經濟研究
Agri-food

Agri-food

Agri-food
Asia-Pacific
Central & Eastern Europe
Latin America
Mid-East & Turkey
Northern America
Western Europe
Change sector

Strengths

  • Strong demand from emerging countries (notably China and India)
  • Relatively resilient to the COVID-19 pandemic

Weaknesses

  • Highly exposed to climatic hazards and biological risks
  • Severely impacted by protectionist tensions
  • Volatility of agricultural commodity prices

Risk assessment

Risk Assessment

The agri-food sector, which showed resilience to the COVID-19 health crisis as an essential sector, nevertheless benefited handsomely from the global economic recovery of 2021 and should continue on this positive trend in 2022. Vaccination campaigns, accompanied by the easing of lockdown measures, spurred a global economic recovery driven by demand, particularly in the agri-food sector. Consumption resulting from massive Chinese purchases, combined with harvesting delays caused by climatic hazards and labour shortages, a container crisis and a lack of resources, led to a major supply/demand imbalance, creating an inflationary chain running from fertilisers to the sector's final products. In October 2021, the FAO food price index reached its highest value since September 2011 (133.2 points, up 31.3% over one year). Coface expects agricultural product prices to stabilise at relatively high levels in 2022.

 
The agricultural sector was a focus of talks at the COP26 conference between 31 October and 12 November 2021. Much of the discussion concerned deforestation and cutting methane emissions by at least 30% by 2030.

 
Meat production, which was disrupted as many meat processors had to shut down after employees caught COVID-19, could be affected in some regions by a shortage of inputs (such as CO2) due to an increase in natural gas prices. In addition, the biological risks inherent in the sector and recently exacerbated by the African Swine Fever (ASF) epidemic that will continue to plague Europe and Africa, despite being virtually eradicated in Asia, as well as the consequences of the fall armyworm’s spread and the locust invasion in Africa, will put downward pressure on global agricultural production this year.

 
A reoccurrence of La Niña, a climate phenomenon characterised by below-normal temperatures in the South Pacific that causes weather changes around the globe, began in October 2021, chiefly affecting Argentinean and Brazilian maize and soybean crops, but also plantations in Northern India.

 

FAO FOOD PRICE INDEX (100 = JANUARY 2015)
COFA_GDR_2022_Graph_Agro_UK
Sector Economic Insights
Although the agri-food sector remained resilient overall in the face of COVID-19, it is still experiencing a recovery

Although agri-food weathered the COVID-19 crisis relatively well compared with other sectors, such as transport or automotive, some segments were hit hard as restaurants and bars were shut down during lockdowns. The easing of restrictions and the reopening of shops and restaurants, although traffic remains limited in some countries, such as France, where customers must hold a vaccination passport, drove a rebound in overall demand, particularly for food products. This strong demand contributed to higher world food prices, which also reflected harvesting problems as well as rising input prices. Ammonia, potash, phosphate and nitrogen prices, for instance, were one of the main sources of food inflation in 2021. In September 2021, a tonne of ammonia was trading at USD 590, up from less than USD 200 a year earlier. The FAO Cereal Price Index rose in October 2021 by 32 points over one year, on the back of a surge in international maize prices (up 89.9% compared with May 2020) reflecting strong Chinese demand (300% increase over one year) to feed pigs and replace livestock lost to ASF, but also droughts in South American producing regions. According to the FAO, world cereal production will hit a new record in 2021 before contracting in 2022. World sugar consumption is also projected to reach a new historical high.

 
The rise in agricultural commodity prices is also a consequence of the recovery in demand for non-food products, such as biofuels. The biofuel market is expected to expand to approximately USD 307.01 billion by 2030, up from USD 141.32 billion in 2020, with an average CAGR of 8.3% per year from 2021 to 2030. Major companies in the sector, such as Danone, Lactalis and Nestlé, saw their earnings increase in 2021 (by 5.8% in the third quarter of 2021 for Danone and 2.2% for Nestlé over the first nine months of 2021), despite the inflation - initially of raw materials and then across the board - affecting supply chains in many parts of the world.

 

The future of the sector discussed at COP26

The Glasgow Climate Change Conference in 2021 addressed the main challenges facing the agricultural sector, notably deforestation and the reduction of methane emissions by at least 30% by 2030. According to an FAO study published for the conference, conversion to cropland is the main cause of forest loss in Africa and Asia, with more than 75% of the forest area lost converted to cropland. However, some countries may be reluctant to consider jeopardising their food security and a major foreign exchange earner.

 

In South America, almost three-quarters of deforestation is due to livestock grazing. A group of 45 countries, backed by 95 major companies, wants to raise USD 4 billion to invest in developing climate-resilient crops and regenerative solutions to improve soil health. COP26 also highlighted climate change adaptation programmes to help the most vulnerable farmers adjust to climate change. Meanwhile, the agricultural sector, in particular livestock farming, is considered to be one of the main contributors to global methane emissions. Accordingly, a new Global Methane Pledge was announced at the beginning of COP26 and signed by 90 countries, with the European Commission estimating that the promised 30% reduction in methane emissions could help to reduce global warming by at least 0.2 degrees Celsius by 2050. New technical measures such as animal feed supplements or the addition of innovative feed ingredients could be introduced in the near future.

 

The biological and climatic risks that existed before COVID-19 have not disappeared

ASF, which broke out in Europe and Asia in the summer of 2018, is still present in Africa and Europe. Asia was particularly affected by the disease, which spread across the region, causing havoc for pig producers, especially in China, which accounts for 50% of global pork production and consumption. Since the arrival of ASF in August 2018, the country has lost 40% of its pig herd, resulting in increased Chinese pork imports from other parts of the world such as the EU and the U.S. Increased Chinese demand caused pork prices to surge, prompting some Chinese consumers to switch to other meats. According to China's Minister of Agriculture, the country is now back to pre-ASF livestock levels. Thus, after record increases (31.3% in Europe between 2019 and 2020, 69% in China in 2019), live pig and pork prices fell from early January 2021, reverting to pre-ASF levels.

 
In addition to ASF, fall armyworms (FAW) and locusts are two major biological risks for the agri-food sector. FAW is a caterpillar that feeds mainly on maize, but also on rice, sorghum and cotton. It was first detected in West Africa in early 2016 but has now spread to 44 countries in Asia and Africa, as well as Australia. China is the world's second-largest maize producer, so the presence of FAW could create inflationary pressures for world maize prices. The UN Food and Agriculture Organisation (FAO) is seeking to set up a USD 500 million programme to coordinate the response to the global FAW outbreak.

 
An occurrence of La Niña, a climate phenomenon characterised by below-normal temperatures in the South Pacific, has been underway since October 2021, causing weather disturbances worldwide and impacting the production of agricultural commodities. This explains why maize prices began rising again at the end of 2021, following reports that La Niña would occur from November to January of next year (70% probability according to the ENSO indicator). Meteorologists say that La Niña could lead to drier-than-usual weather in Argentina and Brazil, which would be bad for maize and soybean crops.

 
Finally, 2021 saw a number of severe weather events around the world, including floods and fires in Europe and droughts in the United States. These events could have consequences for agricultural production in 2022.

 

European and North American countries subject to new environmental directives

Restrictions imposed by environmental policies are relatively stricter in North America and Western Europe. For instance, in June, the European Parliament set out new guidelines for the reform of the Common Agricultural Policy, which will take effect in 2023. Among the most important changes, the CAP will introduce new working methods: each Member State will have to draw up a strategic plan explaining the allocation of CAP subsidy expenditures. Countries will also have to allocate a minimum of 25% to eco-schemes, i.e. environmentally friendly initiatives such as organic farming or precision farming, while at least 35% of rural development funds must be spent on projects promoting environmental, climate and animal welfare practices.

 

Last update : February 2022

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