Agreement with Coldiretti for the revitalisation of Italian agriculture

THE SCENARIO FOR THE ITALIAN AGRICULTURAL SECTOR – June 2022

By the Intesa Sanpaolo Research Department

• The scenario for Italian agribusinesses has become more complex since the outbreak of the Ukraine-Russia war. The most obvious, immediate impact is on the prices of production inputs, primarily energy inputs. The agribusiness supply chain is particularly exposed to energy, both directly and indirectly, through logistics costs and the purchase of energy-intensive materials. In fact, many other key products in the supply chain, which were already showing large price increases before the war, have also seen steep price increases: the jump of more than 30% for fertilizers recorded in the first three months of 2022 stands out.
• The impact of higher energy prices will weigh on household budgets, leading to lower expected consumption dynamics, particularly in European countries, and greater difficulties in passing on cost increases downstream. However, for Italian agribusiness, demand will benefit from the positive effect of the post-pandemic reopening phase: overall, consumption expectations for on target markets for Italian food products remain significantly positively oriented, thanks to the resumption of social activities and tourist travel.
• Adding to the complexity of the current scenario are a number of crucial challenges in the medium term, including a growing world population, climate change, increasingly frequent extreme events, growing desertification and the consequent loss of biodiversity. All of these make it necessary to rethink a production model to offer increasingly sustainable and better distributed food resources globally.
• Italian agribusiness can rely on a number of competitiveness factors: first of all, the strength of its regions – as many as six Italian regions (Lombardy, Emilia-Romagna, Veneto, Sicily, Apulia and Campania) also excel at the European level and appear in the rankings of the top 15 European regions with the highest added value in the agricultural sector. In terms of diversification and biodiversity, Italy beats them all with 75% of national vineyards featuring over 80 grape varieties, a far greater number than its two main competitors, France and Spain, which have fewer than 15. Biodiversity is also guaranteed by the high proportion of land dedicated to forest (16.3%): in Europe only Spain has a similar level, while France and Germany have much lower percentages (3% and 8%, respectively). The strength of its regions and the quality and diversity of Italy's agri-food offerings are evidenced by the 876 DOP/IGP certifications in Italy (France is second with 750 certifications). These factors have enabled the supply chain to gain an excellent qualitative position in international markets: in 2020 Italy confirmed its position as the sixth largest exporter of agri-food products in the world, with a share of 4%, but climbed to fourth place (with a share of 5.3%) at the top end of the market (in agricultural products alone, it moved from 19th to 14th place). Agri-food exports set a new record in the first quarter of 2022 (+10.4% for agriculture, forestry and fishing products and +21.5% for the food, beverage and tobacco industry), after reaching an all-time high of €52 billion in 2021.
• To support the growth of Italian agribusiness, a multifaceted mix of priorities will be needed: according to a survey conducted by Intesa Sanpaolo of its agribusiness branch network, the bank's department entirely dedicated to the supply chain, the intensification of supply chain relationships, investment in human capital and innovations from an Agriculture 4.0 perspective stand out at the top of the list of strategic initiatives for Italian agribusiness companies.
• Investments in innovation and precision agriculture will also be key to cope with climate change and meet the needs of consumers who are demanding increasingly organic, sustainable products: in recent years, significant progress has been made in extending the agricultural area cultivated with Agriculture 4.0 solutions, reaching 6% of the UAA in 2021 (1% in 2017), moving closer toward the 10% target indicated by the Guidelines for the Development of Precision Agriculture in Italy.
• Innovation and digitalisation require greater investments in human capital, accompanied by a faster generational transition. According to estimates by Coldiretti based on data from Italian chambers of commerce, between 2016 and 2021 the number of farms run by young people (under 35) rose, in contrast to the overall number of farms, with a significant increase in their share.
• The foreign component of agricultural workers is also high (20%), to which special attention should also be paid, including in light of the implications for social and cultural integration.
• Ties to the local community remain crucial and will be even more emphasised in supply chain relationships: according to a survey of agribusiness branches, 34% of agribusiness companies are looking for new suppliers to address the critical issues they have encountered. This creates good opportunities for Italian and/or European suppliers over more those located at a greater distance.
• The NRRP will provide support: €6.8 billion in funds have been dedicated to agribusiness, earmarked for investments in innovation and mechanisation, logistics, agri-solar, biogas and biomethane development, as well as irrigated agro-system resilience. However, knowledge of the tools made available is still limited: only 30% of Italian agribusinesses know the plan's outlines (and even fewer – 7% – also know the operational implications for the strategic development of their business), while more than half have little or no knowledge of them.