July 16, 2012

EU beef production facing serious decline

With falling beef productions, beef export capacity may be severely affected in 2012 and 2013, according to the Short Term Outlook for arable crop, meat and dairy markets published by the European Commission.

The EU meat sector in 2012 continues to be supported by strong global demand, driven by the relatively favourable situation in emerging economies. However, domestic demand suffers from a slowdown in the EU economic growth. Overall meat supply is still relatively tight in many world regions and is further constrained by high feed costs. As a consequence, world prices remain high and EU meat exports flourish.

Based on the December 2011 census, the EU animal herd is estimated to stand at 86 million heads cattle, 148 million pigs and 98 million sheep and goats altogether, corresponding to an average reduction of 1.6% (bovines -1.4%, pigs -1.7%, sheep -1.3% and goats -2.9%) as compared to the previous year.

The contraction of animal heads (and in particular of breeding females) is directly affecting the overall meat production, which is expected to decline by 0.4% in 2012 and by 1.0% in 2013.

Beef meat production is expected to fall in 2012 and remain roughly unchanged in 2013.

The cattle herd has been continuously decreasing since 2008, at a rate of 1.1% per year on average (-1.8% for dairy cows), and this trend should persist in the near future. In 2012, the EU beef and veal production is forecast to decrease significantly (-3.5% from 2011) and then to remain virtually unchanged in 2013 (+0.1%).

Due to the tight supply conditions, EU beef prices are expected to remain at record levels throughout 2012. As regards trade, the weak domestic demand and the exchange rate developments would lead to a decline in EU beef imports in 2012 (-5.8%), followed by a stabilisation in 2013, despite the limited availability of beef in the EU and the gradual recovery of production in the main Mercosur suppliers (after the significant herd reduction in the previous years).

On the other hand, the trend in EU beef exports is going to be driven by the shortage in domestic supply, which would determine a significantly reduced export capacity for 2012 and the following year. As a consequence, the EU would change its net trade position and, after the exceptional trade surplus registered in 2011, would turn again into a net beef meat importer in volume in 2012 and 2013. High beef prices and a weak internal demand would also lead to a fall in beef/veal consumption in 2012, followed by a stabilisation in 2013.