June 23, 2017
Pigs and chickens, fish and milk: Europe's emerging agribusiness exporting machine
By ERIC J. BROOKS
An eFeedLink Hot Topic
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Protein exports have grown by 121% and 8.2% annual rate in the ten years since 2007
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Luck and a strategic redirection of exports into Asia more than compensated for the loss of Russia's market
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New emerging exporters like Spain, Turkey and Belarus are complimented by imports of technology and know how from older, more mature EU markets
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Protein exports are well balanced between countries and across a diversity of different meat, dairy and seafood lines
Alongside European livestock's aggressive stimulation from rapid Eastern European economic growth, Europe is also using the world market to balance its production fundamentals. If one includes the contribution of non-EU members Turkey and Belarus, total European exports of beef, chicken, pork, salmon and dairy goods jumped 100% in 17 years: From 5.34 million tonnes in 2000 to a USDA estimated 10.69 million tonnes this year.
Most impressive of all, the entire export surge occurred after 2007, when they totaled 4.83 million tonnes and lower than what was shipped in 2000: The 8.2% average, post-2007 annual growth rate in European exports of these protein lines resembles that of a developing country. One does not expect such things from the world's largest, most mature agribusiness market.
Once known for having the world's largest unsellable reserves of milk and butter twenty, Europe has transformed itself into a powerful top exporter of pork, chicken, sea food and dairy products. Even so, it it endured a serious market upsets along the way.
One usually exports to buyers in one's geographic area, as it usually involves lower transport costs and fewer logistical difficulties. Russian meat production was in a tailspin throughout the 1990s and it was just an overland border away.
Hence, from 1990 through the late 2000s, Russia became the primary buyer of EU protein exports such as German and Danish pork, salmon from Norway, and milk from France or the Netherlands. Russian imports of chicken and beef came mostly from America but Europe supplied the lion's share of other imported meat goods, dairy lines and seafood.
Thanks to rapidly growing export volumes to Russia and East Asia, large Western European inventories of meats and dairy goods started a long, slow decline -but the continent achieved this success despite some very severe marketing challenges.
After 2000, Vladimir Putin's government was determined for Russia to be self-sufficient in all major protein lines. It embarked on a policy of import substitution. For the first five years of Putin's presidency, a rising early 2000s oil price caused Russian meat demand to race ahead of government policies and European protein imports rose to record levels.
By the late 2000s however, amid skyrocketing domestic Russian chicken and pork production, overall meat import volumes were on a clear downtrend. Even so, Russian imports of European salmon, dairy goods and chicken (in response to rising trade tensions with America) continued to increase.This stable scenario of declining overall Russian meat imports and rising volumes of European seafood and dairy goods was rudely interrupted in mid-2014. In August of that year, Russia banned all food imports from Western Europe, Canada and the United States.
This economic embargo not impact Russia itself much: By 2018, it will have achieved domestic self-sufficiency in chicken meat production, roughly exporting as much or more chicken as it imports. Pork and beef imports are also in a steep, longterm decline, just several years behind chicken on the road to domestic self-sufficiency.
While Russia continued to import large quantities of seafood and dairy goods, it easily replaced Europe in its import sourcing strategy. It quickly substituted Chilean salmon in place of Norwegian supplies and ramped up dairy imports from New Zealand, which was not included in Russia's trade embargo.
Holding several hundred thousand tonnes of meat, salmon, sea bass and dairy products that suddenly had no place to go, Russia's embargo created a major headache for European agribusiness. The situation was made worse by a coincident oil price crash, which slashed Middle Eastern demand for these products. The situation was further aggravated by a coincident deregulation of EU dairy production, which occurred just as the world dairy market crashed.
Fortunately, Europe turned the situation to its advantage and had some luck on its side. Shortly after the Russian embargo, Chilean salmon production fell by over 50% and the Euro's value fell by 15%. A high US dollar and PEDv hampered American pork and dairy exports. At the same time, Australia's drought limited its ability to supply the latter. All this gave EU dairy and seafood exporters an immediate advantage.
Along with the redirecting of salmon formerly exported to Russia into North America and emerging Asian markets, European salmon exports were not impacted by the embargo. Total Norwegian, Danish and British salmon exports totaled 1.28 million tonnes in 2007 and rose 54% to approximately 2.0 million tonnes by 2013. To all this can be added the recent decision by China's government to allow Norwegian salmon into its market.
While 2017 European salmon exports will be the same as 2014's level to 10% higher, that reflects hard, biological constraints on salmon production -both in Europe itself and even more so in rival supplier Chile.
Despite the Russian embargo and thanks to Chile's serious salmon disease issues, Europe has a surprisingly larger share of the world salmon market today than anyone expected it to. It is the second largest European protein export by volume and rivals pork as the continent's greatest earner of agribusiness export revenues.A similar diversion of EU pork and dairy exports from Russia to China and Southeast Asian countries not only helped maintain Europe's agribusiness momentum: It turned the EU into the world's largest exporter of pork and dairy goods.
Helped along by faltering Australian milk production, it was not too surprising that EU exports of milk, butter, cheese, WMP and SMP jump 37%, from 1.54 million tonnes in 2007 to 2.11 million tonnes in 2013. -The Australian drought coincided with China's massive dairy import boom. Europe merely took advantage of the situation.
What is more surprising is that after the 2014 dairy market crash and subsequent Russian economic embargo, Europe's dairy exports climbed even faster. They rose a whopping 49% over the past four years, from 2013's 2.11 million tonnes to a USDA estimated 3.15 million tonnes this year.
Europe is a fortunate to be a major producer of traditional dairy goods like milk, butter and cheese, which were not impacted by China's sharp fall in demand for dairy powders. EU producers also capitalized on burgeoning Southeast Asian demand. ASEAN buyers took advantage of low dairy prices to boost imports of EU SMP and WMP at the expense of US and Australian producers. Moreover, Southeast Asian demand for fatty dairy goods like butter and cheese were growing as fast as in China.
As a result, from 2013 through 2017, EU butter exports will have doubled, from 122,000 to 240,000 tonnes, as will have shipments of fluid milk, from 420,000 tonnes to 1 million tonnes. Similarly despite a simultaneous Russian embargo and massive decline in Chinese demand, EU WMP exports held steady, rising 9.6% in four years from 374,000 tonnes in 2013 to a USDA estimated 410,000 tonnes this year.
Powered by Southeast Asian buying demand, SMP did even better. Even though it was the dairy commodity worst affected by the market crash, EU SMP exports rose 66%, from 407,000 tonnes in 2013 before the crash happened to a projected 675,000 tonnes this year.
A similar success story can be written for EU pork. Russia's embargo destroyed several hundred thousand tonnes of EU pork demand overnight -Fortunately, German, Spanish and Danish pork producers managed to divert more than the entire volume of Russian pork exports to large Asian markets in China, Japan and South Korea. Here too, luck played a role, as several hundred thousand tonnes of potential US pork exports fell victim to America's 2014-15 PEDv outbreak.
Even so, EU pork exports will have risen an impressive 166% in ten years, from a USDA estimated 1.24 million tonnes in 2007 to 3.3 million tonnes this year. That is 35% more pork than what the USDA expects America to export.
Indeed, the EU's customs union actually underestimates the competitive strength of European pork exporting nations. Spain for example, exported 2 million tonnes of pork in 2016 -a volume second only to that of America's 2.4 million tonnes - but only the approximately 800,000 tonnes it ships to non-EU countries are counted as 'exports'. Similar volumes of pork shipped by both Germany and Denmark make them and Spain top exporters, just slightly behind leading exporter America -but by counting only exports to non-EU countries, Germany, Spain and Denmark are considered behind third ranked Brazil.
Finally, chicken rounds out Europe's agribusiness export competitiveness, and is one of its newer lines to assert itself on the world market. From 2000 through 2007, the combined chicken exports of the EU and non EU-members Turkey and Belarus remaind constant, fluctuating in the 625,000 to 725,000 tonne range. During this era, mature, established produers in Netherlands, France and Germany accounted for the lion's share of Europe's near constant chicken export volume.
The decade after 2007 however, has seen new, low cost producers in EU member Poland and non-EU members Turkey and Belarus rival or overtake traditional European chicken suppliers. Turkey for example, went from zero broiler exports in 2000 and a tiny, USDA estimated 26,000 tonnes in 2007 to a whopping 380,000 tonnes this year. Although political troubles in neighboring Iraq hampered export growth after 2015, Turkey's longterm poultry trade fundamentals remain strong.
Similarly, Belarus is not part of the EU but like Turkey, it is both geographically and economically part of Europe. From a mere 8,000 tonnes in 2007, Belarusian chicken exports skyrocketed to 135,000 tonnes by 2016.
With a little help from emerging suppliers such as Poland, EU chicken meat exports have jumped from 625,000 tonnes in 2007 to a USDA estimated 1.17 million tonnes this year. If one includes non-EU (but still European) nations such as Turkey and Belarus, real European chicken export volumes total approximately 1.7 million tonnes.
Hence, with nations as politically, religiously culturally and climactically diverse as Norway and Spain, Turkey and Belarus, Poland and Russia all starring roles in Europe's agribusiness renaissance.
Traditionally a significant exporter of agribusiness technology, financial capital and management know-how, the above trends have also made Europe into an important important world market supplier of meat, fish and dairy products. Best of all, Europe's new agribusiness prowess is as balanced as one could ask for: Of the 10.7 million tonnes of meat, fish and dairy products Europe will ship this year, 31% of these exports will come from pork and slightly under 30% from dairy products. With salmon accounting for 20% and chicken around 15%, the Continent's new-found agribusiness prowess is as well balanced as it is competitive.
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