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Prospects for EU agriculture following enlargement and reform

16 February 2005

In December 2004 the European Commission released its first comprehensive in-depth assessment of prospects for EU agricultural markets in the enlarged EU. The report provides projections for the period 2004-2011 for cereals, oilseed, meat and dairy products. The first part deals with the prospects for agricultural market in the EU as a whole and the implications for agricultural income. The second part looks at the impact of enlargement on agricultural markets in new EU member states, while the third part looks at prospects for world markets in the product areas covered. This extended comment on the prospects for EU agricultural markets looks at the projected developments in the cereals, meat and dairy sectors.

Cereals Sector

The main conclusions in the cereals sector are:

  • total EU-25 cereals production will rise to 274 million tonnes, with 57 million tonnes being produced in new EU member states;
  • market balance will broadly be maintained, with no excessive stock build up, although this will depend on exchange-rate movements and the consequent effect on the price competitiveness of EU exports;
  • difficulties could arise for coarse grains, particularly barley;
  • a moderate expansion of cereal stocks is expected.
Total cereals 2002 (million tonnes) 2011 (million tonnes)
Production - EU-25 263.3 273.8
Production - EU-15 210.0 216.5
Production - EU-10 53.3 57.4
Consumption - EU-25 242.8 250.8
Consumption - EU-15 192.4 195.6
Consumption - EU-10 50.4 55.2
End stocks 53.7 46.6
Exports 30.4 30.7
Imports 16.4 9.0

Turning to a more disaggregated picture, EU total wheat production is growing faster than EU consumption, with the surplus available for export rising from 9.2 million tonnes in 2002 to 12.6 million tonnes in 2011 (a 36% increase). This expansion is largely a consequence of a projected 12% rise in wheat production in new EU member states, twice the rate of growth of production in EU-15 countries (6%). Over the period EU end-stocks of wheat are projected to grow, as are exports of wheat, from 17.8 million tonnes in 2002 to 19.6 million tonnes in 2011.

Total wheat 2002 (million tonnes) 2011 (million tonnes)
Production - EU-25 124.3 132.8
Production - EU-15 103.5 109.5
Production - EU-10 20.8 23.3
Consumption - EU-25 115.1 120.2
Consumption - EU-15 96.5 99.1
Consumption - EU-10 18.7 21.1
End stocks 20.5 26.7
Exports 17.8 19.6
Imports 12.2 5.3

Not surprisingly a similar trend is apparent for soft wheat, with consumption in the EU-25 growing by 2.3%, but production by 7.2%. Once again the expansion of production in new EU member states (EU-10) is almost twice the rate of growth in EU-15 countries (12% compared to 6%) This is projected to generate a 17% increase in EU soft wheat exports, rising from 16.5 million tonnes in 2002 to 19.3 million tonnes in 2011. 

Soft wheat 2002 (million tonnes) 2011 (million tonnes)
Production - EU-25 114.7 122.9
Production - EU-15 94.0 99.7
Production - EU-10 20.7 23.2
Consumption - EU-25 105.8 108.2
Consumption - EU-15 87.3 88.8
Consumption - EU-10 18.5 19.4
End stocks 19.2 25.7
Exports 16.5 19.3
Imports 11.4 4.5

For coarse grains, trends are far less pronounced with only a 1.4% expansion of production compared to a 2.3% increase in consumption. Once again the highest rates of growth in both production and consumption are in the new EU member states (up 2.3% and 0.4% respectively for production and 7.6% and 0.5% for consumption) In this context EU exports are projected to decline by 12% from 12.5 million tonnes to 11.0 million tonnes.

Coarse grains 2002 (million tonnes) 2011 (million tonnes)
Production - EU-25 139.0 141.0
Production - EU-15 106.5 106.9
Production - EU-10 32.5 34.1
Consumption - EU-25 127.7 130.6
Consumption - EU-15 96.0 96.5
Consumption - EU-10 31.7 34.1
End stocks 33.2 33.6
Exports 12.5 11.0
Imports 4.3 3.8

Maize will see a 12.5% decline in exports, with imports exceeding exports throughout the projected period. This is on the back of a 10% growth in consumption, over 2.5 times the rate of growth in EU production (under 4%) over the period. Growth in consumption is particularly marked in new EU member states at 23% (under 10% in EU-15 countries). This is largely attributable to the growth in poultry- and pig-meat production over the projected period, which expands demand for animal feed.

Maize 2002 (million tonnes) 2011 (million tonnes)
Production - EU-25 49.9 51.8
Production - EU-15 40.1 41.4
Production - EU-10 9.8 10.4
Consumption - EU-25 47.7 52.3
Consumption - EU-15 39.5 42.2
Consumption - EU-10 8.2 10.1
End stocks 11.7 7.8
Exports 2.4 2.1
Imports 2.8 7.8

Meat sector

In the meat sector the main conclusions are:

  • the recovery in EU-25 beef consumption post-BSE will continue (reaching 8.2 million tonnes, a 2.6% increase over 2002 levels), consumption will continue to exceed production as it has done since 2003;
  • EU-25 production will decline to 7.8 million tonnes by 2011 a 3.4% decline from 2002 levels, this reflects the structural reduction in the dairy herd (down 12% in the EU-25 by 2011 compared to 2002) and the impact of the single farm payment scheme;
  • a tight supply situation and steady demand will keep beef prices relatively high and attract imports, notably form South America ;
  • pig- and poultry-meat production will continue to expand (by 6% and 5.5% respectively in the EU-25) as will consumption, at a faster rate in the poultry sector;
  • EU-25 poultry exports will contract (by 16%) while imports are set to rise 31% between 2002 and 2011;
  • Sheep- and goat-meat production and per capita consumptions are projected to decline;
  • overall meat consumption per head is projected to rise from 87.4 kg/head in 2004 to 91 kg/head (+4%) in 2011.

Looking at developments in the meat sector in more detail, what is most pronounced is the dramatic expansion of poultry-meat production in new EU member states, projected to rise by 37% between 2002 and 2011. This contributes to a 5.4% overall rise in EU poultry-meat production. With overall EU-25 poultry-meat consumption rising by 9%, exports are set to fall by 16% to 950,000 tonnes in 2011, while imports are projected to rise by 31% between 2002 and 2011. The growth in consumption is being driven by a continued shift over to white-meat consumption in EU-15 countries and a phenomenal 28% expansion in poultry-meat consumption in new member states (EU-10).

Poultry meat

2002

(thousand tonnes cwe*)

2011

(thousand tonnes cwe*)

Net production - EU-25 11,109 11,716
Net production - EU-15 9,376 9,339
Net production - EU-10 1,733 2,377
Overall consumption EU-25 10,522 11,480
Exports 1,133 950
Imports 547 715
  2002 (kg/capita) 2011 (kg/capita)
Consumption - EU-25 23.1 24.8
Consumption - EU-15 23.3 24.1
Consumption - EU-10 22.0 28.1

* Carcase weight equivalent

In the pig-meat sector, overall EU production is projected to rise by 5.9% while consumption is projected to grow 5.7%. This reflects production growth in new member states at 3.5 times the rate of growth in EU-15 countries (albeit from a much lower base) and a growth in per capita consumption in new member states almost twice the rate of growth in EU-15 countries. In the face of these trends EU-25 pig-meat exports are set to increase by 12% to 1,375,000 tonnes. While EU imports are projected to grow by 73%, these will still be under 3% of the volume of exports.

Pig meat

2002

(thousand tonnes cwe*)

2011

(thousand tonnes cwe*)

Net production - EU-25 21,170 22,421
Net production - EU-15 17,730 18,452
Net production - EU-10 3,440 3,969
Overall consumption EU-25 19,943 21,084
End stocks 25 0
Exports 1,223 1,375
Imports 22 38
  2002 (kg/capita) 2011 (kg/capita)
Consumption - EU-25 43.8 45.5
Consumption - EU-15 43.4 44.8
Consumption - EU-10 46.0 48.9

* Carcase weight equivalent

While EU beef production is set to decline by 3.4% between 2002 and 2011, consumption is expected to rise by 2.6%, causing the emergence of a beef deficit on the EU market, with imports rising by 37% to fill the gap while exports will decline by 67%. The fall in production reflects the inter-linkage between beef production and milk production. With the dairy regime still quota-restricted and yield per cow continuing to rise over the projected period, the EU dairy herd will shrink dramatically by some 12% from 24.4 million head to 21.5 million head. Indeed in view of the dramatic decline in the herd it is surprising that overall EU beef production is expected to hold up so well, falling by only 3.4%. This reflects the emergence of more dedicated beef production.

Beef/veal

2002

(thousand tonnes cwe*)

2011

(thousand tonnes cwe*)

Net production - EU-25 8,065 7,788
Net production - EU-15 7,466 7,208
Net production - EU-10 599 581
Overall consumption EU-25 7,990 8,200
End stocks -43 0
Exports 522 170
Imports 424 581
  2002 (kg/capita) 2011 (kg/capita)
Consumption - EU-25 17.6 17.7
Consumption - EU-15 19.6 19.4
Consumption - EU-10 7.1 8.5

* Carcase weight equivalent

Improved yields in the dairy sector reflect in particular the level of new investment in the new EU member states, where the improvement in yields per cow at 24% over the projected period is 71% above the rate of improvement in yields attained in EU-15 countries. This increased investment reflects the higher returns to farming obtained as a result of the progressive extension of the CAP to the new member states, where farm incomes are projected to increase by a staggering 126% over the period, compared to only 14% in EU-15 countries. The general economic growth in new member states as a result of enlargement is considerably stimulating the agri-food sector, particular with regard to demand for beef and dairy products.  

Milk production 2002 2011
Total production EU-25 (million tonnes) 143.2 144.9
Total production EU-15 (million tonnes 121.2 122.9
Total production EU-10 (million tonnes 22.0 22.0
Milk yield kg/dairy cow (EU-25) 5798 6707
Milk yield kg/dairy cow (EU-15) 6131 6977
Milk yield kg/dairy cow (EU-10) 4461 5514
No. cows (million head EU-25) 24.4 21.5
No. cows (million head EU-15) 19.5 17.5
No. cows (million head EU-10) 4.9 3.9

Overall in the dairy sector the main conclusions of the EU prospects report are:

  • there will be a slight increase in overall milk production by 1.2% but this will be achieved with almost 12% less cows as yields improve;
  • in new member states milk production and butter production will grow in the short term in response to price increases, however in the medium term a shift to higher-value dairy products will occur, following the trend in EU-15 countries;
  • cheese production is expected to experience ‘sustained growth’ on the back of strong global and EU economic growth (up by 11.5%);
  • cheese consumption in the EU-25 is expected to grow by 11.7% while exports are projected to grow by 12.5% between 2002 and 2011 (with imports up 27%, but from a much lower base in 2002 of less than a quarter of EU-25 exports).

The expansion of EU cheeseexports is contained by the rapid expansion in internal demand for cheese in new EU member states, with per capita consumption increasing by 32% over the 2002-2011 period, a rate of growth in per capita consumption over four times that in the EU-15. This increased demand is only partially met by increased production in new member states (up by almost 14% compared to 11% in EU-15 countries). Cheese imports are set to increase by 26%, but these will still be only about a quarter of the volume of EU cheese exports.  

Cheese 2002 (thousand tonnes) 2011 (thousand tonnes)
Production - EU-25 8,143 9,081
Production - EU-15 7,228 8,038
Production - EU-10 915 1,043
Overall consumption EU-25 7,728 8,632
Exports 543 611
Imports 128 162
  2002 (kg/capita) 2011 (kg/capita)
Consumption - EU-25 17.0 18.6
Consumption - EU-15 18.1 19.4
Consumption - EU-10 11.1 14.6

The expansion of EU-25 cheese production by 11.5% in a context of only limited expansion in milk production (1.2%) will see production of the lower value products, butter and skimmed milk powder, fall by 16% and 33% respectively. With consumption of butter and skimmed milk powder declining by only 8% and 21% respectively, exports of these products are set to fall by 23% and 41% respectively. 

butter 2002 (thousand tonnes) 2011 (thousand tonnes)
Production - EU-25 2,168 1,828
Production - EU-15 1,880 1,571
Production - EU-10 288 256
Overall consumption EU-25 1,927 1,767
End stocks 192 3
Exports 232 178
Imports 93 115
  2002 (kg/capita) 2011 (kg/capita)
Consumption - EU-25 4.24 3.81
Consumption - EU-15 4.41 3.91
Consumption - EU-10 3.33 3.32
Skimmed milk powder 2002 (thousand tonnes) 2011 (thousand tonnes)
Production - EU-25 1,376 923
Production - EU-15 1,140 674
Production - EU-10 236 249
Consumption - EU-25 1,049 830
Consumption - EU-15 945 738
Consumption - EU-10 104 92
End stocks 141 0
Exports 264 156
Imports 41 63

Trends in the dairy sector reflect the shift in production within the EU to production and export of higher-value products. With reform in the dairy sector now well underway EU producers are increasingly well placed to exploit emerging trends in world markets.

The report sees a strong expansion of global demand for dairy products in the coming years, reflecting income growth in many regions and changing consumer preferences. These trends are particularly strong in Asia and Latin America. As a consequence dairy prices are expected to rise in the medium term.

Overall in the medium term world agricultural markets are seen as being ‘supported by rising food demand driven by an improved macro-economic environment, higher population, urbanisation and changes in dietary patterns’. A strengthening of world demand for cereals is foreseen, with the cereals trade expanding, ‘driven by rising income, diet diversification and higher demand for livestock products and feeds’. A moderate increase in prices for cereals is foreseen in the medium term.

An expansion of production, consumption and trade in meat products is foreseen, ‘with world meat prices showing moderate strength’. Rising demand for meat is largely driven by trends in Asia and Latin America. Prices are expected to remain firm over the medium term.

Editorial comment

Given the volume of EU poultry-meat exports relative to the size of ACP markets, the decline from 1,133,000 tonnes in 2002 to 950,000 tonnes in 2011 provides little relief. The overall expansion of EU production and consumption is of more concern since it is ‘parts of poultry meat’ rather than whole chickens which are exported to the African market and this trade looks set to continue to grow. Discussions at the ACP-EU Joint Parliamentary Assembly in Den Hague in November 2004 suggest that new trade remedies are needed to deal with a trade which is incidental to the core production activity (i.e. the production of prime poultry cuts for EU consumers) in the exporting country and yet which has profound consequences for the entire sector and associated input suppliers in African countries.

The decline in EU beef exports would appear to offer ACP countries some relief from beef ‘dumping’ which was a feature of the EU’s beef trade in the early 1990s. However the changing structure of the EU beef market could mean that problems will still arise. EU consumers are increasingly favouring high-quality beef, be they in EU-15 countries or new member states. However in the latter beef production still comes largely from the dairy herd. This generates a higher proportion of lower-quality beef cuts. There is thus a growing gap between EU consumer trends towards high-quality beef and EU production trends with a preponderance of lower-quality cuts in new member states. This divergence between production and consumption in large part accounts for the 37% expansion in EU beef imports, virtually all of which are high-quality cuts. EU exports in contrast are largely low-quality beef cuts. It is these low-quality beef cuts which find their way on to African markets. There is thus still scope for the disruption of beef markets in ACP countries, despite the 77.4% decline in EU beef exports. A lot will depend on trends in the EU’s major export market, Russia.

Overall there is little evidence that the process of CAP reform in the sectors subject to the prospects survey, is significantly reducing EU production (with the notable exception of the beef sector, where trends in the dairy herd have a major impact). The main effect of CAP reform has been to reduce prices and allow the EU to clear markets more easily, both through expanded domestic sales (in part for processing for export) and direct exports.

Indeed, the impact of the existence of the CAP can be seen in the trends in new member states following their full incorporation into the CAP. Here with incomes rising dramatically, in response to higher prices and the rolling-out of EU direct aid payments, investment in agriculture has increased significantly. This is projected to lead to significant increases in production in new member states

Changes in agricultural production in new EU member states (EU-15)

PRODUCT % Change 2002-2011 EU-10 % Change 2002-2011 EU-15
Wheat + 12.02% + 5.80%
Coarse grains + 4.92% + 0.38%
Total cereals + 7.69% + 3.10%
Poultry meat + 37.16% - 0.40%
Pig meat + 15.38% + 4.07%
Cheese + 13.99% + 11.21%
Skimmed milk powder + 5.51% - 40.88%

 In this context, EU claims as to the non-trade distorting nature of its new agricultural support schemes are thrown under a searching light.

Overall, with demand and prices on global markets projected to rise for cereals, meat and dairy products in the coming years, CAP reform is leaving EU agriculture well placed to exploit these changes. This in large part has been the overall objective of the process of reform since 1992. The only constraint now is the continued weakness of the US dollar against the euro, which threatens to throw somewhat off track the attainment of this objective. This has most recently required an expansion of EU export refunds for certain cereal products and necessitated a re-evaluation of EU commitments in the WTO on the elimination of export support (particularly with regard to setting firm dates and timetables).

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