Sectoral Report: Agro-food Industry (December 2015)

​Supported by exceptional climatic conditions, agriculture is a key sector for the Greek economy, comprising 2.9 per cent of GDP and 14 per cent of employment (compared with an EU average of 1.2 per cent and 5 per cent, respectively).

However, the lack of a clear agricultural strategy has led the sector to rely heavily on European subsidies, incapable of exploiting the dynamics of the rapidly-expanding international market. Greek agricultural production increased by less than 20 per cent during the past 25 years (compared with 220 per cent globally and 86 per cent in Europe). In fact, Greek agricultural value added, excluding subsidies, dropped by 13 per cent during the past 20 years, while other Mediterranean countries (Spain, Italy, France) managed to increase value added, excluding subsidies, by about 15 per cent during the same period. 

Moreover, the food supply chain has a relatively small manufacturing component (adding just 40 per cent to the agricultural production versus 70 per cent in Western Europe), as most Greek agro-food products are consumed or exported in bulk form.

On the other hand, ¼ of Greek food exports have exploited Greece's comparative advantages and gained significant shares in the international market (e.g. olives, yogurt and honey). Their common strategy is to target high-income countries (such as the euro area, UK, US, Japan), with branded products in packaged forms.

Aiming to quantify the unexploited dynamics of the Greek agro-food sector, NBG Research focused on: (i) the potential for higher agricultural production (by following the high R&D and high vertical integration examples of countries like New Zealand, The Netherlands, Israel); as well as (ii) the development of a larger food manufacturing sector (i.e. transform bulk production to high-value-added products).

According to our estimates, there is potential for extra value added from the agro-food sector to the Greek economy of about €12.2bn per year, equivalent to 6.9 per cent of GDP (€9.1bn directly and €3.1bn through the indirect boost to the agricultural inputs and packaging industries). However, this requires the formation of an efficient food value chain:

• Agricultural production should become more technologically sophisticated. In fact, the reformed CAP offers opportunities for a more professional approach to agricultural activity, with less dependence on income subsidies and more focus on upgrading the production process.
• The limitation of small-sized farms could be overcome by a business-oriented operation of agricultural cooperatives, with managing boards including producers, marketers and researchers.
• The vertical integration in the food supply chain should also aim towards the development of strong brands. In this context, the promotion of PDO products should be encouraged and synergies from sectors such as tourism for the successful branding of Greek agro-food products should be developed.