1. Prospects for agricultural markets and income 2004-2011 for EU-25

2. Prospects for agricultural markets and income 2004-2011, December 2004 2 Structure of the presentation Introduction –Analytical approach Methodology Main assumptions Main results: –Medium-term prospects for the EU-25 Projections for cereals, oilseeds, meat, eggs and dairy Income projections –Impact of enlargement

3. Prospects for agricultural markets and income 2004-2011, December 2004 3 Methodological approach Type of models: DG AGRI market projections carried out using –a recursive dynamic partial equilibrium model and –a comparative static model (ESIM) Results: model output consists of supply balance sheets for main commodities, market prices and income Detailed results for: –Old Member States (EU-15) –New Member States (EU-N10) –EU-25 For main commodities/variables

4. Prospects for agricultural markets and income 2004-2011, December 2004 4 Methodological approach Main assumptions: –Uruguay Round Agreement on Agriculture maintained constant –Favourable, though moderate world agricultural market outlook –Return to modest economic and population growth –$/ exchange rate to reach 1.15 over the medium-term –By 2011 direct payments are assumed to be 90% decoupled (milk 100 %, arable crops 93 %, beef 78 %, sheep 73 %)

5. Prospects for agricultural markets and income 2004-2011: Cereal and oilseed market

6. Prospects for agricultural markets and income 2004-2011, December 2004 6 Crops medium term perspective appear moderately positive for crop markets thanks to the –CAP Reform and decoupling; –the return to higher set-aside levels in 2005/06; –favourable world market conditions and –the expected return to improved exchange rate conditions.

7. Prospects for agricultural markets and income 2004-2011, December 2004 7 Slightly expanding cereal markets…. Development of cereal markets in the EU, 1995-2011 (mio t)

8. Prospects for agricultural markets and income 2004-2011, December 2004 8 …balanced by higher levels of set aside… Development of set aside in the European Union (mio ha)

9. Prospects for agricultural markets and income 2004-2011, December 2004 9 …with moderate levels of stocks over the medium term…. Development of stocks and cereal exports in the EU, 1995-2011 (mio t)

10. Prospects for agricultural markets and income 2004-2011, December 2004 10 …and accumulating public stocks of barley and moderate levels of soft wheat stocks. Composition of public stocks in the EU (mio t), 1995-2011

11. Prospects for agricultural markets and income 2004-2011, December 2004 11 Prospects remain conditional on exchange rate environment. Development in cereal stocks in the EU under different exchange rate assumptions (mio t)

12. Prospects for agricultural markets and income 2004-2011, December 2004 12 Good perspectives on soft wheat markets – with regional appearance of public stocks….. Development of soft wheat markets in the EU (mio t), 1995-2011

13. Prospects for agricultural markets and income 2004-2011, December 2004 13 …are contrasted by the further loss of competitiveness of barley and accumulating public stocks… Development of barley markets in the EU (mio t), 1995-2011

14. Prospects for agricultural markets and income 2004-2011, December 2004 14 …growing competitiveness of maize in feed use but transport costs separated markets …… Development of maize markets in the EU (mio t), 1995-2011

15. Prospects for agricultural markets and income 2004-2011, December 2004 15 ….short term pressure on rye markets……. Development of rye markets in the EU (mio t), 1995-2011

16. Prospects for agricultural markets and income 2004-2011, December 2004 16 …and moderate perspectives on oilseed markets. stable area development; energy oilseeds production remains stable with status quo policies; developments depend on the implementation of the biofuel directive in the Member States in particular related to additional resources; EU remains major net importer of oilseeds.

17. Prospects for agricultural markets and income 2004-2011: Meat sector

18. Prospects for agricultural markets and income 2004-2011, December 2004 18 Meat Beef production lower than consumption in 2003 for the first time in 20 years and expected to remain so throughout the projection period due to: –Declining cattle herd from dairy sector –Impact of decoupling of direct payments –Impact of market disruptions of 2001 BSE crisis Pigmeat production expected to keep its slight growth thanks to: –Solid demand both in the EU15 and in the new Member States –Expected profitability with good pigmeat prices and relatively low feed prices Poultry meat demand and production to remain strong Limited recovery in sheep/goat meat production after 2001 FMD results in high market prices

19. Prospects for agricultural markets and income 2004-2011, December 2004 19 EU to remain net importer of beef meat over the medium-term EU production, consumption, trade and intervention stocks (mio t c.w.e.)

20. Prospects for agricultural markets and income 2004-2011, December 2004 20 Pig meat remains preferred by EU consumers (50% of total meat consumption) ensuring a slight production growth EU production, consumption and trade (mio t c.w.e.)

21. Prospects for agricultural markets and income 2004-2011, December 2004 21 EU poultry production to keep its growth over the medium term in line with growing consumption EU production, consumption and trade (mio t c.w.e.)

22. Prospects for agricultural markets and income 2004-2011, December 2004 22 EU sheep/goat sector not to fully recover from the 2001 Foot and Mouth Disease EU production, consumption and trade (mio t c.w.e.)

23. Prospects for agricultural markets and income 2004-2011, December 2004 23 Total EU meat consumption to resume its long term growth EU per capita consumption (kg/head, in carcass weight equivalent)

24. Prospects for agricultural markets and income 2004-2011: Milk and dairy sector

25. Prospects for agricultural markets and income 2004-2011, December 2004 25 Milk and dairy products Medium term perspective appear positive for EU dairy markets thanks to the: –Increase in domestic demand for cheese and other value-added dairy products –Decrease in production of residual bulk products like butter and SMP facing lower support and market prices Increasing use of milk for the production of cheeses and other high value-added dairy products for the domestic market limits availabilities for exports

26. Prospects for agricultural markets and income 2004-2011, December 2004 26 Milk quotas to constrain EU milk production while growing milk yields reduce dairy cow herd EU milk production, deliveries to dairies, dairy cows

27. Prospects for agricultural markets and income 2004-2011, December 2004 27 EU cheese market keeps its steady growth over the medium term but exports face limited availability EU production, consumption and trade (mio t)

28. Prospects for agricultural markets and income 2004-2011, December 2004 28 EU butter balance to improve over the medium-term EU production, consumption, trade and intervention stocks (mio t)

29. Prospects for agricultural markets and income 2004-2011, December 2004 29 EU Skimmed Milk Powder (SMP) market to shrink over the medium term leaving less SMP available for exports EU production, consumption, trade and intervention stocks (mio t)

30. The development of agricultural income Prospects for agricultural markets and income 2004-2011:

31. Prospects for agricultural markets and income 2004-2011, December 2004 31 A moderately positive market outlook, the CAP Reform and enlargement lead to stabilising real incomes in the old Member States….

32. Prospects for agricultural markets and income 2004-2011, December 2004 32 …and secures the high income gains in the new Member States.

33. The impact of enlargement Prospects for agricultural markets and income 2004-2011:

34. Prospects for agricultural markets and income 2004-2011, December 2004 34 Impact of enlargement I: New Member States add about 38 mio ha or 30% to the agricultural area of the EU; agricultural production of the EU increases by about 10% to 20%; agricultural work force increases by 52% and agricultural value added by 6%. Economic growth is significantly higher than in the old Member States.

35. Prospects for agricultural markets and income 2004-2011, December 2004 35 The impact of enlargement II: positive market and income outlook for agriculture in the EU-10 in the medium term as compared to lower income, slightly lower market prices and higher volatility of prices under non-accession; high transport costs in some regions constrain development of cereal export markets in the EU and in third countries; the use of the agricultural potential will only gradually increase.

36. Prospects for agricultural markets and income 2004-2011, December 2004 36 The process of trade integration….. started with the conclusion of the Europe Agreements at the beginning of the 1990s and accelerated with the double zero and double profit process and has avoided destabilising market developments after enlargement. Agricultural markets are expected to benefit from the complete lift of trade barriers, in particular trade between the new Member States. Agricultural trade should further increase between old and new Member States.

37. Prospects for agricultural markets and income 2004-2011, December 2004 37 …has been successful. Integration of the EU-N10 in the EU-25 market (selected products)

38. Prospects for agricultural markets and income 2004-2011, December 2004 38 Membership has a positive effect on cereal markets..... Development of cereal markets in the EU-N10 with and without enlargement (mio t) (dashed lines = non-accession )

39. Prospects for agricultural markets and income 2004-2011, December 2004 39 …and further opportunities to trade integration exist. Trade integration of cereal markets in the new Member States

40. Prospects for agricultural markets and income 2004-2011, December 2004 40 A continuous positive outlook for soft wheat shows increasing external competitiveness…. Development of soft wheat markets in the EU-N10 with and without enlargement (mio t) (dashed lines = non-accession)

41. Prospects for agricultural markets and income 2004-2011, December 2004 41 … and internal competitiveness as feed cereal, e.g. in Poland,… Development of the soft wheat market in Poland with and without accession (mio t) (dashed lines = non-accession)

42. Prospects for agricultural markets and income 2004-2011, December 2004 42 …while high transport and marketing costs dampen further market expansion in Hungary. Development of the soft wheat market in Hungary with and without accession (mio t) (dashed lines = non-accession)

43. Prospects for agricultural markets and income 2004-2011, December 2004 43 Barley loses competitiveness …. Development of barley markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

44. Prospects for agricultural markets and income 2004-2011, December 2004 44 … relative to other feed cereals, e.g. in Poland,…. Development of the barley market in Poland with and without accession (mio t) (dashed lines = non-accession)

45. Prospects for agricultural markets and income 2004-2011, December 2004 45 …while the comparative advantage of production remains in, e.g. Slovakia. Development of the barley market in Slovakia with and without accession (mio t) (dashed lines = non-accession)

46. Prospects for agricultural markets and income 2004-2011, December 2004 46 Maize sees expanding markets in the new Member States….. Development of maize markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

47. Prospects for agricultural markets and income 2004-2011, December 2004 47 …while Hungarys maize faces high transport costs…. Development of the maize market in Hungary with and without accession (mio t) (dashed lines = non-accession)

48. Prospects for agricultural markets and income 2004-2011, December 2004 48 …but finds increasing regional markets. Development of the maize market in the Czech Republic with and without accession (mio t) (dashed lines = non-accession)

49. Prospects for agricultural markets and income 2004-2011, December 2004 49 The situation on rye markets remains stable and gives limited incentives to increase trade on the single market. Development of rye markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

50. Prospects for agricultural markets and income 2004-2011, December 2004 50 Changing consumer preferences stabilise beef markets…. Development of beef markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

51. Prospects for agricultural markets and income 2004-2011, December 2004 51 ….and good export opportunities on the single market remain important, e.g. for Poland….. Development of the beef market in Poland with and without accession (mio t) (dashed lines = non-accession)

52. Prospects for agricultural markets and income 2004-2011, December 2004 52 …and lead to further stabilisation in, e.g., the Czech Republic. Development of the beef market in the Czech Republic with and without accession (mio t) (dashed lines = non-accession)

53. Prospects for agricultural markets and income 2004-2011, December 2004 53 Strong investments and increasing competitiveness meet expanding consumption of pork meat…. Development of pork markets in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

54. Prospects for agricultural markets and income 2004-2011, December 2004 54 …combined with low feed costs in Poland. Development of the pork market in Poland with and without accession (mio t) (dashed lines = non-accession)

55. Prospects for agricultural markets and income 2004-2011, December 2004 55 Poultry markets remain expansive…. Development of the poultry market in Poland with and without accession (mio t) (dashed lines = non-accession)

56. Prospects for agricultural markets and income 2004-2011, December 2004 56 …with strong prices, favourable production conditions and proximity to large markets like. Development of the poultry market in Poland with and without accession (mio t) (dashed lines = non-accession)

57. Prospects for agricultural markets and income 2004-2011, December 2004 57 Milk production remains stable in the new Member States but subsistence milk production remains important. Development of milk production in the EU-N10 with and without accession (mio t) (dashed lines = non-accession)

58. Prospects for agricultural markets and income 2004-2011, December 2004 58 Membership leads to very favourable future developments of agricultural income. Development in the agricultural income of the ten new Member States under the non-accession and the accession scenarios (2003=100)