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France Agribusiness Report Q3 2009Published by: Business Monitor International Published: Jun. 19, 2009 - 52 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 Q3 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.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. 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 further in 2009, as export markets dwindle in the face of uncertainty andthere is a cutback in consumer spending. Poultry production is forecast to fall by 1.1% y-o-y, porkproduction by 1.6% and beef production by 1.7%. Disease has been a constant worry for the country's livestock industry. The cattle sector has been hit by anoutbreak 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 cattlewere blocked 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 French AgricultureMinsiter Michel Barnier has been keen to point out to disgruntled French milk producers, worried thatprices could fall even further, that nothing is set in stone and has said that meetings are planned in 2010and 2012 to review how the revised quota system is working. The freeing up of the dairy market will present both challenges and opportunities for dairy farmers inFrance. Large, efficient producers will 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. The governmentmay find itself having to offer assistance to ease inefficient dairy farmers out of the market. In March2009 Monsieur Barnier spoke of the introduction by the EU of a payment linked to milk production inmountainous zones and the Piedmont although all the details have not yet been worked out. 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 lead to a slumpin wheat prices at the end of 2008. There was a bounce back in early 2009 but the wheat market isexpected to remain volatile throughout the rest of the year. We reported in March 2009 that global wheatprices edged slightly higher to trade at USc550/bushel at one point on March 18 but we expect furtherdownside over the coming months. 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.Domestic consumption is likely to fall during the recession affecting production across the agri-foodchain. Higher cost items such as more expensive cuts of meat or premium Red Label poultry could beparticularly affected. We have revised our real GDP growth forecast for France to 0.8% in 2008 with a 2.4% contraction for2009, before improving slightly to 0.2% in 2010. Unemployment is expected to increase to 9.4% in 2009up from an estimated 7.8% in 2008 Get Full Details About This Report >> |
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