A view on the Italian food sector

How has the agriculture and food sector performed in the last six months?

In Q2 of 2010, domestic agricultural production decreased 2%, due mainly to a lower output of crops -except in some segments like wine grapes, wheat and corn-, while animal farming activity remained reasonably stable. Farmers profitability is still under pressure this year as production prices, although recovering, are insufficient to generate real earnings. Breeders in particular have been affected: hit by both declining production prices and higher costs.

Food production saw a slight 0.5% contraction in Q2, although the total level of production is higher than the 2009 average and the sector has preserved its production capacity throughout the economic crisis without ever having to report a significant downturn.

It is worth noting, however, that large retailers, by concentrating on the sales of brand labels and higher value products while cutting prices to promote and preserve sales, have suffered a consequent pressure on their margins.

Looking at consumption of food sector products in general, so far in the second half of 2010 there has been some stability in sales of agricultural products, though with some sales falling and others increasing. Sales of cereals, pork, salami and fruit are stable, while veal, wine, bread and pasta have fallen and dairy products, vegetables, olive oil and poultry sales have risen.

What is the current trend in payment delays and payment defaults?

The agriculture and food sector has shown a slight increase in late payments, but, with signs of a moderate overall improvement in the Italian economy, Crédito y Caución expects a levelling-off or even better results in the second half of the year.

What is Crédito y Caucións short term outlook for the agriculture and food sector?

The industry is quite complex, made up as it is of very different subsectors: from animal breeding to meat production and sales, and from corn growing to pasta production, making a single forecast for the whole industry difficult. The continuing moderate decline in production suggests that Crédito y Caución should be cautious about any upturn trend. Nevertheless some indicators, such as a recovery of orders and the reduction of stocks, have boosted the confidence of market operators. However, there is a potential negative outlook for the pasta subsector, due to the wheat exports ban in Russia and competition from other major producers in Eastern Europe.