Short-term outlook: Good production prospects for many agricultural sectors, overall sector should benefit from reopening of foodservice
Many uncertainties remain around the scale of the impact of the coronavirus crisis and the economic recovery. Nonetheless the food supply chain has proven resilient throughout the crisis. With lockdown measures being progressively lifted all over Europe, demand in particular for restaurants, bars and cafés should pick up, although not back to 2019 levels in the short run due to reduced households’ purchasing power. Prices are also picking up as a consequence.
As noted in the spring edition of this short-term outlook, the Covid-19 outbreak and related measures taken by Member States created a demand shock rather than a supply one. This is reflected in the good production prospects for various sectors such as dairy, sugar, pigmeat, olive oil, wine and tomato. Exports perspectives remain good overall.
The latest short-term outlook report for EU agricultural markets, published on 6 July 2020 by the European Commission, presents a more detailed overview of the latest trends and further prospects for each agri-food sector.
For 2020/21, EU cereal production is forecasted at 286.3 million tonnes, a decrease of 2.7% compared to 2019/20, but still 1.7% above the 5-year average. This is explained by a lower acreage of winter cereals but also dry conditions during crop development, especially for wheat. Rainfalls in late May and June relieved pressure on summer crops. Cereal EU consumption is estimated to decrease by 0.6% in 2019/20 mainly due to a reduced demand from bakeries and foodservice, as a consequence of lockdown measures. However this reduced demand should not last, with a regrowth expected in 2020/21.
Regarding oilseeds and protein crops, in 2020/21 rapeseed production should be at a similar level than in 2019/20 with 15.4 million t. Sunflower production is due to reach 10.4 million tonnes, a 3.7% increase compared to 2019/20. Production of soya beans and protein crops should also increase, to reach 2.8 million tonnes and 4.5 million tonnes respectively. A slight decline in crushing volumes in 2020/21 is foreseen with a stable protein meal demand and an expected slow recovery of vegetable oils use.
2020/21 sugar production is due to stay at the same level as in 2019/20, despite a 3% decrease in sugar beet area. Lower demand for ethanol and lower sales in foodservice are expected to result in lower EU consumption of sugar in 2019/20.
In 2019/20, EU olive oil production remained 4% below the 5-year average. The lockdown measures contributed to an increase in retail sales and the use of olive oil in the food industry (e.g. canned goods), however uncertainties around the 2020 summer season are expected to contribute further to lower foodservice demand. Overall, EU consumption could still grow by 6% in 2019/20. In 2020/21, the EU olive oil production is due to further increase and reach 2.3 million tonnes (up 20% compared to the 2019/20).
While wine consumption is expected to decrease by 7% due to Covid-19 measures, vinified production for other uses, such as vinegar and brandies, is due to increase by 33%. This is in particular thanks to the exceptional measures put forward by the Commission allowing crisis distillation. Strongly impacted by the Covid-related measures, EU wine exports and imports are due to decline by 7% and 8% respectively in 2019/20.
Regarding the fruit and vegetable sector, apple prices have been very high in the past months, due to a small crop in 2019/20 and a high demand during confinement. A record low production of 3.1 million tonnes is expected for peaches and nectarines due to adverse weather conditions and grubbing of area due to structurally low prices and high production costs. This will have a positive impact on prices, which already increased by 19% in the first seven weeks of the season compared to the same period last year. Fresh tomato production is due to remain stable in 2020, with a decline of production in Spain compensated by an expected increase in Poland. EU consumption of fresh tomatoes is due to slightly decline by 1% in 2020
Milk and dairy
In 2020, the EU milk collection could reach close to 144 million tonnes, 0.7% above 2019 levels and more than anticipated in the spring short-term outlook. This is thanks to good prospects for pastures’ quality over spring and summer and largely available and affordable feed. Germany is due to contribute the most to this growth, followed closely by Italy, Spain and the Netherlands.
The increasing EU retail demand for cheese is not expected to compensate for foodservice losses. This could result in a slightly lower cheese consumption in 2020. Despite exports that could grow by 2%, domestic consumption decline could lead to lower production growth than anticipated.
Due to competitive EU prices in 2020, significant increase of butter exports, sustained whole milk powder (WMP) flows and skimmed milk powder (SMP) exports at levels similar to 2018 despite lower initial availabilities compared to previous years.
Beef production is expected to decline by 1.7% in 2020. This would be the consequence of reduced demand from foodservice due to lockdown measures, as well as limited supply due to smaller herds and early slaughtering at lower weights because of lower availability of feed during the dry spring.
Poultry production is due to decline by 2% in 2020, with the sector promptly adapting to the lower demand and lower prices (particularly affecting poultry meat other than chicken – ducks, guinea fowls, pigeons or quails). Market uncertainties, including in terms of exports, also explain this decrease.
Pigmeat production should increase slightly in 2020 by 0.5%, supported by favourable prices, return of consumer demand, solid export prospects mainly to China and recent investments in the sector.
Finally, in 2020, sheep and goat meat production is expected to decline by 1.5% due to the drop in demand from foodservice and home consumption especially during Easter and Ramadan celebrations, and supply shortages due to logistical issues.
Overall, the reduction in consumer demand during lockdown, as well as limited EU availability not compensated by imports will lead to a decrease in meat consumption by 2.5% to 65.4 kg per capita in 2020.
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