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France Agribusiness Report Q4 2009Published by: Business Monitor International Published: Aug. 11, 2009 - 54 Pages Table of Contents
AbstractFrance has one third of all EU agricultural land, it is the world's second largest exporter of agri-foodproducts after the US and has a proud agricultural tradition. In BMI's new France Agribusiness Reportfor Q4 2009 we examine how the industry gained and lost from the boom in commodity and energyprices over the past couple of years and the situation today as the country grapples with domestic andglobal recession. Falling milk prices have angered milk producers who have taken their protests to thestreets.Organic production is becoming increasingly popular and the government, reflecting policy making at EUlevel, has introduced the concept of a 'new model for agriculture' no less, based on the promotion ofsustainable practices. The Business Environment section to this report looks at this in some detail. After atrial period in five departments a final report on certification for environmentally responsible farms wassent to the agriculture minister in mid-June. While rising grain and milk prices in 2007 and 2008 were good news for primary producers, they hit thelivestock industry and food processors hard, dramatically forcing up input costs. The recession is likely toforce production levels to fall in 2009, as export markets dwindle in the face of uncertainty and there is acutback in consumer spending. Poultry production is currently forecast to fall by 1.1% year-on-year (y-oy),pork production by 1.6% and beef production by 1.7%. According to FranceAgriMer (FAM) exportsof cheese in the period January-March and poultry January-February (latest figures) have fallen. Disease has been a constant worry for the country's livestock industry. The cattle sector has been hit by anoutbreak of bluetongue since the summer of 2006. The disease has now spread from the North, where itwas first detected in August 2006, to affect large swathes of the country and exports of live cattle wereblocked through periods of 2007. The latest outbreak of avian flu was reported in January 2009.We do not expect the outlook for the French livestock industry to improve much over the next few years. Over our forecast period we expect poultry production to contract by 5.36%, while we forecast output ofpork and beef to fall by 4.41% and 10.15%, respectively. There will be changes for the dairy industry over our forecast period. The EU is reviewing its system ofmilk production quotas, which are currently due to come to an end in 2015. Rocketing prices in thesecond half of 2007 led many to call for the quotas to be scrapped early so EU farmers could takeadvantage of the growing world demand for dairy products. The EU Council has decided to raise thequota for milk production in 2008-2009 by 1%. This is likely to be the first in a series of small increasesof the production quota until it is finally completely phased out in 2015. However, the former FrenchAgriculture Minsiter Michel Barnier was keen to point out to disgruntled French milk producers, worriedthat prices could fall even further, that nothing is set in stone and has said that meetings are planned in2010 and 2012 to review how the revised quota system is working. Nonetheless, farmers have been furious at price drops and perceived profits being made by dairy productmanufacturers and retailers. Aggressive protests have forced the government to act and in June 2009 anagreement was signed with CNIEL, allowing for an interprofessional general agreement to be negotiatedby the end of the year, which will define future contractural relationship between producers andmanufacturers. The Agriculture Minister is also fighting the dairy farmers' corner at EU level, suggestingthat new regulatory measures are required. The freeing up of the dairy market would present both challenges and opportunities for dairy farmers inFrance. Large, efficient producers would be able to expand and increase output, but this may come at theexpense of smaller, less efficient operators who are unable to compete in a free market. On the grain front, France had a bumper year in 2008. Cereal production is estimated by Eurostat at over70mn tonnes, the highest in Europe and the biggest harvest since 2005. Wheat production rose by 18% to39mn tonnes. However, France was not the only country with a bumper crop and world wheat supply isconsiderably higher than in 2007. Combined with the current world economic woes, this led to a slump inwheat prices at the end of 2008. There was a bounce back in early 2009 but the wheat market is expectedto remain volatile throughout the rest of the year. We reported at the end of June 2009 that while wheatprices had tumbled throughout the month, prices had recently held trendline support we had highlightedaround USc525/bushel. Also, momentum indicators suggested a strong potential for price gains in theshort term. Wheat production in France is estimated for 2009 to be down to 37.5mn tonnes, though this isstill higher than in other recent years. As the biggest agricultural producer in the EU, France is by far the biggest beneficiary of EU CommonAgricultural Policy (CAP) funds. CAP spending, including direct aid, price support and ruraldevelopment, amounts to about EUR50bn and France receives 20% of this. Little wonder then that Francehas traditionally been a staunch supporter of CAP and fought hard to preserve advantages for Frenchfarmers. Crop growers have been beneficiaries of massive wheat production and export subsidies, helpingthe country to export to less developed markets as well as enjoying robust trade within the EU. The 2008 food crisis - whereby global food prices soared in the first half of the year before plunging toone-year lows - led to great levels of disagreement within the EU on the best strategy to sustain farmersincomes while ensuring adequate levels of affordable food. France led the cause for those countriesbelieving that the crisis provided a perfect example of why strong regional support was needed. We have revised our real GDP growth forecast for France to 0.7% in 2008 with a 3.0% contraction for2009, before improving slightly to 0.2% in 2010. Unemployment is expected to increase to 9.3% in 2009up from an estimated 7.8% in 2008 and is expected to rise to 10.6% in 2010. Get Full Details About This Report >> |
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