National Bank of Greece S A : Greek Entrepreneurship (Exports-July 2020)

The opportunity of Greek food exports to thrive

•  The Covid-19 pandemic has hit economic activity worldwide,

  Jessie Voumvaki Deputy Chief Economist [phone] e-mail:[e-mail]

  Niki Konstantopoulou

  with Greek exports proving no exception as they came under pressure (with non-oil exports declining by 7% in the two months March-April 2020 compared with the same period the previous year). Against this backdrop, Greek food exports were a positive exception, as they built on the country's positive health picture and posted an increase of 9% during the abovementioned period.

  Economist [phone] e-mail:[e-mail]

  Theodoros Giouras

  Economist [phone] e-mail:[e-mail]

•  The key question is whether this increase, which stems from a particular mix of circumstances, can serve as a springboard for greater penetration into global markets. Such a prospect may well be feasible, as there are several cases of Greek food products that have gained significant export shares over the last decade.

•  Accordingly, we singled out five food products that have demonstrated successful export strategies: olives, yogurt, honey, kiwi fruit and apples. The key features that seem to have made the difference and therefore can be used by other Greek foods as a strategy for penetrating global markets are:

  •  Target developed markets

  •  Focus on branded products (not bulk)

  •  Achieve adequate volume to compete in the premium market

•  Given the asymmetric impact of the pandemic among the Mediterranean countries (with Greece in a relatively more advantageous position), the situation can be considered favourable for pursuing the maximum possible share for Greece in the global food markets (given the production capacity of our country). A first estimate of the potential benefit of this export-oriented strategy (based on our position versus the main competitor, Italy) is close to €1.2 billion per year (with food exports rising to €6 billion from €4.8 billion in 2019).

Sources: Eurostat, NBG estimates

Έμφαση έκδοσης

Significant growth in Greek food exports during the pandemic

Greek export orders*

20

Index(-100/+100)

11

2

-7

-16

-25

May-15

Sep-15

Jan-16

May-16

Sep-16

Jan-17

May-17

Sep-17

Jan-18

May-18

Sep-18

Jan-19

May-19

Sep-19

Jan-20

May-20

Food

Total

* The export order index corresponds to the net balance of responses, decrease (-100), unchanged (0), and increase (+100). Sources: Eurostat, European Commission, NBG estimates

•  Over the past decade, the food industry has significantly increased its contribution to Greek industrial output (to 23% from 17%) - approaching almost the double of the European average (around 12%).

•  In the midst of the pandemic, the external demand for Greek food products posted a significant increase.

  Specifically, Greek food exports increased annually by 9% in the two month period of March-April 2020 (versus a decrease of 12% for other non-oil exports).

•  At the same time, the first indications towards this direction of further strengthening of the upward trend of Greek food exports, with the export order index on the scale of [-100, + 100] reaching +13 points for the months of April and May (vs. +3 points in March, +2 points in the first two months of the year, and -4 points in 2019). Practically, the positive reading of the index reflects the fact that the majority of Greek food exporters state that orders from abroad will remain strong for the months ahead.

•  It is notable that Greece is the only European country that posted increasing food export orders during the two key months of the pandemic (April-May). Italy (Greece's main competitor in the global food market) recorded a sharp drop in the food export order index (-27 points in the two months April-May, from -12 points in March, -1 point in the first two months of the year, and -1 point in 2019).

How to achieve further penetration in the international market - the example of Greek foods that already stand out

PRAMETER	BEST STRATEGY
Destination country	Focus on developed markets
Market's segment	Branded as premium to achieve high price
Market's position	Holding high share
Volume (and uniqueness) ​of raw material	Adequate volume to tackle with competition

*The world, by sector, is calculated on the basis of the following countries: Argentina, Australia, Brazil, Canada, Chile, China, Hong Kong, Israel, Japan, Korea, Malaysia, Mexico, N. Zealand, Peru, Russia, Saudi Arabia, India, Singapore, S. Africa, Thailand, Turkey, USA, Indonesia, EU, which account for 90 per cent of global trade (adjusted for the share of the remaining countries in the total trade of non-oil goods).

Sources: Eurostat, Comtrade, NBG estimates

•  Given that the current turmoil in global markets offers an opportunity for Greek foods to leverage the country's positive image, the crucial question is whether this opportunity could be the occasion for gaining market share in the medium term.

•  In part, the answer lies in the adoption of effective strategies by Greek food exporters. To explore this possibility, we trace the examples of Greek food products that have managed to stand out in the global markets over the past decade - most prominently: olives, yogurt, kiwi fruit, honey and apples.

•  To identify the key success parameters, we developed a framework for codifying the strategies applied in the case of these 5 food products based on the following lines of analysis:

  •  destination country: degree of penetration in developed markets

  •  market segment: premium versus mass

  •  market position: potential for seizing a leading role

  •  volume (and uniqueness) of raw material: ability to stand up to competitive pressures

Apples: Seizing the moment for exports at non-developed markets

*The world, by sector, is calculated on the basis of the following countries: Argentina, Australia, Brazil, Canada, Chile, China, Hong Kong, Israel, Japan, Korea, Malaysia, Mexico, N. Zealand, Peru, Russia, Saudi Arabia, India, Singapore, S. Africa, Thailand, Turkey, USA, Indonesia, EU, which account for 90 per cent of global trade (adjusted for the share of the remaining countries in the total trade of non-oil goods).

Sources: Eurostat, Comtrade, NBG estimates

•  The market share of Greek apple exports in the world has tripled in the last decade (to 0.6% in 2019 from 0.2% in 2009). This massive increase reflects a 370% increase in the actual volume of Greek apple exports over the same period (vs. 13% worldwide). However, at the same time, there was a decrease in the relative price of Greek apples in global markets (to 0.58 in 2019 from 0.73 in 2009) - a development that "moves it away" from the premium market.

•  In addition, there has been a realignment of destination markets for Greek apples, with Egypt and the Middle East (mainly Saudi Arabia and Jordan) gaining shares (covering 81% of Greek exports in 2019, from 1% in 2009). Greece's entry into these markets has essentially exploited the gap created in those countries by the disruption in trade relations due to political turmoil in the region. On the other hand, it is worrying that our presence in SE Europe is shrinking, with our apple exports to the Balkans and Russia declining by 60% over the last decade.

•  The high dependence of Greek apple exports on developing and volatile markets (in the Balkans a decade ago, and in the Middle East today) carries the risk of a sharp drop in demand if the specific market experiences some kind of disruption. By way of example, we note the 25% decline in Greek exports in the three years 2015-2017 due to the decrease in demand from Egypt (by 49%).

•  In the next few years, it is important that Greece takes advantage of recent trade agreements with China and India - two markets that have been developing at double-digit rates over the past five years. At the same time, a more dynamic entry into the Eurozone market could be attempted, which currently accounts for just 11% of Greek apple exports, as compared with a 69% share for other food products.

Kiwi fruit: Shift of Greek exports to developed markets

Kiwi Greek exports per destination

140

120

100

50%

Millions€

80

60

40

20

0

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019 18% 12%11%9%

ItalySpainGermanyPolandRest

Greek kiwi relative price

0,8

0,4

0,0

2009	2011 2013	2015 2017
Eastern Europe	Western Europe

2019

*The world, by sector, is calculated on the basis of the following countries: Argentina, Australia, Brazil, Canada, Chile, China, Hong Kong, Israel, Japan, Korea, Malaysia, Mexico, N. Zealand, Peru, Russia, Saudi Arabia, India, Singapore, S. Africa, Thailand, Turkey, USA, Indonesia, EU, which account for 90 per cent of global trade (adjusted for the share of the remaining countries in the total trade of non-oil goods).

Sources: Eurostat, Comtrade, NBG estimates

•  Greece ranked fifth among the countries that export kiwi fruit, with a share of 5.5% in 2019 (vs. 3.3% in 2009). In addition, over the last decade Greek exports showed a notable shift from Eastern European countries (1/5 of total exports in 2019 vs. 3/5 in 2009) to Western European countries (2/3 of total exports in 2019 vs. 1/3 in 2009). Note that Greece accounts now for 22% of the Italian market, 10% of the Spanish market, and 6% of the German market.

•  The world market for kiwi fruit grew by 40% in terms of volume over the last decade. This growth in demand pushed global prices upwards (€1.75/kg in 2019 vs. €1.08/kg in 2009). The price of Greek kiwi fruit also followed an upward trend but less pronounced than the global average (probably due to efforts to claim a higher share). As a result, the relative price of Greek kiwi fruit against the average global price posted a decline (to 0.48 in 2019 vs. 0.57 in 2009). The same can be seen in both Western and Eastern European markets.

•  Note that Italy as a hub country (i.e. importer and exporter of kiwi fruit) achieved an export price that was almost double of the price of fruit which imported from Greece (€1.44/kg vs. €0.84/kg) - and thus reaps significant gains.

•  In any case, the global market for kiwi fruit is quite challenging, given that New Zealand, being the leading exporter, accounts for ½ of the global market and achieves three times the Greek price (€2.53/kg vs. €0.84/kg in 2019).