Wise ways to spend it

It's been a pretty good time for Tetra Pak. Major orders from Britain's leading dairies, fruit juice processors, and ice cream manufacturers have boosted turnover to record levels over the past three years for the liquid food processing equipment supplier.

And bakery, biscuit, snack, and confectionery machinery maker APV Baker has been smiling, too. We Britons may not be eating much more bread than we used to, but our bakers have been investing heavily in equipment to improve the quality and variety of what we do eat.

But behind the smiles there are some worrying signs that the UK food industry may be neglecting long-term investment in new and innovative food processes. Is the food industry heading the way Britain's electronics and car industries have gone?

And forthcoming changes to corporation tax rules on leasing won't help either by making leasing -- an underrated, but often attractive alternative to purchase -- more complicated. Faced with the increased administrative hassle that the new rules promise, food companies, many of which are wary of leasing at the best of times, may well decide it just ain't worth it. This will mean sticking with plain, old-fashioned overdrafts and bank loan facilities. Vanilla debt, as the bankers call it.

"Over the past three years we have had record years in terms of turnover," says Alan Stack, manager of component sales at Tetra Pak Processing, north Europe. It's largely down to major investments by the dairy and juice industries, he says, such as Dairy Crest's £39m super dairy at Severnside; Robert Wiseman Dairies' £7m spend on its factory in Droitwich and Arla Foods' £40m liquid milk factory at Stourton, Leeds.

"In the ice cream sector, there's been major investment by Richmond Ice Cream at Leeming Bar this year, as well as big investments by Frederick's Dairies," says Stack. And in the fruit juice sector Princes and Gerber Foods have been spending heavily.

It is quite an impressive list, he says, but the spending spree has largely been driven by consolidation in all the sectors, he suggests.

"In the dairy industry Dairy Crest gobbled up Unigate a few years ago. And Arla has gobbled up Express Dairies." What they've been doing, says Stack, is closing the old dairies and building new, high efficiency factories. "The focus is on producing more from the same site size with increased efficiency and good quality control."

Automation and control

Since we consumers are buying as much bread as we need, there's not much scope for increased capacity in the bakery industry, says Keith Graham, marketing manager with APV Baker. Most manufacturers in the sector have got the capacity they need. Where they tend to invest is in control systems to improve the efficiency and quality of their products, he says. "The UK bakery sector is very healthy at the moment as companies invest in equipment to improve quality, innovate, and improve variety. Certainly for us bread is the bright spot.

"If you are spending £100 or £125 a week on food, then it really doesn't make much difference if you buy a 39p loaf or an 89p loaf. And if you can get something that looks and tastes significantly better for that extra 50p, so what."

Over the past few years there has been significant investment by APV's customers in automation and control systems, says Graham. But it has tended to be on individual machines rather than complete lines of plant, he says. Only now is the food industry belatedly following what has been happening in other process industries, he says.

"If you go to a chemical works or an oil refinery, you won't find operators standing on the line, as it were, watching the dials. You will have two or three highly qualified engineers in a central control room controlling everything from there. The only time anybody goes out on to the plant is to do maintenance."

The food industry has not yet adopted this style of control and technology, says Graham, but it is coming as labour costs soar and the availability of labour gets scarcer.

In the June issue of Food Manufacture, Colin Bravington, UK business development manager of Omron, the automation specialist, wrote his last opinion column for this magazine. After 45 years in the business he is retiring. But lack of space meant we had to squeeze out his final warning to the UK food industry. So here it is now: "There is a lack of willingness to accept that food manufacturing is an engineering operation."

The focus of investment in new machinery tends to be driven by marketing and food technology demands rather than by any engineering considerations, argues Bravington. As a result, investment in new equipment, in automation, in control systems, is piecemeal and uncoordinated. The result is a lack of engineering innovation, he says, with the distinct likelihood that the food industry in Britain will follow the UK car and electronics industries into oblivion.

"The food industry is like the steel industry was 25 years ago when metallurgists tended to hold the key positions, and the focus of investment was on the metallurgy," argues Bravington. Only after its near collapse from severe overcapacity, poor quality, and poor delivery, did the steel industry realise it was an engineering process, says Bravington, and put engineers in charge. Today, the food industry is facing a similar crisis, he says.

"Food safety, food variety, food quality -- they are all important to making a food product attractive to the consumer. That's what you're delivering. But you are delivering it through machines -- and machines are largely about engineering."

But the food industry hasn't yet woken up to the fact that without investment in the right technology and the right machines, it is in danger of going the same way as our electronics and car industries have gone, says Bravington. "There is too much concentration on food science and food marketing and not enough on food processing. It needs a much stronger focus on technology."

Sue Wigram couldn't agree more. She is operations director at the Food Processing Faraday Partnership (FPFP). Set up three years ago by the Department of Trade and Industry and Department for Environment, Food and Rural Affairs, it aims to help the food industry access the latest developments and research in food processing.

"We are probably one of the most responsive food processing countries in the world in terms of the number of new products and their scope and variety. But in terms of process innovation and new equipment we're much more conservative and short-term. Pay-back periods can be as short as six months, but a year to 18 months is more typical."

It's related to short product life cycles which again can be measured in months, says Wigram. "Clearly you're not going to invest in a piece of equipment to make a product that might only be on the market for six months. You are going to adapt your existing equipment, which means you are running it out of tolerance which brings down your overall equipment effectiveness." In other words, you get more breakdowns for your money, she says.

Also, she says, the drive for new product development doesn't allow margins for the long-term development of new processes and new equipment. One consequence of this has been the decline of UK food processing equipment manufacturers. And today 90% of food processing equipment is bought outside the UK, she says, leading to fears about delays in fixing breakdowns and getting equipment maintained.

Yet the UK still has a strong engineering base that could provide and support innovation in food processing equipment if only UK engineers could grab the attention of the food companies, suggests Wigram. "We have a bloody good engineering base in the UK -- just look at the M1 corridor. And we have got a very strong food processing base. But the two aren't working together."

Collaborative initiative

The FPFP wants to do something about this and is talking to the East Midlands Development Agency and the banks about getting venture capital funding and research and development grants to bring engineering companies together to approach the food companies. The aim would be for a number of local engineering firms to collaborate in developing and bidding for innovative process plant orders from interested food companies.

But the clever bit is that they would offer a unique lease and maintenance package so that food companies would lease the equipment over a number of years, knowing that it will be regularly maintained and supported by local engineers. The benefit for the customer, says Wigram, is that it will get innovative engineering financed off balance sheet -- ie. it will be paid for out of its revenue budget, rather than its often very tight capital expenditure budget.

"The food industry can't not innovate on processes and engineering. If it doesn't innovate the developing markets of Eastern Europe will catch up. It can't stand still." FM