(The following statement was released by the rating agency)
Dec 10 - A potentially fierce debate in the first weeks of 2013 over the future of the Common Agricultural Policy and the broader European Union budget will begin a year of high regulatory uncertainty for the European and CIS agribusiness sector, Fitch Ratings says.
The CAP reform talks will set the budget for 2014-2020 and will be critical in assessing how well European farmers can compete as they face de-regulation pressures and increased competition from outside the region. Currently, only the biggest companies or those that operate in a segment where Europe retains a natural competitive advantage (such as cereals) can compete freely internationally.
Recently renewed discussions over the potential abandonment of the European sugar quotas system from 2015 underline how vulnerable certain sectors are to international markets and prices.
At the other end of the scale, the agriculture sector will remain exposed to a high risk of regulatory intervention through changes in quotas and duties or other trade restrictions. This is particularly true in Ukraine because of potential shortfalls in crop production and the sensitivity of policy makers because soft commodity prices represent such a high proportion of basic consumer product costs.
Meanwhile protein producers in Ukraine, such as MHP and Avangardco, face positive domestic as well as overseas demand prospects. This includes the recent announcement of the EU market opening to Ukrainian poultry albeit subject initially to EU import tariffs.
The risks we have identified, including debt-funded expansion projects (as for Miratorg, Sodrugestvo or Kernel Holding ) and heightened foreign-exchange risk for many Ukrainian entities in agribusiness, are highlighted in our 2013 outlook for Europe and CIS Agribusiness. We believe moderate leverage and other conservative financial policies, such as not paying dividends, will mitigate these risks.
For the full report, please visit www.fitchratings.com.