Market Monitor Food France 2016

• Weaker bargaining power for food producers and processors
• Beverage subsector performs well due to exports
• The meat and dairy segments still face challenges

According to the National Association of Food Industries (ANIA), turnover of the French agri-food industry amounted to EUR 170 billion in 2015. French food sector value added growth is expected to increase 1.0% in 2016, followed by 1.6% in 2017. Growth has been steady over the last couple of years, although at a lower pace than French GDP growth.

In the domestic market the margins of many food producers are negatively impacted by decreasing producer prices (down 1.2% in 2015), the fierce price competition in the French retail segment and contractual price-adjustment mechanisms. The on-going concentration process of retail chains has further weakened the bargaining power of food producers and processors, who are at the same time in competition with other European food businesses which in some cases have lower production costs. Many French food manufacturers or processors try to increase their leverage through acquisitions or by strengthening their brand image.

Exports are of major importance for the French food sector (especially for the wine, champagne and spirits segment), positively contributing to the French trade balance. In 2015 the trade balance surplus generated by beverage exports alone amounted to more than EUR 11 billion. While volumes of French wine exports are decreasing since 2012 (down 2% in 2015), the value of exports continues to increase since 2009 (up 7% in 2015). France remains the second-largest producer of wine worldwide behind Italy.

Generally, French food businesses are highly dependent on bank finance, and many companies have high short-term debts to finance their working capital requirements. Banks are generally willing to lend to food businesses. The profit outlook for most companies active in this industry remains stable.

The level of non-payment notifications and insolvencies in the food sector is rather low compared to other industries, and no substantial increase is expected in the coming months.

While our underwriting stance towards this sector remains generally relaxed, we are keeping a closer eye on certain subsectors, especially meat and dairy, because of the challenging market conditions in those segments. The French meat industry is composed mainly of small companies, and even French groups are quite small compared to their foreign competitors. Pressure on meat prices remains high, affecting business margins. Exports of dairy products have been severely impacted by decreased global demand.

We try to meet our customers’ requests whenever possible and, indeed, where our assessment of the buyer or subsector is particularly positive, we encourage the customer to extend credit limits further.