Economic review highlights fundamental flaws in EU regulatory framework

Tuesday 18 September 2007

‘Don’t Innovate, Imitate’. This is the reality facing European food companies, according to a new report developed by UK economist, Graham Brookes. Since the publication of the Aho Report “Creating an Innovative Europe” in 2006, the European Commission has placed the creation of an “innovation-friendly market” at the forefront of its strategy to enhance European competitiveness. However, Brookes finds that investing in new products does not make good economic sense in the current European regulatory climate.

“All Novel Foods must be authorised according to the EU Novel Foods Regulation,” states Brookes(1) . “This is a long and tedious process which generally requires the scientific safety assessment both by national and European safety authorities followed by political approval by EU Member States.”

Brookes’ research - undertaken in consultation with leading European food and food ingredient companies – sheds light on why the industry is reluctant to come forward with new products. He identified three major barriers for companies looking for a new market:
  • Crucially for many companies, current rules mean that once a product is approved, competitors can quickly enter the market with imitation products. Free riding on the back of the investment of the innovating company, those second to the market can expect greater rates of return than the innovating company. Imitation not innovation is rewarded.
  • The unpredictable and often political nature of approvals creates uncertainty about when a product will come to market. This exacerbates risks and adds costs, further diminishing the economic incentive to innovate.
  • To justify research and development costs associated with new products, companies typically target a rate of return of 20 to 25% over the lifetime of the product. A delay in approval of 30 months or longer can reduce this return by at least 30% or an average of 4 million euros per product. With delays now the norm, the attractiveness of investment in Europe is low.

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