Unlike the millennium bug – which is atechnical issue with a potential business impact – European Monetary Union (EMU) is a purebusiness issue. The single currency will affect many parts of the food and beverageindustries – from raw material sourcing, through cost accounting, right to the point ofsale. 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 acompany’s IT solution, its labeling, invoicing and payments. Point of saleinformation and pricing will also be affected, as will computer keyboards and printerfonts – many of which may not even have a symbol for the euro.
During the transition to the singlecurrency, there will be a period of dual currency when both national currencies and theeuro will be in circulation. In this period, triangulation issues for pricing will comeinto 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 canaccount for 0.04 percent of all transactions. Further costs will be incurred as IT systemsare upgraded to employ this ‘triangulation’ logic. Other major changes mightinclude a loss of flexibility in currency trading, and overall devaluation of the euro.
A direct effect of EMU may be a sudden increase in cross-border shopping. The euro willmake it easier for consumers to make cost comparisons, and will remove the uncertaintiesassociated with daily fluctuations in exchange rates for national currencies.
Prior to the creation of the Single Marketin 1993, many companies anticipated a rapid harmonization of prices across member states,often to their detriment. In general, this didn’t happen, and advantageouscountry-specific pricing arrangements have largely remained intact. However, the euro willcreate unprecedented price harmonization, due to increased price transparency andvisibility.
This will erode the premium pricing enjoyedin certain markets. To counter this, many food and drink companies will review theirproduct strategies and will consider increasing product differentiation by region ormarket. Sophisticated flexible manufacturing and supply chain management techniques nowmake it possible to differentiate global products. This can be achieved, for example,through language-specific packaging or differing peripheral specifications. The productscan still be produced and distributed cost effectively, and price premiums can bepartially disguised by the perceived differences.
Bringing global customs union astep closer
New customs clearance systems could provide food and drink producers with newopportunities. Electronic customs clearance already promises to reduce errors andaccelerate the flow of goods and information. The subsequent reduction in customs costscould possibly be passed back to the trading companies.
Recent announcements that propose schemesfor continent-wide, if not worldwide, customs union include the Columbus Declaration inthe USA, the ASEM Agreement in Asia, and the Lyons G7 GATT communiqué.
Free trade agreements, such as NAFTA (NorthAmerican Free Trade Association), have already reduced tariffs by over 50 percent betweenthe US and Mexico. KPMG is now taking this a step further, with its new ‘VirtualWarehouse’ initiative, which aims to take the vision of a customs union and delivertangible business benefits.
This scheme is a response to pressure fromorganizations, such as the UK’s Freight Transport Association, that want to reducethe inefficiencies and costs associated in dealing with separate customs authorities. TheVirtual Warehouse is currently being piloted in Europe, and has already received thesupport of the 15 EU member states. When coupled with the better visibility of true costsprovided by the euro, this should enable food and drinks manufacturers to take moreaccurate business decisions. It will overcome the problems of dealing with differentcustoms authorities by replacing them with a single clearance scheme and a singlecurrency.
All in all, while it’s clear EMU willbring significant changes to the way the food and beverage industry operates, it alsopresents major commercial opportunities for forward-thinking international companies.