Agri-food sector exports will grow by 3,5% in 2017

Strengths and weaknesses of the sector

SOLUNION analyses the latest report on the agri-food sector from its shareholder Euler Hermes.

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SOLUNION, the expert credit insurance company, analyzes its shareholder's latest report on the agri-food sector. Euler HermesAccording to the study, this sector is valued at $3.801 billion and is characterized by high fragmentation, moderate capital intensity, internationalization, and profitability.

 

Strengths and weaknesses of the sector

 

One of the strengths of this sector is that the population growth and middle class, makes its long-term outlook positive. The main change driven by the growth of the middle class (which will account for 40% of the world's population in 2020, compared to 25% today) is the preference for higher-quality food, which is detrimental to producers with more basic offerings. It is a sector with a solid financial structure and low debt, high solvency, and good profit levels.

 

The main weakness of the sector is that Its performance depends on external factors such as the weather (for example: suffers from phenomena such as El Niño) or restrictive phytosanitary measures by governments. It is also closely linked to the price of agricultural raw materials, which in turn are also affected by the climatic and financial conditionsCultivation activities are the most vulnerable to price volatility and experience potential profit cuts.

 

 

The agri-food sector is one of the three most regulated sectors in the world in international trade, and accounts for 19% of all trade barriers.

 

 

Trends to watch in 2017: price recovery and regulation

 

Food prices have stopped falling in 2016, with a reduction in the food price index. FAO 1,5%, the smallest in the last five years. Significant improvements in sugar (+34%) and vegetable oil (+11%) prices have made these products two of the sector's main drivers. The sector's total nominal production volume has balanced out by -0.6% to $1,3 trillion, following a 10% drop in 2015, reflecting weak demand that year.

 

The report predicts an increase in exports from 3,5% to reach $1,4 trillion in 2017, thanks to a slight growth in global GDP (from 2,8% to 2,5%) and the deregulation of the sector.

 

The main regulatory measure to be observed will take place in September 2017. On this date it will be decided whether to decree the end of the export quotas and sugar production in the European Union.

 

The agri-food sector is one of the three most regulated sectors in the world. international trade, and accounts for 19% of all trade barriersThis trend is reversing: the number of new trade barriers implemented in 2016 was a third lower than in 2015. This should lead to a recovery in companies' operating surpluses. The perspectives of the study analyzed by SOLUNION indicate that the recovery of this indicator will be 2% in 2017.