INTERNATIONAL AGRICULTURE AND TRADE (EUROPE UPDATE) April 24, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- INTERNATIONAL AGRICULTURE AND TRADE Situation and Outlook is published four times a year (plus three UPDATES) by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WRS-96-S2. Please note that this release contains only the text of INTERNATIONAL AGRICULTURE AND TRADE (EUROPE UPDATE) -- tables and graphics are not included. Subscriptions 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 Agriculture To Be Constrained under Uruguay Round Agreements as Output Rises in Central and Eastern Europe European Union (EU) agriculture over the coming decade will be strongly influenced by the policy mechanisms adopted under CAP reform, the EU's commitments on import access and subsidized exports under the Uruguay Round agreements, productivity growth (particularly increases in crop yields), and developments in the world market. The long-term outlook (1997-2005) for EU agriculture features slower growth in grain production and exports. Tight grain markets in the near term are expected to give way to more abundant supplies and a reimposition of the 15-percent set-aside for grain area after 1998. Grain production is forecast to continue increasing over the projection period, but at a slower rate than before CAP reform. The EU's price policy and the GATT limits on subsidized exports will help contain excess grain production and encourage increased feed use of grains. Beginning in 2001/02, the projected low EU wheat price will allow the EU to export wheat without subsidies. Coarse grain exports are expected to rise to the GATT limit over the forecast period due to strong world demand for barley. Corn exports are forecast to remain at recent levels, and other coarse grain exports probably will decline slightly as the EU reduces export subsidies for oats. Oilseed producers are expected to maintain plantings close to the Blair House limit, but production during 1997-2005 is forecast to rise slowly with higher yields. Crush demand for oilseeds is projected to remain essentially stable as increased demand is offset by the effect of lower grain prices. Imports of soybeans for crush are likely to rise slightly because of limits on domestic oilseed production. Soybean meal imports are forecast to rise in the out years, reflecting the more favorable price of soymeal relative to soybeans. Imports of rapeseed meal and sunflower meal probably will decline due to lower feed demand. Beef production is projected to decline over most of the forecast period due to production-limiting policies, the declining dairy herd, Uruguay Round limits on subsidized exports, and declining consumption in the out years. Consumption is forecast to decline starting in 2001/02 due to competition from cheaper pork and poultry. (Note: The recent collapse in EU beef consumption due to concerns about the effects on human health of BSE--bovine spongiform encephalopathy, or "mad cow disease"-- is not considered in the projection. If consumer resistance to beef persists, the projected long-term decline in EU beef consumption could be steeper.) Subsidized beef and veal exports will decline to the GATT-imposed limits and remain at that level throughout the forecast period. The EU will not be able to export beef without subsidies in the projection period. Beef imports are projected to rise slightly due to the EU's new market access commitments under the Uruguay Round agreements. Pork and poultry production are expected to expand in the near term, although at a slower rate, due to lower production costs. Consumption of pork and poultry will rise throughout the forecast period due to lower market prices and growth in income and population. Poultry consumption will rise more rapidly than pork because of its slightly greater price decline. Exports will be curbed as Uruguay Round limitations on subsidized exports take effect, but some unsubsidized pork and poultry exports are expected to occur. Imports of pork will remain small, but will expand as UR market access commitments take effect. The outlook for Central and Eastern European (CEE) agriculture during 1997-2005 is for significant growth in grain production due to higher yields and higher prices. Exports are projected to rise due to higher output and almost flat domestic demand. All the CEE countries are projected to be net wheat exporters by 2005, and may become significant grain exporters due to productivity growth. Food use of grains is projected to rise slightly over the projection period, while feed use declines as demand from rising livestock production is offset by steadily increasing feed efficiency. Soybean and sunflowerseed production will remain constant while rapeseed production is projected to rise. Meal consumption is expected to rise significantly over the forecast period due to the recovery in the livestock sector and a shift from direct grain feeding to compound feeds. Increased demand will be met mostly through imports, with imports of soybeans and soybean meal expected to rise. Domestic meat production shows an upward trend as livestock inventories stabilize and feeding efficiency improves. Pork, beef, and poultry production are all expected to expand. Demand is also projected to rise with the growth in real income. By the end of the forecast period, pork trade is expected to be nearly in balance, as the region becomes a net importer. Both beef and poultry exports are projected to rise, with Hungary returning to its net export position of the 1980s for poultry. The forecast for Central and Eastern Europe assumes that, during the forecast period, the CEE countries do not join the EU or implement CAP-like policies that raise domestic prices significantly above world levels. Printed copies of the Europe Update will be available in about a week. For more information, contact Elizabeth Jones (202) 219-0619. Text of the full report also will be available electronically. For details, call ERS Customer Service (202) 219-0515. END-END-END