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CAP Reports

Prospects for agricultural markets 1999-2006

Executive summary

Chapter I Prospects for agricultural markets in the European Union

This chapter summarises the main results and underlying assumptions of long-term perspectives for some key agricultural products (i.e. cereals, oilseeds, meat and milk products) in the European Union for the period 1999 - 2006. The results presented are the final outcome of different approaches (econometric methods, statistical analyses, specific assumptions, expert judgements, etc.), depending on the products and variables concerned, based on the statistical information available on the 15.11.1999.

These projections are not intended to constitute a forecast of what the future will be, but instead a description of what may happen under a specific set of assumptions and circumstances. The most important assumptions concern the domestic agricultural policy and trade environment:

(1)
As regards agricultural policy, all policy instruments and measures are expected to operate under the current rules or within the changes already decided for the 1999-2006 period. In that perspective, the implementation of the reform of the Common Agricultural Policy adopted in the framework of Agenda 2000 is fully taken into account from 2000 onwards.
(2)
The second important assumption relates to trade in agricultural products and, in particular, to the commitments derived from the Uruguay Round Agreement. It is assumed that all URA commitments regarding market access and subsidised exports will be fully respected. Thus, subsidised exports are expected not to exceed the annual URA limits, whereas imports under current and minimum access are fully incorporated. In addition, the URA commitments are assumed to remain unchanged over the 2001-2006 period.


Arable crops

Cereals

After an estimated decline of 0.7 mio ha from 1998/99 to 1999/00 in line with the rise in the rate of compulsory set-aside, the total cereal area would increase slightly in 2000/01 and 2001/02 by more than 0.2 mio ha to reach 36.7 mio ha. Cereal area would benefit from some shift in area from non-textile linseed and oilseed production and would be supported by market prices above support levels in the short-term for soft wheat, maize and durum wheat due to tightly balanced markets. From 2002/03 onwards, the full implementation of the reform across the arable sector should generate a further increase in cereal area of around 0.2-0.3 mio ha as oilseed and non-textile linseed area declines more significantly. After peaking in 2002/03 at 37.0 mio ha, cereal area is expected to stagnate between 36.8 and 37.0 mio ha over the medium term.

Yield trends observed since the beginning of the 1980s are assumed to continue over the projection period, although at a lower rate. Average cereal yields would reach 5.88 t/ha in 2006/07. Total harvested cereal production would increase from 199.0 mio t in 1999/00 to 216.7 mio t in 2006/07 driven by increasing yields. In line with higher area and yield projections (above 5 % for both as compared to 1998/99), soft wheat production would rapidly expand over 100 mio t and reach a historical high of 105.4 mio t in 2006/07. Barley production is projected to exhibit a regular decline over the next eight years owing to low profitability prospects.

Following the strong rise in domestic use of cereals generated by the 1992 CAP reform, the implementation of Agenda 2000 is foreseen to provide a further boost to domestic demand by improving cereal competitiveness. Total cereal demand is projected to increase steadily over the medium term, from 177.3 mio t in 1998/99 to 192.4 mio t in 2006/07 (i.e. a 15 mio t growth). A larger demand for feed products combined with an improved market share is expected to generate a rise in total feed use of cereals estimated at more than 10 % from 1998/99 to 2006/07, when total cereal feed usage would amount to 121.6 mio t (a 11.1 mio t increase as compared to 1998/99). Non-feed uses of total cereals are projected to increase by 4.0 mio t, from 66.8 mio t in 1998/99 to 70.8 mio t in 2006/07 (mainly industrial demand).

Total cereal exports are estimated to start increasing beyond the URA limits on subsidised exports from 2003/04 onwards, when world market prices for soft wheat are foreseen to increase above the EU intervention price level. Conditional on the respect of the quality requirements, total cereal exports would reach around 29 mio t in 2006/07. Total cereal imports are assumed to remain relatively stable at 5.7 mio t, although some additional quantities of high quality wheat cannot be excluded.

EU cereal markets may be expected over the medium term to be characterised by high levels of stocks, mainly for coarse grains. Total cereal stocks would remain above 40 mio t throughout the whole period, compared to 29 mio t on average in the period 1995/96-1997/98. After a short-term decrease up to 2001/02, total cereal stocks are expected to resume rising and reach 44.5 mio t in 2006/07 (of which 22 mio t in intervention stores). This general imbalance masks widely diverging prospects across cereals. Whereas the markets for soft wheat, durum wheat and maize are expected to remain rather tight throughout the whole period, the situation of the markets for other coarse grains (especially of rye) are foreseen to be rather difficult over the medium term.


Oilseeds

The cut in oilseed direct payments and their gradual alignment to the cereal payment from 2000/01 to 2002/03 are foreseen to outweigh the modest expected recovery in world market prices, resulting in a fall in total “food” oilseed area by 15 % relative to 1999/00 which would stabilise at 4.3-4.4 mio ha over the medium term. Soya bean would be most affected, its area falling by more than 46 % in 2002/03 relative to 1998/99, then stabilising above 200 000 ha over the medium term. Non-food oilseed area is estimated to adapt to the level of the set-aside rate and to stabilise at around 0.8 mio ha over the 2000/01–2006/07 period.

Oilseed yields are expected to increase in the medium term and reach 2.7 t/ha on average in 2006/07. Oilseeds (food) production is projected to fall from 13.9 mio t in 1998/99 to 11.1 mio t in 2001/02 as total oilseed area drops. It will then increase slightly over the medium term to reach 12.0 mio t in 2006/07. Non-food oilseed production will evolve together with the level of set-aside and stabilise around 2.2 mio t over the medium term.

Uncertainties

It should be stressed that the projections for the arable crop sector are particularly sensitive to a certain number of assumptions concerning notably future developments on the world cereal and oilseed markets and the medium-term outlook for the euro. While the outlook for world cereal and oilseed prices may be considered as rather conservative, the euro is assumed to strengthen slightly vis-à-vis the US $ over medium term. Any change in any if these assumptions could significantly alter the medium-term perspectives.


Beef

Beef/veal production is expected to reach its cyclical down in the second half of 1999. In the years after, beef production is expected to resume, reaching its next peak in the year 2002, then entering into a downward phase until the year 2005 before resuming again in 2006. The strong rise of production that is anticipated for the years 2001/02 reflects both the cyclical evolution and the fact that the impact of the different BSE measures, which are still influencing the EU beef sector, progressively fades away.

Beef/veal consumption recovered steadily from the big drop experienced in 1996 under the influence of the BSE scare and is now back to its long-term declining trend. It is expected that the Agenda 2000 decisions will positively impact beef/veal consumption by contributing to a more favourable price relation with respect to other meats, in particular pork and poultry. The positive impact should mostly occur in the period 2001-03 when market prices are likely to decrease under the influence of the expected production increase. However, in the medium and long term, it is unlikely that the somewhat improved price competitiveness of beef can surpass the general tendency of consumer preferences in favour of pork and poultry.

Despite the substantial cut of support prices, the bulk of EU beef exports will continue to be limited by the URA agreement on subsidised exports. However, it is expected that world market prices for beef will strengthen over the medium term, narrowing somewhat the gap compared to EU prices. Thus, small volumes of exports without refunds can be envisaged at the end of the forecast period. EU beef imports are forecast to increase only slightly in the short term, but should remain more or less stable in the medium term.

Overall, the forecasts show that a balanced EU beef market is likely to be achieved over the medium term with, however, continued cyclical movements. Nevertheless, a temporary increase in stocks (mostly private stocks) seems to be sufficient in order to cope with the cyclical up and down in beef production. In particular the cyclical up in production that is expected for the years 2001/02 is likely to put the EU beef market under pressure and could lead to some increase in EU beef stocks. Corresponding releases in the following years can be envisaged when beef production is declining.


Pig meat

The recent huge rise of pig meat production in the EU, stimulated by two years of high prices due to the BSE crisis in 1996 and the outbreak of the classical swine fever in 1997, has considerably changed the perspectives of the sector in the short and medium term. Nearly 1.6 mio t more pig meat (+10 %) had to be absorbed by the markets over a period of just two years. In the short-term, pig meat production is expected to react to some extent on the low prices that producers are currently experiencing. But there is a risk that production will remain well above the level observed in 1996 and 1997 if there is not a more drastic fall in pig numbers in the next few months. However, over the medium and long term, there is a certain scope for further growth, driven mostly by demand (internal consumption and exports), but the anticipated growth rates should be lower than in the past, given the new and much higher production level.

For pig meat consumption, the medium and long-term outlook is in general positive since pig meat is likely to keep being favoured by consumers, but clearly less than poultry. The growth rates for per capita consumption are anticipated to slow down somewhat in coming years, given the big rise in most recent years and the high level already reached.

Imports are likely to increase slightly over the medium term, assuming mostly unchanged market access commitments, but somewhat better use of it. Compared to the record level expected in 1999, exports are forecast to be lower in the short term but should resume over the medium term in line with higher EU production and growing international trade.


Poultry

Despite some signs of slowdown in the short term, reflecting among others the negative impact that the Dioxin scare in Belgium had on the sector, the outlook for poultry in the medium and long term is still positive. Very competitive prices with respect to other meats and strong consumer preferences should continue to play in favour of poultry and allow keeping its relatively strong growth. Mainly driven by demand, EU poultry production is forecast to rise from 8.7 mio t in 1998 to around 10.1 mio t by the end of the forecast period.

Per capita consumption is forecast to increase from 21.3 kg in 1998 to about 24.3 kg by the year 2006, with a short period of slowing down in 2000/01. This evolution corresponds to the long-term growth of consumption that has been observed in the past.

While poultry imports are forecast to increase to around 330 000 t by the end of the forecast period, exports are expected to fall in the short-term but should resume in the medium term in line with higher EU production and growing international trade.


Sheep and Goat

Production of sheep/goat meat is recovering from the relatively strong fall that occurred in 1997 and that was due to specific climatic conditions. In the medium and long term, a slight downward trend is anticipated. The same is true for per capita consumption, while total consumption is likely to remain more or less at the same level due to a small population increase.

Imports could slightly increase in response to somewhat better use of market access commitments granted to some third countries.


Milk and dairy products

Under Agenda 2000, milk deliveries are expected to increase over time as a consequence of the quota increases scheduled for the years 2000-2002 and 2005/06. However, compared to the year 1998, the first quota increase by about 1.4 mio t is not likely to lead fully to higher milk deliveries in the short term. The main reason is that a part of the quota increase corresponds to a production that already exists in 1998. Assuming member states will fully adjust to the available reference quantities for deliveries and direct sales, it is expected that milk deliveries will increase to around 114.4 mio t by the year 2002. This is about 830 000 t more than in 1998. In the following years, it is expected that milk deliveries will decline slightly each year, reflecting the continuing increase in the milk fat content that reduces the margin for milk deliveries to dairies if the historical reference fat content is exceeded. Milk deliveries are forecast to increase again by the end of the forecast period in line with the quota increase in the years 2005 and 2006 which forms part of the second reform step and that is linked to the cut in support prices.

As far as milk production is concerned, the impact should be somewhat lower due to the expected evolution of on farm milk use, which is not governed by quotas and that tend to decrease. In addition, direct sales are not concerned because only the quotas for deliveries will be increased.

The higher milk production, which is forecast under Agenda 2000, is likely to slow down somewhat the anticipated decline of the dairy herd. Assuming a further increase of milk yields by around 1.70 % per year on average over the forecast period, the number of dairy cows in the EU is forecast to decline from 21.5 mio animals recorded in 1998 (December survey) to around 18.8 mio animals by the year 2006.


Cheese

The medium and long-term outlook for consumption is in general positive, but it could well be that the growth is slowing down. Per capita consumption is cautiously forecast to rise from 17.4 kg in 1998 to about 19.0 kg by the year 2006. This represents an annual growth rate of around +1.0 %. Total consumption will increase somewhat faster, i.e. by about +1.2 %, due to the expected small growth of population.

Exports are likely to recover only marginally from the low levels experienced in 1998 and 1999. Over the medium term, it is expected that exports could reach about 450 000 t, with the perspective to increase somewhat at the end of the forecast period. This small increase should be seen against the background of the gradual implementation of the cut in milk support price and of which the full impact will be felt somewhat later, mostly by the years 2007-08. Imports are forecast to continue to increase over the medium term, reflecting improved market access granted to third countries within the GATT Uruguay Round and some bilateral trade agreements.

Based on the above trends for domestic use and external trade, cheese production is forecast to keep its steady increase, but at a relatively lower rate in comparison to the past. Due to the constraining nature of the GATT commitments for exports, the expected average yearly growth rate for production is only slightly higher than that of total cheese consumption. Without these constraints, cheese production would be higher and absorb more milk, reducing production of other dairy products, in particular butter and skimmed milk powder (which can be sold into intervention).


Butter

Butter production is forecast to remain more or less at the level currently observed, reflecting the higher supply of milk fat due to increased milk deliveries and limited scope for use in the manufacturing of other dairy products. Butter consumption tends still to a slight decline despite some signs of stabilisation observed over several years. Forecasts for per capita consumption are set at 4.5 kg by the year 2006, compared to around 4.65 kg currently. This forecast implies an annual rate of change of around –0.5 %. The expected decrease in total consumption is somewhat lower (-0.3 %) due to the anticipated small population increase.

Imports of butter are forecast to continue to increase in the short term before stabilising at around 110 000 t over the medium term, following the GATT outcome (increase in minimum access tariff quotas) and other import commitments. Butter exports are set at around 200 000 t each year, after an anticipated recovery in the short term, due to the assumption that in particular the trade with Russia will normalise.

The balance sheet for butter shows that, if in particular exports will not be considerably higher than assumed, especially in the next few years, some pressure on intervention stocks can be expected, despite continuous and sustained support of domestic use.


Skimmed milk powder

In the medium and long term, the downward trend both for production and consumption of SMP should continue after a short interruption in 1999. However, there is a risk that SMP production will remain relatively high in the short term, reflecting higher milk supply and butter production, especially in the years 2000 and 2001. Over the medium term, the forecast suggests a reduction of SMP production from an estimated 1.16 mio t in 1999 to around 995 000 t by the year 2006. While human consumption of SMP is projected to remain more or less stable, the use of SMP in the animal feed sector should continue to decline over time.

Imports are forecast to keep increasing slightly over the medium term. SMP exports are set at 250 000 t, a volume that is expected to be the likely maximum that can be reached each year on average over the forecast period, without excluding some fluctuations around.

Overall, the forecasts show a market situation where SMP intervention stocks tend to increase in the short term, i.e. up to the year 2003, before the pressure eases somewhat, but only thanks to high exports that have been assumed and further substantial subsidised internal use.


Chapter II Prospects for agricultural markets in the Central and Eastern European countries

This chapter provides an overview of the current and expected longer-term development of a number of the main agricultural commodity sectors in the 10 Central and Eastern European Countries (CEECs) which are candidates for accession to the European Union 1. The projections are based on a status-quo policy hypothesis. This means that the projections are based on current policy and no assumptions have been made concerning the date and conditions of entry to the EU by candidate countries 2.


Cereals

The area grown under cereals in the CEECs has been relatively stable above 24 mio ha during the second half of the 1990s. For the projection period, it is expected that the total area under cereals in the CEECs will show a minor annual increase of around 100 000 ha and reach about 25.2 mio ha in 2006, i.e. 5 % above the average cereal area of 1996-1999. It is assumed that the area under cereals will stay rather stable or show small increases in most countries, and that only Poland will see a significant increase of 300 000 ha from 2000 to 2006. It is expected that the average yield for the CEECs will continue to increase, at between 1.5 and 2 % per annum and reach on average 3.6 t/ha in year 2006. Based on the above mentioned assumptions on area and yield an increase in total cereal production is expected, up to about 89 mio t in 2006.

Due to a slight increase in per capita consumption, total human consumption of cereals is projected to go up by around 700 000 t in the period from 1998 to 2006 reaching 17.8 mio t. The total cereal feed use is projected to increase by 6 mio t to 51 mio t in 2006/07. This development is mainly due to increases in Poland, Hungary and Bulgaria and based on the projected development in meat production (pig meat and poultry). These feed and food use patterns combined with relatively stable other cereal use will lead to an increase from 73 mio t in 1999/2000 to 81 mio t in 2006/07.

The above assumptions on production and use during the projection period will leave an increasing amount of cereals available for export, as production is projected to increase at a higher rate than consumption, the net balance of exportable cereals is seen to grow to between 8 and 9 mio t in 2006/07, from 2 mio t in 1998/99.


Oilseeds

The area grown under oilseeds is expected to decrease significantly in the year 2000 to 3.1 mio ha from 3.4 mio ha in 1999. This is due to the current low prices especially for rapeseed and soyabeans and the very large harvested area in 1999. It is projected that the total oilseed area will stay stable at 3.1 mio ha during the projection period. Yield is seen growing at a rate similar to that of cereals at around 1.5 % annually. As in the EU the increase should be higher for rapeseed than for sunflower seed.

Based on the assumptions on area and yields mentioned above, total oilseed production is expected to decrease in 2000 after the record crop in 1999. However as yields improve production should reach 5.7 mio t in year 2006. This is equal to the record crop in 1999.

Internal use/crushing is expected to increase significantly from 4.6 mio t in 1999/2000 to 4.9 mio t in 2006. Oilseed production is projected to increase faster than internal use. The quantities available for exports may increase from 0.5 mio t in 1998 to 0.7 mio t in 2006.


Milk

In the projection period it is assumed that the number of dairy cows will continue to decrease until 2006, but at a slower speed than in previous years (-0.3 to -0.4 % p.a.). The total number of dairy cows is projected to decrease from 7.9 mio in 1999 to 7.7 mio in 2006. It is projected that the average yield per cow should go up on average 1.6 % annually in the projection period (at the same rate as in the EU. The assumed increases in yield per cow coupled with the decrease in cow numbers will lead to an increase in milk

production from 29 mio t in 1998 to 31.7 mio t in 2006. Of this 2.7 mio t increase, 1.3 mio t will be in Poland, 0.4 mio t in Hungary and 0.3 mio t in Romania.

It is assumed that the internal use should increase in the projection period, but less than production. It is expected that most of the increased milk demand in the CEECs will come mainly from an increase in use of fresh milk products and cheese. Total internal use is projected to reach nearly 29 mio t in 2006 compared to 26.4 mio t in 1998, with annual increases of 1.5 to 1.7 % on average during the period.

Based on these trends in production and consumption the CEECs are expected to increase their net export balance from 2.3 mio t in 1998 to 2.8 mio t in 2006. This increase in quantities available for exports mainly arises in the Czech Republic and Hungary and to a lesser extent from other CEECs.


Beef and veal

The production of beef and veal in the CEECs is mainly linked to the dairy herd, as only limited numbers of herds with suckler cows are present in the CEECs. During the projection period it is expected that the number of animals slaughtered will decrease slightly. It is assumed that as the number of dairy cows continues to decrease beef and veal production will do the same. The increase in suckler cow production will not be able to compensate this decrease totally. The average slaughter weight is seen to increase marginally to around 200 kg/head. Total beef and veal production is seen to reach 1.15 mio t down from 1.2 mio t in 1998.

Internal consumption is expected to grow steadily but slowly, with per capita consumption to increase from 11.3 kg in 1998 to 12.1 kg in 2006. It is assumed that total internal use in the CEECs should rise from 1.16 mio t in 1998 and reach 1.23 mio t in 2006, which is the same level of beef and veal consumption in 1995/1996. This development together with the decreased production may lead to a significant number of CEECs becoming net-importers of beef.


Pig meat

Pig meat is the most important meat produced and consumed in the CEECs, and is expected to continue to be so. Total pig meat production is projected to increase from 4.5 to 5.1 mio t, and a significant part of this increased production is estimated to be consumed in the CEECs. Per capita consumption in the CEECs is projected to increase from 41.4 kg in 1999 to 44.2 kg in 2006, or on average 1 % per year. Increases are assumed in all CEECs.

It is expected that the CEECs will be able to continue to be net exporters of pig meat and even increase from around 140 000 t in 1998 to nearly 400 000 t in 2006. The net balance in 1996 and 1997 were around 300 000 t. These net exports will mostly come from Poland and Hungary and only to a lesser extent from Bulgaria and Romania.


Poultry meat

Total production of poultry meat is projected to go beyond 2 mio t in 2006 compared to 1.7 mio t in 1998. This increase is the result of a yearly increase of around 2.5 %, and the most significant increases are assumed to take place in Romania and Poland.

The increase in production is mostly demand driven by the internal market in the CEECs. Per capita consumption, which in 1996, 1997 and 1998 grew by 1 kg, is assumed to grow by 3.5 kg from 1999 to 2006 - or by nearly 3 % annually, and could go beyond 19 kg/capita in 2006. It is not expected that the CEECs will be able to increase their net-exports during the period. Net exports from the CEECs may in fact decline slightly from currently around 100 000 t to 60 000 t in 2006. However, Hungary is projected to continue to be a net exporter of around 130 000 t annually, and Poland should increase its net imports.


Chapter III Prospects for world markets

There is a broad consensus among analysts that the medium-term outlook for agricultural products should be characterised by a strong growth in demand that would generate a sustained expansion in trade. Prospects for an increased consumption of food products, mainly in the developing countries, combined with the limited possibilities to proportionally increase domestic production are expected to boost world trade and strengthen world prices above their long-term declining trend. If short-term developments are foreseen to be dominated by the aftermath of the Asian crisis and its spread to Latin America and Russia, gradual recovery over the medium term towards a strong and stable economic growth is expected to generate an expansion in demand from the non-OECD regions, in particular in Asia and Latin America, which would constitute the main driving force behind these favourable prospects.

If the situation of agricultural markets is expected to improve as compared to the late 1980s and early 1990s, this positive outlook would nevertheless constitute a significant downward revision from the very optimistic prospects that had been forecast by major organisations over the last few years. A combination of over-supply in many markets in response to high prices in recent years and depressed economic conditions in many developing countries (both in terms of income and currency depreciation) led to a general fall in commodity prices in 1998 and 1999.

On the assumption that supply will adjust to this low price environment and that the economic prospects do not worsen, world prices and trade of most agricultural commodities are expected to recover. However, prices would remain at low levels in the short-term, whereas recovery would only take place over the medium term, but at a lower level than previously foreseen.

Furthermore, these projections are subject to some uncertainties. These include notably factors of policy (future agricultural and trade policy developments in the US, EU and emerging markets) and macro-economic nature (future world economic perspectives and currency fluctuations). These uncertainties may be expected to moderate future recovery prospects for agricultural markets.


Cereals

Large global supplies, combined with weaker import demand generated by the deterioration of the economic environment, are foreseen to keep cereal prices at depressed levels in the short-run. The expected recovery in the crisis-affected economies as well as supply adjustment in the cereal sector are forecast to provide the basis for a modest recovery in prices and trade over the medium term. Higher cereal consumption, fuelled by economic and population growth as well as dietary changes, combined with limited production potential is forecast to stimulate cereal imports in a large number of non-OECD countries, including China, North Africa and Latin America.

After 15 years of relative stagnation, the FAPRI and USDA forecast total cereal trade to increase between 18 % and 27 % respectively by the year 2006/07, with coarse grains exhibiting a stronger pattern driven by increasing meat consumption in many developing countries and the ensuing expansion of their livestock sector.

After bottoming out in 1998/99, world market prices would follow an upward trend up to 2006/07. According to FAPRI and USDA projections, wheat prices are expected to range in 2006/07 between 164 $/t and 175 $/t respectively, whereas maize and barley prices should develop between 105 $/t and 124 $/t. The OECD foresees that wheat and maize prices would strengthen over the medium term and reach 153 $/t and 120 $/t respectively in 2004/05.


Oilseeds

The oilseed sector is expected to exhibit a gradual recovery from a current situation characterised by plentiful supplies and weak demand. Over the medium term, most organisations foresee a stronger demand for vegetable oils due to increased human demand as well as for oilseed meals, which should benefit from the expansion of the feed-livestock sector. Higher demand would support prices over the outlook horizon, sustain production and generate further expansion of trade in oilseeds and oilseed products (though at a lower pace than in the early 1990s). The prices of oilseeds and oilseed products would remain at depressed levels in the short-term, before strengthening over the rest of the period. By 2006/07, soya bean prices would range between 237 $/t and 271 $/t according to the FAPRI and USDA projections respectively (the OECD foresees a stronger recovery with soya bean prices at 301 $/t by 2004/05). Soya bean meal prices would also trend upward over the medium term, reaching between 165 $/t and 185 $/t in 2006/07.

Palm oil is forecast to capture the greatest share of an expanding demand and trade for vegetable oil. Growth in oilseed oil trade would be stronger than that of oilseeds and oilseed meals, though lower than in the early 1990s. The strong dependence of trade in vegetable oil from developing countries makes the outlook very sensitive to the economic prospects in these countries.


Meat

The prospects for an increase in the consumption of meat in response to income growth, in particular in transition economies and rapidly industrialising economies, combined with limited possibilities to proportionally increase domestic production, are expected to stimulate world trade and strengthen world market prices for meat over the medium and long term. Beef trade is forecast to increase by more than 0.8 mio t over the 1998-2006 period (i.e. +17 %), with most of the growth from Asia and Mexico. Pig meat trade is projected to climb to between 0.5 to 0.7 mio t over the same period (i.e. around 20-34 %). Global trade in poultry meat is also projected to trend upward, with increases in the range of 1.2 to 2.1 mio t (i.e. around 30-40 %) according to different analysts.

Beef and poultry prices should strengthen over the medium term supported by strong demand. The magnitude of the recovery would remain dependent on higher feeding costs as well as the depth of the economic crisis and the speed of recovery in some key importing countries. Pig meat prices are projected to trend upward over the medium term, driven by higher demand and feed prices but largely tempered by continued efficiency gains and increased competition from other meat.


Milk and dairy products

The medium-term outlook for the milk and dairy markets appears to be rather favourable as for the other agricultural products. Stimulated by increasing consumption and higher producer prices, milk production is set to expand in a number of countries, mainly outside the OECD area and in those OECD countries that do not use production quotas. According to the OECD, world cow milk production is likely to increase by more than 50 mio t from 1998 to 2004. The greatest increase in milk output is foreseen in India, some other Asian countries (China, Pakistan) and several countries of Latin America (mainly Brazil, Argentina and Mexico).

The OECD and the FAO anticipate that the gradual shift in world trade from bulk dairy products (i.e. SMP and butter) towards higher value added products (such as cheese) should continue over the medium term. After a short-term decline, world market prices of dairy products are predicted to gradually recover. They would remain below their 1995 level, but above the level experienced in the early 1990s. Price prospects for cheese would exhibit the most favourable development.


Key issues

The outlook for agricultural markets over the next seven years appears fairly positive when compared to the situation in the 1980s and early 1990s. However, it must be stressed that these market projections are particularly sensitive to critical assumptions regarding the economic environment, future supply, demand and policy developments and they remain subject to some uncertainties.

In this regard, three main areas of uncertainties can be identified:

  • The economic perspectives: concerns remain about the medium-term prospects for many emerging economies (both in terms of income and currency depreciation). If the situation in many of these countries has significantly improved and the economic downturns in Russia and Brazil shallower than expected earlier, some emerging economies remain fragile and vulnerable and the path towards full recovery may turn out to be longer than initially thought.
  • The scope for production growth: future production growth in the main importing countries is forecast to be outpaced by the rise in consumption. If availability of additional land is expected to be limited in most regions, potential for further improvement in productivity clearly remains a source of uncertainty.
  • The policy and trade environment: future course of agricultural policy reforms -in the EU and other major producing countries/reg ions- as well as the new round of WTO multilateral trade negotiations may have important implications for the medium-term outlook of agricultural products.

1 Bulgaria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia.

2 This is a purely working assumption and does not prejudge the effective entry date of any candidate country or the modalities of accession.


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