BMI View: Hot dry weather at the end of the growing season has reduced output of corn and sugar beet, but farmers have also cut back on acreage devoted to these plants. Changes to EU policy on the use of food crops as biofuels may prevent sugar from bouncing back with the end of quotas in 2017 and could also further reduce corn production. Dairy continues to be the most attractive sector for investment thanks to strong export demand. The livestock sector faces more challenging conditions as pork producers in particular will struggle to adjust to the incoming minimum wage and the enforcement of welfare legislation.
- Milk production growth to 2017: 6.3% to 31.6mn tonnes. Modest growth will be supported by export demand and higher prices and held back by sluggish domestic consumption.
- Pork consumption growth to 2017: down 1.5% to 4.3mn tonnes. Demand for pork has been on a downward trajectory since 2007 and rising production costs will make matters worse.
- Wheat production growth to 2016/17: 10.4% to 25.2mn tonnes. Wheat will gain some ground at the expense of other grains and sugar beet.
- 2014 real GDP growth: 1.9%; up from 0.5% in 2013 and forecast to average 1.6% from 2014 until 2017.
- Consumer price inflation: 2.2% y-o-y in 2014, down from 2.5% in 2013.
- BMI Universe Agribusiness Market Value to shrink by 1.3% to US$36.2bn in 2014. Expected to shrink by 2.0% to US$37.4bn from 2012 to 2017.
Key Changes To Forecasts
- Corn production to reach 4.1mn tonnes in 2013/14 (compared to a previous forecast of 4.5mn tonnes). Hot dry weather led to an even greater reduction than previously expected.
- Pork production to increase 0.3% to reach 5.5mn tonnes by 2017 (compared to a previous forecast to reach 6.2mn tonnes by 2017): the introduction of a minimum wage is set to remove a key competitive advantage for German producers as domestic demand flat-lines.
The controversial low-wage employment policies of German meat producers look likely to be a casualty of the Grand Coalition formed between the CDU and SPD in October. The SPD made their entry into the agreement conditional upon the introduction of a minimum wage, and while it is not yet clear at what level the wage will be set, it will certainly increase the costs of many producers who have come to rely on cheap labour from Eastern Europe. With this in mind we have revised down our forecasts for pork production to 2017.
Corn output in Germany slumped to 4.1mn tonnes in 2013/14; down over a quarter on the previous year's exceptional harvest of 5.5mn tonnes. In 2012/13 farmers responded to rocketing prices and winter crop losses to increase acreage devoted to the crop but farmers scaled back crop area for corn by 13% to 495,800 hectares for 2013/14 as prices have fallen and the winter was relatively mild. These factors alone do not account for the plummet of corn output as yields fell by 21.6% due to a spell of unusually hot dry weather at a crucial stage in the development of biomass.
The European Parliament has voted to set a limit to the use of first generation biofuels made from food crops in the wake of increasing concerns over food security and biodiversity. The percentage of transport fuel made up of first generation biofuels will be capped at 6% from 2020, after the current target for biofuels to make up 10% of the total was blamed for rising food prices in developing countries.