Eastern promise of cheap production is fading fast

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Related tags: Job losses, European union

Eastern promise of cheap production is fading fast
Rising Inflation hinders manufacturing

The window of opportunity for UK food manufacturers to off-shore production to lower wage economies in eastern Europe is rapidly closing, according to the Unite trade union.

Wages and building costs in markets such as Poland and Estonia were rising so fast that the economic rationale for setting up shop there and closing UK factories was dwindling, it said.

According to the Department for Environment, Food and Rural Affairs (DEFRA), current labour cost differentials between countries "may not be sustainable"

In 2006, said DEFRA, the average manufacturing wage in the 2004 accession states was £420 a month, compared to £2,300 in the original 15 Member States. However, in the first quarter of 2006 wages were 19%, 14.9% and 13.2% higher than they were in the first quarter of 2005 in Latvia, Estonia and Lithuania respectively, it claimed.

"In the UK wages rose by just 2.7% over the same period."

Moreover costs in the accession states were likely to rise further with the adoption of EU regulations, it predicted.

This made Cadbury's recent decision to close its factory in Keynsham and open a new site in Poland "even more short-sighted", claimed Unite.

"It may be cheaper now, but what about in 10 years' time? And transport costs [to move goods back to the UK] are not going to go down."

Figures from the European Reconstruction Monitor (ERM) suggest that offshoring is not the primary reason for job losses in UK food manufacturing, according to DEFRA.

"From January 2002 to July 2007, less than 7% of job losses were attributed to off-shoring." According to the ERM, most job losses were due to closure or internal restructuring.