Food & Agricultural Sector in Greece: an investor’s point of view

by Thanos Niforos*

Current inefficiency in the food economy means we lose productivity, energy, and natural resources, and bear the costs of throwing food away. According to the UN’s Food and Agriculture Organization, the inefficiencies of the food economy cost, trillion of dollars when social and environmental costs are included. Circular economy offers tools to enhance and optimize for sustainability within the Western food system.

More than the above fact, to deal with a vicious cycle where, islands of plastic have begun to disintegrate, fish are eating the micro particles and humans eat the fish, investments in sustainable farming, agriculture, aquaculture, food security and the bio-economy practices are fundamental and we should understand that, economics and not high science is what determines recyclability: a material is recycled only if one can make money collecting, sorting and recycling it.

Currently the policies addressing food waste are situated in the waste management arena. In order to move away from end-of-pipe solutions to a more holistic approach, the concept of sustainable consumption and production needs to be integrated across all the relevant sectors, such as agriculture, food processing, retail, and waste management.

On the production side, technological advances have been successful in reducing food waste, especially in developed countries. Material flows need to be closed, and both the introduction of new material into the system, as well as the exclusion of circulating material as waste, needs to be minimized. For example, localized food networks contribute to this ideology by offering simpler and more easily controlled systems.

Such systems are associated with sustainability, food security, and food safety. Collected organic waste can be composted and used in agriculture, or used for anaerobic digestion in biogas production. The quality standards of food, e.g., sizes, colors and shapes of vegetables, fruits, and berries should be re-evaluated (“ugly” food is not bad food). 

Indeed, green investments pay dividends – literally, and our future will be built on investment that integrates economic opportunity with sustainable environment practice since we live in a world where populations are increasing, consumer demand becomes more and natural resources are becoming scarce and becoming more expensive.

The business model of the circular economy it will bear fruits in the years to innovative technologies for eco-design, repair, recycling and re-create new jobs and business opportunities for almost all the economic sectors and especially for the food and agricultural sector. It is a fact that Green industries themselves grew by more than 50 % in the EU between 2000 and 2011, and jobs in environmental goods and services increased from 2.9 to 4.3 million between 2000 and 2012. 

For the Greek food and agriculture sector to understand that the role of innovation and recyclability is vital for its green growth is of high importance, because it has traditionally been one of the major export sectors for Greece and it will contribute to the greening of the financial system. New and innovative financing solutions, such as vendor finance, the inventory finance, leasing, factoring, crowdfunding, show that the financial sector responds to the needs of new business models. These first steps must be encouraged and scaled as the green investments are a sound investment. 

The key figures of the country's agricultural sector  is estimated (in 2012) at 41.5 million stremma (4.15 million hectares) of agricultural land used, comprising 717,000 agricultural holdings of small average size (58 stremma 5.8 hectares), which falls significantly short of the average size of agricultural holdings in the EU-27 (150 stremma or 15 hectares). Overall, the primary sector employed 490,000 persons during that year, representing 13% of the financially active population of the country, a percentage much higher than the average in the EU-27 (4.9%).

Over the 2012-2014 three-year period, the formation of gross fixed capital, which represents the size of investments in Greek agriculture, is declining, being especially acute in 2013 and 2014 (-6.3%). In 2014, the value of fixed capital is estimated at 1.3 billion euros, a size which reflects 25% of gross value added. This percentage, which expresses the index of investments in agriculture, has had a downward pace during the recession (from 27% in 2009 to 25% in 2014), while remaining still very low, compared to the EU-27 average (36.9% in 2014) but also to that of other countries hit by recession, such as Portugal, where the relevant figure exceeds 28%.

Though, the Greek food and agriculture sector has a strong presence in the European and a growing presence in the US food markets and a number of companies with strong export growth. From olive oil to flour products, honey to processed meats and ready meals, Greek companies have leveraged the competitive advantages offered by Greek primary production in order to competitively enter and remain in global markets, making food and agriculture one of the most dynamic and high-growth sectors in Greek manufacturing. 

It is also an area where Greek companies have managed to innovate and differentiate themselves, both in terms of the product but also in terms of packaging. Over the past 10 years, there are several examples of companies in the food sector who have achieved significant market shares abroad by leveraging the combination of traditional Greek ingredients and innovative marketing and packaging. 

Primary agricultural production has been a major export sector for Greece in the past, with Greek fruit and vegetables being consumed in several international markets. Despite the small lot size and lack of sophistication, the Greek agriculture sector has maintained a positive trade gap in a wide range of agricultural products such as tomatoes, kiwis, oranges etc., which are traditionally products with stable prices and rising demand. Furthermore, the current crisis has had a largely positive impact on primary agricultural production, as it has created opportunities for extroversion, efficiency and a turn towards better, more competitive output.

The current state of affairs is shifting more people towards high-quality farm production and export, and shifting farmers to more sophisticated, export-focused, higher-value crops. This is driven both by the Greek Government, which views food exports as a significant opportunity, and also by local farmers’ co-operatives which are improving their know-how and entrepreneurial skills and helping farmers modernize their means of production.

Greek specialty foods include a variety of products, ranging from high-value niche products (Chios Masticha, Kalamata olives, Kozani Saffron, Aegina pistachios) to widely available categories which are endemic to the Greek diet (e.g. greek yoghurt, olive oil, honey) to Protected Designation of Origin Status (PDO) products only found in Greece (in 2013 Greece designated a total of 101 products with PDO identity including olive oil products, feta and other local cheeses, fruits, tomato products, meat products etc).

Although aquaculture is a relatively specialized sub-segment of food production, it is a rapidly growing sector of the Greek economy – and one where Greece can leverage its competitive advantages and already is a major international exporter. In Greece, approximately 90% of the sector’s value is driven by two main fish products, seabass/seabream, in which Greece holds a dominant position in the global markets. Greek aquaculture production is known for its product quality, and has enormous further growth potential if it invests in more capacity, economies of scale and cost-improvement initiatives.

Fish farming holds a leading position in Greece’s Food industry and it is a top industry sector in the EU characterized by strong market consolidation. Investing in the consolidation and expansion of aquaculture facilities and the improvement of competitiveness, operating efficiency and market access can yield significant returns for this sector based on its growth potential and existing market positioning.

Over the next years, the Greek food & agriculture sector is expected to be a significant contributor to GDP growth and value added, driven by several key market trends and competitive advantages:

• The recent shift towards organic, natural ingredients in the Greek agriculture sector which are highly regarded and can command a greater premium and value added

• The prevalence of the Mediterranean Diet, as a premier paradigm of healthy, natural eating across the world

• The key drivers of health, ethics, physical fitness and pleasure that affect consumer preferences in developed economies

• The increased drive for self-sufficiency and food safety which is one of the key social challenges of the “Europe 2020” strategy

• The potential for clusters of innovation and R&D in several specialized Greek food supply chains, combining EU funding, the work of research and academic institutes and the interest of industrial champions in the application of new technologies

Given the above environment and the inclusion of circular model, the Greek Food and Agricultural sector can take advantage of its smaller scale, access to high-quality inputs and traditional Mediterranean positioning to differentiate from the global food manufacturers and gain market share value-added product segments and higher price points as well as to attract strategic and institutional investors.

EFSI, the European Fund for Strategic Investments, EU regional and structural funds, LIFE integrated projects, and the EU Natural Capital Financing Facility can be exploited to invest in sustainable and circular solutions. Leveraging private finance into greener solutions can overcome market failures and provide important societal benefits. They are important levers for national public and private investment.

The European Investment Bank has an important role in this process. It shows that it is firmly on track to mobilize at least EUR 315 billion by mid-2018. EFSI can be a model for the future on using scarce financial resources in a more efficient way. It will continue to contribute to the development of the market for sustainable/green projects, including by encouraging the development of a green bond market in Europe. 

The good news are the sector can easily attract FDIs and development banks together with corporate private equity from both individuals and institutional investors, are keen to co-invest in new innovative models, driven from the great opportunities and qualities that such an export oriented Greek Food and Agricultural sector has.

*Economist, Investment Management, Impact Investments, Renewable Energy