AHDB European Market Survey

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23 April 2012

AHDB European Market Survey - 20 April 2012

EU annual food price inflation in February 2012, at 3.0 per cent, was slightly down on last year (3.2 per cent) but has been higher than the overall inflation rate since November 2011.

Food price inflation overtakes overall inflation

EU annual food price inflation in February 2012, at 3.0 per cent, was slightly down on last year (3.2 per cent) but has been higher than the overall inflation rate since November 2011. According to the EU Commission, annual food price inflation in February was 0.1 percentage points higher than the overall inflation rate. Compared with the previous month, the price increase during in February, at 0.8 per cent, was approximately 0.3 percentage points higher than the monthly rate of overall inflation.

The comparatively high inflation rate for food has largely been due to sharp global increases in some key commodity prices and the disruption to supplies as a result of adverse weather conditions.

Within the food category, meat prices in the EU were 4.5 per cent higher year on year, with the largest annual price increases generally recorded in Eastern European states, such as Poland (+11.1 per cent), Hungary (+9.4 per cent) and Estonia (+8.9 per cent). Meat prices have been steadily increasing each month, with February’s prices 0.3 per cent higher than the previous month. Beef prices, in particular, hit record highs for five months in a row, peaking in January at €382 per 100kg carcase weight. Prices eased back slightly in February, falling one percent to €379 per 100kg carcase weight.

Rates of inflation in the UK were higher than the European average. February figures for the UK were not available at the time of publication, but the overall annual inflation rate in January, at 3.6 per cent, was 0.7 percentage points higher than the EU average. Food price inflation was 0.6 points higher in the UK compared with the EU average at 3.4 per cent. Annual meat price inflation in the UK was also well above the European average; at 5.7 per cent, it was 1.2 points higher than the EU average.

The EU’s interim economic forecast for 2012 has indicated that inflation is expected to slow down. For 2012 as a whole, the annual overall inflation rate for the EU is projected at 2.3 per cent. The annual inflation rate in 2011 is estimated to have been 3.1 per cent, driven by persistently high energy prices.

Strong demand drives up Irish beef exports

In 2011, Irish beef exports totalled 339,000 tonnes, an increase of six per cent on the year. This increase in exports came despite Irish beef production falling two per cent, as the tight global supply situation resulted in increased competition for Irish beef. The UK continued to be the dominant market for Irish beef, taking approximately half of all exports, and in 2011 recorded a five per cent increase in shipments on the year. A combination of reduced supplies from other markets, lower prime cattle availability and a large increase in export volumes resulted in the UK market requiring increased supplies.

With the EU remaining a net exporter of beef in 2011, demand for Irish beef on the continental market remained firm, with the majority of markets increasing volumes. There were increased shipments to France, Netherlands, Italy, Sweden, Spain and Germany as well as a number other smaller markets.

The growth of trade with non-EU markets continued, although these shipments still only account for four per cent of the total. The largest of these markets remained Russia with volumes increasing by over a third in 2011 to reach 8,400 tonnes. Other notable markets include Switzerland, South Africa and Ghana.

Tight global beef supplies intensified competition for Irish cattle throughout 2011 resulting in farmgate prices being considerably above 2010 levels. Overall steer prices were on average 18 per cent higher on the year and heifer prices rose by a similar amount. The strong demand for manufacturing beef resulted in cull cow values (O3 grade) being 20 per cent up on the year. This stronger competition for tight domestic supplies resulted in unit values for export rising by 10 per cent, to €4,500 per tonne. Coupled with the increased volume, the total value of Irish beef exports increased 16 per cent on the year to €1,520 million.

Tight supplies of cattle and stronger competition from the domestic market also did much to constrain the export of live cattle from the Irish Republic. However, a number of other factors also contributed, including weakening demand for calves in the Benelux region and less demand from Italian and Spanish feedlots. Bord Bia figures indicate that, at 214,500 head, the total number of live cattle exported fell over a third on year earlier levels.

A further tightening of domestic supplies in Ireland is expected in 2012 with throughputs of cattle in the first quarter currently indicated to be down 13 per cent according to Bord Bia. This combined with some expectations that consumer demand will be slow is likely to result in lower export volumes during 2012.