Further growth in 2022, but mounting troubles for the meat segment
French food & beverages output is forecast to grow by about 4% in 2022, after increasing 4.6% in 2021 and a 2.0% contraction in 2020. During the lockdowns in 2020 and early 2021, food service and producers/processors of key segments like beverages and meat suffered from deteriorating hospitality and catering demand, which had a negative impact on their margins. While restaurant and catering have rebounded since last year, revenues have not yet reached pre-pandemic levels.
Currently producers and processors across all subsectors have to cope with high prices for energy, commodities (e.g. milk products, wheat, sugar) and packaging (glass, rubber, paper, plastic, paper). Many will struggle to pass on higher input prices, due to the high market power of retailers and strong competition from their peers within the EU. This will lead to further decreasing profit margins in the coming months.
Payments in the industry take 60 days on average, and payment behaviour has been good over the past two years. High indebtedness of companies is not an issue, and banks are generally willing to provide loans to food & beverages businesses, as the sector is non-cyclical and has proved its resilience in the past. We expect that the low level of payment delays and insolvencies seen in 2021 will remain unchanged this year. However, some food processors struggling with deteriorating margins could face higher credit risk.
Our underwriting stance is generally open for food retailers, and open to neutral for businesses in the beverages, dairy and fruit and vegetables segments. Beverages businesses recorded lower revenues during the lockdowns and decreased exports. However, this subsector has performed well prior to the pandemic, and is set to rebound. That said, we are restrictive for meat producers and processors. Small and mid-sized businesses in this segment already struggled with low profitability and fierce competition from abroad before the pandemic. Currently higher input costs, diseases (avian flu) and the accelerating shift of consumer habits towards healthy and organic food have a negative impact on the credit risk of the meat segment.