Legislation and the continuing GM food debate are both putting the European starch applications market under increasing pressure, which may well prompt change in an industry that already appears to be on the verge of significant consolidation.

An injection of dynamism will prove vital in the bid to combat widespread over-capacity and downward pricing pressures, concludes new strategic research from Frost & Sullivan, the international marketing consulting company. The report, European Food Starch Applications Markets, provides a comprehensive analysis of the market in question.

Frost & Sullivan forecasts point towards a compound annual growth rate of 6.3 per cent for the period 1999 to 2006, with total annual revenues set to rise from $1.77bn in 1999 to $2.71bn in 2006. The market will also need to prepare for the onset, and the subsequent fall-out, from the implementation of the 'Agenda 2000' programme. This key piece of EU legislation is intended to formulate a new financial framework for the community and provide emphasis to a multitude of other EU policies.

Key reforms proposed include a 15 per cent price cut for cereals, whilst, quota reductions will prevail with respect to potato starch. The continuing GM food debate means an array of possible long-term scenarios for the industry. In many respects, starch manufacturers are at the mercy of consumer attitudes; the scales may tip in either direction with the bid to gain consumer confidence.

The possibility of a heightened consumer backlash, or the complete (or partial) banning of genetically modified organisms adds profound weight to the need for market participants to fully explore their strategic options. An inert approach does not essentially characterise the market; indeed the battle to cope with an uncertain future is being fought with numerous weapons.

The achievement of competitive advantage is manifesting itself in the form of product development, according to Nirixa Patel, a Frost & Sullivan research analyst: "New products are being developed to meet changing customer needs. Recent innovations include native starches with increased functionality, and gelatine replacement agents."

Analysis of the industry illustrates the largest sector as confectionery products, followed by beverage products. In line with market opportunities the fastest growth sectors will be confectionery and processed foods. A contemporary appraisal of the industry's competitive structure reveals a two-tier structure whereby, on a primary level large global or regional companies are present, operating in most or all of the food sectors and starch product types. This tier includes the top eight companies, which collectively account for over 90 per cent of the food starch market. These are Cerestar, Roquette, Amylum, Avebe, Cargill, Emsland-Stärke, National Starch & Chemical and Agrana Stärke.

The second tier contains those companies that focus on national or regional markets. This structure, however, looks set for a marked shake up, a consequence of the factors already outlined, coupled with other pressing issues such as the forecasted increased insurgence of American suppliers.

An informative approach to strategic options that are open to market participants draws broad attention to the minimal amount of consolidation activity endured within the industry over recent years. However, the changing nature of the market will inevitably put pay to this, says Nirixa Patel: "Virtually no restructuring has taken place in the European food starch market, despite continued over-capacity. Frost & Sullivan do, however, expect the pace of merger and acquisition activity to quicken in the near future."

To summarise, the market may well now pay the cost for not pre-empting over capacity. The starch ingredients manufacturers face an uncertain future with likely legislative measures and the complex issue of 'consumer attitudes'.

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