Two recent reports by the European Commission add further weight to calls for significant structural change within the EU fish catching sector and a far reaching reform of the Common Fisheries Policy (CFP). The 2010 Annual Economic Report on the EU fishing fleet shows a reduction in economic performance of the EU fishing sector in recent years. The report lays out economic trends in the EU fisheries sector in the period 2002-2008. It notably shows that 2008 was the second consecutive year in which the profitability of the EU fleet declined.

A second report, on Member States’ fishing capacity, concludes that the size of the EU fishing fleet continues to decrease at a very slow pace, maintaining a situation of overcapacity in most of the fleet. To address these issues, the Commission is currently finalising its proposals for a thorough reform of the Common Fisheries Policy, in which sustainable solutions will be proposed to turn this situation around and ensure a viable economic future for the EU fisheries sector.

The 2010 Annual Economic Report suggests that lower incomes and higher fuel prices in 2008 impacted significantly on the profitability of the fishing sector. The amount of value added generated by the sector was Eur2.1 billion in 2008, a decrease of around 23% from 2007. Overall, fleet profits declined each year between 2006 and 2008. Although the EU fleet made an overall profit of Eur250 million in 2008 (around 6% of total income), analysis by fleet segment revealed that during the period 2002-2008, 30-40% of assessed segments made losses on average, meaning that these segments made insufficient returns on invested capital.

The data reveals that vessels operating with passive gears (such as longliners, purse seiners, netters, vessels using traps and pots) generally performed better than active gears (such as demersal trawlers, beam trawlers and vessels using polyvalent active gears), with certain gear types struggling to ensure profitability, such as demersal and beam trawlers. The causes of this low economic performance include poor evolution of fish stocks, impacts of fuel prices and fish prices, and the existence of overcapacity in parts of the EU fleet.

The Report on the Member States’ efforts during 2009 to achieve a sustainable balance between fishing capacity and fishing opportunities confirmed the existence of overcapacity. During 2009, the overall reduction in fleet capacity continued to be between 2% and 3% on average, as it was during previous years. However, with this rate of capacity reductions, which are at least partly compensated by technological progress, it will be difficult to eliminate overcapacity in the short term if no changes are made to the current policy.

UK chilled convenience food group Uniq has announced that its Minsterley desserts facility will lose £10m of annualised sales commencing in April. The loss of business will have a negative impact on Minsterley’s profitability in 2011.

Uniq had already commenced a comprehensive review of its desserts business following and disruption to sales, caused partly by recent price increases. The review process is due to be completed in March 2011.

Associated British Foods has cautioned that although further growth is expected for the coming year, following a step change in the group’s profitability last year, this will be moderated by the eventual impact of the adverse weather conditions on its UK sugar business.

In an interim management statement for the 16 weeks to January 8th 2011, ABF says that the very recent sharp rise in temperature following the prolonged period of extremely cold weather before Christmas is having an adverse effect on the quality of sugar beet still to be processed. Some 75% of the crop has been processed but the effect on the remainder is still to be determined. A further update will be provided in the pre close period trading update on February 28th 2011.

The bad weather has also delayed the final stages of construction of Vivergo’s bioethanol plant by two months and production is now expected to commence at the beginning of the new financial year.

Despite the uncertain economic outlook for western economies, Associated British Foods has confirmed that it expects to achieve revenue and profit growth in its current financial year, building on the step change in group profitability achieved in the year ended September 18th 2010. ABF reported a 10% increase in revenue to £10.2b and a 26% rise in adjusted operating profit to £909m for 2010.

Trading for the first two months of the current financial year is in line with expectations. ABF has noted recent, significant increases in some commodity prices. However, higher sugar prices are expected to improve the profitability of the group’s sugar businesses, and it aims to recover higher wheat costs. “We continue to invest in the development of our businesses and further returns will be delivered as these investments complete,” says Charles Sinclair, chairman of ABF.

Bernard Matthews Farms, Britain’s largest turkey producer, has won the private company category in the Institute for Turnaround Europe’s Top Turnaround Awards 2010.

The food group is half way through a four year development programme implemented following an outbreak of avian flu at its Suffolk farm and factory complex in February 2007, which resulted in the slaughter of 160,000 turkeys. The incident cost the company millions of pounds due to the consequent sharp drop in sales and damage to the Bernard Matthews brand. UK sales fell by 35% in 2007 and the group incurred a loss of £77m.

The turnaround and recovery strategy has entailed refinancing debt, streamlining the business to reduce costs and repositioning the brand around a fresh British turkey offering. Sales have now stabilised and Bernard Matthews is making good progress towards returning to profitable and sustainable growth. It reported a loss before tax of £4m for its 2009 financial year on group turnover of £330m.

The company will supply 3.5m birds and turkey products for Christmas market this year, including 2.5m whole turkeys and crowns.

The Institute for Turnaround is the leading professional body in Britain and Europe for operational, funding and advisory practitioners in business. IFT has groups in other parts of the world, including Asia.

Now in their ninth year, the Institute for Turnaround Europe’s Top Turnaround Awards are widely regarded as the restructuring profession’s Oscars. The awards are rigorously adjudicated by an independent panel including the London Business School, CBI and accredited turnaround professionals. The awards cover a wide spectrum of organisations encompassing private companies and the public and third sectors.

Long-term problems in the UK wine trade, which is the world’s largest importer, are threatening profitability for major suppliers who have become dependent on the market, according to Rabobank.

Wine imports to the UK rose by 6% in the first half of 2010, but this fails to compensate for the almost 10% decline in the same period of 2009. “Even if import volumes do recover in the next two years, many traditional suppliers to the UK market still face serious longer-term issues,” explains Stephen Rannekleiv, executive director of Rabobank’s Food & Agribusiness Research and Advisory Department. British consumers are still cautious about spending, in the face of slow economic recovery and government cuts.

Many people now prefer to drink at home, where they can smoke if they want to and don’t have to worry about drink driving. “As people increasingly buy their wine in the off-trade (outside licensed premises), pricing becomes dominated by a small group of retailers that negotiate aggressively to keep prices low. These retailers often use wine as a traffic driver for their stores, training consumers only to buy wine on promotion in the process. This trend will continue to weigh on wine pricing,” Stephen Rannekleiv adds.

The UK has traditionally paid some of the highest average unit prices for wine. While there is still a market for higher priced bottles, profit margins for suppliers have been falling. The government has raised excise duty on alcohol almost every year for the past ten years, and the VAT rise planned for next year will erode margins even further.

The result is that global suppliers of higher value wines will have to find new markets. “China is emerging as a major wine importer and continued economic growth should fuel demand. But a high-end Bordeaux sells in China for around half the price it would fetch in the UK, so increasing sales to China will not make up for the recent decline in UK sales,” says Stephen Rannekleiv.

Ukrainian dairy business Ukrproduct Group has reported a 5.3% drop in year-on-year revenue to £20.7m for the first six months ended June 30th 2010, although the figure remained stable in local currency, and gross profit dropped 18% to £3.2m as price sensitive consumers moved down market. Gross profit from branded dairy products, which account for two-thirds of total revenue, fell 42%.

“During the first half of 2010 Ukrproduct has witnessed a further decrease in the purchasing power of the local population, which resulted in a continued switch in consumer preferences from the middle to the mass market segment. At the same time growth in input prices outpaced the rise in consumer prices,” says Sergey Evlanchik, chief executive of Ukrproduct. “Domestic processed cheese prices have declined by 15% on average from January 2010 and have reached July 2009 levels, driven by aggressive pricing by local producers at the low end of the market. Prices for packaged butter were up by 25% year-on-year on average which has partially compensated for the increased cost of raw materials.”

First Milk has returned to the black in the year ended March 31st 2010 with a positive £10.3m swing in pre-tax profitability to end the year with a profit of £0.4m as the UK dairy co-operative systematically reduced its cost base and improved efficiencies throughout the business. Group turnover declined 8% to £536m, reflecting the decision to move away from several low margin cheese contracts.

A range of efficiency savings and better market returns has allowed First Milk to fund a number of increases in members’ milk price.

Net bank debt reduced by £10.7m compared to 2008/09 and was £69m at year end against a total facility of £130m. During 2009/10 First Milk invested £8.2m in a number of capital projects, compared to £4.4m in 2008/09. This money was spent on a range of site improvement and upgrade projects to advance efficiency.

“Overall, the business made progress during the year to 31 March 2010. Financially, we are in a stronger position, with improved profitability, a sound balance sheet and reduced net debt,” comments Bill Mustoe, chairman of First Milk. “We have entered 2010/11 with an increased momentum to deliver change. A range of efficiency savings and better market returns has delivered profits ahead of target for the first quarter. This has allowed us to fund a number of increases in members’ milk price.”