Abstract
France has one third of all EU agricultural land, it is the world' s second
largest exporter of agri-food
products after the US and has a proud
agricultural tradition. In BMI' s new France Agribusiness Report
for Q4
2009 we examine 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. Falling milk
prices have angered milk producers who have taken their protests to the
streets.
Organic production is becoming increasingly popular and the
government, reflecting policy making at EU
level, has introduced the
concept of a ' new model for agriculture' no less, based on the promotion
of
sustainable practices. The Business Environment section to this report
looks at this in some detail. After a
trial period in five departments a
final report on certification for environmentally responsible farms was
sent 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 the
livestock industry and food processors hard, dramatically forcing up input
costs. The recession is likely to
force production levels to fall in 2009,
as export markets dwindle in the face of uncertainty and there is a
cutback 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) exports
of 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 an
outbreak of bluetongue 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.
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 of
pork 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 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. However, the former French
Agriculture Minsiter Michel
Barnier was keen to point out to disgruntled French milk producers,
worried
that prices could fall even further, that nothing is set in stone
and has said that meetings are planned in
2010 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 product
manufacturers and retailers. Aggressive protests have forced the government to
act and in June 2009 an
agreement was signed with CNIEL, allowing for an
interprofessional general agreement to be negotiated
by the end of the
year, which will define future contractural relationship between producers
and
manufacturers. The Agriculture Minister is also fighting the dairy
farmers' corner at EU level, suggesting
that new regulatory measures are
required.
The freeing up of the dairy market would present both challenges
and opportunities for dairy farmers in
France. Large, efficient producers
would 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.
On the grain front, France had a bumper year in 2008. Cereal
production is estimated by Eurostat at over
70mn tonnes, the highest in
Europe and the biggest harvest since 2005. Wheat production rose by 18% 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 led 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. We reported
at the end of June 2009 that while wheat
prices had tumbled throughout the
month, prices had recently held trendline support we had highlighted
around USc525/bushel. Also, momentum indicators suggested a strong potential
for price gains in the
short term. Wheat production in France is estimated
for 2009 to be down to 37.5mn tonnes, though this is
still higher than in
other recent years.
As the biggest agricultural producer in the EU, France
is by far the biggest beneficiary of EU Common
Agricultural Policy (CAP)
funds. CAP spending, including direct aid, price support and rural
development, amounts to about EUR50bn and France receives 20% of this. Little
wonder then that France
has traditionally been a staunch supporter of CAP
and fought hard to preserve advantages for French
farmers. Crop growers
have been beneficiaries of massive wheat production and export subsidies,
helping
the 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 to
one-year lows - led to great levels of disagreement within the EU on the best
strategy to sustain farmers
incomes while ensuring adequate levels of
affordable food. France led the cause for those countries
believing 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 for
2009, before improving slightly to 0.2%
in 2010. Unemployment is expected to increase to 9.3% in 2009
up from an
estimated 7.8% in 2008 and is expected to rise to 10.6% in 2010.
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