1.3 EU Agricultural Economic Outlook

1.3 EU Agricultural Economic Outlook

The EU Agricultural Outlook for Markets, Income And Environment 2022 – 2032 presents the medium-term outlook for EU agricultural markets, income and environment until 2032. It is based on a set of assumptions regarding macroeconomic conditions, the fixed agricultural and trade policy environment, and international market developments. These assumptions imply relatively smooth market developments when, in reality, markets tend to be much more volatile. Therefore, the outlook is not a forecast. More precisely, the projections correspond to the average trends agricultural markets are expected to follow in a given macroeconomic environment, if policies were to remain unchanged.

Published in December 2022, it outlined that the annual report was prepared in a significantly changing environment. In early 2022, the post-COVID-19 recovery led to supply and trade disruptions and increasing commodity prices and input costs. New severe shocks came with the Russian invasion of Ukraine, bringing further uncertainties to agricultural markets and global food security. All this came on top of changes observed due to disruptive weather events related to climate change, and animal disease outbreaks. In light of these disruptions, combined with changes in consumption trends, the analysis presented in the outlook report foresees a slowdown in the production growth of major EU agricultural sectors. In the given set of assumptions considered, production of some crops is expected to stagnate or even slightly decline, while milk and meat production would decline.

Total EU cereal area is projected to decrease marginally to 57.2 million hectares by 2032, driven by a decrease in barley and maize. The EU will remain a net exporter of wheat and barley and a net importer of maize and rice. Food consumption of cereals in the EU will slightly increase by 3.9%, but as feed use will decrease by 6.1%, the overall EU domestic use is expected to remain stable.

The adoption of more sustainable farming practices will impact future development in the EU dairy sector. Alternative production systems (opposite to intensive and conventional ones) are expected to grow their share. As extensive production is favoured to address environmental concerns, dairy herds are expected to decline and lead to a decrease of EU milk production by 0.2% per year by 2032. However, this will not jeopardise the EU’s position as the largest global dairy supplier.

Figure 1.1 Annual growth rates of EU milk production, milk yields and dairy cows’ numbers in selected periods

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%

-1.0%

-1.5%

Milk Production Milk Yields Dairy Cows

2012-2022 2022-2032

Source: EU Agricultural Outlook

EU dairy consumption is already mature and could remain relatively stable in the future. Among dairy products, cheese consumption could still grow. Rising export demand could also support production. Production of skimmed milk powder will slow down, as trade will grow less due to stronger global competition. In the case of whole milk powder, production could decline due to losses in trade, while domestic use could remain relatively stable.

Sustainability will play an increasingly prominent role in EU meat markets. Meat production will be more efficient and more environmentally friendly, with organic and extensive production systems on the rise. In spite of these developments, consumption of meat in the EU is expected to decline by 1.5 kg per capita per year, with beef particularly affected and pigmeat partly substituted by poultry. Poultry is actually the only sector to expand in terms of production and consumption. This stems from a healthier image of poultry compared to other meats, a greater convenience to prepare, the absence of religious constraints regarding its consumption and its relatively cheaper price.

The total EU cow herd is set to decrease by 2.8 million head or 9.1%, with varying situations across EU countries. After the high level in 2022, the price of beef is expected to come down again due to a more balanced supply and demand.

Regarding pigmeat, EU production is projected to decrease by 1% per year in 2022-32, corresponding to 2.2 million tonnes over the whole period. Some shift to a plant-based diet could lead to a growing importance of protein alternatives to meat, but they are assumed to still represent only a very small market share.

Reduced livestock numbers would lead to lower production for all animal products. Crop production is also expected to decrease overall for many crops due to the lower feed demand (i.e. fodder crops, cereals and oilseeds) while pulses production increases. Expected results also include a general increase in producer and consumer prices. Producer prices would rise particularly for pigmeat, eggs and beef.

Livestock density reduction in the EU could decrease the EU average ammonia emissions from agriculture by up to 11% and average nitrate pollution per hectare by up to 12%. Greater reductions (50-60%) are expected in hotspot regions with very high density currently. Greenhouse-gas (GHG) emissions in the EU are expected to drop by 2 -13.8%, but lower EU production would also see imports increase. As a result, lower emissions in the EU would be offset by increasing emissions in other areas of the world, i.e. emission (or carbon) leakage.

The EU remains self-sufficient in most considered products in 2032 with an ability to generate surpluses which contribute to global food supply, in particular for wheat and dairy products. This reflects the results of successive CAP reforms, and the EU continues providing abundant, high quality, safe and nutritious food to its own population and globally. However, due to agroclimatic and market conditions, the EU will remain reliant on imports for products such as tropical fruit, rice and soya beans.

The current record-high food inflation rates are not expected to persistently impact the share of household expenditure on food over the medium term. This is because consumers are likely to adjust their spending habits to more basic products if prices remain high rather than reducing their overall food consumption.