The fluctuations of commodity prices during the last six months may continue to affect profits for the California agrifood sector but growth by exports could offset the impact, according to the trade credit insurance company Euler Hermes.

The agrifood industry should show limited output growth and strained operating profits when performance for the first half of 2013 is reported, according to Euler Hermes’ recent report, “California: The Agrifood Valley at Risk.

“For the last six years, food manufacturing in California, as well as in the U.S. generally, has faced fluctuating agricultural raw material prices,” said Dan North, lead economist, Euler Hermes North America.

“We are continuing to see the effects of this. However, there is light at the end of the tunnel. The industry is well-positioned to capture economic growth through the export of a wide range of products,” North said.

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In 2012, California food exports grew 2.5 percent over 2011 to reach $9 billion, accounting for 14 percent of total U.S. food exports.

In 2013, these exports are forecast to rise at a similar pace, as growth drivers (Canada, Mexico and Asia - except for Japan) are expected to offset declining demand from industrialized countries weakened by prolonged economic doldrums.

“The food sector shows upside potential, especially when taking advantage of upstream strongholds in agriculture,” said Bruno Goutard, sector economist, Euler Hermes North America. 

“More so than any other state, California is more integrated in offshore commerce than the industry nationwide,” Goutard said.

Food production in California declined slightly during the economic recession and bottomed out in 2010.

As a result of improvements in the U.S. economy, the sector’s output has progressively recovered to its pre-recession level and posted a sound 4 percent growth rate in 2012, compared to 2011.

For 2013, food manufacturing output should experience moderate growth in California due to limited U.S. economic growth.

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