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German Industries with High Exposure to Southern Europe

1/10/2013
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The EU has approved an additional bailout for Greece, whereas the economic performance of Spain and Italy is heading towards troubled waters. In 2011, Germany’s exports to Southern Europe accounted for 8% of total exports, while the sugar and tobacco industries ship as much as 48% and 36%, respectively, of their total exports to Southern Europe.

Alternative sales areas for German sugar

The sugar industry is marginal in German exports, ranking at the lower end within food industries. However, Germany’s sugar production capacity is the second largest in Europe. There is expected to be a decline in production value for the German sugar industry during the forecast period; one reason for this decline will be high exposure to unstable Southern Europe countries. In order to offset this risk, the sugar industry will need to track wider trade lanes to developing countries. Poland and Romania, for example, have already shown potential for growth, and since 2006, German sugar exports to these countries have increased rapidly. Conversely, German sugar manufacturers might concentrate more on domestic soft drinks, bakery products and catering industries, which are all expected to record growth in the next five years. Intensifying sugar beet pulp use for bioenergy, animal feed, bioethanol and “green chemicals” such as lactic and polylactic acids, might also benefit the industry in the future.

Tobacco – non-EU development perspective

The German tobacco industry is expected to export around 16% of its output or €3 billion worth of production in 2012. Exports to Italy, Spain, Greece and Portugal meanwhile account for a combined share of over 35% of total export value. The German tobacco industry is expected to remain stagnant over the next five years and its major product area, cigarettes, is expected to see sales contract due to decreasing domestic tobacco consumption, as well as a reliance on Southern Europe. In recent years, Italy, Greece and Spain have strengthened restrictions and bans related to the sale and consumption of tobacco products. Moreover, excise rates have increased in these countries and now stand at over 65%. High tobacco excise rates and growing economic uncertainty will result in declining volume consumption. Portugal and Spain are expected to see cigarette sales contract by more than 20% up to 2016 in volume terms, while Greece and Italy will contract by over 10%. Recent industry innovations such as e-cigarettes or smokeless tobacco might help the industry to offset some of this decline. However, intensive measures are being promoted by the EU to curb smoking prevalence. These will limit the possibilities of an easy swap of sales areas in the EU. Better export perspectives are thus offered outside the EU, with Japan, Saudi Arabia and the United Arab Emirates already in the top 10 export destinations for German tobacco products.

 

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