Unlike the millennium bug – which is a
technical issue with a potential business impact – European Monetary Union (EMU) is a pure
business issue. The single currency will affect many parts of the food and beverage
industries – from raw material sourcing, through cost accounting, right to the point of
sale. And it will involve many other issues that are still not fully understood…
The possible impacts of EMU
Depending on the route to market, some of the processes affected by EMU include a
company’s IT solution, its labeling, invoicing and payments. Point of sale
information and pricing will also be affected, as will computer keyboards and printer
fonts – many of which may not even have a symbol for the euro.
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During the transition to the single
currency, there will be a period of dual currency when both national currencies and the
euro will be in circulation. In this period, triangulation issues for pricing will come
into play. For example, a conversion between sterling and French francs cannot be direct.
It must go from sterling to euro, and then from euro to francs. These differences can
account for 0.04 percent of all transactions. Further costs will be incurred as IT systems
are upgraded to employ this ‘triangulation’ logic. Other major changes might
include a loss of flexibility in currency trading, and overall devaluation of the euro.
Opportunities through
homogenization
A direct effect of EMU may be a sudden increase in cross-border shopping. The euro will
make it easier for consumers to make cost comparisons, and will remove the uncertainties
associated with daily fluctuations in exchange rates for national currencies.
Prior to the creation of the Single Market
in 1993, many companies anticipated a rapid harmonization of prices across member states,
often to their detriment. In general, this didn’t happen, and advantageous
country-specific pricing arrangements have largely remained intact. However, the euro will
create unprecedented price harmonization, due to increased price transparency and
visibility.
This will erode the premium pricing enjoyed
in certain markets. To counter this, many food and drink companies will review their
product strategies and will consider increasing product differentiation by region or
market. Sophisticated flexible manufacturing and supply chain management techniques now
make it possible to differentiate global products. This can be achieved, for example,
through language-specific packaging or differing peripheral specifications. The products
can still be produced and distributed cost effectively, and price premiums can be
partially disguised by the perceived differences.
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By GlobalDataBringing global customs union a
step closer
New customs clearance systems could provide food and drink producers with new
opportunities. Electronic customs clearance already promises to reduce errors and
accelerate the flow of goods and information. The subsequent reduction in customs costs
could possibly be passed back to the trading companies.
Recent announcements that propose schemes
for continent-wide, if not worldwide, customs union include the Columbus Declaration in
the USA, the ASEM Agreement in Asia, and the Lyons G7 GATT communiqué.
Free trade agreements, such as NAFTA (North
American Free Trade Association), have already reduced tariffs by over 50 percent between
the US and Mexico. KPMG is now taking this a step further, with its new ‘Virtual
Warehouse’ initiative, which aims to take the vision of a customs union and deliver
tangible business benefits.
This scheme is a response to pressure from
organizations, such as the UK’s Freight Transport Association, that want to reduce
the inefficiencies and costs associated in dealing with separate customs authorities. The
Virtual Warehouse is currently being piloted in Europe, and has already received the
support of the 15 EU member states. When coupled with the better visibility of true costs
provided by the euro, this should enable food and drinks manufacturers to take more
accurate business decisions. It will overcome the problems of dealing with different
customs authorities by replacing them with a single clearance scheme and a single
currency.
All in all, while it’s clear EMU will
bring significant changes to the way the food and beverage industry operates, it also
presents major commercial opportunities for forward-thinking international companies.
