New Report Identifies Problems in French Agriculture

FRANCE - Despite the dairy crisis, a new report forecasts an increase in milk production this year, while wheat and poultry meat output are down from last year.

5 October 2010

3 minute read

Europe

The dairy crisis continues to overshadow other issues in French agriculture, with recent falls in farm-gate milk prices showing that the country's dairy farmers are not out of the woods yet reports, according to Companies and Markets in its report entitled France Agribusiness Report Q4 2010.

The High-Level Group (HLG) has released its recommendations, which include boosting the collective bargaining power of producers; work on labelling and transparency in the supply chain, and a possible futures market. Regardless, the report expects consolidation in the industry and the lifting of EU quotas to bring production increases over our forecast period. But with some way to go before any of the HLG's proposals see the light of day, the dairy industry is unlikely to see an end to turmoil soon.

Key views

The report's authors are forecasting 2010 milk production to rise to 23.8 million tonnes – up 132,000 tonnes from the last report. Over the forecast period, it is expected that an increase in milk production of 2.5 per cent over the 2009 level to reach 24.2 million tonnes in 2014.

Wheat forecast for 2009/10 has been reduced following reports that high temperatures and water droughts in several key areas have damaged soft wheat yields. In 2008/09, wheat production stood at 38.3 million tonnes. The new forecast is for a fall of 1.4 per cent year-on-year to 37.8 million tonnes in 2009/10.

The tough economic situation means demand for poultry is growing more slowly than it might. This, as well as poor export performance, is weighing on production levels in 2010. It is forecast that production will fall to 1.66 million tonnes in 2010. Over the forecast period, a decline in output of 4.76 per cent is expected to 1.59 million tonnes in 2014.

Industry developments

The HLG has made seven recommendations to improve the crisis-stricken dairy industry. They include improving contractual relations between producers and processors; improving the collective bargaining power of producers; involving inter-branch organisations in the dairy sector; improving transparency in the dairy supply chain; new market measures and a futures market; improving marketing standards and labelling; and increasing innovation and research in rural development.

The removal of EU dairy quotas at the rate of one per cent per year may be provoking consolidation in the French dairy industry. In June, Sodiaal announced it had reached a preliminary agreement to take over rival Entremont Alliance to create what would be Europe's fourth-largest dairy group. Later the same month, two more French dairy companies, Glac and Eurial, announced their intent to merge.

France is leading the charge against a possible free trade agreement with Mercosur, add Companies and Markets. French farmers groups fear that the mooted deal will result in a flood of cheap poultry and beef imports from South America, threatening their own profitability. The possibility of such a deal being implemented within our outlook window poses downside risk to our production forecasts and upside to consumption forecasts.