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France Agribusiness Report Q2 2009
Business Monitor International, March 2009, Pages: 47
This France 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 France's agribusiness service.
France is the world's second-largest exporter of agri-food products after the US and has a proud agricultural tradition. In this new France Agribusiness Report for Q2 2009 the publisher examines how the industry gained and lost from the boom in commodity and energy prices over the past couple of years and the situation today as the country grapples with domestic and global recession.
While rising grain and milk prices in 2007 and 2008 were good news for primary producers, they hit the livestock industry and food processors hard, dramatically forcing up input costs. French pork production fell by nearly 1.15% in 2008 as the rising cost of feed and fuel encouraged producers to cut back further in an industry already witnessing dwindling herd numbers, beef production fell by 3.7% and poultry production by 0.2%. The recession is likely to force production levels to fall further in 2009, as export markets dwindle in the face of uncertainty and there is a cutback in consumer spending. Poultry production is forecast to fall by 1.7% y-o-y, pork production by 2% and beef production by 3%.
Disease has been a constant worry for the country's livestock industry. The cattle sector has been hit by an outbreak of bluetongue disease since the summer of 2006. The disease has now spread from the North, where it was first detected in August 2006, to affect large swathes of the country and exports of live cattle were blocked through periods of 2007. The latest outbreak of avian flu was reported in January 2009. The publisher does not expect the outlook for the French livestock industry to improve much over the next few years. Over the publisher's forecast period to 2013, the publisher expects poultry production to contract 5.2%, whilethe publisher forecasts output of pork and beef to fall by 4.6% and 17.6%, respectively.
There will be changes for the dairy industry over the publisher's forecast period. The EU is reviewing its system of milk production quotas, which are currently due to come to an end in 2015. Rocketing prices in the second half of 2007 led many to call for the quotas to be scrapped early so EU farmers could take advantage of the growing world demand for dairy products. The EU Council has decided to raise the quota for milk production in 2008-2009 by 1%. This is likely to be the first in a series of small increases of the production quota until it is finally completely phased out in 2015.
The freeing up of the dairy market will present both challenges and opportunities for dairy farmers in France. Large, efficient producers will be able to expand and increase output, but this may come at the expense of smaller, less efficient operators who are unable to compete in a free market. The government may find itself having to offer assistance to ease inefficient dairy farmers out of the market.
On the grain front, France had a bumper year. Cereal production for 2008 is estimated by Eurostat at nearly 70mn tonnes, the highest in Europe and the biggest harvest since 2005. Wheat production rose by 19% to 39mn tonnes. However, France was not the only country with a bumper crop and world wheat supply is considerably higher than in 2007. Combined with the current world economic woes, this lead to a slump in wheat prices at the end of 2008. There was a bounce back in early 2009 but the wheat market is expected to remain volatile throughout the rest of the year.
Domestic consumption is likely to fall during the recession affecting production across the agri-food chain. Higher cost items such as more expensive cuts of meat or premium Red Label poultry could be particularly affected.
The publisher has revised their real GDP growth forecast for France to 0.7% in 2008 with a 0.2% contraction for 2009, before rebounding to 1.7% in 2010. Unemployment is expected to increase to 8.8% in 2009 up from an estimated 7.9% in 2008.
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