INTERNATIONAL AGRICULTURE AND TRADE December 15, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- INTERNATIONAL AGRICULTURE AND TRADE Situation and Outlook is published four times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WRS-95-4. Please note that this release contains only the text of INTERNATIONAL AGRICULTURE AND TRADE--tables and graphics are not included. Subcriptions to the printed version of this report are available from the ERS- NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #WRS, $20/year. ERS-NASS accepts MasterCard and Visa. ----------------------------------------------------------------------------- EU Remains Growing Market for U.S. High-Value Products U.S. agricultural exports to the European Union (EU) are expected to rise 3.4 percent in fiscal 1996 to $8.7 billion, due mainly to higher oilseed prices and expanding sales of horticultural products. During October 1994/September 1995, U.S. agricultural exports to the EU were valued at $8.4 billion, compared with $6.8 billion a year earlier. U.S. farm imports from the EU in fiscal 1996 are expected to remain unchanged from the previous year at $5.7 billion. Beverages, including wine and malt beverages, accounted for more than one-quarter of U.S. agricultural imports from the region in fiscal 1995, followed by dairy products (mainly cheese and casein), grains and feeds-- including biscuits, wafers, and pasta--and vegetables and preparations. U.S. high-value exports to the EU accounted for a record share of U.S. agricultural exports to the EU-12 in calendar year 1994. Strong growth in consumer foodstuffs and declining export values for bulk commodities due to increased foreign competition and declining grain prices, were largely responsible for the growing importance of high-value product trade. Exports of corn gluten feed have consistently been the largest single high-value export to the EU. However, the EU is also a growth market for U.S. fruits, vegetables, wine, and tree nuts, with the export value of these products growing by almost half over the last 5 years. Continued income growth in the EU, trade concessions under the Uruguay Round (UR) Agreement on Agriculture, and a low U.S. dollar compared with major EU currencies should help sustain strong demand for U.S. high-value products in 1996 and beyond. U.S. exports of high-value products to Central and Eastern Europe (CEE) have doubled in the last 5 years and many sectors should continue to grow as consumer purchasing power improves and market access widens under the UR accords. In 1995, exports of feeds and fodders, fruit, fruit juices, vegetables, and chocolate will achieve 10-year highs, while nuts and oil cake and oil meals will reach post-transition highs. However, the eventual accession of CEE countries to the European Union will likely hamper U.S. exports as the principle of "community preference" drives out non-EU goods. EU grain production is expected to expand in 1996 largely because the set-aside rate has been lowered in response to tight supplies. The EU began the 1995/96 marketing year by suspending export subsidies for wheat, and placed an export tax on wheat in early December. Unsubsidized wheat exports have kept EU wheat on the world market, but the EU is not expected to exceed its export subsidy limits set under the Uruguay Round Agreement on Agriculture. Oilseed production rose in 1995 despite reduced total area, led by a sharp increase in rapeseed area and yields. Oilseed area and production are expected to increase in 1996 as Spain recovers from a drought-reduced 1995 crop and as the set-aside rate is reduced from 12 to 10 percent. Producers also will be less wary of incurring large payment cuts, because no penalties under the Blair House Agreement were assessed this year. Higher prices, cyclical factors, and booming export demand have increased beef and veal production for the first time since 1991. Resurgent exports to Russia and the Middle East have depleted stocks, prompting speculation that the beef intervention system would be suspended by the end of the year. The long-term downward trend in consumption continues, attributed to lower prices for competing meats and lingering consumer uncertainty due to health concerns. A small increase in production is again expected in 1996, as slaughter numbers increase and carcass weights rise. Higher prices failed to boost pork production in 1995 as hot summer weather slowed growth rates and reduced the number of pigs available for slaughter. Poultry production grew slowly in 1995, and is forecast to decline in 1996. Uncertainty is facing future EU pigmeat and poultry exports as UR limits on subsidized exports take hold and U.S. competition stiffens in East Asian and Japanese markets for pork and in Central and Eastern Europe and Russia for poultry. The EU released its reform proposal for the fruits and vegetable sector, the latest in a series of reforms to the EU Common Agricultural Policy that began in 1992. The proposal is a modest one that would reduce payments to farmers to withdraw surplus production from the market while strengthening the role of producer organizations. The EU's extensive system of import barriers, export refunds, and processing subsidies would remain largely intact, with adjustments for UR implementation. Grain and oilseed production increased significantly in Central and Eastern Europe in 1995, largely the result of good weather. Livestock inventories are also showing signs of recovery. If further transition toward a market economy can be realized, the region has good potential to generate large surpluses of raw agricultural commodities, especially grains and livestock products. Such surpluses are likely to have significant implications for the region's eventual integration into the EU and for the future of U.S. trade with the region. Printed copies of the Europe International Agriculture and Trade Report will be available in about 2 weeks. For more information contact Tim Smith (202) 219-0628. Text of the report also will be available electronically. For details, call ERS Customer Service (202) 219-0515. END-END-END