Medium Term Agricultural Prospects

The EU Commission has released its latest report on the medium-term outlook for the major EU agricultural commodity markets and agricultural income to 2023.  The full report Prospects for Agricultural Markets and Income in the EU 2013 – 2023 can be found at http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/2013/fullrep_en.pdf

Prospects for the arable sector are relatively positive due to the forecast of firm prices and robust world demand.  In the EU demand is expected to be led by the biofuels sector, with demand from food and feed only increasing marginally.  Cereals prices are expected to remain above historical values as the sector is dominated by low stocks due to annual yield growth rates expected to be low (0.6% on average). This will be coupled with an increase in domestic use due to rising demand for ethanol.  It is a similar story in the oilseeds market, as a moderate yield growth coupled with a small lift in area is offset by increase in the domestic use of oilseeds from greater demand for vegetable oil for biodiesel, whilst vegetable oil for food consumption is expected to remain stable.

The medium term prospects for the EU meat sector is expected to be driven by strong world demand and economic recovery meaning consumers have more disposable income to spend.  According to the report, EU meat consumption per head reached its lowest level for the past 11 years in 2013 at 64.7kg retail weight.  It is expected to recover in 2014 and by 2023 is forecast to reach 66.1kg per head; similar levels to 2011.  Consumption of beef and sheep meat is expected to drop, whilst pork remains Europe’s favourite meat.  EU beef production is foecast to fall by 7% (to 7.6 million tonnes) by 2023 compared to 2010-2012 average.  This is mainly due to a decrease in the dairy herd which across Europe accounts for around two thirds of beef production.  The decline in sheep meat is expected to slow down due to the stronger prices being received.  Pig meat production in the EU is expected to increase by 2.8% (to 23.4 million tonnes) by 2023 compared to 2010-2012, this follows two years of decline due to the implementation of the sow stall ban at the beginning of last year.  Poultry meat continues to expand the fastest, at 0.8% per year it is expected to reach 13.6 million tonnes by 2023.

The prospects for milk and dairy commodities, in the medium-term, are ‘favourable’ on both world and domestic markets.  Even after the end of quotas in 2015, production in the EU is not expected to increase significantly as environmental constraints will limit certain Member States.  According to the report, production in the EU could reach 150 million tonnes by 2023, with yield improvements in the EU-15 reaching an average of 8,500kg per cow and 6,050kg per tonne in the other 13 new Member States.  However this extra output will be utilised by growing world and EU consumption.  EU farmgate milk prices are expected to remain firm after a small decrease between 2013 and 2016, being driven by strong world cheese prices and SMP.

Turning to agricultural income, the medium-term prospect is expected to be positive.  According to the report, the real agricultural income per labour unit is projected to increase by 1.8% per year from 2013 to 2023, although this is more due to a depleting labour force in the industry.  By 2023, in the EU1-5 the real agricultural income per working unit is expected to be 17.5% higher.  The difference in income between the EU-15 and the new Member States is expected to remain substantial even though income in these countries is expected to double over this period.