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EU-27 - Livestock and Products Semi-Annual 2010

05 March 2010

USDA Foreign Agricultural Service

According to the latest GAIN Report from USDA Foreign Agricultural Service (FAS), Bluetongue continues to remain widespread in the European Union, but most commercial herds have acquired immunity through past infections as well as from vaccinations. Meanwhile, Classical Swine Fever (CSF) has retreated to most Eastern Member States and is largely under control in wild boar populations.

Executive Summary

Cattle & Beef:

After a temporary upturn in 2007 and 2008, the EU cattle herd is forecast to resume its long term trend of contraction. This trend is mainly a result of increasing farm input costs, lagging milk prices, and restricted government support. Calf production in 2008, 2009, and 2010 is adjusted further downwards from the forecast in the Annual Report. Ending inventories as well as slaughter are revised to a lower number accordingly. Since the start of 2008, EU beef imports fell due to sanitary restrictions laid down by the European Commission (EC) on EU beef imports from Brazil. During 2009, EU imports of Brazilian beef were also hampered by the strong Real and the economic slowdown in the EU. It is anticipated that, as in 2008 and 2009, alternative suppliers will not be able to increase their exports to the EU substantially this year. Anticipated higher consumer prices resulting from restricted imports together with the falling beef production and the current global economic situation will further reduce beef consumption.

Swine & Pork:

As a consequence of the financial crisis, the restructuring of the intensive pig sector continued in 2009. Restructuring implied termination of the most inefficient farms throughout the EU and reduction of backyard farming in mainly the NMS. It is expected that the swine cycle, expressed as piglet production, will bottom out in 2010. This upturn is based on the assumption that the current piglet supply is insufficient to fulfill the domestic and export demand for pork. This year, domestic consumption is forecast to decline only marginally, while the demand for EU pork in Russia and China is anticipated to rebound. EU pork exporters believe that the firm economic growth will further elevate pork consumption in these markets. At present, the supply of competitive pork exporters to the Russian market has been cut off. Another factor is the termination of EU trade of slaughter hogs exports to Russia, which will probably reduce Russian slaughter and pork production. On the longer term, through 2010 and later, the EU is also expected to receive increased access to the Chinese market.

Cattle

2009 & 2010 The herd is forecast to resume its long term trend of contraction

During 2007 and 2008, the long term trend of contraction of the cattle herd was temporally halted (see graph below) mainly as a result of the high beef and milk prices.

After the temporary upturn, the EU cattle herd is forecast to resume its long term trend of contraction. This trend is mainly a result of increasing costs for land, feed and energy, lagging milk prices, and restricted government support. Calf production in 2008, 2009, and 2010 is adjusted slightly downwards from the forecast in the Annual Report (GAIN Report NL9022). Ending inventories as well as slaughter are revised to a lower number accordingly. After a reduction of 2.1 per cent in 2008, the calf crop is expected to decline 1.5 per cent in 2009 and 0.8 per cent in 2010. During 2008 - 2010, the EU cattle stock is projected to fall from 89 million head to 88 million head. Throughout the EU, the smaller farms with only a few cows are abandoning the sector, while the biggest and most efficient farms are expanding. Due to the plummeting milk prices, the dairy herd is estimated to have been cut by 1.8 per cent in 2009. The oversupply of milk cows is reflected in their price development (see graph below). The beef cow herd is expected to have shrunk by only 0.4 per cent during last year. Carcass prices are supported by the limited beef supply from Brazil, which benefitted beef intra-trade, and beef export opportunities to Switzerland and Russia. Cattle exports are revised upwards as exports to mainly Northern African destinations recovered after have been limited by Bluetongue Disease related trade restrictions.

EU disease situation

Bluetongue Disease remains widespread, decreasing fertility rates and calf per cow ratio, but most EU commercial herds have acquired immunity through past infections as well as from vaccinations. Food and Mouth Disease appears to be under control and BSE cases also continued their steep decline from recent years. The EU Animal Health Plan for 2010 provides funding for continued monitoring and combating of these and other major livestock diseases (see GAIN report E49088 - EC animal disease eradication, control and monitoring programme for 2010).

Beef

2009 & 2010 EU beef market contracted due to limited supply and the recession

As a result of reduced production and imports, the EU domestic beef supply fell drastically in 2008 (see the two graphs below). The limited imports are due to sanitary restrictions laid down by the European Commission (EC) on EU beef imports from Brazil in January 2008 (see GAIN Report E48016 and policy section). Due to the limited number of farms regaining eligibility to export and the strong Real, imports from Brazil recovered only marginally during 2009. Another factor is the economic slowdown in the EU.



While the domestic demand for beef in Brazil continues to grow, EU consumers cut down their beef consumption. As a consequence of this variety of factors, EU importers believe that imports from Brazil will remain constrained during 2010. Through 2009, increases were reported for imports from Argentina and to a lesser extent from Uruguay, Australia and the United States. While the supply from Uruguay, Australia and the United States is expected to grow further, imports from Argentina are anticipated to be limited due to cattle shortages and export restrictions imposed by the Argentinean government.

Brazilian beef exports to the EU

On 31 January 2008, the EC imposed stricter traceability requirements for Brazilian beef imports, which in practice banned Brazilian beef from the EU market (see GAIN Report E48016). Based on an audit conducted in January-February of 2009, the EU Food and Veterinary Office (FVO) reports that progress has been made but remains critical of the Brazil animal identification and traceability system. The list of Brazilian cattle farms approved for export to the EU has increased to about 2,000. This is, however, only a fraction of the 6,780 Brazilian farms which had been certified during 2007.

Update on the new EU beef import quota for high quality beef

The details for the administration of this new 20,000 MT beef quota were published in Commission Regulation (EC) No 620/2009[1] . This US - EU hormone compromise deal was formally approved in Council Regulation (EC) No 617/2009 [2] , published in the Official Journal on 15 July 2009. The quota has been imposed on 1 August 2009, for a period of two years. With mutual agreement the quota will possibly be enlarged to 45,000 MT after this period. The 20,000 MT quota is a small part of EU beef consumption, but it is a significant opening into the high-end beef market. During 2006 – 2008, EU imports of US beef tripled from 2,100 MT to 6,400 MT. With this new quota, US beef exports to the EU grew further to nearly 9,000 MT in 2009, with a value of 107 million USD. The quota is not expected to be filled during the first year. During the first six months after the opening, sales of US beef amounted to nearly 7,000 MT. But this new duty free quota has induced Australia to also file for access, which was granted by publication [3] on 20 January 2010. While the supply from Australia is believed to be limited, expectations are that the quota will be filled in the second year.

[1] 1] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:182:0025:0030:EN:PDF
[2] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:182:0001:0001:EN:PDF
[3] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:013:0011:0011:EN:PDF

Swine

2009 & 2010 The swine cycle is expected to bottom out in 2010

The EU pig crop declined significantly in 2008 (see graph below). One of the main factors for this decline was the high feed price during the period between July 2007 and January 2009, which affected profitability (see graph below).

In 2009, feed costs were reduced. These benefitted the fattening margins, but the financial crisis pressed carcass prices under the five-year average (see graph below), and as a result fattening margins remained tight. As a consequence, the restructuring of the intensive pig sector continued. Restructuring implied termination of the most inefficient farms throughout the EU and a reduction in backyard farming, in mainly the NMS. Spain and Poland accounted for almost half of the total EU cut back in piglet production. It is expected that the swine cycle, expressed as piglet production, will bottom out in 2010. Due to a recovery in mainly the UK and Denmark, annual EU piglet production is actually expected to increase by 0.6 per cent to about 256 million piglets. This upturn is based on the assumption that the current piglet supply is insufficient to fulfill the domestic and export demand for pork. This year, domestic consumption is forecast to decline only marginally, while the import demand for EU pork in Russia and China is expected to rebound.

In contrast to what was expected in the Annual Report, piglet production is not anticipated to recover in the NMS in 2010. During 2009, the import of piglets by the NMS, from mainly the Netherlands and Denmark, further increased. This trend is expected to continue this year. Another adjustment is the lower than anticipated swine export in 2010. Due to the new customs union of Russia, Belarus and Kazakhstan, import duties on live pigs were raised from 5 to 40 per cent. As a result, the trade of about 1 million slaughter hogs to Russia has been cut off. These animals are expected to be slaughtered on the EU domestic market, which increased the 2010 slaughter number from the forecast in the Annual Report. After the cutback of the EU pig stock in 2008 (-4.2 per cent) and 2009 (-2.7 per cent), the stock is forecast to only decrease slightly by 0.3 per cent to 148.5 million head in 2010.



EU disease situation

Classical Swine Fever (CSF) has retreated to the most Eastern Member States and is largely under control in wild boar populations. In Romania, the first FVO inspection visit concerning this disease took place in mid-January 2010. If a CSF outbreak will occur in the coming months, the stamping-out policy will be applied in the affected area. If no major outbreaks occur, Romania will potentially gain the status of CSF free country before the second half of 2010. In the EU, Food and Mouth Disease appears to be under control. The EU Animal Health Plan for 2010 provides funding for continued monitoring and combating of these and other major livestock diseases (see GAIN report E49088 - EC animal disease eradication, control and monitoring programme for 2010).

Pork

2009 & 2010 Exports are forecast to recover in 2010

The elevated supply of pork in 2007, in combination with EC export funding, boosted EU pork exports in 2008, to a record level of 1.7 MMT. Exports increased most significantly to Eastern Europe and China/Hong Kong (see graph below). The export refunds were terminated on 8 August 2008. During 2009, EU pork exports to Eastern Europe and Asia plummeted, mainly due to the economic recession. Other factors were the lower domestic supply, and absence of EC export refunds. Exports to Russia were also restricted due to veterinary issues (see policy section). The 2009 and 2010 export volume has, however, been revised upwards from the forecasts in the Annual Report. Pork consumption is revised to a lower level accordingly. This revision is due to the graduate recovery of the trade through the year. In addition, 2010 EU pork exports are expected to benefit from the economic growth, and thus demand for pork, in Russia and China. While Danish sector sources expect their 2010 export volume to remain stable, German and Dutch sector sources anticipate EU access to in particular Russia to improve on the short term. At present, the supply of competitive pork exporters to the Russian market has been cut off. Another factor is the termination of EU trade of slaughter hogs exports to Russia (see Swine section), which will probably press Russian slaughter and pork production. According to industry sources, the limited number of plants still blocked by Russian authorities has no effect on the export capacity of the EU. EU pork exports to Russia have been growing steadily since the low point at the beginning of 2009. Over the longer term, the EU is also expected to receive increased access to the Chinese market. While Denmark, France and Spain already export directly to China, the Netherlands is likely to receive eligibility beginning of 2010. Even if China reaches self sufficiency, import demand for pork by-products is expected to grow.

As the swine cycle is expected to bottom out in 2010, the cut down in EU pork production is forecast to be limited in that year: by only about 0.3 per cent to 22.0 MMT. Production of pork is anticipated to increase significantly in Germany and the UK. The German production expansion is mainly based on piglets and slaughter hogs sourced from Denmark and the Netherlands. German slaughter numbers have increased steadily since 2000 and are currently nearly a quarter of total EU slaughter. In the UK, the low Sterling / Euro exchange rate benefited profitability to which farmers responded by increasing sow stocks. In the NMS, the first signs of recovery are reflected in the expansion of commercial slaughter.

Due to restricted consumer budgets pork consumption is expected to decline in the NMS. In Northwestern Europe an important factor for the stagnating pork consumption is the increasing popularity of poultry meat. In this market, the financial crisis has only a limited effect on total pork consumption, except the trend of consumers shifting from buying expensive parts to the cheaper parts.

Veterinary problems with EU exports to Russia

EU meat exports to Russia, especially pork, were severely hampered in 2009, as Russia implemented stricter hygiene and residue standards. However, towards the end of 2009 most EU exporters were relisted for exports to Russia, after the EU agreed to meet the stricter standards, and processors implemented these. However, on the longer term these exports are uncertain as Russia is systematically decreasing meat import quota from year to year and is publicly aiming to reach self-sufficiency in 2012 or thereabouts.

Further Reading

- You can view the full report by clicking here.

March 2010

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