EU-27 - Livestock and Products Annual 2010

Beef and pork exports are expected to recover this year, writes Bob Flach in the latest GAIN report from USDA Foreign Agricultural Service. Between 2009 and 2011, EU cattle and pig numbers are projected to shrink 2.3 and 1.6 per cent, respectively.
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During 2010, beef and pork exports are expected to recover due to increased domestic availability, a weak Euro, limited competition, and recovering demand on the world market. In the second half of 2010 and 2011, EU beef production is anticipated to fall following the long term trend contraction of the herd. While piglet and pork production is expected to peak in 2010, a reduction is anticipated in 2011 as a result of rising feeding and investment costs and increasing competition on the world market. Between 2009 and 2011, the EU cattle and pig stock are projected to shrink 2.3 and 1.6 per cent, respectively.

Executive Summary

Cattle & Beef:

During 2009 - 2011, the EU cattle stock is projected to shrink 2.3 per cent, from 88.8 million head to 86.8 million head. This trend is mainly a result of increasing costs for land, feed and energy and restricted government support. Considering the slow recovery of the EU economy and anticipated rising feed costs, no rebound in calf crop, animal stock levels, and beef production is expected for 2011. During the first half of this year, a relative high slaughter level in combination with slackening demand led to an increased availability of beef on the domestic market. This oversupply situation, in combination with a limited supply on the world market and a weak Euro, slowed down beef imports and boosted exports.


The long term trend of contraction of the cattle herd continues

During 2009 - 2011, the EU cattle stock is projected to shrink 2.3 per cent, from 88.8 million head to 86.8 million head (see graph below). In 2008, elevated beef and milk prices temporally halted the long term trend of contraction. This trend is mainly a result of increasing costs for land, feed and energy and restricted government support. Throughout the EU, the smaller farms with only a few cows are abandoning the sector, while the biggest and most efficient farms are expanding. Whereas prices of carcasses were supported by the limited beef supply from South America, milk prices dwindled (see graph below). These price developments are reflected in the contraction of the herds. The size of the beef herd increased slightly in 2009, while the dairy herd shrunk further.

The weak economy and rising feed costs will hinder a rebound in the cattle sector

Calf production in 2009 and 2010 is adjusted downwards from the forecasts in the Semi-Annual Livestock Report. Ending inventories are revised to a lower number accordingly. After a reduction of 2.6 per cent in 2009, the calf crop is expected to decline 1.3 per cent in 2010 and 0.3 per cent in 2011. The lower calf crop in 2009 is partly a result of the restructuring; thus smaller size and increased efficiency of the dairy sector. Also the low milk price and the outbreak of Bluetongue Disease had a negative effect on the calf/cow ratio in 2009. Another effect of the restructuring is that it induced dairy cow slaughter in 2009 and 2010. During the beginning of 2010, total slaughter was also elevated by the increased slaughter of beef animals which have been fattened during a period with an abundance of grains available. The relatively high slaughter level of dairy cows and beef cattle is facing a decreasing demand for beef, in particular high quality beef, and is likely to generate an important slowdown in the cattle and beef sector in the second half of 2010. Considering the slow recovery of the EU economy and rising feed costs, no rebound is expected for 2011. During the second half of 2010, feed prices are anticipated to follow the price hike of wheat and other feed grains (see graph below and FAS Crop Updates).


EU regulations restricted Brazilian beef exports to the EU

The EU beef supply fell drastically in 2008, mainly due to sanitary restrictions laid down by the European Commission (EC) on EU beef imports from Brazil (see GAIN Report E48016). Due to the limited number of farms regaining eligibility to export, imports from Brazil recovered only marginally during 2009 (see graph below). In addition, partly as a result of the EU veterinary requirements, Brazil reportedly prefers to export to other destinations.

Limited world supply, slacking demand and a weak Euro restricted imports further

Through 2009, minor increases were reported for imports from Argentina, Uruguay, Australia and the United States. In 2010, imports from Uruguay and the United States are expected to grow further, while also imports from Brazil are forecast to increase, although just slightly. Compliance of the Brazilian cattle sector with EU veterinary and traceability is improving (see FVO Report). Interest by US suppliers as well as EU importers is growing for the new quota for high quality beef (see Policy section). However, the supply of beef from South America, North America, and Oceania remains limited. The beef prices in Brazil are reportedly at the same level as in the EU. Imports from Argentina are even anticipated to plummet due to cattle shortages and export restrictions imposed by the Argentine government. Besides the limited supply, other factors of importance are the weak Euro, and slackening EU demand. Higher beef prices, in combination with the economic recession lowered EU beef sales, and shifted consumption to the cheaper cuts, such as minced meat. Another factor for the stagnating beef consumption is the increasing popularity of broiler meat for its low price, leanness, and convenience (see graph below). Overall, EU beef imports are expected to stagnate at about 500,000 MT during 2010 and 2011. A significant recovery of imports in 2010 or 2011 is only possible if the supply side of the market changes, such as a drastic reduction of domestic demand in South America, a significant change of the Euro exchange rate with the South American currencies, or a change in the Argentinean export policy.

EU beef supply outpaced demand during the first half of 2010

Elevated slaughter during the first half of 2010 (see Cattle section) in combination with slightly higher slaughter weights increased the domestic beef supply. The average slaughter weight increased due to lower feed price levels (see graph below), higher carcass prices, and increased slaughter of beef cattle relative to dairy cattle. As consumption is slackening, EU beef supply is thought to have temporarily outpaced demand. This resulted in private stock building and increased availability for exports during the first half of 2010. As beef prices in South America rose, Russia increasingly sourced their imports from the EU. Exports were further supported by the weak Euro against the Brazilian Real and the Russian Ruble.

In April 2010, the EC and Russian government agreed upon the veterinary requirements for EU exports of beef with bone entering Russia. In August, the certificates facilitating this trade were issued by the EC. Despite increased demand from Russia and the new opportunities to export beef with bone to Russia, EU exports are expected to stagnate in 2011. This forecast is based on falling EU beef supply during the second half of 2010 and 2011.

Animal welfare

New Animal Welfare Strategy 2011-2015

The European Commission (EC) is working on the follow-up plan of the Community Action Plan 2006-2010. Key elements for the new plan include upgrading animal welfare standards, introducing standardised welfare indicators and promoting animal welfare on the international scene.

Animal welfare labeling

On 28 October 2009, the EC adopted a report COM(2009) 584[4] on Animal Welfare Labeling. In this report, a range of issues is presented concerning animal welfare labeling and consumer education campaigns, and the possible establishment of a European Network of Reference Centers for the protection and welfare of animals. The reports suggest that labels should inform the consumer of the ethical factors related to production and the way animals are treated. With this report, the Commission seeks to facilitate a political discussion with other European institutions, including the Parliament. The outcome of the political debate will function as the basis for a future animal labeling system as part of the Animal Welfare Strategy 2011-2015.

TSE Road Map 2010-2015

In the Agriculture Council of 22 February 2010, Commissioner in charge of Health and Consumer Policy, John Dalli confirmed that the EC was working on a new TSE roadmap for 2010-2015. New proposals would include an increase in the age limit for the testing from 48 to 60 months or to limit the testing requirement only to cattle born before January 1, 2004. Relaxation of the total ban on animal protein feeding in the EU will likely be another area of interest. See GAIN E50041 - EC planning TSE Roadmap 2010-2015 as decrease in BSE cases continues[7].

CAP post 2013

The EU Common Agricultural Policy (CAP) faces a budget-driven reform after 2013, as the current EU budget was set for the 2007 – 2013 financial perspective. The financial crisis is affecting the underlying decision making for the new budget and politicians are now keen to spend greater amounts on climate change, research and development, and employment. As a consequence of the Lisbon Treaty, CAP Reform is now subject to co-decision, meaning the European Council and European Parliament have equal weight in the decision-making process. While no Commission Communication on the post 2013 CAP Reform is anticipated before September 2010, new Agriculture Commissioner Dacian Ciolos has made statements that there would be no reversals of previous CAP reforms.


Further Reading

- You can view the full report by clicking here.

October 2010

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