agriculture & forestry outlook 2016 - landshypotek bank · outlook 2016 . swedish agriculture...

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Agriculture & Forestry Outlook 2016

Swedish Agriculture and Forestry is at large a part of a global market and are in many ways dependent of the development in the international markets. At the same time it can benefit from a strong and growing demand for swedish products on the domestic market.

2 Landshypotek Bank AB, 2016

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2015 • Weak growth in the

European economy.

• Central banks expansive monetary policy, continued low interest rates.

• Stability in the Swedish property market.

• Easier to find buyers for arable land than buildings

• Increasing differences in between objects, industry and geographic location.

The world around us – May 2016 2016 • World economy demand

and trade is slowing down in the short term, affecting commoditie prices including food, feed and energy.

• Low interest rates on the Swedish market.

• Property market stabil with differences between industry and location.

• Large dairy farms underpressure.

Impact on Landshypotek 1-5 year • Increasing need for more

extensive analyses and actions on existing and new customers in different segments.

• Continuous improvement in the valuation process.

• Increasing international demand for food and energy, in the long term, in combination with a growing domestic interest in food provides favourable conditions for Swedish agriculture and forestry in the long run.

• Profitability in the Swedish forest and farming business has been asymmetric in 2015 with increasing variation in the degree of profitability between sectors and between businesses in the same sector. This situation will seemingly continue over the next 1-5 year period.

• Prices on forest and farmland has been stable in 2015, though with regional differences. Low interest rates is one key factor.

• In farm business diversification is a strong trend. Income from other gainful activities are as important as subsidiaries. Typical examples are construction and tourism. Local food is a growing sector.

• Debt levels are still low but with increasing variations.

Swedish Agricultures and forest market – Summary and conclusions


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Global commodity Trends and developments 2015-2024 • Diets become higher in protein, fats

and sugar • Grains: core of human nutrition, slow

growth driven by population increase.

• Protein: (meat, fish, dairy): meat sector dominated by poultry, highest growth rates for dairy products.

• Fats: (vegetable oil, butter): fast growth in developing countries based on changes in eating habits.

• Sugar: Accelerating growth both in developed and developing countries.

OECD-FAO Agricultural Outlook 2015, OECD Publishing

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Commodity trends • Growth in livestock production is

expected to outpace crop production in the next decade.

• The structure of global crop produc-tion is expected to respond to the increased need for coarse grains and oilseeds compared to wheat or rice.

• The limited availability of additional arable land will impact the expansion and concentration of additional crop production.

• The Americas, north and south, will strengthen their position as the dominant export region, both in value and volume terms.

OECD-FAO Agricultural Outlook 2014, OECD Publishing

FAO’s Food Price Index: Real prices on downward trend but high level

• Continue the correction period for one or two more years.

• Stabilize over the medium-term at levels that remain above the pre-2008 period, but significantly below recent peaks.

• Real prices resume slight downward trend over the medium term.

7 OECD-FAO Agricultural Outlook 2014, OECD Publishing

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There are 500,000 owners of property related to farming and forestry in Sweden. 329,000 owners of forestry. The arable land is farmed by 67,000 holdings.

Structural developments in Swedish agriculture over the last few decades have led to fewer but larger farms. For decades the agriculture industry has had its focus on change through structural change trying to achieve the benefits of technical development and lowering costs. This has also been the case for the small firms that we on a daily base call farms or farm

businesses.

The structural change is an ongoing process also in the context of Swedish farms. This development will continue but probably in a more diversified way.

Except for traditional farm activities there are strong development in construction, tourism, small scale food production and services.

Structure and development – Sweden

Landshypotek Bank AB, 2016

Succession

To own a farm with arable land or forestry is not just a production unit. There are a wide range of aspects that leads to the decision to own a farm. One is the matter of succession. About 60 percent of farmers are over 60 years of age. Successful ownership parcels are in many ways the key to the future of living countryside. Planning for the transfer of ownership can be a good opportunity for renewal and new strategic initiatives that can contribute to increased profitability and enhanced competitiveness. More attention needs to be devoted to business management and business development in relation to succession of farms.


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1 For these years only holdings with more than 2.0 hectares arable land are included.

Swedish agriculture – Structure and development

19901 19991 2013 All holdings 96,560 80,119 67,146 0 – 2.0 ha – – 3,935 2.1 – 5.0 ha 14,957 11,344 10,142 5.1 – 10.0 ha 19,020 15,229 13,857 10.1 – 20.0 ha 20,832 16,656 12,439 20.1 – 30.0 ha 12,177 9,295 6,022 30.1 – 50.0 ha 14,223 11,445 6,778 50.1 – 100.0 ha 11,348 10,969 7,368 100.1 – 200.0 ha – 4,073 4,446 200.1 – 300.0 ha – 708 1,234 300.1 – 400.0 ha – 203 453 400.1 – 500.0 ha – 83 218 500.1 – ha – 114 254

Agricultural holdings, by size

Source: Swedish Board of Agriculture, 2015

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Type of farming by county

The percentage of farms larger than the national average (28%) The percentage of farms with animal stocks larger than the national average (29%) The percentage of small farms that are larger than the national average (36%)

Average hectares of arable land per holding by county

50 > ha

40–49 ha

25–39 ha

20–24 ha

Source: Swedish Board of Agriculture and Statistics Sweden, Lantbruksregistret, 2014

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Geographical distribution of pigs 2013, 1,000s

200 >

100–199

20–99

> 19

Geographical distribution of cattle 2013, 1,000s

200 >

100–199

20–99

> 19

Source: Swedish Board of Agriculture and SCB, Lantbruksregistret, 2014

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Agricultural holdings – animals

Number of agricultural holdings, with different types of animals

Source: Yearbook of Agricultural Statistics, 2015

1990 1999 2013 Cattle 47,292 33,978 18,210 Dairy cows 25,921 13,963 4,394 Suckler cows 10,883 14,254 10,663 Sheep (lambs excl.) 9,688 8,209 8,912 Goats - - - Pigs 14,301 6,014 1,282 Horses - 14,309 - Fowls (chicken excl.) 12,900 6,441 3,878 Turkey - - - With none of the above animals 36,695 36,800 39,153

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Livestock

Livestock, mid-year estimates, 1000’s

Source: Yearbook of Agricultural Statistics, 2015

1990 1999 2013 Cattle 1,718 1,713 1,493 Dairy cows 576 449 344 Suckler cows 75 165 186 Heifers, bulls, steers, calves 1,067 1,100 962 Sheep and lambs 405 437 589 Goats - - - Pigs 2,264 2,115 1,377 Boars, sows 230 224 145 Other pigs 2,034 1,891 1,232 Poultry of laying breed 8,568 7,850 8,263 Turkey - - -

Agriculture sector-economy Sweden

The farm businesses has annual sales of more than 80 billion at farm level and accounts for more than 70 000 full-time jobs. As some of the traditional businesses are backing in terms of annual sales, new initiatives and ideas enhance the development potential. This development is due to continue.


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Revenue by business area

Revenue area SEK billion Farm activities 37.0 – including milk production 10.2 – of which other animal production 12.6 – including crop production, garden, etc. 14.2 EU-subsidies 9.9 Forestry 18.3 Other activities, in addition to farming and forestry 15.8 Total 81.0

Source: LRF, 2014

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Highest revenue, top 15

Position Sector MSEK 1 Forestry 18,300 2 Milk 10,167 3 Construction 7,960 4 Horticulture 4,556 5 Cereal crops (for sale) 4,100 6 Beef 4,084 7 Pigs 3,800 8 Potatoes 1,942 9 Hay (for sale) 1,906 10 Egg production – hens 1,656 11 Chicken production – hens 1,557 12 Horses 1,435 13 Energy 1,315 14 Wood processing 1,286 15 Rental of real estate 1,209

Source: Swedish Board of Agriculture and LRFs Medlems- och Marknadsregister

Development of prices for arable land

The price of farmland has been strong in the last 20 years. Main driving forces has been low interest rates, stable conditions in the EU's agricultural policy and favourable financing conditions. Most critical factor for future development is the long term development of interest rates. Low interest rates tends to favour investments in assets such as real estate.


Competitiveness

Sweden’s disadvantages in Total Factor Productivity (TFP) relative to competitor countries are linked mainly to its high agricultural production costs originating from the potential constraints related to climate, large capital investments, feed costs and high labour costs. In the long run there is a need for higher domestic prices to compensate for these disadvatages. There are small signs of that kind of development.


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Competitiveness Sweden Our view is that Swedish agriculture and forestry show an increasingly better competitiveness although higher costs and shortage of investments in the value chain have held back some of the branches more than others.

Swedish forestry have shown ability to compete on a global market. The industry is willing to invest in new capacity and research and development to keep up its competitiveness. One example is Södra, a cooperative company owned by the forest-owners who´s got an ambitious plan for investments in both pulp, fiber and sawmills.

Another example is the dairy industry in southern Sweden were actors like Arla Foods and Skånemejerier (Lactalis) put Swedish milk on a global market. Though in the short term view the global market are under pressure.

Parts of Sweden have very good soils and climate for production of cereals. Sweden is a small player on the global market but relative its total produce a large exporter. The industry Is dominated by actors like Lantmännen, coop owned by the farmers, and Svenska Foder, owned by the danish farmers through DLG.


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1. The firm’s strategy - one of the crucial factors for success • Strategies should focus on things such as management, leadership,

and risk calculations • Updated internal strategy is the best way to manage business cycles,

falling prices and rising costs externally • Focused, dealing with good market knowledge, knowledge of consumers,

suppliers as well as competitors • The combination of good internal and good external strategies is critical for

the companies and their long-term competitiveness

Agriculture competitiveness – The importance of strategies

Source: Swedish Board of Agriculture, Report 2016:7

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2. Increasing the role of agriculture in the knowledge economy • Swedish agriculture has undergone rapid and far-reaching structural change which

stands out compared with the global competition • The supply of industry specific knowledge (in terms of formal education) has not

kept pace

3. Swedish agriculture’s position in the global market • Most of the variables measuring competitiveness indicate that Sweden has a very

disadvantageous position compared to other EU countries • Investment in physical capital, human capital and R&D is at low levels

Source: Swedish Board of Agriculture, Report 2016:7

Agriculture competitiveness – continued

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Sweden – breakdown by industry

Forestry For forest owners 2014 was characterized by a positive atmosphere throughout the year. The market was generally positive in most areas with stable prices. Swedish forest industry announced investments in new and increased production capacity. Expectations of increased prices and exports due to the weak SEK.

Increased focus on forestry. More dialogue with large forestry clients. We are continuing work on improving forest calculation and valuation. In general, a positive outlook for the industry and forest owners in a 1-3 year perspective.

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Productive forest land by ownership classes year 2012

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Production, export and domestic supply of sawn and planted softwood

Source: Statistics Sweden, ”Foreign Trade and Sawmill Production” (to 1989); Swedish Timber Council (from 1990 onward) for production figures. Domestic supply according to Swedish Forest Industries Federation

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Production of wood pulp by grade

28 Source: Processed official statistics from Statistics Sweden, ”Foreign Trade”, Swedens’s statistical database.

Sweden’s foreign trade by commodity groups, year 2013

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Dairy As global production faster than demand, prices have been under preassure during 2015. This in addition to the Russia's import restrictions that made a major impact on the markets since 2014. In the long term perspective Swedish dairy farm production is competitive due to its natural conditions, the producers competence and the market mix with global players like Arla and Lactalis together with a variety of local dairys. Productivity and efficiency at the farm-business level is crucial to be able to

keep up necessary cash flow and profitability. The demand for farm estates with dairy production is low and have made the market values fall. On the other hand this gives opportunities for those who want to expand. The outlook for dairy in a 1-3 year perspective is mixed. The milk price is normally fluctuating in a 3 year cycle. But the market situation is not normal. The low prices are likely to continue until 2017. Lower costs for feed, energy and capital ease the burden as well as higher prices for meat in the Swedish market.


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Milk delivered to dairies (1 000 metric tons)

Source: LRF Mjölk, 2016

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Proportion of cows and companies with dairy herds distributed by size of dairy herd, 2015

Cereals Parts of southern Sweden has good natural conditions for production of cereals. The export of cereals, mainly malt barley and bread wheat, is an important part of the agriculture sector economy. The international market is very volatile, causing rapidly changing profitability among farmers. In the short term 1-3 year we expect slightly falling prices due to good harvests and stock. Generally there is a need for farmers to work more with risk management to make their profit more stabile and avoid cash flow disturbance. Pay attention to cash flow analysis, forecast and budget. Low interest rates encourage continued high and rising property prices for good arable land.


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Swedish cereal area and production 1951-2012

Source: Swedish Board of Agriculture

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Average prices for agricultural land

Production area

SEK thousand per hectare (weighted average) Number of sales 2012

Sold area, ha

2012 1995 2000 2005 2008 2009 2010 2011 2012 Plains districts in southern Götaland 25.8 40.1 67.2 97.6 94.6 100.3 138.5 130.2 116 838 Central districts in Götaland 13.8 22.8 47.9 51.7 63.4 60.5 79.4 83.6 176 1,343 Plains districts in northern Götaland 13.3 20.1 33.2 53.6 47.3 50.9 55.0 58.6 186 1,441 Plains districts in Svealand 8.7 13.9 52.5 39.7 38.6 40.8 51.5 46.7 242 1,957 Forest districts in Götaland 9.1 14.2 26.1 30.9 33.3 31.6 41.7 38.8 689 4,053 Forest districts in central Sweden 5.4 6.5 14.6 19.4 20.9 21.1 27.4 27.7 265 1,237 Lower parts of Norrland 2.9 3.0 8.1 10.8 12.4 11.3 13.3 14.3 380 1,527 Upper parts of Norrland 2.2 3.2 6.4 9.5 8.5 9.8 11.1 12.9 253 1,353 The whole country 10.8 16.8 31.1 40.2 39.8 40.7 50.5 49.6 2,307 13,749

Arable land and pasture


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Rent for agricultural land, indices

Area County 1994 1995 2000 2005 2008 2009 2010 2011 2012 Southern Sweden K,M 100 102 119 153 185 195 200 239 243 Western Sweden N,O 100 100 124 127 170 148 158 180 182 Småland and the islands of Gotland and Öland F,G,H,I 100 104 133 130 160 166 177 191 203 East Middle Sweden AB,C,D,E,T,U 100 103 121 140 167 181 184 195 201 North Middle Sweden S,W,X 100 100 139 130 135 162 168 183 191 Northern Sweden Y,Z,AC,BD 100 98 115 176 116 124 138 187 197

The whole country 100 102 122 136 164 168 176 202 207


Meat • The uncertainties in the markets for

meat due to import restrictions to Russia have affected the European market with falling prices and surplus. The market situation is slowly recovering as China is slowly opening up for more imports.

• The Swedish market has been less affected due to strong demand in Sweden for domestic produce.

• In the long term there is a strong trend in increasing demand and consumption of meats all over the world. During the last 20 years the Swedish production of meats have not been able to follow the growing demand

• Swedish beef and pork production has been declining, loosing market shares to imported meats. The production of poultry meat have increased but not as fast as the consumption. During the last years prices have benefited from good home market due to high demand for domestic produce and a more diversified market with for example more local produce.

• The structural change leads to more competitive production units and management. There are signs for growing interest in investments in production of beef, pork as well as poultry.

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Average market prices for young bulls (R3) in Sweden and the EU, EUR per kilo

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Beef, million kg

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Pork

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Number of slaughtered pigs 1995-2014

41 Source: The Swedish Board of Agriculture and the European Commission

Average market prices for pigmeat in Sweden and the EU, EUR per 100 kilo

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Poultry Swedish production and consumption of poultry meat has increased since 1990. Since entry into the EU the increase in production has levelled off, while consumption has continued to grow rapidly. The increase in consumption has been met by imports, which currently represent 40 % of consumption. In recent years 2014-2016 there has been a growing interest from both industry and farmers to invest to increase production.

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Slaughtering of poultry at slaughter houses

Full year Fourth quarter 2012 2013 2014 2012 2013 2014

Chicken 1,000 heads 76,840.26 81,825.73 87,921.70 19,990.48 21,380.72 23,007.70 Quantity 1000 ton 109.67 117.40 126.15 28.53 30.52 33.01 Hens 1,000 heads 3,096.75 3,855.45 3,558.33 924.35 850.99 737.82 Quantity 1000 ton 3.62 4.51 4.16 1.08 1.00 0.86 Turkey 1,000 heads 466.02 451.97 420.28 137.82 113.19 114.50 Quantity 1000 ton 3.01 2.92 3.35 0.89 0.73 0.90

Note: Turkeys consist of multiple kinds of turkeys, with different carcass weights. Therefore the relation between the number of heads and the quantity may vary between years.

Source: National Food Administration

44 Source: The Swedish Board of Agriculture and Statistics Sweden

Market balance for beef

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2015 saw increases in the production, import and export of beef while per capita consumption and the Swedish share of consumption remained unchanged. • Swedish market prices for beef have risen sharply and the

price for young bulls in the R3 category are now SEK 8.00/kg above the EU average for the category.

• The number of approved stalls for dairy cows continued to decline in 2015, while they increased for other categories, primarily suckler cows, which indicates a rising willingness to invest in specialised beef production.

Market balance for beef – continued


Market balance for pigmeat

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In 2015, the production, import, export and consumption of pigmeat declined at the same time as the Swedish share of consumption strengthened slightly. • Swedish market prices for pigmeat have risen sharply and the

price for category E is now SEK 5.00/kg above the EU average for the category.

• The number of approved sty places for fattening pigs more than doubled in 2015 compared with the preceding year, which indicated increased willingness to invest, but remained low over a ten-year perspective.

Market balance for pigmeat – continued


Market balance for poultry


Sweden's share of meat and egg consumption

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In 2015, the production, import, export and consumption of poultry declined at the same time as the Swedish share of consumption strengthened.

• Swedish wholesale prices for chicken rose gradually in 2015 and also started 2016 with rising prices which, to some extent, is attributable to an adjustment in the calculation, and Swedish prices are now more than SEK 10.00/kg above the EU average.

• The number of approved chicken coops increased tenfold in 2015 compared with the preceding year and, on average, the approved coop sections have space for fewer chickens.

Sweden's share of meat and egg consumption – continued

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