Report Highlights:

In 2016, cattle herd levels are expected to grow marginally for the EU as a whole, but there will be a great deal of fluctuation within several EU Member States due to the abolishment of the EU milk quota this year. Elevated swine slaughter, mostly in Spain and Germany, will result in an excess supply of pork that cannot be absorbed by the current level of EU demand. As a result, the EU is forecast to export a record volume of pork in 2015. The current negative market conditions are anticipated to result in a smaller sow herd, and as a consequence reduced pork production and exports in 2016. Policy highlights include the new Common Agricultural Policy (CAP), an update on the EU High Quality Beef (HQB) quota, the Russian ban on EU pork and political sanctions, and the Emergency Farm Council Meeting.

Executive Summary

Cattle & Beef – Low milk prices elevate cow slaughter.

The abolishment of the milk quota in April 2015 is driving the expected changes in the EU cattle and beef market. In particular, the Irish dairy sector is anticipated to expand their herd and gear up production. In most other EU Member States, the dairy herd is stagnant or shrinking mainly due to the phasing out of government support programs and plummeting milk prices. These worsening market conditions are forecast to elevate cow slaughter numbers and reduce the cow herd at the beginning of next year. Despite increased slaughter; beef production is still well below the levels reported during 2000-2011. EU Beef imports are stagnant due to tight global supply and the EU quota system, which limit the availability of high quality beef. After the Russian ban was imposed, the EU easily diverted exports to alternative markets.

Swine & Pork – Record pork production is hitting boundaries.

With lower supplies from the United States, the EU swine sector was able to find alternative markets after the Russian ban. But high investments in the breeding sector have left the EU without a break on production. The recent dive of piglet prices indicates that the EU market is unable to absorb the additional quantities. Based on the forecast slaughter and weights, pork production is estimated to increase to a record volume of 23 million metric tons in 2015, earlier reached in 2007 and 2011. With the sluggish domestic demand, increasing exports is the only option to relieve the market. This year, EU exports are expected to increase to record volume of 2.35 million metric tons, with China as the main growth market. But given the unrest in the sector, margins are assumed to be tight. FAS Posts forecast that the total EU sow stock will be cut by about 135,000 head in 2015. Increased efficiency will result in only a slight reduction in the pig crop and slaughter.

Policy

-On February 1, 2014, Russia banned pork imports from all 28 EU Member States as a result of African Swine Fever (ASF) findings.

-On August 7, 2014, the Russian Government implemented sanctions on a wide range of agricultural and food products including beef and pork.

-During the July/June 2015 the High Quality Beef (HQB) quota was almost fully used.

-In March 2015, the European Commission opened a Private Storage Agreement (PSA) scheme for pork.

-On September 7, 2015, the European Council discussed proposals from the European Commission to support the dairy and swine sector.

Cattle

EU-28

Animal Numbers, Cattle (1,000 head)

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

Market Year

2014

2015

2016

Total Cattle Beg. Stocks

87,619

87,619

88,150

88,388

0

88,600

Dairy Cows Beg. Stocks

23,475

23,481

23,600

23,557

0

23,550

Beef Cows Beg. Stocks

11,916

11,916

12,000

12,033

0

12,000

Production (Calf Crop)

29,150

29,300

29,300

29,300

0

29,250

Extra EU28 imports

0

0

0

0

0

0

TOTAL SUPPLY

116,769

116,919

117,450

117,688

0

117,850

Extra EU28 exports

499

499

510

600

0

650

Cow Slaughter

10,900

10,989

10,900

11,200

0

11,250

Calf Slaughter

6,600

6,545

6,650

6,500

0

6,500

Total Slaughter

26,250

26,224

26,450

26,650

0

26,700

Loss

1,870

1,808

1,890

1,838

0

1,850

Ending Inventories

88,150

88,388

88,600

88,600

0

88,650

TOTAL DISTRIBUTION

116,769

116,919

117,450

117,688

0

117,850

Liberalization of the dairy market led to an expansion of the dairy herd from 2014.

In 2015 and 2016, the EU cattle herd is expected to continue to expand but at a slower pace than realized in 2014. The main factor for the increasing herd is the abolishment of the milk quotas in 2015. Expansion of the dairy herd is expected to take place mainly in Ireland, the United Kingdom, the Netherlands and Hungary. In these EU Member States, famers invested in their herds to take advantage of the liberalization of the dairy market, in particular the Irish dairy sector is gearing up production (for more information see the FAS EU Dairy Annual). In most other EU Member States, the dairy herd is stagnant or shrinking mainly due to the phasing out of government support programs and plummeting milk prices. While the French beef herd is forecast to increase as a result of a new premium subsidy for beef cattle has become available, the dairy herd is expected to be cut significantly resulting in a net decline in cattle numbers. The beef cow herd is also forecast to grow in Poland, Hungary, the Czech Republic and Bulgaria. Positive factors are the low feed prices and growing domestic as well as third country demand for beef. The total EU beef cow herd recovered in 2014, but is expected to start with a lower herd in 2016 mainly due significant cuts in Ireland and the UK. With the overall lower availability of cows in 2016, production of calves will decline next year. As forecast in the EU Livestock Semi-Annual Report, exports of live cattle are projected to recover from last year due to increased imports of both heifers and animals for halal slaughter by Turkey and Lebanon.

Slaughter of cows is expected to accelerate after the milking season.

During the first half year, total EU cattle slaughter increased by 2.0 percent. This increase is mainly supported by the elevated slaughter of dairy cows and heifers during the first four months of the year, preceding the abolishment of milk quota. With the liberalization of the market, farmers optimized the productivity of their herd by slaughtering their excess of heifers and least productive cows. Simultaneously prices of the higher productive cows peaked during the first quarter of this year. As a result of the low milk prices, the slaughter of cows is expected to be sustained during the second half of this year, and accelerate after the peak of the milking season. The slaughter of calves for veal continues to decline due to the suppressed demand in the main markets, France and Italy. Based on the elevated slaughter of heifers and cows, slaughter is expected to keep its pace and increase to 26.65 million head in 2015 and 26.7 million head in 2016. The elevated slaughter is expected to put a downward pressure on beef prices.

Beef

EU-28

Meat, Beef and Veal (1,000 head)

(1,000 metric tons carcass weight)

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

2014

2015

2016

Slaughter (Reference)

26,250

26,224

26,450

26,650

0

26,700

Beginning Stocks

0

0

0

0

0

0

Production

7,410

7,443

7,440

7,570

0

7,580

Extra EU28 imports

371

372

365

370

0

370

TOTAL SUPPLY

7,781

7,815

7,805

7,940

0

7,950

Extra EU28 Exports

301

300

310

330

0

330

TOTAL Domestic Use

7,480

7,515

7,495

7,610

0

7,620

Ending Stocks

0

0

0

0

0

0

TOTAL DISTRIBUTION

7,781

7,815

7,805

7,940

0

7,950

Increased slaughter is boosting beef supply.

During 2015, slaughter weights are slightly higher than reported in 2014 due to the higher share of adult animals versus calves slaughtered. Based on the higher than anticipated slaughter and weights, EU beef production is adjusted to a higher level accordingly. Cumulative during 2015 and 2016, beef production will most significantly increase in France, Spain, Italy, Poland and Hungary. The total EU production level is however still well below the levels reported during 2000–2011, when production fluctuated between the 8.1 and 8.4 million metric tons. During the first half of 2015, beef imports rose one percent due to increased imports from Argentina and the United States, the latter through the High Quality Beef (HQB) quota. Further import growth through this quota is, however restricted as during the past quota year of July/June 2015, the allocated volume was almost fully used (see Policy section). In 2015, total beef imports are anticipated to fall slightly due to increased domestic availability.

After the Russian ban, the EU diverted exports to other markets.

On August 7, 2014, Russia banned EU fresh and frozen beef as part of sanctions on a wide range of agricultural and food products. But as foreseen in the previous Annual and Semi-Annual Report, the EU diverted their exports to other markets. During the past five years, exports to Russia and Turkey were almost completely cut. But during this period, the EU has been building markets in mainly the Balkan countries, Switzerland, Hong Kong and African destinations. This year the most notable growth markets are Norway and the Philippines. EU exports are supported by the tight global beef supply.

Despite increased slaughter, supply of higher quality beef remains tight.

EU beef consumption is expected to increase in Germany, Italy, Poland, Romania, Bulgaria and Hungary. Changing eating habits are expected to increase consumption of the higher quality cuts, particularly in Germany. A strong upturn of beef consumption in the highest quality segment is however, constrained by the limited availability. Most of the surplus supply is lower quality cow meat, which will mainly be processed.

Swine

EU-28

Animal Numbers, Swine (1,000 head)

USDA official [EU-28]

Posts estimates [EU-28]

USDA official [EU-28]

Posts estimates [EU-28]

USDA official [EU-28]

Posts estimates [EU-28]

Market Year Begin

2014

2015

2016

TOTAL Beginning Stocks

146,172

146,172

146,400

148,310

0

147,500

Sow Beginning Stocks

12,507

12,511

12,500

12,536

0

12,400

Production (Pig Crop)

259,000

261,750

260,000

264,000

0

263,000

Extra EU28 imports

1

1

1

2

0

2

TOTAL SUPPLY

405,173

407,923

406,401

412,312

0

410,502

Extra EU28 exports

556

568

550

580

0

600

Sow Slaughter

4,100

3,815

4,050

4,000

0

4,050

Total Slaughter

252,000

252,865

253,000

258,000

0

257,000

Loss

6,217

6,180

5,851

6,232

0

6,202

Ending Inventories

146,400

148,310

147,000

147,500

0

146,700

TOTAL DISTRIBUTION

405,173

407,923

406,401

412,312

0

410,502

Specialized breeding farms are providing the sector with low-priced piglets.

Both in the previous Annual and Semi-Annual Report the expansion of the swine herd in 2014 and 2015 was underestimated. In this report, these numbers have been adjusted to a higher level; however, this expansion is not expected to continue in 2016. Beginning 2015 official Eurostat sow inventories increased with 25,000 head (plus 0.2%) mainly due to expansion of the breeding herd in Spain with more than 100,000 head. Cumulative over 2015 and 2016, piglet production is expected to increase most significantly in Spain, Germany, Denmark, the UK and Hungary. These are also the countries in which slaughter and pork production is expected to increase most significantly. As a consequence of the animal welfare regulations established in January 2013, the EU swine breeding herd is increasingly held by large, specialized and efficient farms in Western Europe, where significant investments for infrastructure are forcing farmers to maintain their high levels of production, despite the low prices for piglets. The recent dive of piglet prices indicates that the EU market is unable to absorb the quantities, and demand is not expected to increase in the future.

Spain and Germany successfully restructured its breeding sector.

Spain has been the most successful in restructuring its breeding sector. Currently, Spain is the second largest piglet and pork producer in the EU, next to Germany. Due to recent restructuring, a strong integration, and efficient use of labor, the cost price is one of the lowest in the EU. The efficient use of labor is expressed in reportedly the lowest number of workers per animal reported in the EU. A significant increase of the pig crop is also expected in Germany as a result of a new identification of origin campaign by the retailers. This campaign promotes pork products from swine born, raised and slaughtered in Germany. This policy cut German imports of piglets mainly from the Netherlands. While Dutch piglet exports are falling, Danish exports are increasing, in particular to Poland. With the exception of Hungary, piglet production in the new EU Member States is expected to continue to fall.

The French pork sector is between despair and anger.

The French swine sector did not restructure like its Spanish or German counterparts. The cost of production remains high with too many small to medium-sized pig farms, high labor cost and a slaughtering sector which needs investment. This situation led to a burst of French pig farmers' anger throughout the summer of 2015. The French Ministry of Agriculture tried unsuccessfully to set a minimum price of Euro 1.40 per kilo of pig carcass. This measure was denounced by French pork meat processors as unrealistic in an European context. Reportedly up to thirty percent of French pig farmers are in deep financial difficulties and could go bankrupt should the low price situation extent into 2016.

Piglet supply and slaughter is expected to level off during 2016.

Relative to the five year average, carcass prices are low, but also piglet and feed prices are at a relatively low level. Currently, the average EU price for piglets is Euro 32.8 per piece, the average carcass weight is Euro 1.48 per kg, and pig feed prices fluctuate around Euro 270 per metric ton (source EC). Given the unrest in the sector, margins are assumed to be tight. The oversupply situation is clearly reflected in the recent drop of piglet and sow prices, and as a result, farmers anticipate government and industry support measures. At the Emergency Farm Council Meeting on September 7, the European Council discussed a proposal of the European Commission (EC) to support the dairy and swine sector (see Policy section). The first figures of the Eurostat May census reveal an overall reduction of 85,000 sows in Germany, Denmark, Belgium, Hungary and Austria, together keeping about a third of the EU sow stock. FAS Posts forecast that the increase in Spain will not counterbalance the reductions in mainly France and Poland, and the total EU sow stock will be cut with about 135,000 head in 2015. Despite the fact that the sow herd is expected to be significantly smaller in 2016, increased efficiency will result in only a slight reduction in the pig crop and slaughter.

Pork

EU-28

Pigmeat (1,000 head)

(1,000 metric tons carcass weight)

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

USDA Official [EU-28]

Posts estimates [EU-28]

Market Year Begin

2014

2015

2016

Slaughter (Reference)

252,000

252,865

253,000

258,000

0

257,000

Beginning Stocks

0

0

0

0

0

0

Production

22,400

22,533

22,450

23,000

0

22,900

Extra EU28 imports

14

14

10

12

0

12

TOTAL SUPPLY

22,414

22,547

22,460

23,012

0

22,912

Extra EU28 exports

2,177

2,175

2,250

2,350

0

2,330

TOTAL Domestic Use

20,237

20,372

20,210

20,662

0

20,582

Ending Stocks

0

0

0

0

0

0

TOTAL DISTRIBUTION

22,414

22,547

22,460

23,012

0

22,912

Pork production is expected to reach nearly record levels.

During MY 2015/2016, average swine feed prices are forecast to remain at about the same level as in previous season. Based on the stagnant feed costs, slaughter weights are expected to remain at about 89 kg during 2015 and 2016. Based on the forecast slaughter and weights, pork production is estimated to increase with 2.1 percent to a record volume of 23 million metric tons in 2015, earlier reached in 2007 and 2011. This is however a conservative forecast relative to the production level during the first half of the year, which showed an increase of 5.1 percent. As reported in the Swine section, slaughter and pork production is forecast to most significantly increase in Spain, Germany, Poland, the UK, the Benelux countries and Hungary. With a marginal increase of slaughter, pork production is expected to level off in 2016. A significant increase is not anticipated in any of the EU Member States.

Domestic consumption is unable to absorb the supply.

EU pork consumption is sluggish, in particular in the Western Member States. Poultry meat is increasingly favored by consumers based on the perceived health benefits above the generally more fatty pork products. Poultry is generally also more easily prepared and processed. Consumption is expected to decline most significantly in Germany, but also in Southern Member States, such as Spain, Portugal and Greece. More potential for growth is anticipated in Central Europe. In Hungary and Romania consumption is supported by a cut of the Value Added Tax (VAT) on food products, whereas Polish consumption is growing due to increased domestic supply. But with the overall sluggish demand in the EU, a large share of the production is expected to be privately stored. In addition, the European Commission (EC) opened a Private Storage Aid (PSA) scheme in March 2015. Reportedly a new PSA has been proposed at the Emergency Farm Council Meeting on September 7. These stocks are expected to exert a continuous downward pressure on carcass prices.

EU pork exports are expected to level off in 2016.

With elevated production levels and a saturated domestic market, third country markets are increasingly important. In 2014, EU pork exports temporally dipped due to the Russian bans. The EU farmers' sector lobbied for bilateral negotiations between individual EU Member States and Russia. Reportedly six EU Member States, France, Hungary, Italy, Germany, Denmark and the Netherlands, were negotiating separately with Russia to lift the Animal Swine Fever (ASF) ban for products which are not covered by the general ban; live pigs, breeding material, offal and fats. The EC has stated that any attempt at the EU Member State level to cut a deal with Russia is undermining an EU wide solution. The market loss of 500,000 metric tons carcass weight was for the most part compensated by exports to alternative third country markets during 2014 and through 2015. During the first half of 2015, exports only rose 6.3 percent, but are expected to gear up during the remainder of the year. South Korea, Australia, New Zealand and, in particular, China are anticipated to be the main growth markets. Exports are supported by the low domestic carcass prices resulting from a weakening Euro compared to the US$ and the Chinese Yuan during this past year. In 2016, however, EU pork exports are forecast to decline mainly caused by the recovery of U.S. pork exports to Asian destinations. A further cut of the sector can only be prevented by opening new export markets. At the Emergency Farm Council Meeting on September 7, the EC reportedly declared their intention to pursue free trade deals with the United States and Japan and to strive for the removal of technical and veterinary barriers.

Policy

The new CAP and abolishment of the milk quota

The new Common Agricultural Policy (CAP) has been implemented from 2015 and will be enforced until 2020. Of the 28 Member States, 24 have decided to maintain at least some form of coupled support for their beef producers under the new (CAP). It is forecast that EU specialized beef production will continue to decline as coupled aid will be substantially lowered from past support levels in most Member States.

Update on U.S. beef exports into the HQB quota

The EU High Quality Beef (HQB) quota is a result of the 2009 Memorandum of Understanding on the WTO Hormone Dispute between the EU and the United States. During the July/June 2015 quota year, the HQB quota was almost fully used. Under the first come first served import regime, 47,270 metric tons of the quota out of the 48,200 metric tons available was used, 40 percent of which came from the United States, 35 percent from Australia, 23 percent from Uruguay, and less than 1 percent from Canada and New Zealand. While Argentina shipped 213 metric tons during the last quarter of the quota year, the first time they have shipped under the quota. In July/June 2014, 41,358 metric tons of HQB was imported of which 42 percent was of U.S. origin.

Russian ban on EU pork imports as a result of ASF outbreaks

On February 1, 2014, Russia banned pork imports from all 28 Member States as a result of African Swine Fever (ASF) findings on the eastern borders of Lithuania, Latvia and Poland. Until now, the EU has been unable to find a negotiated solution with Russia for regionalization, which would have allowed exports from unaffected areas to resume. The Polish veterinary services have been able to prevent the further spread of the disease south and westwards. However, the disease reportedly continues to affect pig herds in neighboring Belarus, Russia, and the Ukraine. The Russian ban has led pork-producing Member States to pressure the European Commission either to find a technical solution with Russia to end the import ban or to allow Member States to establish bilateral agreements with Russia.

Russian extensive ban on agricultural and food products

On August 7, 2014, the Russian Government implemented sanctions on a wide range of agricultural and food products from the United States, the EU, Canada, Australia and Norway. In June 2015, Russia further extended this political ban until August 2016. The ban includes fresh beef (HS0201), frozen beef (HS0202), pork (HS0203), poultry meat (HS0207), prepared meat (HS0210) and sausages (HS160100). For an estimate of the trade impact of the ban, below is a table with the trade volumes for beef, pork and poultry in 2013.

EU Exports to Russia (metric tons)

Share of

EU Exports

(%)

Share of Russian Imports

(%)

HS0201

13,729

17.8

34.1

HS0202

18,654

30.2

3.4

HS0203

369,916

23.0

60.9

HS0207

73,706

5.8

16.2

HS0210

3,747

9.3

97.2

HS160100

13,659

10.4

75.7

Total Beef (CW)

45,807

18.8

5.5

Total Pork (CW)

503,829

22.6

61.9

Total Poultry

70,856

5.6

15.7

EU Member States continue to plead for EU support for pork producers

The Russian import ban of 2014 marked the beginning of a difficult market situation for the European pork industry. The loss of the EU's most important export market led to an oversupply situation, seriously undermining the favorable outlook for EU pork production. In March 2015, the European Commission (EC) opened a Private Storage Aid (PSA) scheme for the most affected cuts, which attracted 65,000 metric tons of pork in seven weeks with storage contracts between 3 and 5 months. In July, the EC refused to re-open the PSA arguing the low prices are mainly the result of overproduction and the market must finds its balance.

European Commission (EC) proposal to support the dairy and swine sector

At the Emergency Farm Council Meeting on September 7, the European Council discussed a proposal of the EC to support the dairy and swine sector. The package of measures totals Euro 500 million, of which the majority will be destined for the dairy sector. Measures include advanced Common Agricultural Policy (CAP) payments, financial instruments to stabilize the farmers' income, a Private Storage Aid (PSA) scheme for dairy products and pork, and efforts to open new markets. The details of the measure will be further discussed at a Special Committee of Agriculture meeting on September 11 and a Farm Council Meeting on September 14 and 15.