2013-09-15 09:27:22 - New Food market report from Business Monitor International: "United Kingdom Agribusiness Report Q3 2013"
We continue to favour the grain and livestock industries in the UK because of good export opportunities and a strong domestic market. The country turned into a net importer of wheat in 2012/13, but we believe this will be temporary and continue to expect the UK's wheat exports to be competitive in the near term. The pig industry could be boosted by a recent trade deal to export to China while the domestic market is appearing resilient. We see limited growth for the sugar and dairy industries. We highlight strong results from pig producer Cranswick despite a weak economic environment.
Full Report Details at
- www.fastmr.com/prod/671004_united_kingdom_agribusiness_report_q3 ..
* Wheat production growth to 2016/17: 6.1% to 16.2mn tonnes. We see a
challenging environment for the UK wheat industry in the near term owing to increased competition for exports from the Black Sea region, decreasing direct payments to farmers as a result of Common Agricultural Policy (CAP) reform, and diseconomies of scale on the back of a shift of the EU ethanol policy towards non-food biofuels.
* Beef consumption growth to 2016/17: 8.5% to 1.4mn tonnes. This will largely be a result of population growth, as well as economic recovery and the continued popularity of Sunday roasts. * Milk production growth to 2016/17: 6.9% to 14.1mn tonnes. We expect production to recover slightly;
however, we note that EU CAP reforms could make UK farmers less competitive.
* Real GDP growth: 1.1% year-on-year (y-o-y) in 2013 (from 0.2% y-o-y in 2012).
* Consumer inflation: 2.0% y-o-y in 2013 (down from 2.9% y-o-y in 2012).
* BMI universe agribusiness market value: 1.8% y-o-y decline to US$27.3bn in 2012/13, forecast to grow on average 1.8% annually between 2011/12 and 2016/17.
Wheat harvest declines in the UK look set to drag on overall EU estimates, as wet weather has reduced plantings and forced the EU's third largest producer to import record amounts of milling wheat for the 2012/13 season. We already see downside risks to our outlook for UK wheat production to rebound to 15.2mn tonnes in 2013/14, and it appears that the crop could be facing steep declines, as 25% of winter wheat plantings were lost due to wet weather. The declines in UK production are likely to keep Paris wheat futures supported over the coming months.
Dairy producers will be affected by lower production prospects and high costs depending on their product segmentation and geographies. We believe Dairy Crest has been particularly affected because of its focus on fresh milk in the UK. The company announced a GBP17.1m loss in FY2012 as the performance of its milk processing division, from which it gets most of its revenues, was particularly poor. The company also recently lost key supply agreements to Tesco and Starbucks, which exemplify the increasingly competitive environment faced by local dairy companies and the inability of most to cope with squeezing margins.
Meat supply chains in the EU have become very intertwined and complicated in recent years, which we believe has impacted food safety standards by preventing proper testing. In fact, the recent horsemeat scandal unveiled a network of dozens to hundreds of intermediaries between farmers and supermarket shelves. Pressure on abattoir costs in Western Europe in particular encouraged most of the region's slaughterhouses to move to more competitive markets, especially in Eastern Europe. From there, orders are made for the cheapest lots, with horsemeat often bought in bulk at a much lower price than beef. Romanian slaughterhouses sell horsemeat for just under EUR0.50/kg, while beef goes for EUR3/kg. The practice of adulteration (mixing lower quality mince meat with the meat quality indicated on the label) has become common in recent years, and the multiplication of sources from which food producers purchase meat has made controls unlikely. In fact, tests are difficult to perform at each step of the value chain and are normally left to the industry rather than government bodies.
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