Prospects for agricultural markets and income 2004-2011 for EU-25

Prospects for agricultural marketsand income 2004-2011 for EU-25

Structure of the presentation • Introduction • Analytical approach • Methodology • Main assumptions • Main results: • Medium-term prospects for the EU-25 • Projections for cereals, oilseeds, meat, eggs and dairy • Income projections • Impact of enlargement

Methodological approach • Type of models: DG AGRI market projections carried out using • a recursive dynamic partial equilibrium model and • a comparative static model (ESIM) • Results: model output consists of supply balance sheets for main commodities, market prices and income • Detailed results for: • Old Member States (EU-15) • New Member States (EU-N10) • EU-25 For main commodities/variables

Methodological approach • Main assumptions: • Uruguay Round Agreement on Agriculture maintained constant • Favourable, though moderate world agricultural market outlook • Return to modest economic and population growth • $/€ exchange rate to reach 1.15 over the medium-term • By 2011 direct payments are assumed to be 90% decoupled (milk 100 %, arable crops 93 %, beef 78 %, sheep 73 %)

Prospects for agricultural markets and income 2004-2011:Cereal and oilseed market

Crops • medium term perspective appear moderately positive for crop markets thanks to the • CAP Reform and decoupling; • the return to higher set-aside levels in 2005/06; • favourable world market conditions and • the expected return to improved exchange rate conditions.

Slightly expanding cereal markets…. Development of cereal markets in the EU, 1995-2011 (mio t)

…balanced by higher levels of set aside… Development of set aside in the European Union (mio ha)

…with moderate levels of stocks over the medium term…. Development of stocks and cereal exports in the EU, 1995-2011 (mio t)

…and accumulating public stocks of barley and moderate levels of soft wheat stocks. Composition of public stocks in the EU (mio t), 1995-2011

Prospects remain conditional on exchange rate environment. Development in cereal stocks in the EU under different exchange rate assumptions (mio t)

Good perspectives on soft wheat markets – with regional appearance of public stocks….. Development of soft wheat markets in the EU (mio t), 1995-2011

…are contrasted by the further loss of competitiveness of barley and accumulating public stocks… Development of barley markets in the EU (mio t), 1995-2011

…growing competitiveness of maize in feed use but transport costs separated markets …… Development of maize markets in the EU (mio t), 1995-2011

….short term pressure on rye markets……. Development of rye markets in the EU (mio t), 1995-2011

…and moderate perspectives on oilseed markets. • stable area development; • energy oilseeds production remains stable with status quo policies; • developments depend on the implementation of the biofuel directive in the Member States in particular related to additional resources; • EU remains major net importer of oilseeds.

Prospects for agricultural markets and income 2004-2011:Meat sector

Meat • Beef production lower than consumption in 2003 for the first time in 20 years and expected to remain so throughout the projection period due to: • Declining cattle herd from dairy sector • Impact of decoupling of direct payments • Impact of market disruptions of 2001 BSE crisis • Pigmeat production expected to keep its slight growth thanks to: • Solid demand both in the EU15 and in the new Member States • Expected profitability with good pigmeat prices and relatively low feed prices • Poultry meat demand and production to remain strong • Limited recovery in sheep/goat meat production after 2001 FMD results in high market prices

EU to remain net importer of beef meat over the medium-term EU production, consumption, trade and intervention stocks (mio t c.w.e.)

Pig meat remains preferred by EU consumers (50% of total meat consumption) ensuring a slight production growth EU production, consumption and trade (mio t c.w.e.)

EU poultry production to keep its growth over the medium term in line with growing consumption EU production, consumption and trade (mio t c.w.e.)

EU sheep/goat sector not to fully recover from the 2001 Foot and Mouth Disease EU production, consumption and trade (mio t c.w.e.)

Total EU meat consumption to resumeits long term growth EU per capita consumption (kg/head, in carcass weight equivalent)

Prospects for agricultural markets and income 2004-2011:Milk and dairy sector

Milk and dairy products • Medium term perspective appear positive for EU dairy markets thanks to the: • Increase in domestic demand for cheese and other value-added dairy products • Decrease in production of residual bulk products like butter and SMP facing lower support and market prices • Increasing use of milk for the production of cheeses and other high value-added dairy products for the domestic market limits availabilities for exports

Milk quotas to constrain EU milk production while growing milk yields reduce dairy cow herd EU milk production, deliveries to dairies, dairy cows

EU cheese market keeps its steady growth over the medium term but exports face limited availability EU production, consumption and trade (mio t)

EU butter balance to improve over the medium-term EU production, consumption, trade and intervention stocks (mio t)

EU Skimmed Milk Powder (SMP) market to shrink over the medium term leaving less SMP available for exports EU production, consumption, trade and intervention stocks (mio t)

Prospects for agricultural markets and income 2004-2011: The development of agricultural income

A moderately positive market outlook, the CAP Reform and enlargement lead to stabilising real incomes in the old Member States….

…and secures the high income gains in the new Member States.

Prospects for agricultural markets and income 2004-2011: The impact of enlargement

Impact of enlargement I: • New Member States add about 38 mio ha or 30% to the agricultural area of the EU; • agricultural production of the EU increases by about 10% to 20%; • agricultural work force increases by 52% and • agricultural value added by 6%. • Economic growth is significantly higher than in the old Member States.

The impact of enlargement II: • positive market and income outlook for agriculture in the EU-10 in the medium term as compared to • lower income, slightly lower market prices and higher volatility of prices under non-accession; • high transport costs in some regions constrain development of cereal export markets in the EU and in third countries; • the use of the agricultural potential will only gradually increase.

The process of trade integration….. • started with the conclusion of the Europe Agreements at the beginning of the 1990s and accelerated with the double zero and double profit process and • has avoided destabilising market developments after enlargement. • Agricultural markets are expected to benefit from the complete lift of trade barriers, in particular trade between the new Member States. • Agricultural trade should further increase between old and new Member States.

…has been successful. Integration of the EU-N10 in the EU-25 market (selected products)

Membership has a positive effect on cereal markets..... Development of cereal markets in the EU-N10 with and without enlargement (mio t) (dashed lines = non-accession)

…and further opportunities to trade integration exist. Trade integration of cereal markets in the new Member States

A continuous positive outlook for soft wheat shows increasing external competitiveness…. Development of soft wheat markets in the EU-N10 with and without enlargement (mio t) (dashed lines = non-accession)

… and internal competitiveness as feed cereal, e.g. in Poland,… Development of the soft wheat market in Poland with and without accession (mio t) (dashed lines = non-accession)

…while high transport and marketing costs dampen further market expansion in Hungary. Development of the soft wheat market in Hungary with and without accession (mio t) (dashed lines = non-accession)

Barley loses competitiveness …. Development of barley markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

… relative to other feed cereals, e.g. in Poland,…. Development of the barley market in Poland with and without accession (mio t) (dashed lines = non-accession)

…while the comparative advantage of production remains in, e.g. Slovakia. Development of the barley market in Slovakia with and without accession (mio t) (dashed lines = non-accession)

Maize sees expanding markets in the new Member States….. Development of maize markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

…while Hungary’s maize faces high transport costs…. Development of the maize market in Hungary with and without accession (mio t) (dashed lines = non-accession)

…but finds increasing regional markets. Development of the maize market in the Czech Republic with and without accession (mio t) (dashed lines = non-accession)

The situation on rye markets remains stable and gives limited incentives to increase trade on the single market. Development of rye markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

Changing consumer preferences stabilise beef markets…. Development of beef markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

Prospects for agricultural markets and income 2004-2011 for EU-25