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Italy Agribusiness Report Q2 2009
Business Monitor International, April 2009, Pages: 55
The Italy Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Italy's agribusiness service.
Italy has a strong agricultural tradition and is the number one producer in the EU for a variety of fruit, including tomatoes, pears, apricots and peaches. In the new Italy Agribusiness Report for Q209, we examine how the industry fared through the turbulent times of rapidly rising agricultural prices and input costs in 2007 and 2008 and the challenges it now faces during global recession.
We expect moderate growth to 2013 across most of the sectors we forecast. Poultry and pork production will grow by 20.11% and 8.9%, respectively, although beef production will fall by 1.24%. The growth in poultry and pork production will be partly driven by domestic demand and should also lead to improved balances of trade.
We forecast milk production to increase by 11.90% to 2013 in response to Italy's increased EU milk quota, upped by 5%, effective from April 2009. However, dairy prices are falling and greater output would exacerbate this dynamic. Also, higher quotas and lower prices will be to the detriment of smaller producers, as bigger, more efficient players grab a larger slice of the market. As quotas gradually disappear across the EU by 2015, more efficient producers in other countries will mean further competition.
We expect Italy's cheese production to grow throughout the forecast period, as demand on the home front and on export markets remains strong. In the first half of 2008, demand for one of Italy's most famous cheeses, buffalo mozzarella, was hit hard after it emerged that Naples' chaotic and corrupt waste disposal industry had allowed carcinogenic dioxins to get into buffalo feed and from there into their milk and cheese.
Rice will be an important export crop throughout our forecast period, with production growing 32% to 2013 to 2.01mn tonnes. With the forecast volume of rice set to be over five times the level of domestic consumption by 2013 Italy will continue to supply a large portion of the EU's rice needs. Work is under way to produce new hardier varieties that will be more resistant to the changes in temperatures in northern Italy where the majority of the country's rice is grown.
Italy's agriculture sector is still very fragmented by Western European standards - in 2005, according to data from Eurostat, small farms (from 5 hectares (ha) to 20ha) in Italy occupied more than three times as much land as in neighbouring France and almost six times as much land as in the UK. As quotas and subsidies from the EU are gradually withdrawn, many of these smaller operators may find it difficult to compete, driving consolidation in the sector.
Another option for smaller farms is organic farming. Demand for organically produced food has been increasing in Europe in recent years and in many cases has outpaced supply. In 2007, according to Eurostat, 8.4% of Italian agricultural land was classed as organic, the second highest proportion in the
EU25 behind only Austria with 11.0%. As higher profit margins can be charged on organic produce, organic farming could be an option for smaller Italian farms to stay afloat in the face of competition from larger operators.
The importance of agriculture to GDP has gradually fallen from 6% in 1980 to just over 2% today. According to the National Institute of Statistics the percentage of the workforce engaged in agriculture has also fallen from 6% in 1995 to 4% in 2007.
Also, the amount of utilised agricultural area in the country fell from 13.06mn ha in 2000 to 12.7mn ha in 2005. Hardly surprising then that while exports in Italy's agricultural and food and drink sectors have been increasing in recent years (Italy is the fifth largest exporter of agri-food products in the world), imports have been rising too, partly to help supply the dynamic food processing sector.
Economic growth in Italy has been sluggish in recent years and the country has a large debt, about 104% of GDP, the highest in the eurozone. On top of this the global recession is hitting Italy hard. GDP is forecast to fall by 2% in 2009, earnings are slowing and unemployment is set to rise. Inflation is coming down but credit is tight. Household consumption is likely to decline and food exports are likely to contract as other EU countries (Italy's main trading partners) also go through difficult times. Despite Italy's successes in the agriculture and food processing sectors it looks like a bumpy time ahead for farmers and producers. The domestic and global economic situation is forecast to improve in 2010.
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