The food sector, as noted by Atradius, continues to perform well, with stable or even improving credit risk in many countries. Compared to other industrial sectors, in fact, the food sector has a good elasticity towards periods of crisis; however, as already two years ago, many food production and processing enterprises have also continued in the course
of 2017 to be under pressure, with profit margins at risk, due to the highly competitive context of a market in which the purchasing power of large retail and discount chains is very strong.
In some of the major European markets, including France, Germany and the UK, the pressure has increased mainly in the segment of the meat production and processing, since the prices of
supplies have grown by increasing the credit risk of these companies.
In Italy the food sector is one of the most important, with about 385.000 employees, a turnover total in 2016 of over 135 billion euros and solid export performance. Overall, across all individual segments, food businesses remain exposed to unpredictable risks, including commodity price fluctuations and public health concerns.
The imposition of additional barriers to trade could become a problem since in many markets le
exports undeniably play an essential role, contributing to the profitability of the food sector and sometimes compensating for the less brilliant results obtained on the domestic market.
If we take a look at the better opportunities for companies in the sector, we see the outlook for 2018 for the Brazilian food sector is upbeat thanks to the current economic recovery and solid demand from China. Last year's excellent harvests brought down the price of many food products (above all bread, rice and cereals) favoring their consumption. While on the domestic market the
economic recovery and the reduction of inflation have increased the purchasing power of consumers.
Profit margins of Brazilian food companies grew in 2017 and are expected to improve further this year. However, it should be emphasized that Brazilian companies in the sector have a higher debt rate than other sectors, above all due to the
of expansion implemented before the economic crisis of 2014. The turnover of Italian companies in the sector recorded a modest increase in the last months of 2016 after years of rather stagnant domestic consumption, benefiting (especially in the pasta and bakery segments) of solid reputation
international “Made in Italy” label.
During this year, analysts forecast the added value of food and beverage products to grow by 2,4%, mainly thanks to exports, since domestic demand should at least
stable. Profit margins should not record significant changes, although remaining at low levels. The food manufacturing and processing industries are often heavily leveraged to finance working capital needs: however, thanks to the counter-cyclical performance, banks and other financial institutions continue to be inclined to lend to the food sector as it allows for diversification of activities investment even during negative economic cycles.
In Brazil, even if the sector is still very fragmented, the trend towards a higher quality of food products is consolidating and all the major companies are trying to increase their market share. The butchery segment is recovering after the difficulties of two years ago when the cost of feed increased due to a severe drought.
As regards the dairy products, the good trend in consumption should continue thanks to the increase in disposable income and population growth, as well as the widespread opinion that these products are healthy and nutritious. The exports of fruit, vegetables, grains and soybeans they grew further in 2017 thanks to the unexpected increase in demand from China. Hence, for 2018, the prospects for further growth in exports are promising.
Food retailers have generally shown good resilience in the recent phase of the crisis; however, the still high rate of unemployment and some difficulties in certain regions could have a negative impact on specific regional operators. The Italian sector of production, transformation and retail sale of products remains highly fragmented and is characterized by intense competition, where even the major players are smaller than the large retail chains a
international level.
Food producers are generally small businesses and have a certain difficulty expanding internationally; at the same time, e-commerce is increasingly challenging traditional street retailers. The Art. 62 of Legislative Decree 24 January 2012, later converted into law, sets the maximum payment terms for the food sector at 30 days for perishable goods and 60 days for non-perishable goods: it has been noted that most companies are complying with these terms, while non-payment requests are generally linked to buyers' liquidity problems (insolvency cases decreased last year and analysts expect a further reduction of around 10% during this six-month period).
On the other hand, within the Brazilian food sector itself, payment terms vary between different sub-sectors and according to the position along the value chain. Growers, who were previously paid in advance, are now having to accept 30-day payment terms in some cases. Payment terms in the meat processing segment range from 60 to 90 days, while in the produce segment
dairy terms vary according to the position along the value chain (producers or retailers). On average, analysts consider a maximum payment term of 90 days: after the increase recorded in 2015 and 2016, payment delays and insolvencies in the sector started to decrease last year thanks to the improving outlook and are expected to further decline in 2018, with greater caution in the case of regional retailers active in some federal states, still in economic difficulty, and as regards the meat segment, due to the repercussions of the recent scandal and the effects of the increase in cereal prices in 2016.
