Boston, MA -- (SBWIRE) -- 03/11/2013 -- BMI View: The changing regulatory environment will prove to be a major force in determining the growth trajectory of the German agribusiness sector. The ongoing reforms in the EU Common Agricultural Policy will affect farmers' profitability in the medium term and make their revenues more dependent on market prices. The livestock and dairy industries are expected to be the most affected as environmental and quality standards tighten. We see downside risks to our already-bearish outlook for sugar production as the EU shifts focus towards second-generation biofuel produced from waste instead of food crops. To some extent, this will also dampen our outlook for the grains sector.

Key Forecasts

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- Corn production growth to 2016/17: 13.0% to 5.22mn tonnes. Corn yields have been improving significantly in recent years as an emphasis on increased output has led farmers to adopt more productive practices. Biofuels will also be a main driver of crop production over the coming decade.
- Poultry consumption growth to 2017: 6.4% to 1.74mn tonnes. We expect poultry consumption to gain ground as consumers are attracted to the meat's healthier image and lower price.
- Sugar production growth to 2016/17: -2.0% to 4.68mn tonnes. After a more than 6% year-on-year (y-oy) decline in production during 2012/13, sugar output is expected to recover somewhat as the abolition of the sugar production quotas by 2015 encourage farmers to plant more sugar.
- 2013 real GDP growth: 2.0%, up from 0.4% in 2012 and forecast to average just over 2% from 2013 until 2017.
- Consumer price inflation: 2.5% y-o-y in 2013, up from 2.0% in 2012.

Industry Developments

In November 2012, Russia imposed temporary restrictions on a number of German meat plants. The move could result in a ban of all meat exports from Germany to Russia should the former not address Russia's concerns over veterinary and sanitary standards. In October, Germany passed regulations with a view towards significantly reducing the use of antibiotics in animal production, online news source Meatsite reported. The regulation calls for the establishment of a new nationwide database for exchange of information between authorities, which will monitor the frequency of treatment with antibiotics in a company and compare it with that of other companies. A key risk for producers is that change in antibioticsuse practices could significantly drive up production costs for producers.

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