Focus on Italy

by World Grain Staff
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Agriculture expands and diversifies amid climate of steady liberalization

by Mario Sequeira

Since Italy began its transformation into an industrialized economy after World War Two, agriculture has shrunk from the size it was in the late 1940s.

There was a time when Italy’s agriculture sector accounted for nearly 40% of Gross Domestic Product. Today, it contributes about 2.5%. This is in keeping with the trend in economic structures of most Organization for Economic Co-Operation and Development (OECD) countries, where agriculture is getting smaller and the services sector is expanding. Italy’s services sector accounts for nearly 70% of GDP and manufacturing about 28%.

GDP growth has slowed since and because of September 11, is rising at less than 1%. It is forecast to reach 0.5% this year and 1.4% next year.

Enormous differences still exist between the north and south, with the north more industrial and prosperous and the south agricultural and economically struggling.

Italy’s industrial backbone consists of the small and medium-sized, family-owned companies in designated "industrial districts" producing high-quality consumer goods, including clothing, furniture, kitchen equipment and white goods.

With a topography consisting mostly of mountainous areas, the arable land on the plains and coasts comprises 31% of the total land area. Permanent crops comprise 10% of land area and pastures 15%.

The northern part of Italy produces primarily grains, sugar beets, soybeans, meat and dairy products, while the south specializes in fruits, vegetables, olive oil, wine and durum wheat.

Agriculture employs almost 4 million people, but many are part-time workers and when converted to full-time equivalent, the figure is closer to 1.1 million people, compared to 1.8 million in 1989.

In 2000, the most recent figures available based on surveys, there were approximately 2.2 million farms of which 78% were 0-5 hectares. These are mostly in the south. Northern farms are larger and more successful.

Italy’s agriculture sector is still one of the biggest in the European Union, now made up of 25 member states after 10 new members joined in June 2004. According to 2003 Eurostat figures, Italy was second to France and ahead of Germany in overall agricultural production, valued at € 40.1 billion (U.S.$52 billion). Crop production was valued at € 25 billion (U.S.$32.5 billion)

Agriculture policy is determined by the E.U.’s Common Agriculture Policy (CAP). The third wave of reforms to the CAP, which were agreed on in June 2003, are beginning to take effect this year.

The most important change is severing the link between production and subsidies, called decoupling. Where previously farmers were given direct payments based on which commodities and how much they produced, they will now get a direct single farm payment based on the average of commodity-based payments made between 2000-02.

This was designed to prompt farmers to react to market signals rather than intervention policy. The payments are also subject to farmers meeting certain set standards relating to food safety and quality, animal welfare and environmental protection.

Other changes include reductions to intervention prices and tariffs, aimed at increasing E.U. farmers’ competitiveness. For example, the rice intervention price has been reduced by 50% and a ceiling of 75,000 tonnes annually imposed on purchase of rice as intervention stock.

The tariff on brown rice has been cut from € 460 (U.S.$598) per tonne to € 175 (U.S.$227) and the tariff on milled rice reduced to € 65 (U.S.$84.5) per tonne from € 264 (U.S.$343).

Member states were given the option of implementing the changes between 2005 and 2007 and also of watering down the reforms. For example, members could decide to retain the link between payments and production up to a limit in underdeveloped areas.

Italy decided to start the new regime of payments this year. There will be a

100% decoupling of payments in the crop production and livestock sector.

Italy’s main grain crops are soft wheat, durum wheat, rice, maize and barley. Soft wheat production has been averaging annually 2.5 to 3 million tonnes and durum wheat 3.5 to more than 4 million tonnes.

Italy is the largest rice producer in the E.U., with production surpassing an average 1 million tonnes annually. Of this, nearly half is exported.

Most of the annual maize and barley production — 10 million tonnes and 1 million tonnes-plus respectively — goes towards animal feed.

The general sentiment is Italy appears to be strongly against the introduction of genetically modified (GM) crops before arrangements are put in place to protect conventional and organic farmers.

The government has passed a law setting up the framework to enable a coexistence of GM, conventional and organic crop production. The law sets out the principles that must underlie a coexistence plan and deals with liability in the event of contamination, penalties and the evaluation and monitoring of the plan.

Italy produces about 65% of its soft wheat and durum needs and imports the rest. Imports have been growing because of a drop in local soft wheat production.

About 70% of the soft wheat is grown in northern Italy, nearly 25% in central Italy and the rest in the south. However, the south produces about two-thirds of Italian durum, with the remaining produced in the central region and very small amounts in northern Italy.

Most of Italy’s durum wheat is used in pasta production. Over the past 10 years, pasta production has increased from 2.5 million tonnes to 3.2 million tonnes.

The Italian pasta industry is the world’s leader, producing the best-quality pastas. For this, they are willing to pay premium prices to obtain the best quality durum from any source around the world.

Leading Italian pasta makers, including Barilla and De Cecco, buy most of the so called "desert durum" from Arizona and southern California under contract with growers to feed certain production lines of pasta.

Italian bakers are very quality conscious. Italian soft wheat millers buy wheat from the U.S. and Canada, including Dark Northern Spring wheat from North Dakota, used to improve the flour blends needed to produce certain Italian bakery products such as the traditional Christmas cakes.

Italy’s bread wheat imports vary annually, exceeding 5 million tonnes since 2000 and hitting a high of 5.8 million tonnes in 2002-03. Durum wheat imports are about 1.5 to 2 million tonnes.

Pasta exports have risen annually over the past 10 years, from 1 million tonnes in 1994-1995 to more than 1.5 million tonnes in 2003-2004. Markets include Germany, France, Britain and the U.S.

Italy’s milling industry is mature, made up of large industrial operations as well as small mills. The Association of Industrial Millers and Pasta Makers of Italy (ITALMOPA) estimates there are about 700 milling companies in operation in the country.

Of these, about 190 mill durum and have a total annual capacity of 7.1 million tonnes wheat equivalent. The rest are bread wheat mills with a total annual capacity of 10.7 million tonnes, wheat equivalent. Annual semolina production is about 3 million tonnes, while bread wheat milled totals about 6 million tonnes.

Italy has the fourth-largest livestock industry in the E.U., after France, Germany and Spain. As of December 2003, Italy had 6.7 million head of cattle. Beef and poultry production amounted to just over 1 million tonnes in 2003, while pork production was 1.5 million tonnes.

Italy has a well-developed compound feed industry. Annual production averages more than 12 million tonnes for the cattle, poultry and swine industries. About 5.6 million tonnes of cereals — wheat, maize and barley — are used in feed production.

Although bovine spongiform encephalopathy continues to cause concern in the cattle industry, it is nowhere near the level that occurred in 2001, when new cases erupted and beef consumption plunged 50 % to 60%. An extensive testing and vaccination program has brought the crisis under control and renewed consumer confidence.

Since 2001, BSE cases have been dropping and this year three cases were recorded, compared with 50 in 2001. Since 2001, there have been 138 cases reported.

The CAP reforms of 2003, which are being enforced in Italy from this year, are not expected significantly to affect Italy’s livestock industries. The E.U. Commission’s analysis has indicated that beef production would likely fall by about 3% as a result of decoupling payments, even though most member states will retain some form of coupled payment.

Beef prices are expected to rise as a consequence, leading to an increase in poultry and pork consumption, which will be met by an increase in production. WG