Wheat harvests across much of the EU have been strong, with Germany no exception, leading to prices falling lower for 2013 and 2014. Low corn prices have exacerbated these losses, although German corn production will decline on the back of declines in plantings and heat-stress to crops. Dairy continues to be the most attractive sector for investment with latest export figures for the first half of 2013 displaying impressive growth. The livestock sector faces more challenging conditions as scandals over working conditions, animal welfare and CAP reforms and weak growth in domestic demand counterbalance a muchanticipated rise in pork prices. Nevertheless, we see strong export potential driving growth in this sector in the medium and longer term.
- Milk production growth to 2017: 2.9% to 31.0mn tonnes. Modest growth will be supported by export demand and higher prices and held back by sluggish domestic consumption.
- Poultry consumption growth to 2017: up 6.4% to 1.7mn tonnes. Poultry will benefit from its healthier image and cheaper price.
- Sugar production growth to 2016/17: -22.2% to 23.6mn tonnes. Much of this decline will be down to base effects but delays in the phasing out of quotas will also hold back the sector until after 2017.
- 2013 real GDP growth: 0.5%, down from 0.7% in 2012 and forecast to average just under 1.4% from 2013 until 2017.
- Consumer price inflation: 2.4% y-o-y in 2013, down from 3.1% in 2012.
- BMI Universe Agribusiness Market Value to shrink by 0.9% to US$37.7bn in 2013. Expected to rise by 2.7% to US$39.1bn from 2012 to 2017.
Key Change To Forecast
- Butter production to reach 507,000 tonnes by 2017 (up from a previous forecast of 435,000 tonnes): new higher Eurostat historic data, increasing milk supplies and strong export demand support our more optimistic forecast.
Germany's wheat crop, the EU's second-biggest, will be larger than many early forecasts predicted after favourable weather allowed plants to catch up delays due to a long winter. We expect wheat production for 2013/14 to climb 9.2% to 24.4mn metric tonnes from 22.4mn metric tonnes in 2012/1. Despite the impressive harvest, the German Farmers' Association (DBV) has warned that heavy rain just before harvesting began could negatively impact wheat protein levels and fruit and hop crops.
The EU's CAP reforms agreed in June allow for greater national-government discretion in allocating payments to farmers and the German government has set out how it proposes to exercise these powers. The different regional systems will be phased out from 2015 to 2019 with the 30% of the direct payment budget allocated to green payments being implemented as a uniform sum per hectare in 2015. Germany will go up to the 5% ceiling on redistributive payments to assist smaller farmers with a further 2.5% of discretionary spending used to assists farmers in disadvantaged regions.
A report by public TV broadcaster ARD claims German meat companies were paying Eastern European workers less than the minimum wage and neglecting to fulfil their obligations to provide access to social security benefits. Prosecutors are now investigating over 20 companies for illegal and exploitative labour practices. Belgium had complained to the European Commission earlier in the year that German meat processors were using low wages to gain an unfair competitive advantage.
Figures for export sales from January to end of May 2013 from the Association of the German Dairy Industry (MIV) reported by Dairy Industries International show a 37% expansion in liquid milk shipments and a 42% rise in butter sales. Chinese demand for infant formula and rising sales of German cheese to other EU countries are further evidence of the burgeoning export market for German dairy products.