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Prospects for EU Agricultural Markets 2008-2015

07 April 2009

The shape of the European agricultural market over the next seven years will depend very much on the way it reacts to and recovers from the present global financial crisis, writes TheCattleSite senior editor, Chris Harris.

According to a new report from the European Commission, Prospects for Agricultural Markets and Income in the European Union 2008-2015, while the agricultural sector is more resilient to economic crises than other sectors, it is still expected to be facing a large number of difficult challenges.

The overall outlook is uncertain for the sector, not only because of doubts over the extent of the current financial crisis, but also because of its effects on exchange rates, disposable income, the labour market asset values access to credit and also energy prices.

The sector is also likely to be hit by other factors surrounding the Doha Round of the World Trade Organisation negotiations, varied policies around the world on renewable energy and climate change and the changes in technology and research.

All these issues are expected to have an impact on the growth in demand for agricultural products and also on farm incomes.

The financial situation is expected also to hit agricultural prices and be a trigger for change and structural adjustment in the sector.

The EU agricultural analysts expect a negative impact on food demand in the higher added value parts of the industry, especially in the livestock and dairy sectors.

However, the present economic situation is also expected to be felt in the arable crop sector through feed demand and in the energy crop sector because of lower oil prices. The repercussions will also be felt by the industries dependant on the agricultural sector - both upstream and downstream.

The EU report says that the current situation has amplified the fall in commodity prices that took place in the latter half of last year, and this is likely to continue over the short term.

In the medium term, the EU analysts say that commodity prices will recover boosted by the growth in demand for food and the development of the biofuel sector alongside a long term decline in food crop productivity growth.

Meat Sector

Over the last year total meat consumption fell by 2.2 per cent compared to 2007 to 85.1kg per head. This was the consequence of high prices and low availability.

The EU report says that in the short term consumption in Europe could continue to fall because of the economic recession.

"However the medium-term prospects for the EU meat sector appear moderately positive with increased production and consumption of poultry and pig meat, while production of beef and sheep/goat meat are projected to decline further," the report says.

The ability of the EU to export is going to become weaker as growth in demand outstrips production by 2.1 per cent over the period to 2015.

Pig meat production and consumption are both forecast to grow in the period to 2015 but at a slower pace than over the last decade because of competition from poultry meat and because of firm feed prices.

"The remarkable export situation of 2008 that enabled a 29 per cent increase in EU shipments would end in 2009 as a consequence of economic recession, increasingly restrictive Russian meat import policy and strong competition from low-cost producing countries," the report says.

It adds that EU shipments are expected to decline slowly but steadily in the medium term.

The poultry market is being supported by competitive prices compared to other meats together with a strong consumer preference for poultry meat.

This, the report says, should support production.

Last year saw a slight fall in poultry meat imports to the EU, but these are now expected to grow up to 2015.

At the same time exports are expected to continue to fall after a rise last year.

The EU will again become a net imported of poultry meat as it was in 2007 following the agreements reached with Brazil and Thailand.

Beef production is expected to fall by 4.8 per cent up to 2015. This continued sharp decline follows the restructuring of the dairy herd and the impact of decoupling from subsidies.

While production will fall sharply, consumption will only decline by 0.8 per cent. This disparity between the decline in production and consumption figures will push imports up by as much as 60 per cent. The report says that imports of beef are expected to return to their previous growth trends with the return of Brazil to the market after its exclusion from the EU over concerns about foot and mouth disease and sanitary controls.

Argentina could also return to the EU market following the self imposed ban by the Argentine government on beef exports.

The advent of Bluetongue in northern Europe largely affected sheep and goat meat production.

Total Meat Consumption Developments 1991-2015
(kg/capita)

Milk and Dairy Products

The economic situation is going to have a severe effect on the dairy sector in the short term and it is expected to particularly hit the farmers' disposable income.

The fall in prices of dairy products over recent moths is expected to hit milk prices through this year and they are expected to stay down for the first part of the forecast period.

This in turn is likely to lead to a contraction of the industry and a drop in production. Despite the two per cent rise in the quota for 2008/09 and favourable prices paid to producers, EU milk production grew only marginally last year.

The EU forecasters expect the EU to be under the quota which ends in March and this underuse will continue next year.

As quotas are gradually phased out, milk production is expected to recover over the medium term, although it is not expected to reach quota levels throughout the phase out period.

The final abolition of quotas in 2015/2016 is not expected to have a great impact on milk production or prices. The forecast is that production will be up by 1.1 per cent compared to the year before and prices will have fallen by 0.1 per cent.

In 2015 production is expected to be 1.8 per cent above the 2008 level at 151.4 million tonnes.

The short-term prospects for cheese and value-added fresh dairy product markets are expected to be determined by constrained EU and world demand.

In the medium-term demand is expected to remain favourable allowing EU cheese production to return to a stable growth from 2011 onwards to reach 9.9 million tonnes by 2015 - 10 per cent above the 2008 levels.

"This growth would be driven by continued strong consumption and production increase in the EU-12," the report says.

"Exports are foreseen to expand slightly following the short term decline, but the growth in domestic consumption would absorb most of the increase in cheese production, leading to a steady drop in exports in the last years of the projection period."

A contraction in EU and world demand is going to force skimmed milk powder and butter prices down, back to the intervention buying in prices seen at the end of 2008.

However, with export refunds coming back into play, EU exports should be supported but still face stiff competition from lower priced exporters.

EU butter production is expected to fall to 1.9 million tonnes by 2015, with consumption falling at a lower rate. This will help to destock the intervention stores which are expected to be cleared by 2012.

Milk Production, Deliveries and Dairy Herd Developments, 1991-2015

Arable Crops

The markets for cereals reached record price levels last year followed by a rapid decline.

The roller coaster effect was produced by some short term influences including energy prices and the lifting of some export restrictions.

Global supply responded to higher prices and the EU saw production constraints in the CAP lifted - in particular mandatory set aside.

The global financial situation then started to come into play as price falls speeded up.

The EU sees a positive picture for cereal markets in the period up to 2015.

The domestic use of cereals in the EU is projected to increase thanks to the growth in the emerging bioethanol and biomass industry following initiatives by EU countries in the framework of the biofuels directive, the biomass action plan and the renewable energy directive.

"These developments on the internal and external markets should all result in relatively balanced cereals markets over the medium term in the EU," the report says.

"World and EU cereal prices are projected to recover over the medium term somewhat at higher levels than seen in the last decade, though at much lower levels than those observed early 2008 and those previously foreseen before the start of the economic crisis."

Medium-term market perspectives for the EU oilseed sector are expected to be supported by the increasing demand for biodiesel in the EU and the perspectives projected for world markets (driven by the rising demand for oilseed meal and vegetable oil).

Oilseed production is forecast to be stable over the next seven years and the EU will continue to remain a large net importer of oilseeds over the medium term.

Cereals Market Developments 1995-2015
(million tonnes)

Further Reading

- You can view the full report by clicking here.

March 2009

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