A short-term outlook for EU agricultural markets in 2021
COVID19 Impacts on the agricultural sector
COVID-19 and its consequences posed unprecedented challenges, including logistical problems, workforce shortages and radical change in demand. The increase of energy and transport prices and the consequences of the spread of the COVID-19 Delta variant, in particular in Asia, are having a disruptive impact on supply chains across the globe. In Europe, the price for natural gas has reached new highs. As a result, fertiliser prices have nearly doubled over the past year. The current surge in commodity prices has also been influenced by the recovery of the US, European, and Chinese economies.
The short-term outlook report for fall 2021, published by the European Commission on 8 October 2021, provides a detailed overview of the latest trends within agri-food sectors, at a time when tensions are high.
Macroeconomic outlook
The COVID-19 vaccination campaign in the EU has reached a plateau, with 75.7% of adults being fully vaccinated. With the easing of cost containment measures and the rise in savings, demand is rebounding. According to the first half of 2021, recovery prospects are good, with the euro area’s real GDP expected to be 4.8% above its 2019 level by 2023. Inflationary pressures are gaining strength. Prices for energy, raw materials, fertilizers, and especially freight have been rising sharply during the first half of 2021. Despite remaining optimistic on this front, the European Central Bank (ECB) recommends to monitor market developments closely in these sectors.
The price for moving the gear and the goods have exploded. The Freightos “global container freight rate index” has reached unprecedented levels (+650%), growing at a faster rate than energy prices (+38%), fertiliser prices (+78%), and metals and minerals prices (+51%). The recovery of the global economy is underway in Asia, which in the meantime, is experiencing a shortage of containers. This causes its partners to send empty containers back to Asia, increasing their cost. During the lockdown, many orders were cancelled, and there are fewer deliveries of new containers. Additionally, airfreight capacity has decreased during the pandemic, as the airline industry has not yet fully recovered.
Arable crops
Compared to last year, the EU cereal production is projected to rise by 5% to 294.8 million tonnes in 2021/22. The growth is largely due to the increase in wheat production, estimated at 131 million tonnes, up 11.9% from last year. With high prices and favourable pasture conditions in the EU, the use of grains for feed is expected to remain steady for 2021 and 2022, at 162.2 million tonnes.
EU’s oilseed production has improved this year, and is expected to rise (10%) from last year’s low to 30.4 million tonnes for 2021/22. The prospects for maize and sugar beet seem promising, too. For sugar beet, a yield forecast of 75.1 tonnes per hectare has been estimated. EU sugar beet production could reach 113 million tonnes, that is 13.6% compared to the previous season. The EU’s production of protein crops is expected to increase 11.3% to 4.8 million tonnes in 2021/22. In part, this is due to an increase in area of 13.4%.
The combination of high cereal and oilseed prices should help farmers absorb input price increases for arable crops. Although, farmers may not necessarily benefit from higher commodities prices. This is due to the rising irrigation, fuel and fertiliser costs (the World Bank fertilisers’ index of September 2021 is 77% above the 2020 index).
Specialised crops
EU olive oil production is forecast to remain at 2 million tonnes for 2021/22. The expected good year was hampered by a hot and dry summer in some producing countries. EU exports are expected to increase in the following year, and could reach 860 000 tonnes.
EU’s production of apples is expected to increase by 10% in 2021/22, reaching 12.5 million tonnes. This growth mainly comes from Polish production, where rise is due increase in area harvested, but as well favourable weather conditions. It is estimated to put pressure on prices but consumption will remain strong.
Contrary, a 3% decline for EU orange production is projected, reaching 6.4 million tonnes, driven by a drop in Italian production due to adverse weather conditions. In terms of consumption, fresh oranges will stand high, replacing the consumption of processed orange juice.
Animal products
As for animal products’ markets, the situation is mixed. Prices are good in the beef, poultry, and dairy sectors. However, with feed prices rising, the margins of producers might be squeezed. Farmers who have extensive pastures should benefit from the plentiful grasses. That said, logistical costs and demand in Asia will limit EU imports.
Several factors will contribute to a decline in EU beef and pork production in 2021, including a reduction in the number of cows in the beef and dairy sectors as well as a decrease in both meat products’ service demand. With current oversupply and high feed costs prevalent in the EU pigmeat market, price decreases are expected to fade away by the end of 2021, as production increases will slow down. The increase in exports to several destinations is expected to compensate for the decrease in exports to the UK.
Poultry producers are also experiencing challenges due to the prolonged effects of avian influenza (AI), reduced demand for food services, and high feed costs. The poultry industry is expected to see a 0.9% decrease in production in 2021. AI-related bans will result in a 5% drop in EU exports in 2021.
Supply shortages of sheep and goat meat are occurring both at the EU and global levels, driving up prices. The EU’s production is projected to rise 1.3% in 2021. In terms of trade, the high prices as well as the supply shortage are keeping the products in the EU, limiting trade of sheep and goat meat.
Link to full report:
EC, 2021. Short-term outlook for EU agricultural markets, Autumn 2021.
European Commission, DG Agriculture and Rural Development, Brussels.