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2024 Prospects for
EU Agricultural Markets
Brussels,
27 April 2015
Benjamin Van Doorslaer
DG Agriculture and Rural Development
European Commission
2
Outline
• Assumptions
• Market outlook
• Arable crops
• Biofuels
• Meat
• Dairy
• Income developments
2
3
Sources and process
• OECD/FAO Agricultural Outlook 2014-2023
• Agricultural commodity markets for the rest of the world
• EU Short Term Outlook
• Recent years and orientation for near future
• Version of Autumn 2014
• Macro-economic forecast
• For the EU: AMECO November 2014 (DG ECFIN)
• Consistent source for main countries and up to 2024 (IHS Global Insight)
• Expert opinion
• In-house expertise and senior staff
• Workshop on EU commodity markets, October, Brussels
• Modelling work and validation (with JRC-IPTS)
• AGLINK-COSIMO (EU-version) & uncertainty analysis
4
Policy assumptions
• CAP 2013 as far as possible
• Voluntary coupled support
• Greening:
- Permanent pasture kept constant,
- Limited effect of ecological focus area (EFA) & crop diversification at EU aggregated level
• Trade agreements only if ratified:
• Concessions to UKRAINE included
• FTA with CANADA not included
• Russian import ban assumed to remain 1 year
4
5
Oil price, a very uncertain assumption
50
70
90
110
130
150
170
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Bre
nt,
USD
/barr
el
EIA, May 2014 OECD-FAO Baseline 2013 EC outlook
2014 EC outlook IHS, Jan. 2015 World Bank*, Jan 2015
* Based on the development of the average Brent, WTI and Dubai oil price
6
Macroeconomic assumptions
1,00
1,05
1,10
1,15
1,20
1,25
1,30
1,35
1,40
1,45
1,50
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
1 EUR = …USD
USD/EUR exchange rate
Scenario: Stronger EUR depreciation
-6
-4
-2
0
2
4
6
8
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Annual GDP growth (%)
EU-15 EU-N13
World Scenario: lower growth
The euro in the long-term The economic growth path
7
Prospects for cereals, oilseeds, sugar and biofuels
• Cereals and oilseeds
• Solid world demand leading to large EU exports of cereals
• EU demand driven by feed use and biofuel use
• Prices below 2012 record prices but above historical averages
• Sugar and isoglucose
• Abolition of the quotas end of 2017 leading to EU sugar prices at world level,
• more sugar produced domestically and lower imports,
• a higher share of isoglucose in sweetener use in Europe (12%).
• Biofuels
• Lower growth of first generation biofuels than previously expected
• Biofuels to contribute for 7% towards meeting the 10% target of renewables in transport fuel
7
8
Biofuel use to expand in the EU but less dynamically than expected
• Assumptions:
- Renewable Energy Directive (RED) target of 10% of renewables in energy share by 2020
- Biofuels to contribute to 7% of liquid transport fuels by 2020
- Share of double counted 2nd-generation biofuels (including from waste oils) to grow
• A lower biofuel use expected because:
- Decreasing trend in transport fuel use
- In recent years, only slow increase in biofuel uptake
- Lack of strong policy incentives to invest
• Stable biodiesel production from domestic oilseeds
• Early increase in maize-based ethanol
-5
0
5
10
15
20
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Million t
.o.e
.
Ethanol (1st gen) Ethanol (2nd gen)
Ethanol net imports Biodiesel (1st gen)
Biodiesel (waste) Biodiesel (2nd gen)
Biodiesel net imports
9
More maize in EU ethanol production
0
2
4
6
8
10
12
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Billion liters
Wheat Sugar Beet
Other cereals Other sources
2nd Generation
9
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Other cereals SugarbeetWheat Vegetable oil
40% of vegetable oils used for EU biofuel production
10
EU cereal market developments
0
20
40
60
80
100
120
140
160
180
2010-14 2024 2010-14 2024 2010-14 2024 2010-14 2024
Total Wheat Maize Barley Other cereals
Million t
Food and industrial use Feed use Bioenergy use Exports
11
EU cereal producer prices above historical averages
over the medium term
80
100
120
140
160
180
200
220
240
260
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
EU
R/t
Wheat Maize
Barley Intervention price
11
120
140
160
180
200
220
240
260
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
EU
R/t
10th percentile
90th percentile
WB-scenario
IHS-scenario
Baseline
Uncertainties surrounding EU maize price developments
Note: Uncertainty analysis prepared by JRC-IPTS, based on partial stochastic analysis
12
Oilseeds: limited production growth in the EU
• Limited production growth:
- Lower demand for biodiesel production
- Agronomic constraints
• In the EU, mainly rapeseed and sunflower seeds
• Strong imports of soybeans and meals
• Livestock sector driving demand for meals
• Decrease in vegetable oils use (olive oil not accounted)
- Less demand for biodiesel production (use of waste oils)
- Decreasing food use
0
0,5
1
1,5
2
2,5
3
3,5
0
2
4
6
8
10
12
14
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
t/ha
Million h
a
Rapeseed area Sunflower area Soybean area
Rapeseed yield Sunflower yield Soybean yield
13
A changing sweeteners EU market environment
0
100
200
300
400
500
600
700
800
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
0
10
20
30
40
50
60
70
80
Sugar beet Out of quota sugar beet
World white sugar EU white sugar WB-scenario
Sugar, EUR/t
Sugar beet, EUR/t • EU sugar price getting closer to
world prices at around 400 EUR/t
• A slight increase in sugar beet production
- Channelled in sugar production
- Ethanol production from sugar beet to decrease
• Less sugar imports
• Isoglucose use to increase significantly to about 12% of sweetener use
• Close to covering the domestic market
14
Prospects for meat
• Good exports prospects
• for pig meat and poultry,
• driven by a steady growing world consumption,
• supporting firm or even increasing world and EU prices.
• An increase in EU meat production
• driven by a sustained increase in poultry meat production and lower feed costs,
• while, after a recovery in the short-run, beef production should decline at a slow pace
• and pig meat production should stabilise.
• An EU per capita meat consumption on a declining trend
• after a recovery in the short-run,
• back to declining consumption
• except for poultry benefitting from a lower price and a good image close to consumers
14
15
A slowly declining EU meat consumption
54
56
58
60
62
64
66
68
70
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
kg p
er
capita in r
eta
il w
eig
ht
Economic crises
BSE and FMD
Low meat supply (new welfare rules for pig meat, cow
herd dev.)
Highest ever beef imports from South
America
Recovery of pig meat prod.
and more beef from dairy herd
16
Change in EU meat production and consumption 2024 compared to 2014
-200
0
200
400
600
800
1.000
Beef Pig meat Poultry meat Sheep meat
1000 t
Production Consumption
17
EU pig meat export developments
0
500
1.000
1.500
2.000
2.500
3.000
2005 2010 2013 2014e 2020-Base 2020-IHS 2020-WB 2024
1000 t
Total Russia Ukraine China and Hong Kong Japan S. Korea Other
18
Uncertainties surrounding EU pig meat price
developments (EUR/t)
800
1.000
1.200
1.400
1.600
1.800
2.000
2.200
2.400
2.600
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
90th percentile Baseline
10th percentile WB scenario
IHS scenario
2.000
2.500
3.000
3.500
4.000
4.500
5.000
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
90th percentile Baseline
10th percentile WB scenario
IHS scenario
Uncertainties surrounding EU beef price
developments (EUR/t)
19
Uncertainties surrounding EU poultry price developments (EUR/t)
1.000
1.200
1.400
1.600
1.800
2.000
2.200
2.400
2.600
2.800
90th percentile Baseline 10th percentile WB scenario IHS scenario
20
Prospects for milk and dairy products
• Milk remains the white gold for the next decade
• despite the difficult current market situation,
• because world demand is steadily growing,
• prices to stay firm around 350 EUR/t.
• EU deliveries to increase by 12 Mt in 10 years
• Further concentration of milk production in regions with lower production costs
• EU production expansion limited by increasing competition on the world market and by the small potential for higher EU consumption
• Environmental constraints to play a major role.
• More milk channelled into cheese and powders
• Cheese domestic use to continue growing and more exports
• More SMP for the export market thanks to additional drying capacities
• Whey powder exports getting always higher
20
21
Steady growth in world consumption
• +2.1% per year in world imports
• A slightly lower increase in traded volumes compared to the last decade
• But most of the extra demand to be supplied by the EU
- NZ production and exports limited by natural constraints
- US dom. consumption to grow faster
• China to contribute less to the extra demand
- Africa and other Asian countries to absorb more dairy products
EU
EU
NZ
NZ
US
US Arg.
Arg.
-2
0
2
4
6
8
10
12
14
16
2014 vs
2004
2024 vs
2014
Exports
Cumulative change in world trade of dairy products million tonnes of milk equivalent
China
China
MLE
MLE
O.
Asia
O. Asia
Russia Russia
Africa
Africa
-2
0
2
4
6
8
10
12
14
16
2014 vs
2004
2024 vs
2014
Imports
22
Higher milk collection in the EU
100
120
140
160
180
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Million t
Milk deliveries Quota*
Milk production
WB-scenario
23
Concentration of milk production in the Northern part of the EU
-0,5 0,5 1,5 2,5 3,5 4,5
DE
FR
PL
NL
UK
IE
DK
AT
RO
BE*
LT
EE
BG
LV
SK
PT
EL
FI
HU
SE
IT
CZ
ES
Change in m
ilk d
eliveries in m
illion t
2024 vs 2014
2014 vs 2004
Most expanding MS (in % or tonnes)
MS where a decrease in deliveries is likely
Stable deliveries in SI , CY, HR, LU, MT
• Highest increase in milk deliveries to be expected in:
- DE, FR, PL, NL, UK, IE, DK, where
- farmers and the processing industry have invested most
- production costs are lower.
• A moderate increase expected compared to other projections because:
- world demand expansion is not infinite and potential for higher EU cons. is limited
- milk price will be lower than in 2013-14,
- not all farmers are willing to expand,
- environmental constraints,
- competition with other sectors.
• A decrease expected in particular where:
- production (feed and labour) costs are higher
- competition from neighbour countries is strong
24
Firm EU milk producer price
24
200
250
300
350
400
450
500
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
EU
R/t
90th percentile
10th percentile
EU support price in milk equivalent
Farm gate milk price Baseline
WB-scenario
IHS-scenario
* Farm gate milk price in real fat content, weighted EU average
1.500
1.700
1.900
2.100
2.300
2.500
2.700
2.900
3.100
3.300
3.500
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
EU
R/t
EU price
World price
Intervention price
The EU is competitive for SMP
25
Most of the extra milk channelled into cheese
0
1
2
3
4
5
6
7
Prod. Exp. Prod. Exp. Prod. Exp. Prod. Exp. Prod. Exp. Prod. Exp.
Cheese Butter Whey SMP WMP Fresh dairy p.
2024 v
s 2
014,
in m
illion t
onnes o
f m
ilk e
q.
Expected increase in domestic use
26
A slight increase in real income/AWU
Value of production
-10%
Total costs
-6%
Subsidies
-21%
Real factor income
-23%
Total labour
-27% Income / AWU
+9%
27
Summary
• Arable crops and biofuels
• Cereal prices below 2012 record prices but above historical averages
• Less biofuel demand than previously anticipated
• Abolition of the sugar quotas leading to EU sugar prices at world level
• Meat
• Good export prospects for pig meat and poultry, driven by world demand
• A small increase in meat production thanks to poultry
• Meat consumption oriented downwards, except for poultry
• Dairy
• The dairy sector remains the 'white gold' despite the current market difficulties
• An increase in the EU milk production driven by the steady increasing world demand and further increases in domestic use
• Most of the additional milk to be channelled in cheese, whey powder and SMP
27
28
Report and data available at: http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/index_en.htm
29
Uncertainties Scenarios prepared by JRC-IPTS
30
A lower growth in Russia
• Structural factors and geopolitical choices could hamper Russia's economic growth in coming decade
• Less demand for agricultural goods leading to lower prices
• Although the EU is a key trading partner impacts remain small (-1% cheese and -0.5% pig meat exports)
• In case the economic downturn in Russia would create changes in the energy markets, the impacts on world and EU prices would be much stronger.
-0,9%
-0,8%
-0,7%
-0,6%
-0,5%
-0,4%
-0,3%
-0,2%
-0,1%
0,0%
Butt
er
Cheese
Beef (A
tlantic)
Pig
meat
(Atlantic)
Poultry
Wheat
Coars
e g
rain
s
Oilseeds
Vegeta
ble
oil
Pro
tein
meals
Sugar
(Raw
)
Change in w
orld m
ark
et
price
31
Shale gas in the US and Canada
• Shale gas takes an increasingly important role as an energy source in the US, reducing energy prices.
• Agriculture is linked through energy markets on both the input side (energy and fertilizer) and the output side (biofuels)
• Lower energy prices reduces production costs significantly in both the US and Canada
• The US expands cereal and ethanol exports and contracts the exports of soybeans which are replaced by Canadian rapeseed exports
• Effects on the EU market are limited with a slight decrease in net trade of coarse grains and a slight increase for pig meat
-8%
-6%
-4%
-2%
0%
2%
4%
Change in p
roduction c
ost
US producer price US cost of production
US production
32
El Niño/La Niña and world agricultural markets
• Potential yield effects of a strong El Niño/La Niña in 2015/16 and a weaker version in 2020/21.
• During El Niño world cereals production decreases while oilseed production increases. The effect of La Niña is less pronounced.
• Lower oilseed revenues lead to a production reduction in the next year while the positive effect on cereal prices increases the incentive for next year's production
• The change in world oilseed markets are transferred to the EU prices which fluctuate with -10% in a El Niño phase and +10% the following year. Effects in other sectors are limited
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Change in w
orld p
rice
Coarse Grains Wheat Oilseeds
Protein Meals Vegetable Oils
33
Report and data available at: http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/index_en.htm
DISCLAIMER: While all efforts are made to reach robust market and income prospects, uncertainties remain. This publication does not necessarily reflect the official opinion of the European Commission.
© European Union, 2014 - Reproduction authorized provided the source is acknowledged
34
Annexes
35
Agricultural land use developments in the EU
• Total UAA declining trend to go on at a slower pace
• Following the new CAP greening measures:
- a constant share of permanent pasture
- alt in the decrease of fallow-land due to the 'ecological focus area' measures
- small increase in protein crops area
• Increase in production via limited growth in yield and land re-allocation
0
20
40
60
80
100
120
140
160
180
200
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
Million h
a
cereals (excl. rice) oilseeds
other arable fodder
fallow permanent crops etc.
permanent grassland
36
Annual changes in area and yields 2024 vs. 2010-14
Barley 17,4%
Maize 13,3%
Other cereals 6,3%
Oats 3,8%
Rapeseed 9,5%
Rye 3,5%
Sugar beet 2,3%
Durum wheat 3,6% Common wheat
33,3%
Soybeans; 0,7%
Sunflower seed 0,8%
Rice 0,6%
0,0%
0,5%
1,0%
1,5%
-1,5% -0,5% 0,5% 1,5%
Annual change in y
ield
betw
een
2010-2
014 a
nd 2
024
Annual change in area harvested between 2010-2014 and 2024
Note: the bubble size refers to the average share in area in the years 2009-13