productivity increase in the EU25 between 1995 and 2005 amounted to 1.7%). 

A  major  cause  of  differing  value-added  growths  across  sectors  has  thus  been  changes  in 
labour inputs in the sector. Labour input (in total hours worked) has thus declined by 2.0% per 
year in the agricultural sector – see box 4, while it was increasing by respectively 0.6% and 
0.3% per year in the wholesale and retail sectors. 

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Box 4: Decrease in labour input in the agricultural sector 

Total  hours  worked  in  the  agricultural  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 average 15% more hours per year than in other 
sectors (~2 000 hours per year vs. ~1 700). 

Effects of labour productivity and labour input growth on value-added growth in each sector 
of the supply chain are summarised in Figure 7.  

Figure 7: 
chain 

Decomposition  of  value-added  volume  growth  in  the  EU25  food  supply 

 EU25; 1995-2005 annual growth rate

Labour productivity growth (volumes)

3.2%

2.7%

1.5%

1.8%

Value-added growth volume component

3.3%

2.1%

Agriculture

Food 
industry

Wholesale

Retail

1.1%

0.7%

Labour input growth

Agriculture

Food 
industry

Wholesale

Retail

0.6%

0.3%

-0.8%

-2.0%

Agriculture

Food 
industry

Wholesale

Retail

Source:

EU KLEMS

Three  different  patterns  of  value-added  growth  can  be  derived  for  the  agriculture,  food 
industry and distribution sectors: 

– 

– 

– 

Agricultural  sector:  strong  increase  in  labour  productivity  and  sharp  decrease  in 
labour input leading to medium value-added growth in volumes, 

Food industry: medium increase in labour productivity but slow decrease in human 
resources leading to medium value-added growth in volumes, 

Distribution  sector:  significant  increase  in  labour  productivity  and  low  increase  in 
human  resources  leading  to  significant  increase  in  value-added  growth  in  volumes. 
The  data  presented  on  figure  6  relate  to  the  total  distribution  sector.  However,  as 
analysed in Box 2, the share of persons employed 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 

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active in the retail sector has on the contrary slightly decreased, suggesting the labour 
productivity of the food retail activity has increased less than that of total retail trade. 

These volume growth patterns are consistent across all geographical 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 higher labour productivity volume growth in all 
sectors (from +0.4% in the agricultural sector to +3/4% in the distribution sector compared to 
the  EU15).  The  main  potential  factors  explaining  different  value-added  growth  by  sector  of 
the food supply chain are summarised in box 5. 

Box 5: Key  messages  on  causes  of  evolution  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  the  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 1995-2005 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 has originated primarily in the conjunction of 
input costs increase and stability of agricultural commodity prices; it has been accentuated by 
the decline in labour input, 

(ii) 
Food industry has been able to increase output prices more 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  value-added  per  hour  worked)  and  unit  labour  compensation 
(labour  compensation  per  hour  worked).  The  share  of  labour  compensation  in  value-added 
decreases when labour productivity increases faster than unit labour compensation. Figure 7 
describes apparent labour productivity and unit labour compensation growths in the sectors of 
the food supply chain. 

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Figure 8: 
in the EU25 for sectors of the food supply chain 

Unit labour compensation and apparent labour productivity growth rates 

 EU25; 1995-2005 annual growth rate

Apparent labour productivity growth (value-added over hours worked growth)

Unit labour costs growth (labour compensation over hours worked growth)

2,6%

2,9%

2,7%

3,0%

2,5%

2,4%

2,4%

0,5%

Agriculture

Food industry

Wholesale

Retail

Source:

EU KLEMS

Interestingly, unit labour compensation has increased 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  distribution  sectors  have  matched  this  increase  with 
increased  apparent  labour  productivity,  whereas  the  agricultural  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 compensation and decreasing profits 
and investments. The only sector of the supply chain where the share of labour compensation 
in  value-added  has  indeed  decreased  is  the  retail  sector,  where  apparent  labour  productivity 
growth has been 0.6% higher than unit labour compensation growth. This evolution pattern is 
clearly  amplified  in  the  new  Member  States,  where  the  gap  between  labour  productivity 
growth and labour compensation growth is over 4%, compared to only 0.9% in the EU15. 

As  a  conclusion,  the  evolution  of  respective  share  of  labour  and  capital  compensations  has 
evolved  in  the  agricultural  sector  at  odds  with  other  sectors  of  the  chain.  In  the  agricultural 
sector, value-added has been decreasing 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  profits.  The  other  sectors  of  the  chain  have 
maintained  over  time  the  share  of  labour  compensation;  the  retail  sector  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 for 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 

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ratios  –  profit  margin  and  ROCE,  Returns  On  Capital  Employed6  –  have  evolved  in  each 
sector  of  the  value-chain  over  the  period  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  provides  only  a  partial  view  of  the  evolution  of 
profits  in  each  sector.  Profits  margins  are  usually  higher  for  larger  and  more  efficient  firms 
benefiting  from  economies  of  scale;  these  firms  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  industry.  For  example,  in  the  food  and  beverage 
industry,  SMEs  represent  99%  of  the  total  number  of  companies  and  generate  ~50%  of  the 
sector turnover8. 2007 profitability ratios and the 2003-2007 changes are 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  supply  chain  are  not  large  enough  (less  than  1  000 
firms per sector). Moreover, data for agricultural undertakings were not included for the same 
rationale. 

Figure 9: 
large firms by sector of the food supply chain in the EU27 

2007 Profit Margin and ROCE and 2003-2007 changes for large and very 

EU27; 2003-2007 data for large and very large firms; %

2007 Profitability ratio

2003-2007 Change

Food 
retail*

3,4%

13.0%

-0.5%

Food 
wholesale*

2,1%

15,1%

-0.7%

Profit margin

Return on capital employed

Number of firms 
in sample**

1.4%

~5 250

1.5%

~6 900

Food 
industry*

5.8%

14.3%

1.5%

0.9%

~7 250

*
**

Source:

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%)
ORBIS

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  sector  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 three sectors for large and very large firms in the 

6 

7 

8 

Profit margin is defined as profit before tax over turnover; ROCE is defined as profit before tax over 
total assets (capital employed). 

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). 

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. 

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past years. The profitability picture is slightly different when considering the indicator Return 
on  capital  employed  where  the  difference  between  sectors  is  less  pronounced,  with  ratio 
varying  from  13%  for  food  retail  to  15%  for  food  wholesale.  Interestingly,  ROCE  has 
decreased  by  around  0.5%  between  2003  and  2007  in  the  distribution  sectors  while  it  has 
increased by almost 1% in the food industry over 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 margins 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  have  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 declined in the agricultural sector. This has been confirmed for the food 
industry and the distribution sector by the analysis of profit margin and ROCE evolution of 
large and very large firms in the EU27 between 2003 and 2007, which have shown a moderate 
increase in profit margins of around 1.5% in 4 years. 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 structural changes over the past years while 
value-added  of  each  sector  of  the  chain  has  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  factor  of  the  increase  in  the 
dispersion  of  repartition  of  value-added  has  been  the  relative  evolution  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 for 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 chain in Europe. The distribution sector and the food industry 
have experienced a good economic outlook, with growing value-added and profits, driven by 
growing  volumes  and  prices.  At  the  other  end  of  the  chain,  the  agricultural  sector  has  been 
struggling to maintain unit labour compensation in a context of declining value-added. This 

9 

See Annex A.7. for detailed evolutions of profit margins and ROCE along the food supply chain. 

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should  have  in  turn  led  to  a  decrease  in  capital  compensation  and  profits,  especially  for 
smaller agricultural undertakings. 

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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

Food supply chain

Total value-added

EU25

EU15

EU10

EA

1.2%

1.0%

3.2%

3.0%

3.1%

4.7%

1.1%

2.8%

Source: EU KLEMS, EUROSTAT Structural Business Statistics 

Figure A.2.:  Change  in  shares  of  each  sector  of  the  food  supply  chain  by  country 
aggregates between 1995 and 2005 

1995-2005 change

Agriculture
Food industry

Food wholesale
Food retail

EU25

EU15

EU10

EA

-12%

-8%

-7%

-7%

2%
2%

3%

2%

3%
3%

2%

1%

9%

2%

2%

3%

Source: EU KLEMS, EUROSTAT Structural Business Statistics 

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Figure A.3.:  Volume  and  price  growth  contribution  to  value-added  growth  by  sector 
and by geographic aggregates in the food supply chain 

1995-2005 growth rate
Agriculture

Price

Volume

1995-2005 growth rate
Food industry

Price

Volume

EU25

EU15

-2.6%

1.1%

EU25

1.1%

0.7%

-2.6%

1.0%

EU15

1.2%

0.4%

EU10

-2.6%

2.3%

EU10

3.7%

0.0%

EA

-2.4%

1.0%

EA

1.2%

0.4%

1995-2005 growth rate
Wholesale

Price

Volume

1995-2005 growth rate
Retail

Price

Volume

EU25

-0.3%

3.3%

EU15

-0.3%

3.0%

EU25

1.2%

2.1%

EU15

1.2%

1.9%

EU10

0.0%

6.9%

EU10

1.2%

4.1%

EA

-0.5%

2.9%

EA

1.1%

1.4%

Source: EU KLEMS 

Figure A.4.:  Evolution of nominal price indices along the food supply chain in the EU25 

Evolution of nom inal price indices in the food supply chain 
1995-2005

110

105

100

95

90

85

80

Agricultural 

commodity 

Food producer prices 

Food consumer prices 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: EUROSTAT Short-term Statistics, 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 

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Figure A.5.:  Contribution  of  labour  productivity  and  labour  input  growths  in  value-
added volume growth by sector of the supply chain 

1995-2005 growth rate
Agriculture

Labour productivity

Labour input

1995-2005 growth rate
Food Industry

Labour productivity

Labour input

EU25

-2.0%

3.2%

EU15

-2.3%

3.4%

EU25

EU15

-0.8%

1.5%

-0.5%

0.9%

EU10

-1.4%

3.8%

EU10

-1.7%

5.5%

EA

-2.2%

3.3%

EA

-0.5%

0.9%

1995-2005 growth rate
Wholesale

Labour productivity

Labour input

1995-2005 growth rate
Retail

Labour productivity

Labour input

EU25

2.7%

0.6%

EU25

1.8%

0.3%

EU15

2.3%

0.7%

EU15

1.5%

0.4%

EU10

6.5%

0.4%

EU10

4.1%

0.0%

EA

2.1%

0.8%

EA

1.1%

0.3%

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

Agriculture

Wholesale

Food industry

Retail

-2.1%

EU25

EU15

EU10

EA

-4.2%

Source: EU KLEMS 

-0.2%

-0.1%

-0.9%

-0.2%
-0.2%

0.5%

0.5%

-0.2%

-0.6%

0.1%

-0.5%

0.0%
-0.1%

0.3%

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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

Food industry

Food retail

Food wholesale

2003

2004

2005

2006

2007

Food industry

Food wholesale

Food retail

7%

6%

5%

4%

3%

2%

1%

0%

ROCE

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%

2003

2004

2005

2006

2007

Source: ORBIS 

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