BayWa AG Annual Report 2011

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Significant increase in the price
of agricultural produce
Demand for lubricants stronger
Acceleration in Germany’s policy
to promote alternative sources of
energy
3 • Management Report on the Company and the Group • Business and General Conditions
Trends in the agriculture sector
Compared with a year ago, the average prices of agricultural produce, particularly of grain, rape, fruit and milk,
rose significantly in 2011. At the end of the third quarter, the producer price index of agricultural produce was
almost 12% above the level posted a year ago. In the case of important agricultural commodities, this price trend
was buoyed by strong global demand and the rising price of energy. Due to the growing use of renewable primary
materials to produce energy, prices in the energy market are increasingly forming a floor for the corresponding
agricultural produce. Moreover, unfavourable weather conditions during the main harvest period in late summer
and early autumn resulted in poor harvests in a number of regions. The global production volume of grain in the
grain year 2010/11 came in at 2,200.3 million tons, which is 1.8% lower in comparison with the 2010 figure. At
the same time, consumption climbed by 1.2% to 2,228.7 million tons, which depleted inventories by 28.4 million
tons to 462.2 million tons. The total volume of grain harvested in Germany fell 5.7% short of the year-earlier level.
Winter barley was particularly badly affected by the weather, with the yield per hectare declining by 14.9%. Seen
from a regional standpoint, the yield trend in the south and west was better than in the north and east. Producer
prices in the dairy industry climbed for the second year in a row, with dairy production up by around 2.4%. The
production of meat is likely to have risen overall by between 1% and 2% in 2011. A slight downturn in the volume of
cattle farming was more than compensated by rising prices. Pig farming came under pressure in 2011 from higher
feedstuff prices, on the one hand, and dioxin contamination of certain types of feedstuff on the other. As a result,
producer prices fell to their lowest level for a number of years but staged a recovery as the year progressed. Poultry
farming grew by approximately 3% in terms of volume in 2011, accompanied by better prices. The purchase prices
of agricultural operating resources also rose significantly overall by 8%. Above-average price hikes were recorded
particularly for fertilisers, feedstuffs and energy as opposed to crop protection products where prices increases were
moderate. The generally substantially higher income of farmers was, however, more than sufficient to compensate
for higher costs. The German Farmers’ Association therefore anticipates an increase in net value added of 7% to
€13.4 billion. Operating income per worker advanced by just under 10% to €24,600 in the calendar year 2011, up
from €22,500 in 2010. Agricultural machinery reported a record year with a revenue growth of more than 30% in
2011. Strong demand for cutting-edge agricultural technology was driven firstly by the generally good selling prices
for agricultural produce, and secondly by structural changes in the agriculture industry. For instance, the number of
agricultural operations declined by another 2.3% in 2010 to 300,700 in contrast to the average area of land under
cultivation which rose by 2.3% to 55.8 hectares. This trend is conducive to the increasing deployment of intelligent
and process-driven agricultural equipment to enhance efficiency.
Trends in the energy sector
The determining influence on the heating business in 2011 was the high crude oil price. Having closed the year
2010 at around USD95 per barrel, close to its peak for the year, the crude oil price entered another steep uptrend at
the start of 2011, which brought it to just under USD127 at the start of April. Although, by the beginning of October,
the price had declined, displaying a great deal of volatility, from this level to USD100, it was significantly higher over
the course of 2011 in a year-on-year comparison. Against this backdrop, and because of lower consumption due
to the mild winter, demand remained modest. Despite positive economic influences and an uptrend in the stock of
vehicles, the fuels business also reported marginal sales increases. As in 2010, the price policy of the large mineral
oil companies remained geared to compensating the lower refinery margins through higher margins in other
business lines, such as filling stations. Demand in the lubricants business continued to rise in 2011, due in the main
to the sustained positive development of the metal processing industry, particularly mechanical engineering.
In the field of renewable energies, fundamental political decisions were made with the adoption of the Energy
Concept 2050 by the German government and Bundestag in the autumn of 2010. Under this concept, the
proportion of renewable energies in electricity production is to be raised to 80% in the period through to 2050, the
overall consumption of energy halved and CO 2 emissions reduced by 80% to 95%. The nuclear disaster in Japan in
March 2011 accelerated the turnaround in Germany’s energy policy through the retraction of extending the lifetime
of existing nuclear power plants. All in all, the expansion of solar, wind power and biogas capacities is progressing
apace and is being increasingly promoted by established energy utilities. Whereas wind farms and biogas plants
generally involve large-scale commercial projects, the demand for photovoltaic systems is strongly influenced by
private households. In this segment, the development of subsidising measures has a major impact on investment
BayWa AG Annual Report 2011