Boston, MA -- (SBWIRE) -- 06/07/2013 -- We believe the grain sector in France will continue to outperform other agribusiness sectors in terms of production growth. This will be reinforced by ongoing reforms of Common Agricultural Policy subsidies that are likely to have more of an effect on dairy and livestock farmers because they are often smaller than grain farmers. The agriculture minister's proposal to shift part of EU subsidies from crop farmers to dairy or livestock farmers could support production growth in the latter, even though we do not see this as sufficient to turn around current production trajectories for each sector.

Key Forecasts

- Wheat production growth to 2016/17: 12.7% to 40.6mn tonnes. We expect wheat to remain the most profitable crop in the country and the crop most in demand for domestic use and exports.
- Poultry consumption growth to 2017: 4.9% to 1.7mn tonnes. We see more growth potential in the poultry sector than in other livestock segments because of its generally higher affordability and reputation for better health benefits than red meat.
- Cheese production growth to 2016/17: 8.6% to 2.2mn tonnes. Over the longer term, we expect consolidation in the dairy industry to allow producers to take advantage of rising quotas and export demand. We also believe the European Commission's decision to adopt new legislation that allows producers to collectively negotiate contracts with processors will improve the profitability of milk production, in turn supporting output.
- 2013 real GDP growth: -0.3% (down from 0.1% in 2012).
- Consumer price inflation: 1.5% average in 2013 (slightly up from 1.4% in 2012).
- BMI universe agribusiness market value: 0.4% year-on-year (y-o-y) decrease to US$37.2bn in 2012/13.
- Competitive landscape: We are positive about Vilmorin, as the company's share price seems to be undervalued. We see tremendous long-term opportunities in the seeds markets, especially in markets such as the Middle East and Asia, where the company is developing.

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Industry Developments

We see downside risks to our forecast for French wheat production in 2013/14, as weather conditions in the country, as in the rest of Europe, could prevent a strong recovery in yields. We project wheat production in the country to rebound by 3.5% year-on-year (y-o-y) to 37.3mn tonnes. Because France experienced its coldest March since 1987, with some northern areas experiencing their lowest-ever temperatures, yields could be left at similar levels to 2012/13 (between 5 and 6 tonnes per hectare). We believe losses in area harvested will be smaller than last year, however, which will support a recovery in total production for 2013/14. That said, the increase could be smaller than anticipated.

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