Latest news

Market Trend Report - February 2010

See the latest Market Trend Report produced by our expert research team in February 2010. This report contains detailed analysis on our latest findings in the following key process industry sectors: Food & Beverage; Energy & Waste and Pharma / Biotech. The Report is free to download by clicking here:

Trends in the U.K. and Ireland Food & Beverage Industry Going into 2010

TAUNTON, UNITED KINGDOM -- Researched by Protel Associates Limited

In the UK and Irish Food & Beverage Industry confidence remains fragile, but there are signs of slow recovery as the pre-Christmas production period looms. Site closures and rationalisation seem set to continue with further site closures expected during the coming years as the industry consolidates. Examples include Northern Foods plc's pending closure of Cavaghan & Gray, the scheduled closure of Kwoks' ready-meals plant in Grimsby, the closure of East End Bakery in Glasgow, and the recent announcement of the intended closure of Scottish & Newcastle's (S&N) Dunston brewery near Newcastle.

Following the collapse of the Dairy Farmers of Britain cooperative, Robert Wiseman Dairies and Milk Link are in the process of restructuring their businesses. Robert Wiseman has picked up additional business, which has led to the company relocating distribution to a new £15 million ($24.5 million) facility in Almesbury, Wiltshire. Milk Link is to absorb its Llandyrynog pre-packaging operations into a dedicated packaging facility at Oswestry. First Milk has secured £130 million ($212 million) of funding to support capex in cheddar brands, upgrade packaging, and constructing a new creamery in Campbeltown, Scotland.

Supermarkets, farmers and producers have seen the recession lead to a big drop in customer demand for organic produce and despite claiming to support the recovery of the organic segments, supermarkets such as Tesco plc and ASDA Group, owned by Wal-Mart Stores Inc, have reduced the range of organic products on their shelves by one-third.

Although large players in the chilled ready-meals sector, including Northern Foods, reported a lower level of sales this summer, the market is recovering. Northern Foods is planning to invest in factories with scope for expansion and increased automation.

The UK market for frozen foods is currently worth £10.9 billion ($17.8 billion), but as consumers switch from chilled to frozen foods in an attempt to save money, opportunities in the market are expected to increase during the next five years. The British Frozen Food Federation (Newark) has stated that potato products, vegetables, meat and poultry have all grown by more than 20% during the past three years. Grants issued by the Scottish government have led to expansion programmes at Pinneys, Essco, Thistle, and Macrae.

Major projects are still pending review, and it is likely to be some time before big investments are made by Greggs, Allied Bakeries, Fox's Biscuits, Warburtons Limited, Diageo plc, Kerry Foods and Bernard Matthews. Smaller refurbishment projects are continuing. Warburtons, for example, is only carrying out essential maintenance and repair works at a number of its sites, including those in Burnley, Wakefield and Bolton.

The pending deadline for Kraft Foods Inc to make a formal bid for Cadbury plc is nearing which, if successful, would create a global powerhouse in food and confectionery. Kraft has said a deal could lead to the saving of Cadbury's factory in Somerdale, near Bristol, which is currently earmarked for closure, as well as investment in Cadbury's Bournville plant.

Contractors and engineering houses are continuing to struggle, and the number of conservative bids is rising as the number of bidders for jobs increases. Long-standing relationships and alliances seem to have diminished. Many equipment manufacturers have been focusing on servicing contracts and upgrades to fill the void through 2009, and this trend is likely to continue through 2010.

Beer consumption has slumped to its lowest level since the 1930s. Diageo has rejected alternative proposals for the redevelopment of the Kilmarnock site, whilst plans for the Leixlip brewery remain uncertain. Scottish & Newcastle (S&N) has announced plans to close the Dunston brewery and relocate production to Tadcaster, North Yorkshire. Universal Beverages was established as a joint venture to produce cider for S&N subsidiary Bulmer's under a 15-year contract, but has since built up a contract manufacturing operation and product lines have been expanded from apple juice to soft drinks. Expansion of independent specialist microbreweries seems to be a growing trend. These breweries are backed by the progressive beer duty, which provides a tax-break for smaller brewers.

Banks seem to be starting to loosen their grip on project financing, following the Process and Packaging Machinery Association's optimistic PPMA Show 2009 which showcases the latest innovations in food packaging and processing technologies. Some are hopeful that things are looking up at last, although abounding optimism is perhaps a bit premature as only a few signs of sustained recovery are starting to be noticed.

The United Kingdom's use of alternative energy sources is increasing at a rapid pace. While wind power projects often receive high media attention, several projects involving biofuels, biomass, and energy from waste are planned or already under way in the country.

Biofuels

In the biofuels market, feedstock prices have fallen to levels that have enabled producers to reconsider a number of projects previously placed on hold. Large grain surpluses have also reduced concerns regarding using food as fuel: Vivergo Fuels Limited, the joint venture between British Sugar Group, BP plc and DuPont, is now believed to be a considering a second £200 million ($335 million) grain-to-bioethanol production plant; Total SA's Lindsey refinery, the third largest oil refinery in the UK, is currently considering constructing a new £30 million ($50 million) facility at the Immingham site to produce bioethanol for on-site blending with petrol.

TMO Renewables has developed a biotech process capable of efficiently converting 25 different bio-feedstocks into ethanol. At one of its plants, TMO can take process by-product and increase production by 15%, while reducing CO2 emissions 50%. The system will be applied initially to a number of US plants.

Biomass and Refuse Derived Fuel

Refuse Derived Fuel (RDF) is the organic residue from municipal waste, which rather than being incinerated on site to create heat and power, is often pelletised and sold as fuel for power plants.

Decreased CO2 emissions and a reduced reliance on fossil fuels are the main considerations behind organisations moving forward with RDF and biomass-fired power plants. Cemex will be using RDF to fire cement kilns, and chemical manufacturer Brunner Mond will generate one-third of its steam and power requirements from a combination of RDF and biomass.

Major airports, including Heathrow, East Midlands, and Manchester are pursuing biomass power solutions to reduce their carbon footprints. Jacobs Engineering has secured the engineering design contract for the Renewable Energy Centre at Heathrow.

Eco2 Limited will construct a number of plants in the grain-growing area of East Anglia, using straw as a feedstock. Renewable Energy Systems and MGT Power Limited are both proposing to construct plants adjacent to port facilities that will enable feedstock to be easily transported to the plants. Forth Energy, a joint venture between Forth Ports and Scottish & Southern Energy, has made the largest commitment by announcing its intention to construct four £300 million ($500 million) biomass energy plants at the ports of Dundee, Rosyth, Grangemouth and Leith.

A significant number of more modest power plants are also under active consideration including NHS Grampian's £10 million ($16.8 million) energy centre at the Aberdeen Royal Infirmary and Northern Energy Developments' plans to construct 10 biomass-fuelled power stations in Scotland and the north of England.

There have been signs that certain major energy providers are considering the acquisition of smaller companies that already have planning permission to construct new biomass plants, but are lacking financing. This allows the larger providers to gain more rapid entry into the 'green' energy market.

Energy from Waste

A number of different technical solutions are used to convert waste to energy, the simplest of which is incinerating residual waste to drive steam turbines, such as the Peterborough City Council's waste-to-energy plant. Alternative methods include gasification as used by Cyclamax Limited and plasma gasification as proposed by Waste2Tricity Limited.

Biological treatment such as anaerobic digestion is also widespread, and increasingly the resulting biogas is used to generate power. Sterecycle has developed a waste-treatment process that uses an interconnected autoclave system to break down waste into separate RDFs and sterilised non-organic streams. The company is now considering a £25 million ($41.9 million) plant at its Rotherham site to turn biomass into biomethane for injection into the gas network.

European Union legislation, fears over climate change, higher energy costs and a potential shortfall in electrical generating capacity have all provided the stimulus for new capital expenditure. Concerns that less waste food will be available to convert into power seem unfounded, as growth has continued. London Waste and Denbighshire County Council will generate energy by producing gas through anaerobic digestion and linking the process to a combined heat and power (CHP) plant.

Other local authorities are focusing on energy from waste (EfW) schemes in which residual municipal waste streams are processed to create heat and power. These projects tend to develop over lengthy amounts of time, and increasingly, major private waste management companies are speculatively planning self-funded EfW schemes to secure municipal waste contracts. Funding issues have plagued some local authority schemes: Wakefield Metropolitan District Council has been delayed more than 12 months in awarding a contract to VT Group. Entrepreneur-led EfW plants are being developed with financial backing only being obtained once planning permission has been granted.

Significant heat and power generation schemes are being linked to business and technology parks. Recent schemes include Peterborough Renewable Energy, EnviroParks and BioPower.

The current economic downturn is affecting all pharmaceutical companies in the United Kingdom and Ireland. There has been a noticeable slowing of larger projects within the sector, although there are exceptions associated with the need to develop vaccines and other drugs to counter the pandemic swine flu threat.


Recent developments in the UK include:

• Novartis Vaccines, a division of Novartis AG, has begun a fast-track project with PM Group, an Irish engineering company, to build a facility for swine flu vaccines at Novartis's Speke plant in Liverpool. The project is progressing alongside other projects associated with increasing the production of seasonal flu vaccines at the site.
• Novartis has also begun a project at its Grimsby plant for production of the API for its Tekturna hypertension treatment.
• GlaxoSmithKline plc has started a project to upgrade facilities in Montrose for the production of Relenza, a drug that alleviates flu symptoms.
• AstraZeneca plc has begun developing a research and development Bioscience Centre site in Alderley Park, Cheshire.


Recent developments in Ireland include:

• Schering-Plough Corporation has started a project for the development of carpoule-filling facilities in its Brinny biotechnology plant near Cork. A major steriles project at the same site is also under consideration, but may be reconsidered in light of the forthcoming merger with Merck, Sharpe & Dohme, a division of Merck & Company, Inc.
• The Irish Development Agency is understood to be actively seeking pharma/biotech companies for its Dundalk biotech park development.

The General situation


The UK and Ireland are feeling the effects of a serious recession. Process projects appear to be far smaller than recent history would lead many to expect, although smaller projects, especially laboratory developments funded through government agencies or hospitals, are still relatively common. The Irish economy is particularly hard hit, as the UK, which is Ireland's main export customer, has a weakening currency relative to the Euro, making such exports less competitive.


It is likely that the recent weakness of sterling will benefit the UK pharmaceutical production industry, which is largely export-orientated, but to date this has not had a noticeable effect on capital expenditure projects.