Market Monitor- Focus on the food industry -Netherlands

The Netherlands

• Effect of the Russian import ban seems to remain limited
• Increasing insolvency risk in the dairy subsector
• Mostly stable payment behaviour

In 2013, the food/agriculture sector was one of the few industries in the Netherlands to generate growth in value and a stable level of employment. This year the forecast shows a slightly lower growth path than in 2013 (up 1.5%) so that total exports could amount to around EUR 78 billion. The sector accounts for 18% of Dutch exports and the Netherlands is the world’s second largest exporter of food and agricultural products. The recent weakening of the euro gives a boost to further export growth and, on balance, the competitive position of the Dutch economy has improved since 2008.

The effects of the Russian embargo on food is difficult to assess, but seems quite limited. Because of the ban, other non-EU countries will supply products to Russia which in turn will lead to a demand in their home markets for European and Dutch products, also helped by the weaker exchange rate. However, an increase of payment defaults of Dutch food suppliers because of the Russian export ban cannot be ruled out.

In the last couple of months payment delays have been stable, with most cases stemming from disputes between suppliers and buyers. Our payment experience with this sector is comparatively good. Insolvencies in the sector have decreased year-on-year in 2014, although that is from the very high level reached in 2013. We expect the business defaults to level off year-on-year in the first half of 2015.

Domestic food retail sector

Domestic food consumption in 2013 was valued at EUR 57 billion, with more than 50% (EUR 29.3 billion) sold in supermarkets: an increase of 2%. Turnover through supermarket sales is expected to grow 1.5% in 2014 and 1.8% in 2015, due mainly to increasing volumes. However, there is limited scope for increasing prices because of the strong competitiveness of this segment. With a continuing difficult economic situation, consumers are particularly price-conscious, so that discounters like Lidl and Aldi and online food suppliers are increasing their market share. While margins are low in this segment, profitability is still good.

The boundaries between food services (hotels, restaurants, catering and convenience) and food retail are blurring, with more supermarkets offering ‘ready to eat’ food while department stores establish in-house restaurants.

Beverages

The performance of the Dutch beverage industry remains positive, although volume growth in key markets such as the US and Asia Pacific has decreased. There is still no growth in Europe because of lower consumption.

Meat

Scandals in recent years, such as that of horse meat sold as beef, has damaged consumer confidence, but not enough to change buying patterns. Despite that, meat consumption has diminished in the last three years as a consequence of the economic crisis. As retailers put extra pressure on the already low prices of meat, including sliced meat, margins are low. However, new regulations on Germany’s minimum wage will have a positive effect on Dutch slaughterhouses. Payment defaults in the meat sector have fallen in 2014.

It is difficult to estimate the impact of the Russian food ban on this segment. In 2013 EUR 140 million of meat was exported to Russia, accounting for just 1.8% of total exports. The Dutch government recently confirmed that they will support initiatives to improve export to other countries to compensate for the Russian embargo.

Dairy

The dairy sector is one the largest and most important Dutch agriculture/food subsectors. In 2013 milk production increased 4.2%, to 12.3 million tons, with cheese - by far the most important dairy product - accounting for more than 55% of processed milk. Exports of dairy products rose substantially in 2013, thanks to higher volumes and prices. Export value increased 21% year-on-year, to EUR 6.7 billion. The importance of the dairy market can be seen in the Dutch trade balance, with a trade surplus of  EUR 4.1 billion ( 9% of the overall Dutch trade surplus).

Most dairy exports go to the EU (67.2%: mainly to Germany, Belgium and France). The main export destinations outside the EU are Russia, China, Saudi Arabia and Nigeria.

The outlook for the dairy sector is difficult to predict, again because of the Russian import ban. Sales prices for dairy products have decreased this year, from an unusually high level seen in 2013. Additionally, the abolition of the EU milk quota in 2015 could lead to oversupply, which would have an even more negative effect on prices and margins. So far payment defaults have been low in this segment, and payment behaviour has been generally good. But the ending of the milk quota will almost certainly increase the risk of more insolvencies next year.

Fruit and vegetables

The value of Dutch imports of fruits and vegetables continued to increase: vegetable imports are worth around EUR 2 billion and fruit imports EUR 4 billion. Over 80% of the imported vegetables and more than 65% of fruit is transit trade, as Dutch trading companies form an important link between growers and producers around the world and buyers in Europe.

Fruits and vegetables account for the largest share of Dutch agricultural exports, amounting to more than EUR 8.7 billion in 2013, and mainly to the UK, Germany and other EU countries. Between January and August this year, fruit and vegetable exports increased 8% year-on-year.

Less than 1% of fruits and 11% of vegetables are exported to non-EU markets. Over the past 25 years the export of tomatoes doubled to 1 billion kilograms. Prices remain low due to structural overcapacity, but at least energy prices were lower in the first half of 2014 (25% of the sales cost in the greenhouse vegetable sector is determined by energy prices). The further downward shift in natural gas and electricity prices, expected in 2015, would help the sector. 

Export prospects for potato and onion producers are good, and sales prices are likely to remain slightly above their long-term average in 2014 and 15. Dutch exporters control around 75% of the world market for seed potatoes and long-term prospects are excellent for these high quality products. The fruit sector saw a favourable price trend in 2013 and 2014 and the long-term outlook for fruit and vegetable producers is positive. In particular, sales in niche markets such as organic and snack vegetables (mini tomatoes, mini cucumber and mini sweet peppers) are expected to show healthy growth.

In the first half of this year the export of agricultural products to Russia had already decreased by 10% year-on-year. Even before the embargo, the pricing for greenhouse products was already weak, and now some Dutch growers and producers of greenhouse vegetables are feeling the impact. Although less than 4% of total vegetable exports go to Russia, fruit and tomato growers will miss a large chunk of their export sales. It is estimated that the import ban will cost the agriculture sector more than EUR 300 million in lost business this year.

Nevertheless, in September greenhouse vegetable prices recovered and matched or even exceeded their pre-boycott prices. As a result, the outlook for agricultural exports is less gloomy than expectations immediately after the boycott announcement in early August 2014. The euro declined in early October to its lowest level in two years. This should give a boost to food exports.