Report Highlights:

EU beef production increased in 2006, from the additional slaughter of quarter million older cattle in the UK. As a result of the decrease in beef imports from Brazil and Argentina, this increase in EU beef production had no impact on EU beef markets. On the contrary, the increase in beef consumption, mainly veal in Italy and Greece, in response to the Avian Flu scare in early 2006, resulted in record high EU beef prices. As beef production is forecast to decrease again, the EU enlargement with Bulgaria and Romania in 2007 is forecast to tighten the market further, unless Brazil can resume beef exports fully again as a result of the end of FMD.

Executive Summary

Cattle numbers in Europe have been decreasing for years as a result of the increase in milk production per cow and fixed milk production quotas. The decoupling of beef premiums as a result of recent CAP reforms has also removed incentives for inefficient cattle farmers to remain in cattle farming. As a result, Europe’s beef supplies decreased into a beef deficit in 2003, which is gradually widening in time.

The partial ban on Brazil beef exports because of Foot and Mouth Disease (FMD) and the export restrictions imposed by Argentina have significantly affected already tight EU beef supplies in 2006. As a result, the increased slaughter of some quarter million older cattle in the United Kingdom as a result of the end of the Over Thirty Month Scheme has not disturbed EU beef markets and European continental markets readily absorbed the displaced Irish beef from the UK market. Outbreaks of Avian Influenza (AI) in the south of Europe in the winter of 2005 also increased demand for beef and veal as consumers in Greece and Italy departed poultry consumption. As a consequence, EU beef pric es increased to all time record levels.

The latest EU enlargement with Romania and Bulgaria on January 1, 2007 is forecast to further increase demand for beef in the EU market. While this report concentrates on the EU-25 market, ignoring Romanian and Bulgarian markets, expected competition for European beef import TRQ’s, as well as increased beef imports from the EU-25, will impact the EU beef balance in 2007. Although beef imports from South America are forecast to increase in 2007, much will depend on the evolution of the FMD situation in Brazil.

Cattle

2005

No significant changes were made from the previous annual report.

2006

Cattle herds continued to shrink as increased milk production efficiency leads to lower dairy cow numbers in the EU-15, while dairy herds in the New Member States (NMS) are still slightly increasing to fill increased milk quota. As a result of the decline in BSE incidence, the Over Thirty Month Scheme (OTMS) in the United Kingdom was ended, which led to an additional slaughter in the UK of some 250,000 head of older cattle, mainly cows, compared to 2005. This increase in slaughter in the UK more than offset decreasing slaughter in other MS. This has also led to a decrease in EU cattle loss numbers in 2006. Cattle slaughter also increased again in Ireland, Germany and Poland, compared to 2005. Slaughter in these MS had decreased in 2005 in reaction to the decoupling of slaughter premiums at the end of 2004 and the 2004 EU enlargement. EU calf slaughter in 2006 decreased as a result of a decrease in profitability from veal production in The Netherlands, despite increased veal consumption in France and Italy as a result of the Avian Influenza scare in early 2006. The reasons for this loss in profitability were increased feeding costs as a result of increased Non- Fat Dry Milk (NFDM) powder prices and market satiation. Despite the temporary increase in cattle slaughter, EU cattle prices in 2006 increased to record levels in response to strong beef demands. As a result of these high cattle prices, increased numbers of cattle and calves from the NMS were exported to the EU-15; while exports of live cattle outside the EU have decreased because of the abolition of export restitutions for live cattle. Exports of live cattle from France to Lebanon also decreased due to the war in the summer of 2006. Increased numbers of calves from Ireland and the United Kingdom were also exported to The Netherlands for veal production. The Avian Flu scare also temporarily triggered increased French exports of young bulls for fattening to Italy in 2006. The autumnal outbreak of an epidemic of Bluetongue disease (BT) in the Benelux, Germany and the North of France in 2006 only temporarily disrupted local trade, as no significant out-of-Europe exports of live cattle originate from this area.

2007

Decreasing dairy herds are forecast to further reduce cattle inventories in 2007 in the EU-15, while cattle inventories from both dairy herds and beef cattle in the NMS are forecast to increase further. Imports of live cattle into the EU-25 are forecast to decrease as sales of cattle from Romania and Bulgaria to the EU-25 should decrease again after remaining farmers in Bulgaria and Romania have adopted EU veterinary standards. The requirement for dairy producers in Romania and Bulgaria to improve sanitary conditions of milk production to meet European standards before accession forced many farmers to halt milk production and sell their cows. Exports of live cattle from the EU are forecast to further decrease as cattle exports to Lebanon and North Africa further dry up. Intra-EU exports of Danish calves to the Netherlands for veal production are forecast to decrease as record high beef prices offer good profitability perspectives for Danish farmers to fatten these cattle domestically. If the 2006 Bluetongue epidemic in North-West Europe were to spread southwards into the center of France in 2007, this could have more significant consequences for the intra-EU cattle trade with Italy. EU cattle slaughter numbers are forecast to decrease again as UK stocks of older cattle are gradually getting exhausted. Cattle slaughter is also forecast to decrease in Germany, France and Italy, while slaughter is forecast to increase in Poland and also marginally in Scandinavia.

Beef

2005

EU beef production in 2005 was updated upwards as a result of an update in slaughter numbers and carcass weight from the previous annual report. This resulted in an increase in EU domestic beef use.

2006

EU beef production in 2006 is expected to be slightly higher than previously anticipated because adult cattle made up a higher percentage of total slaughter than in previous years. This resulted in an increase in the average slaughter weight. Beef imports from South America decreased as a result of the Foot and Mouth Disease (FMD) in Brazil and export restrictions from Argentina. Almost doubled beef imports from Uruguay could only partly offset this decrease. The temporary increase in beef production in the UK also partly supplanted beef imports from South America to continental Europe, as well as deviating Irish beef exports from the UK to the rest of Europe. Beef and veal consumption increased in Greece and Italy in reaction to the AI scare, so did beef consumption in the United Kingdom because of the increased domestic supplies. The high beef prices led to a decrease in beef consumption in the NMS, mainly Poland and the Baltic states. High beef prices also led to a decrease in beef exports, especially from Germany and Poland.

2007

EU 2007 beef production is forecast to decrease again as a result of lower slaughter in Germany, France, Italy and the UK. Beef imports into the EU from South America are forecast to increase again. However, much will depend on the outcome of the European Food and Veterinary Office (FVO) audits in the spring of 2007 of the residue and FMD situation in Brazil. If favorable, FMD restrictions on Brazil beef exports could be lifted before the summer of 2007 and beef exports could increase more significantly. In the meantime, EU beef exports, mainly to Russia, are forecast to further decrease in 2007 due to short supplies and high beef prices. Further increases in EU beef prices are forecast to aggravate the erosion in EU beef consumption, which is also caused by beef consumption in Greece and Italy returning to lower pre-AI levels and beef consumption in the UK adapting to decreasing supplies again.

Upward pressure on EU beef prices in 2007 will also be fueled by expected increases in beef exports from the EU to Romania and Bulgaria. The reason for this is that after EU accession, beef imports from outside the EU into Romania and Bulgaria face the higher EU import tariffs. EU-25 beef importers fear competition from Romania and Bulgaria for EU beef import quota, as their previous beef imports might give them disproportionately large rights for the beef import TRQ’s under current eligibility rules.

Further information

To read the full report please click here (PDF format)

List of Articles in this series

To view our complete list of 2007 Livestock and Products Semi Annual reports, please click here

February 2007