December 24, 2007

 

EU Livestock Production Under Pressure
 

 

The EC forecasts that EU beef and veal imports will rise by thirty percent during 2007-2014.

 

Although EU import demand is growing, importers and traders question if EU beef imports will increase or even stabilize during 2008. Their assumption is based on the growing domestic demand in Argentina, as well as in Brazil. In addition, Brazilian producers might restrict their exports to the EU as their production doesn't fully comply to EU animal registration and identification requirements (see the report of the Food and Veterinary Office of the EC; FVO Report). Such a measure might take away about forty to fifty percent of Brazilian exports to the EU, about 150,000 MT of beef. Another factor is that Brazil has ample opportunities to export to other markets. Also the EU enlargement had a negative effect on imports as new member states Romania and Bulgaria had to enforce the EU import regime. Following the scenario of tight supply, EU imports will stabilize or even decline, despite the growing demand. As a result, traders expect higher prices and increased opportunities for high value cuts, such as from the United States.

 

For many years, US beef exports to the EU market have been constrained by the EU ban on imports of red meat from animals treated with growth hormones. US non-hormone beef must come from cattle certified under the Non-Hormone Treated Cattle (NHTC) program in order to be eligible for export to the EU. The limited number of US slaughter plants with EU approval also has had a negative impact on trade. Increased use of the NHTC program could, however, lead to a better economy of scale, and thus improve the competitiveness of US beef on the EU market. For further analysis of the EU and Benelux beef market see GAIN Report NL7008.

 

During the past five years, the EU's importance as a beef exporter on the world market diminished. During this period, average EU monthly exports declined from about 50,000 MT to less than 20,000 MT (see graph above). EU exports decreased due to increasing internal prices and the high Euro/USD exchange rate. Also cuts of export refunds affected EU beef exports. Currently, export refunds range from Euro 226 per MT for frozen boneless beef to Euro 1,034 per MT for fresh boneless beef. About a third of EU beef exports are destined to Russia. With about ten percent of Russian beef imports, the EU is, however, only a minor player on the Russian market. During the past five years, most EU beef has been replaced by Brazilian beef on the Russian market. Other important markets for EU beef are in close proximity of the EU, for example Norway and Switzerland.

 

The EC forecasts that EU pork imports will stabilize at 38,000 MT until 2013 (see EC Report). During 2007, increased imports are reported from Chile, the United States and Australia. US pork exports to the EU are increasing strongly as they benefit from a high Euro/USD exchange rate and simplified EU quota administration rules. The paradox is that these increased exports occur in an EU pork oversupply situation (see GAIN Report E47102).

 

The EU pork sector faces higher feed prices, lower export refunds and a high Euro/USD exchange rate. The EC expects, however, that EU pork exports will continue to play an important role on the world market, with about 1,200,000 MT in 2013 (see EC Report). Currently, about fifty percent of EU pork exports are shipped to Asian destinations with Japan as the main market. EU exports hold about a third of the Japanese pork imports, with the United States and Canada as the main competitors. Russia represents about twenty percent of the export market for pork. EU pork exports experience, however, strong competition, in particular on the Asian market. In response, EU slaughterers are increasingly focusing on the domestic market. In order to support EU pork exports, the EC just recently increased export refunds for pork (see GAIN Report E47104).

 

As from June 2007, Brazil and Thailand were able to resume poultry exports under the lower tariff rate, filling the negotiated import quota (see GAIN Reports E36137 and E36143). During the second half of 2007 and the whole year of 2008, EU import quotas are expected to be filled. An exception is the quota for salted broiler meat from Thailand, due to the AI status of country. With the implementation of the tariff quotas, traders expect EU poultry imports to stabilize (see GAIN Report E47061).

 

Expansion of imports outside the quota is hindered by a tariff rate of Euro 1 per kg. During 2006, however, EU domestic broiler prices rose continuously, which could eventually lead to more imports paying the full tariff rate. The EC forecasts that EU poultry consumption will outpace production after 2013, and as a consequence the EU will become a net importer of poultry meat (see EC Report). For 2008, however, traders expect a similar situation as described for the beef market: limited imports against growing demand and thus higher prices and more opportunity for high value special products and/or cuts, such as from the United States.

 

In May 2007, the EU opened a poultry TRQ for the United States (see GAIN Report E47039). Commission Regulation 536/2007 makes a 16,665 MT US country-specific poultry TRQ available, which was agreed as a compensation for the EU enlargement of 2004. This TRQ is available for chicken and turkey meat and offers duty free access for high quality cuts to EU certified exporters. The EC is, however, still imposing a ban on the use of anti-microbial treatments for sanitizing poultry carcasses, effectively halting US poultry exports to the EU (see GAIN Report E35166).

  

EU poultry exports show a declining trend, which is expected to proceed (see EC Report). This expectation is based on the fact that EU exports face strong competition on the world market, while EU domestic consumption is expanding. EU producers have difficulty to compete due to the relatively high feed prices. Since August 2005, Dutch broiler feed for fattening rose continuously from Euro 229 per MT to Euro 334 per MT currently. Furthermore, the EC stopped the export refund for chicken parts in October 2006. At the moment, only refunds exist for the export of whole broilers. EU poultry exports are mostly destined to Russia, the Middle East, and African destinations, which each hold about a quarter of total EU poultry exports. On the Russian market, EU exports have a stable share of about fifteen percent of total imports, with the US and Brazil as the most important competitors. About thirty percent of EU poultry exports is exported to the Middle East and Asian destinations, at equal shares.