INTERNATIONAL AGRICULTURE AND TRADE (Europe Update)--SUMMARY June 25, 1997 Approved by the World Agricultural Outlook Board ------------------------------------------------------------------------------- This SUMMARY is published by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. The complete text of INTERNATIONAL AGRICULTURE & TRADE (Europe Update), WRS-97-S3, will be available within 1-2 weeks following release of this summary. ------------------------------------------------------------------------------- U.S. Ag Exports to EU Hit 8-Year High in 1996, Show Signs of Recovery to Central and Eastern Europe Following a record 23-percent gain in 1995, U.S. agricultural exports to the European Union grew another 8 percent in 1996, to $9.3 billion. The increase was led by continued growth in soybean exports, which benefited from high internal grain prices and an EU-wide ban on use of meat-and-bone meal. The 2-year gain of more than 30 percent parallels overall U.S. farm exports, which reached a record $60.4 billion in 1996. Although the net balance of U.S.-EU agricultural trade increased last year, the trend over the past decade remains flat. Soybeans remain the top U.S. export to the EU, rising to $2.6 billion in 1996. Demand was largely unaffected by higher soybean prices because of reduced availability from South American suppliers, and the effects of the BSE (bovine spongiform encephalopathy, "mad cow" disease) crisis. U.S. horticultural exports (fruits, vegetables, nuts, and wine) also continued impressive export growth in 1996, rising 10 percent and posting their seventh successive increase. Despite the strong overall growth of U.S. exports to the EU, two categories animal products and grains and feeds suffered setbacks in 1996. The EU's BSE crisis disrupted European meat markets, including markets for most non-meat animal products. The sector affected most strongly, in terms of U.S. exports, was fats, oils, and grease, which plummeted 35 percent due to the EU's ban on using meat-and-bone meal as a protein supplement in animal feed. After setting a 10-year record in 1995, the volume of U.S. grain and feed exports to the EU fell back to 10.4 million tons in 1996. Poor weather in southern Europe led to U.S. exports of over 14.3 million metric tons in 1995, mostly destined for Spain, where severe drought ruined domestic crop yields. The disruption resulting from the BSE crisis will continue to affect sales of livestock products (chiefly pork) and feeds. Grain prices are still high, which could reduce the attractiveness of products such as corn gluten feed. A number of important EU policy developments will also affect U.S. exports. These include measures being taken to deal with BSE, a recently negotiated veterinary agreement with the United States, and the continued implementation of Uruguay Round commitments. Additionally, U.S. animal product exports to the EU continue to be affected by sanitary measures, some of which the United States has contested as being barriers to trade. U.S. imports of EU agricultural products reached a record high of $6.5 billion in 1996, 10 percent above a year earlier. The rise marked the third straight increase and was 45 percent above the 1986-90 average. Since 1986-90, the fastest growing U.S. imports in percentage terms have been fresh and frozen fruits and vegetables, vegetable oils and waxes, sugar products, and pasta products. In 1996, the leading imports from the European Union were wine, malt beverages, dairy products (especially cheese and casein), vegetable products, and vegetable oils and waxes. U.S. agricultural imports surpassed $1 billion from three countries: Italy, the Netherlands, and France. In 1996, U.S. exports to Central and Eastern Europe (CEE) totaled $439 million, up nearly 50 percent from 1995. The growth was driven by increased sales of bulk commodities, in particular wheat, corn, and soybeans. This was due to the suspension of grain import tariffs in the region in 1996, poor CEE harvests of 1996 winter crops, and the end of sanctions against the rump Yugoslavia (Serbia and Montenegro). Insufficient grain stocks in Poland and Bulgaria led to lower tariffs and higher imports of feed grains and soybeans. U.S. export values rose further on last year's high world prices. Since the CEE countries began the transition to a market economy in 1990, U.S. agricultural exports to the region have shifted from bulk feed grains and oilseeds toward high-value products (HVPs). Although total U.S. exports of HVPs declined last year, certain HVP exports such as variety meats, nuts, and vegetable preparations continued to grow rapidly in response to ongoing diversification of consumer markets and rising incomes in the CEE region. Poultry meat remains the most important HVP export of the United States to the region. Last year's 4-percent drop in value came from declines to Romania, former Yugoslavia, and Bulgaria, which were largely offset by an increase of $9.1 million in exports to Poland. Overall, U.S. high-value product exports to the region declined to $200 million in 1996 from their 1994 peak of $238 million, mainly the result of lower exports of wheat flour, soybean meal, and vegetable oils. However, the decline in total HVP exports since 1994 masks an underlying positive trend. For most HVPs, including poultry, the trend of export growth remains positive. Sales of variety meats, beef, dried fruits, nuts, and vegetable preparations continued to rise. The long-term outlook for U.S. exports to Central and Eastern Europe is mostly positive. U.S. soybean exports are projected to increase as CEE livestock numbers rise and regional demand grows for protein-rich oilmeals. However, producer profitability continues to be a problem as marketing margins including processing, packaging, and distribution costs remain high. For HVP exports, continuation of the recent growth depends on regional income, domestic HVP production levels, the degree of import protection, and expanding trade preferences with the EU. Adverse factors continuing to affect U.S. exports to the CEE region include higher transport costs, the large size of U.S. bulk shipments, restricted access of importers to foreign exchange, intra-European trade preferences, and foreign direct investment as an alternative to trade. For further information, contact Todd Morath (202) 219-0651 or tmorath@econ.ag.gov. Text of the full report will be available electronically; for details call ERS Customer Service at (202) 219-0515 or service@econ.ag.gov. END_OF_FILE