July 25, 2007
EU 2007 beef production, consumption decline
The EU beef market continues its slow decline in production and consumption again in 2007, after a spike in 2006 as a result of increased slaughter in the UK and increased veal consumption in the Mediterranean, according to a US Department of Agriculture attache report posted Tuesday (July 24) on the Foreign Agricultural Services Web site.
Bulgaria and Romania joined the EU to form the EU-27 at the beginning of the year. This should only have minor impacts on EU meat markets, although meat imports will drastically decrease as a result of EU legislation.
EU beef imports continue to further increase, while beef exports further decline because of lack of supplies and high domestic prices.
The EU pig and pork market is peaking in 2007, after a profitable 2006. However, oversupplies and increased feed costs are eating into this profitability and pork production is forecast to slightly decrease in 2008. EU pork exports are forecast to loose market share in 2008, while the increase in domestic pork consumption is forecast to level off.
The following is the executive summary of the USDA report:
The beginning of 2007 brought another expansion of the European Union, with two additional member states (MS): Bulgaria and Romania. While this enlargement is much smaller than the 2004 accession of ten New Member States (NMS-10), it again integrates two poorer countries, adding 29 million inhabitants, in which agriculture is an important economic sector and employer. However, both countries are net meat importers and will therefore have a minor impact on EU meat markets. Bulgaria and Romania combined add four percent to the EU cattle herd size and slightly less to the EU pig population, with Romania providing 90 percent of the pigs. One of the main impacts of this enlargement on the EU market was the threat from Russia to close its border for all EU animal products, for fear for the animal health situation in Bulgaria and Romania, especially for Classical Swine Fever (CSF) and Avian Influenza (AI).
EU beef production is in a continuous decline as a result of increasing efficiency in milk production and a fixed milk production quota. This was temporarily reversed in 2006 when the United Kingdom adopted BSE testing like the remainder of the EU MS and put an end to its Over Thirty Month disposal scheme for older cattle. As a result, 350,000 additional cattle were slaughtered for human consumption and export into the EU market in 2006. However, this one time shock means EU beef production will resume its downward course in 2007. The outbreak of Foot and Mouth (FMD) in Brazil in 2005, followed by an export ban on the three infected provinces, made a smooth shift of Irish beef exports from the UK to the European continent possible. This resulted in increasing EU beef prices to record levels. An outbreak of Bluetongue disease of serotype 8 in the Benelux, the west of Germany and the northeast of France in the summer of 2006 is not expected to impact the cattle market much, unless it spreads into the centre of France.
While beef imports into the EU-15 are increasing in 2007, EU-27 total beef imports are slightly decreasing because of a halt in beef imports, at least temporary, into Bulgaria and Romania, which mainly come from Brazil. EU beef exports continue to decrease for lack of supplies and lack of competitiveness because of high domestic beef prices. In 2007, as consumers renewed confidence in poultry meat, EU consumption of beef renewed its slow decline.
Pig and pork production are expected to further increase by 1.6 percent in 2007, as they were stimulated by profitable market conditions in 2006. However, an oversupply situation, especially in Poland, has pushed pig prices down at the beginning of 2007 and increasing feed costs are eating into profitability. As a result, EU pig production is forecast to slow down at the end of 2007 and in 2008. Former imports of US and Canadian pork to the two new MS, mainly Romania, strongly decrease in 2007 as a result of higher EU import tariffs. EU pork exports are struggling to keep up in 2007. Decreasing Danish pork exports to Japan, as a result of the return of US beef and increased competition from Canada, are being redirected to Russia and South Korea. EU domestic pork consumption is further increasing in 2007, but this increase is forecast to level off in 2008.
The accession of Bulgaria and Romania to the European Union (EU) on January 1, 2007 added some 3.5 million head or 4 percent to the EU cattle herd. Dairy cows constitute 90 percent of the combined Bulgarian and Romanian cow herds. As a result, this enlargement is not impacting the specialized EU beef production sector. As surveys estimate that milk of only about half of the cow herd is delivered to dairies, expectations are that a significant consolidation will occur in the next years. The two most significant factors which are likely to affect further consolidation and excess slaughter is the application of milk quotas in 2007 and feed deficits.
As a result, the longstanding decline in EU cattle herds, which is the consequence of the continued increase in milk production per cow, will only be strengthened through this latest EU enlargement. Despite this ongoing cattle herd contraction, EU slaughter in 2006 slightly increased. The additional slaughter of some 350 thousand additional older cattle in the United Kingdom, as a result end of the Over Thirty Month (OTM) disposal scheme, more than offset the trend line decrease. Some increased slaughter numbers were also reported as the 2006 summer drought and increasing grain prices were inflating the feed bill, thus decreasing profitability despite high cattle prices. An outbreak of Bluetongue (BT) disease of serotype 8 in the Benelux and adjacent areas in Germany and France locally disrupted animal transports, yet there were no serious implications for the overall EU market. Because Romania and Bulgaria are important suppliers of cattle for slaughter to the Balkan countries and the Middle East, EU cattle exports almost double as a consequence of this enlargement.
EU cattle inventories are further declining in 2007. The brief restocking of the herds in the 10 New Member States (NMS) after large numbers of cattle were sold to the EU-15 upon the 2004 enlargement is coming to an end. Dairy herds are decreasing as a result of increased milk productivity in most MS, while increases in beef herds in some MS, such as France, are offset by decreasing beef herds elsewhere, for example in Italy and Ireland. As a result, EU cattle slaughter is decreasing again. Despite favourable fodder conditions in the spring of 2007, high feed prices continue to depress profitability, especially as EU cattle prices started declining in the second quarter of 2007. The negative vote on the Herculex GMO corn approval in the June EC Standing Committee has the potential to cause further feed cost increases as Corn Gluten Feed imports from the United States into the United Kingdom, Ireland, the Benelux and Germany may come to a halt after the 2007 corn harvest. The decrease in EU cattle prices seem to come on the heels of increased beef imports from Brazil in the first quarter of 2007.
A decrease in calf slaughter for veal is expected in The Netherlands, France and Italy. In The Netherlands, this is the result of reduced intra EU export opportunities for veal. EU veal consumption is declining to pre-AI levels again, particularly in Italy, as consumers regained confidence in poultry meat. In addition, soaring milk powder prices are increasing feeding costs beyond profitability. As a consequence, calf prices have been decreasing and that makes the fattening of cattle more profitable than the export of calves in Denmark and Poland. This price decline for calves has been enhanced by the return of calf exports from the UK to the Continent.
The finding in June in the western part of Germany of a sentinel cow with a Blue Tongue infection indicates that the 2006 outbreak may not be a one time event. However, unless the disease spreads further south into the middle of France, where the disease could disrupt cattle and calf exports to Italy and Spain, consequences for the EU cattle markets are not expected to have a significant impact. Exports of cattle from the EU-27, especially the two new MS, are expected to decrease in 2007. However, market opportunities for the 2 new MS to the rest of the EU are increasing. That said, demand in traditional markets nearby in the Balkans and the Mediterranean is expected to continue. Cattle exports from Hungary to Lebanon, Israel and Croatia are expected to increase as some farmers abandon pastures as a result of the decoupling of subsidies.
EU cattle herds are forecast to further decrease in 2008. As a result, calf births are forecast to again decrease. Cattle exports to the Balkan countries and to the Middle East are forecast to remain stable. Slaughter of adult cattle and calves are forecast to decrease in line with the decrease in calf production.
