Germany Agribusiness Report Q4 2009

BMI's Germany Agribusiness Report Q409 continues with many of the themes touched upon in previous reports, although with the recession lessening its grip on the economy, fundamentals look set for marked improvements as we move into 2010.

Germany is losing friends in response to the government's decision to ban the cultivation of GM corn.

Agriculture Minister Ilse Aigner announced in April a U-turn on the cultivation of genetically modified (GMO) corn MON 810 in Germany on the grounds that it causes a pertinent environmental threat. With this, Germany has joined other EU countries such as France, Austria, Hungary, Luxembourg and Greece, which have also banned the crop, despite approval from the European Food Safety Authority for its cultivation.

Regardless, the currently favourable price of corn against alternative grains has led to a robust planting campaign among domestic farmers supplying to the livestock and biofuel industries. We predict corn to record the strongest production growth among grains of 58.20% over the entire outlook, although wheat will post stronger year-on-year growth in 2010, of 10.3% to corn's 8.33%, before slowing considerably.

Barley acreage is being rapidly substituted for more profitable crops, while livestock farmers import protein-rich soymeal as a more favourable feed option. Barley production will contract by over 30% to 2013 as this shift plays out.

Cheese consumption is also robust, among the highest on the continent, with foreign varieties such as Norwegian Leerdammer and Dutch Edam becoming increasingly popular alongside traditional German varieties. Strong production growth is expected to be outpaced by consumer demand, at 26.69% (the fastest growing household consumption good), as consumers continue to demand cheaper sources of protein in addition to comparatively expensive meat. Meanwhile, the demand for butter is predicted to suffer from higher levels of consumer health-consciousness, coupled with the availability of numerous and less expensive substitutes.

The issue of environmental sustainability has long been an important consideration for the German economy and issues pertaining to the use of harmful chemicals have become increasingly salient in recent months, while the government is trying to raise consumer sentiment relating to organic foods. Some feel that Aigner's stance is based more on garnering political support than for the greater interests of the country, particularly prior to the European Parliamentary elections. What can be said is that, while she seems increasingly determined to make Germany a GM free zone, this resolve will be challenged more than ever in the forthcoming years as farmers seek to raise productivity to compensate for gradually decreasing levels of farmer support.