Bank Austria Economics sector report
Economic crisis has not spoiled Austria's appetite
- Domestic food industry relatively immune to the crisis, output may increase slightly in 2009
- Production volume up by 0.4 per cent in 2008, revenues up by nearly 9 per cent because of price increases; earnings pressure remained high
- Demographics and saturation tendencies limit growth prospects in the sector
Sentiment in the food industry darkened under the influence of the international economic crisis towards the end of 2008. But unlike in other sectors, production levels were only stepped back slightly, and not until the beginning of 2009. These are among the results of the latest Bank Austria Economics sector report. "While individual investment goods industries will see 20 per cent lower output in 2009, the production expectations in the food industry for the coming months are already somewhat more optimistic again," says Bank Austria economist Günter Wolf. The industry saw its output decline by an estimated 2 per cent in the first five months of this year – a moderate decrease compared to the roughly 16 per cent average for all of Austria's industries. The food and luxury goods industry may even see its output grow slightly for 2009 as a whole, and has again proven to be very robust.
The main reason for the relatively stable development of this industry is its insensitivity to economic fluctuations. Retail sales and exports show that demand for food did not fall to any significant degree in Austria or abroad in the first half of 2009. According to the statistics, sales of food products even grew by 4 per cent from January to May compared to the same period in 2008, or by roughly 2 per cent when adjusted for price effects. The value of food exports fell by 8 per cent in this period because of significant price declines for agricultural products, while the volume of exports increased to roughly the same degree. This growth in exports shows that many Austrian food manufacturers and processors are very competitive. Overall, demand for food in Austria will remain virtually unchanged in nominal terms in 2009 and 2010, and will fall by roughly 1 to 2 per cent when adjusted for price effects. The crisis on the labour market and low wage growth will have a negative effect. Substitution effects are likely, and consumers will tend to spend less when shopping and dining out.
This means that the food manufacturing industry has two more weak years ahead of it. Output growth in the sector was already weak in 2008 at 0.4 per cent, and the nearly 9 per cent increase in revenues to EUR 17.2 billion was the result of price hikes to compensate for higher production costs. This means that earnings pressure in the industry has likely not declined. "For many manufacturers, the price and earnings pressure in the industry is a greater problem than changes in demand," says Wolf. In spite of the fact that the food industry has achieved considerable productivity increases over the past years, earnings have actually fallen slightly on average. A key factor is pressure from food retailers, who in Austria are operating in one of Europe's most highly concentrated markets. The top three supermarket chains in the country hold 79 per cent of the market.
Austria's food manufacturers will come out of the recession relatively unscathed. But growth prospects in Austria are limited, especially as the market becomes increasingly saturated and as population growth remains low and life expectancy increases – a combination of trends that reduces calorie needs and therefore the consumption of food. Sector analyst Günter Wolf sees growth potential in niches in Austria, and especially in exports. "Austria's food manufacturers profited enormously from the country's accession to the EU and the enlargement of the community. Export growth surged from the low single-digit range before 1994 to an average of 13 per cent per year through to 2008," says Wolf, "Germany and Italy, but also Hungary, Slovenia and the Czech Republic will be important markets for exporters in future."
Enquiries: Bank Austria Press Office Austria
Tiemon Kiesenhofer, tel. +43 (0)5 05 05 ext. 52819
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