Conference: 2024 Prospects for

EU Agricultural Markets

Brussels,

5 December 2014

Pierluigi Londero

DG Agriculture and Rural Development

European Commission

2

Outline

• Policy assumptions

• Market outlook

• Arable crops

• Biofuels

• Meat

• Dairy

• Income developments

2

3

Policy assumptions

• CAP 2013 as far as possible

• Voluntary coupled support

• Greening:

- Permanent pasture kept constant,

- Limited effect of ecological focus area (EFA) & crop diversification at EU aggregated level

• Trade agreements only if ratified:

• Concessions to UKRAINE included

• FTA with CANADA not included

• Russian import ban assumed to remain 1 year

3

4

Prospects for cereals, oilseeds, sugar and biofuels

• Cereals and oilseeds

• Solid world demand leading to large EU exports of cereals

• EU demand driven by feed use and biofuel use

• Prices below 2012 record prices but above historical averages

• Sugar and isoglucose

• Abolition of the quotas end of 2017 leading to EU sugar prices at world level,

• more sugar produced domestically and lower imports,

• a higher share of isoglucose use in Europe.

• Biofuels

• Lower growth of first generation biofuels than previously expected

• Biofuels to contribute for 7% toward meeting the 10% target of renewables in transport fuel

4

5

EU cereal market developments

0

20

40

60

80

100

120

140

160

180

2010-14 2024 2010-14 2024 2010-14 2024 2010-14 2024

Total Wheat Maize Barley Other cereals

Million t

Food and industrial use Feed use Bioenergy use Exports

6

Annual changes in area and yields 2024 vs. 2010-14

Barley

17.4%

Maize

13.3%

Other cereals

6.3%

Oats

3.8%

Rapeseed 9.5%

Rye 3.5%

Sugar beet

2.3%

Durum wheat

3.6% Common wheat

33.3%

Soybeans, 0.7%

Sunflower seed

0.8% Rice

0.6%

0.0%

0.5%

1.0%

1.5%

-1.5% -0.5% 0.5% 1.5%

Annual change in y

ield

betw

een

2010-2

014 a

nd 2

024

Annual change in area harvested between 2010-2014 and 2024

Note: the bubble size refers to the average share in area in the years 2009-13

7

EU cereal producer prices above historical averages

over the medium term

80

100

120

140

160

180

200

220

240

260

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

EU

R/t

Wheat Maize

Barley Intervention price

7

80

100

120

140

160

180

200

220

240

260

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

EU

R/t

10th percentile

90th percentile

Possible price range as a result of yield and macroeconomic variability

Uncertainties surrounding EU maize price developments

Note: Uncertainty analysis prepared by JRC-IPTS, based on partial stochastic analysis

8

Biofuel use to expand in the EU but less dynamically than expected

• Assumptions:

- Renewable Energy Directive (RED) target of 10% of renewables in energy share by 2020

- Biofuels to contribute to 7% of liquid transport fuels by 2020

- Share of double counted 2nd-generation biofuels (including from waste oils) to grow

• A lower biofuel use expected because:

- Decreasing trend in transport fuel use

- In recent years, only slow increase in biofuel uptake

- Lack of strong policy incentives to invest

• Stable biodiesel production from domestic oilseeds

• Early increase in maize-based ethanol

-5

0

5

10

15

20

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

Million t

.o.e

.

Ethanol (1st gen) Ethanol (2nd gen)

Ethanol net imports Biodiesel (1st gen)

Biodiesel (waste) Biodiesel (2nd gen)

Biodiesel net imports

9

A changing sweeteners EU market environment

0

10

20

30

40

50

60

70

80

0

100

200

300

400

500

600

700

800

2005

2007

2009

2011

2013

2015

2017

2019

2021

2023

EU white sugar World white sugar

Sugar beet Out of quota sugar beet

Sugar, EUR/t

Sugar beet, EUR/t • EU sugar price getting closer to

world prices at around 400 EUR/t

• An increase in sugar beet production

- Channelled in sugar production

- Ethanol production from sugar beet to decrease

• Less sugar imports

• Isoglucose use to increase significantly to about 12% of sweetener use

10

Prospects for meat

• Good exports prospects

• for pig meat and poultry,

• driven by a steady growing world consumption,

• supporting firm or even increasing world and EU prices.

• An increase in EU meat production

• driven by a sustained increase in poultry meat production and lower feed costs,

• while, after a recovery in the short-run, beef production should decline at a slow pace

• and pig meat production should stabilise.

• An EU per capita meat consumption on a declining trend

• after a recovery in the short-run,

• back to declining consumption

• except for poultry benefitting from a lower price and a good image close to consumers

10

11

A slowly declining EU meat consumption

54

56

58

60

62

64

66

68

70

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

kg p

er

capita in r

eta

il w

eig

ht

Economic crises

BSE and FMD

Low meat supply (new welfare rules for pig meat, cow

herd dev.)

Highest ever beef imports from South

America

Recovery of pig meat prod.

and more beef from dairy herd

12

Change in EU meat production and consumption 2024 compared to 2014

-200

0

200

400

600

800

1 000

Beef Pig meat Poultry meat Sheep meat

1000 t

Production Consumption

13

EU pig meat export developments

0

500

1 000

1 500

2 000

2 500

3 000

2005 2010 2013 2014e 2024f

1000 t

Total Russia Ukraine China and Hong Kong Japan S. Korea Other

14

Prospects for milk and dairy products

• Milk remains the white gold for the next decade

• despite the difficult current market situation,

• because world demand is steadily growing,

• prices to stay firm around 350 EUR/t.

• EU deliveries to increase by 12 Mt in 10 years

• Further concentration of milk production in regions with lower production costs

• EU production expansion limited by increasing competition on the world market and by the small potential for higher EU consumption

• Environmental constraints to play a major role.

• More milk channelled into cheese and powders

• Cheese domestic use to continue growing and more exports

• More SMP for the export market thanks to additional drying capacities

• Whey powder exports getting always higher

14

15

Steady growth in world consumption

• +2.1% per year in world imports

• A slightly lower increase in traded volumes compared to the last decade

• But most of the extra demand to be supplied by the EU

- NZ production and exports limited by natural constraints

- US dom. consumption to grow faster

• China to contribute less to the extra demand

- Africa and other Asian countries to absorb more dairy products

EU

EU

NZ

NZ

US

US Arg.

Arg.

-2

0

2

4

6

8

10

12

14

16

2014 vs2004

2024 vs2014

Exports

Cumulative change in world trade of dairy products million tonnes of milk equivalent

China

China

MLE

MLE

O.

Asia

O.

Asia

Russia Russia

Africa

Africa

-2

0

2

4

6

8

10

12

14

16

2014 vs2004

2024 vs2014

Imports

16

Higher milk collection in the EU

100

120

140

160

180

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

Million t

Milk deliveries Quota*

Milk production

17

Concentration of milk production in the Northern part of the EU

Increase in MS where lower prod.

costs and investments

DE, FR, PL, NL, UK, IE, DK

Environment

Stable or low quantity increase

elsewhere

18

Most of the extra milk channelled into cheese

0

1

2

3

4

5

6

7

Prod. Exp. Prod. Exp. Prod. Exp. Prod. Exp. Prod. Exp. Prod. Exp.

Cheese Butter Whey SMP WMP Fresh dairy p.

2024 v

s 2

014, in

million t

onnes o

f m

ilk e

q.

Expected increase in domestic use

19

A slight increase in real income/AWU in 2024 compared to 2012-14

Value of production

-10%

Total costs

-6%

Subsidies

-21%

Real factor income

-23%

Total labour

-28% Income / AWU

+9%

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Summary

• Arable crops and biofuels

• Cereal prices below 2012 record prices but above historical averages

• Less biofuel demand than previously anticipated

• Abolition of the sugar quotas leading to EU sugar prices at world level

• Meat

• Good export prospects for pig meat and poultry, driven by world demand

• A small increase in meat production thanks to poultry

• Meat consumption oriented downwards, except for poultry

• Dairy

• The dairy sector remains the 'white gold' despite the current market difficulties

• An increase in the EU milk production driven by the steady increasing world demand and further increases in domestic use

• Most of the additional milk to be channelled in cheese, whey powder and SMP

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Report and data available at: http://ec.europa.eu/agriculture/markets-and-prices/medium-term-outlook/index_en.htm

DISCLAIMER: While all efforts are made to reach robust market and income prospects, uncertainties remain. This publication does not necessarily reflect the official opinion of the European Commission.

© European Union, 2014 - Reproduction authorized provided the source is acknowledged