DEFRA: off-shoring not widespread in UK food industry
Cadbury's decision to shift more chocolate production to Poland is not indicative of a widespread trend towards off-shoring in UK food manufacturing, according to the Department for Environment, Food and Rural Affairs (DEFRA).
DEFRA, which is preparing an economic analysis of UK food and drink manufacturing likely to be published by the end of the year, said: “The significance of off-shoring should not be exaggerated. It is simply one aspect of international trade and specialisation.”
Its comments came as unions accused Cadbury of generating millions of unnecessary food miles by transferring production of chocolates in Keynsham and Bournville to Poland, then transporting half of them back to the UK.
The company has just been ranked global ‘Best in Class’ in its approach to climate change in a report by the Carbon Disclosure Project. The study was based on a survey of 500 international business leaders.
With the wage gap between eastern Europe and the UK closing and transport costs rising, the economic rationale behind off-shoring was no longer as clear cut, said DEFRA.
In a recent report analysing the pros and cons of off-shoring for UK manufacturers, DEFRA’s Food and Drink Economics branch said: “Trade theory predicts that, over time, wages will tend to converge between countries which allow for the free movement of goods and labour between each other. Growth projections for eastern European countries such as Poland are higher than the UK. This will be reflected in higher wage growth, implying that over time eastern European labour cost advantages will diminish.”
Firms also needed to consider a range of costs and conditions beyond labour, and these may be less favourable abroad, it added. “For instance, transport costs. Although lower than in the 1980s, they can be expected to remain relatively high as oil reserves decline and global demand increases.
“Off-shoring, particularly when combined with out-sourcing, increases flexibility; however, there are additional costs and risks due to the distance and cultural issues involved. It is somewhat easier for firms to monitor performance and ensure quality when a foreign affiliate is involved, although this could still prove to be an issue.”
Many recently closed UK plants were owned by multinationals such as Heinz and Nestlé that were shifting production to larger sites in western Europe rather than to Poland or Hungary, it added.
Most recent examples of UK production transferring to foreign affiliates are in the confectionery sector. Mars has switched production of some confectionery lines from the UK to the Czech Republic; Terry’s has moved production from York to Poland and Slovakia; and Leaf UK has moved production of Chewits sweets from Merseyside to eastern Europe.
