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Agriculture and food market in Greece

The fiscal consolidation plan that Greece has committed to in exchange for the EUR110bn EU and IMF bailout is proving a challenge for agriculture. On the supply side, farmers are struggling to secure credit, investment will suffer and some smaller producers may go out of business. On the demand side, more unemployment and economising by cash-strapped consumers will see consumption of some commodities suffer, notably beef, pork and wheat.

Key Views

- Poultry production to fall slightly in 2010/11 to 169,500 tonnes; pork output to fall 1.5% to 106,240 tonnes; beef to drop 1% to 55,310 tonnes.
- Financial crisis likely to exert downward pressure on wheat prices and starve the industry of investment over the forecast period. Production to fall from 1.83mn tonnes in 2009/10 to 1.77mn tonnes in 2014/15.
- In 2010/11, we forecast Greek rice production to increase by 3.0% to 209,900 tonnes. Due to expected yield gains, we now forecast production in 2014/15 to increase to 217,000 tonnes.
- Less efficient dairies are likely to go out of business, credit will be difficult to secure and investment will be scaled back. However, we expect the dairy industry to maintain positive growth. In 2010/11 we now forecast another slight increase in milk output to 2.06mn tonnes.

Industry Developments

Commitment to deeper fiscal cuts has prompted a revision to our 2010 growth estimate to -4.6% from a previous -2.0%. The Bank of Greece (BoG) announced on February 15 2011, that the country's GDP is expected to continue shrinking for a third straight year. BMI estimates the Greek economy contracted by 4.6% in 2010 while the BoG estimates another 3% contraction in 2011. In fact, the bank noted that it would not rule out a 'slightly bigger fall'. Additional spending cuts will also fuel public discontent, resulting in further demonstrations and national strikes which will continue to cripple the economy.

Under the May agreement with the EU and IMF, the Greek government targeted a reduction of the deficit to 7.6% of the GDP. In November 2010, the Greek Finance Ministry stated that the deficit for 2010 represented 9.4% of GDP and announced a target of 7.4% of GDP for 2011. The data indicates that the Greek economy is double-dipping. This is reflective of the enormous fiscal consolidation efforts under way, a substantial deterioration in investor sentiment, as well as sporadic national strikes which have crippled economic activity.

The European Commision should come up with new proposals for the dairy industry based on the UN's High Level Group report in December. One is likely to be boosting farmers' bargaining power by establishing contractual arrangements between them and the dairy processing industry. A futures market for dairy may also be recommended with a view to decreasing volatility. It is difficult to predict exactly what form these proposals will take, but they will likely have influenced Greek dairy production by the end of our forecast period.

by S. C.
02 april 2011, World News > Europe