LMC Report: EU Report Predicts Increase in Imports

UK - The latest report from the European Commission’s Directorate General for Agriculture and Rural Development has produced its findings for the prospects for Agricultural Markets and Income in the European Union.

14 April 2009

3 minute read

Europe

The report provides an insight into the prospects for agriculture in what is the most serious economic crisis since WWII.

The report is positive in that it identifies agriculture as one of the most resilient industries in challenging economic times. It suggests that in comparison with other sectors, agriculture is capable of withstanding the worst impact of the recession, since food demand is treated as a priority. However, while the Directorate predicts a robust performance by some agricultural sectors, it paints a negative picture for the beef sector between 2009 and 2015 with production and consumption projected to fall.

Current high prices attributed to tight supply

In NI, as with the rest of the EU, beef farmers are currently benefiting from strong prices. The report attributes the stronger prices to reduced supply of beef in EU markets in 2008 and 2009. The tightening of EU import controls which restricted imports of Brazilian beef, coupled with the Argentinean government’s intervention to reduce its beef exports, seriously constricted beef availability in the EU in 2008 and 2009.

The net result was higher retail prices and better prices paid to producers. The report appears to regard the higher prices available to producers as a short-term phenomenon which will disappear when imports are reintroduced and as a result of worsening export potential and EU demand.

Beef consumption forecast to fall by three per cent

The increased prices which have been driven by the tighter supply, coupled with falling disposable income have caused a fall in meat consumption in the EU with beef in particular experiencing a decline.

However, while per-capita meat consumption is forecast to rise between 2010 and 2015, a recovery in beef consumption is not anticipated. The Directorate predicts that demand for beef will continue to weaken and cites higher-value products in the livestock and dairy sectors as the likely casualties. The report estimates that beef demand will contract by around three per cent by 2015.

This contraction has already been in evidence with consumers in Great Britain (our main market) now favouring cheaper, lighter cuts of beef and lamb.

Forecasts based on assumed Brazilian compliance

The report appears to be preparing producers for a decline in prices. The authors base this prediction on lower export potential as a result of the economic situation, but mainly on the expectation of the renewed presence of Brazilian beef in EU markets.

This forecast is based on the assumption that Brazil will fully comply with EU traceability standards from 2010 onwards. It is unclear whether this is a reasonable assumption. Furthermore, currency fluctuations and the impact of the Doha development round of trade negotiations may also affect the potential of this trade to impact upon prices in the EU.

However, one thing is certain. If Brazilian imports do begin to come onstream in greater numbers from 2010 onwards and this leads to falling prices, producers will soon need to factor-in these lower price expectations when buying lighter store cattle and dropped calves.