Italy Agribusiness Report Q4 2009

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 BMI's new Italy Agribusiness Report for Q409, 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 as the recession continues to impact on trade and consumer demand, at home and abroad.

Poultry and pork production will grow by 27.64% and 7.88%, respectively 2009-2013, 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. Poultry's relative price advantage should give it a competitive edge during recession. In May 2009 a United States Department of Agriculture (USDA) attaché report noted that the government is considering measures to help pig breeders, the 'pillars of Italian food industry' (Ministry of Agriculture), important to the prosciutto sector. We forecast milk production to increase by 9.27% between 2008 and 2013, partly in response to Italy's increased EU milk quota, upped by 5%, effective from April 2009. However, production increases have recently been tempered by falling milk prices and weaker demand for dairy products. Thousands of farmers protested in July this year against relatively cheap milk imports. 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. BMI forecasts that over the second half of 2009 firmer underlying market fundamentals will lend increasingly tangible support to class III milk prices. The ongoing supply response from global producers should gradually tighten international dairy markets and stimulate a modest uptrend in prices towards the end of the year.

We expect Italy's cheese production to fluctuate between 2008 and 2013, averaging 1.14mn tonnes, but this will be slightly higher than in the preceding six years when average annual production was 1.12mn tonnes. 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. Figures from dairy consultancy firm CLAL suggest that exports of a number of important Italian cheeses fell in 2008 and are continuing to fall in 2009, in part a reflection of the current recession.

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. The UN's Food and Agriculture Organization (FAO) noted in its June 2009 Food Outlook that rice production is set to recover in the EU, sustained by area expansions in Italy and Spain.

Italy's producers have faced a couple of court cases recently. In February 2009 Italy's anti-trust authority fined twenty six pasta producers and the Italian Union of Pasta Makers (Unipi) for allegedly operating a cartel between October 2006 and March 2008. The implicated companies account for 90% of the Italian pasta market. Unipi suggested it would appeal and several producers have denied the allegations and said they would also appeal. In April 2009 the European Commission (EC) issued a press release confirming the decision of Italy's Supreme Court to uphold a lower court's decision which had found some milk producers guilty of setting up a network of fake companies to avoid paying fines for exceeding quota. A spokesperson from the EU's anti-fraud body told the BBC that real criminal proceedings leading to punishment could now be pursued.

Italy's agriculture sector is still very fragmented by Western European standards. In 2007 about 12% of agricultural holdings in the EU-27 were in Italy but about 1.23mn (73%) were less than 5ha (compared to France for example where only about 25% are less than 5ha) and less than 3% had 50ha or over (Eurostat) 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 9% of utilised agricultural area was under organic farming (existing organically farmed areas and areas in the process of conversion) just behind Austria, Latvia and Sweden. This was up from 8.4% in 2005 and 8% in 2003. Fully organic crop area rose to 903,254ha in 2007, up from 731,537ha in 2005. 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. However, the recession could be having an efffect. In February 2009 a survey conducted by ISMEA and Nielsen showed that purchases of packaged organic food by Italian consumers increased by 5.4% in 2008 compared to growth of 10.2% in 2007.

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. 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. On top of this the global recession is hitting Italy hard. BMI forecasts real GDP growth to contract -4.5% in 2009. Inflation is coming down but household consumption is likely to have declined and food exports have contracted as other EU countries (Italy's main trading partners) also go through difficult times. Brand names still dominate in Italy; however, there are signs that relatively high prices and poor economic performance are encouraging consumers to swap to private labels. BMI predicts that as in other EU countries consumers will move towards private-label goods in stages, with staples such as milk, bread and pasta being the first to register strong growth.

The government is trying to improve the dairy farmers' lot by proposing that the EU adopts obligatory 'made in the EU' type labels for milk and dairy produce, which would allow domestic consumers to ascertain the origin of their products and potentially help support regional producers. The agriculture minister said in a statement 'if we manage to get Europe to adopt our line…that will mean that consumers will finally know for sure the origin of milk, especially that of long-life milk which is often imported'. This is sure to be opposed by the international trade community which could see it as further evidence that the EU is reneging on its pledge to open up the agricultural sector to competition. Some consider that Italy may introduce the dairy labels unilaterally, despite the threat of EU sanctions.

Despite Italy's successes in agriculture and food processing the recession has lead to difficulties for the sector. The domestic and global economic situation is forecast to have started improving by 2010. SHOW LESS READ MORE >

EXECUTIVE SUMMARY

SWOT ANALYSIS
Italy Agricultural SWOT

INDUSTRY BUSINESS ENVIRONMENT OVERVIEW

SUPPLY DEMAND ANALYSIS
Italy Rice Outlook
Table: Italy Rice Production, Consumption & Trade
Table: Italy Rice Production, Consumption & Trade

Italy Dairy Outlook
Table: Italy Milk Production & Consumption
Table: Italy Butter Production, Consumption & Trade
Table: Italy Cheese Production, Consumption & Trade
Table: Italy Milk Production & Consumption
Table: Italy Butter Production, Consumption & Trade
Table: Italy Cheese Production, Consumption & Trade

Italy Grains Outlook
Table: Italy Wheat Production, Consumption & Trade
Table: Italy Corn Production, Consumption & Trade
Table: Italy Barley Production, Consumption & Trade
Table: Italy Wheat Production, Consumption & Trade
Table: Italy Corn Production, Consumption & Trade
Table: Italy Barley Production, Consumption & Trade

Italy Livestock Outlook
Table: Italy Poultry Production, Consumption & Trade
Table: Italy Pork Production, Consumption & Trade
Table: Italy Beef & Veal Production, Consumption & Trade
Table: Italy Poultry Production, Consumption & Trade
Table: Italy Pork Production, Consumption & Trade
Table: Italy Beef & Veal Production, Consumption & Trade

COMPETITIVE LANDSCAPE
Table: Agricultural Commodity Producers & Traders
Table: Agribusiness Suppliers
Table: Integrated Agricultural Producers

COMMODITY PRICE ANALYSIS
Corn
Table: Corn
Rice
Table: Rice
Soy
Table: Soybean
Wheat
Table: Wheat

SOFTS UPDATE
Cocoa
Table: Cocoa
Coffee
Table: Coffee
Milk
Table: Milk
Sugar
Table: Sugar

DOWNSTREAM SUPPLY CHAIN ANALYSIS
Industry Forecast Scenario – Food
Table: Italy Food Consumption Indicators -- Historical Data & Forecasts
Trade
Table: Food & Drink Trade Balance - Historical Data & Forecasts
Canned Food
Table: Canned Food Value/Volume Sales -- Historical Data & Forecasts
Confectionery
Table: Confectionery Value/Volume Sales -- Historical Data & Forecasts
Industry Forecast Scenario – Food
Italy Mass Grocery Retail Sales by Format (US$bn)
Table: Sales Breakdown by Retail Format Type
Global Assumptions
Global Assumptions
Global & regional real gdp growth

SPECIAL FOCUS
Industry News - Italy Proposes Compulsory Origin Labelling For Dairy

BMI FORECAST MODELLING
How We Generate Our Industry Forecasts