As the holiday season swings into full gear, providers of poultry, champagne, and cheese brace themselves for the best – or worst – time of the year. So it feels like the right time to produce a series of industry reports about the agricultural food business in France, the US, Germany and Ireland – and its future. Which is exactly what we did. The agrifood sector is a 4 trillion dollar a year industry but these are not easy times. The ongoing decline in food prices could translate into price pressure on farmers, and even producers and retailers. [more]
Our economists believe that Investment and exports should serve as the French industry’s bread and butter.
Why? France employs a predominantly-cooperative model. With revenues reaching EUR85bn in 2014, members enjoy some serious clout and bargaining power. Yet a lack of investment coordination hampers exports, which is a mere 7% of coops’ revenue.
And there’s another problem to tackle. Value creation is shifting from agricultural producers to services and retail.
With margins decreasing by six percentage points in ten years due to deflationary pressures and changing consumption patterns, the drive to boost exports relies on one crucial element: investment spending. This should increase by two percentage points in 2016. So we expect exports to rise by +EUR5bn and amount to EUR61.2bn net year.
Germany faces its own unique set of challenges. The agrifood business model is under pressure from discounters and lower consumer spending on food (EUR2bn lost in a decade). Exporters specializing in meat and dairy products face sharp price decline.
Solution? Invest in higher value-added products such as organic food for both the domestic and export markets. Organic retail sales in Germany are forecasted to gain EUR4bn (+50%) by 2018.
Next up: Ireland, the land of gourmet grass and creamy butter.
Agrifood is the country’s largest sector, contributing to 25% of manufacturing sales, two thirds of manufacturing employment and 12% of total Irish exports. Robust local demand and high openness to foreign trade buoy producers.
Last but definitely not least, the U.S. The world’s number one agrifood exporter (and importer) is weighed down by low commodity prices. But the sector’s strong financial standing should help it pass through this temporary lull. Export gains, for example, could grow by USD 20 billion to USD 175 billion in 2015-16.
A diversified portfolio of both products and customers really does help.
And there is another reason for American optimism. Meat and dairy exports have grown +7% annually over the last years and this momentum should hold.
Thanks to whom? Good old Europe, at least in part. The lifting of EU dairy quotas in 2015 makes global markets more open to American T-bones and Philadelphia cheese.