Market Monitor Food Poland 2016

• Many businesses are highly geared
• Payment delays and insolvencies have increased in some segments
• Payments take about 45 days on average

The Polish food sector accounts for 6% of GDP and 13% of exports. Polish food producers have benefited from robust domestic demand (which accounts for about 70% of sales) and increasing exports. After increasing 2.5% in 2015 domestic sales are expected to rise 3.4% in 2016, and export sales 6%. The major Polish export destination remains the EU, notably Germany and the UK, but the share of exports going to Asia and Africa is growing. In 2017 the sector is expected to grow by more than 3%.

Given its current fragmentation, a further concentration and consolidation process in the Polish food sector is highly probable. With the support of investment funds such a process is already ongoing in the food processors segment, while in the food producers segment consolidation is still in its initial phase.

Pork production, which accounts for the lion´s share of Polish meat production, is decreasing due to lower pork prices and lower profitability, which has been partially caused by the Russian embargo. Investments in this segment have been financed externally, and as a result many companies are highly indebted.

Since the EU milk quota ended in April 2015, the dairy sector has been facing more challenges. However, in the long term Polish farmers and dairy producers could benefit from the lifting of production limits, utilising their full production capacity.

On average, payments in the food sector take about 45 days. Payment delays and insolvencies have increased in certain segments, such as the red meat subsector, due to oversupply and low prices. We have also observed increasing business failures in the food retail segment, as smaller players suffer from fierce competition and low margins.

Our underwriting stance remains generally open for segments like fruit and vegetables, dairy and white meat. However, we exercise more caution in the retail segment, for slaughterhouses and processors in the red meat segment. Additionally we pay specific attention to single food businesses´ gearing ratio. Many investments have been financed externally, and as a result a lot of companies are highly indebted. After the Brexit decision we closely monitor food businesses dependent on exports to the UK.