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EU Farm Prices Seen Recovering After 2010

Europe’s agriculture markets will start to recover in the medium term due to encouraging demand expectations but global economic gloom will weigh heavily on prices at least until 2010, an EU study showed March 17.

In its market outlook through to 2015, experts at the European Commission said demand would be especially hit in higher value-added sectors such as livestock and dairy.

Other key sectors would be affected indirectly – arable crops through feed demand, and energy crops like oilseeds in response to lower crude oil prices, the commission study said.

“Agricultural commodity markets are projected to recover over the medium term supported by structural factors like the growth in global food demand, the development of the biofuel sector and the long-term decline in food crop productivity growth,” the report said.

For the Commission, a “short-term” outlook refers to 2009 and 2010, while “medium term” means the 2011 to 2015 period.

Lower oil prices sharply reduced the global attractiveness of bioethanol, whereas the fall in disposable income growth would affect meat consumption, exerting substantial near-term pressure on world and EU cereal prices, the report said.

Market prices of pig and poultry meat would also be constrained by reduced prices of animal feed, it said.

For cereals, lower meat consumption would limit growth in demand and keep a cap on prices through to 2010. Further ahead, rising demand for biofuels would help prices recover, although at much lower levels than those seen in 2008. Europe’s cereals supply and demand balance would also come more into line.

The Commission saw “moderately positive” prospects for the meat sector up to 2015, although beef production would decline by five per cent over the period due to reductions in herd numbers.

In the dairy sector, milk prices “would remain at depressed levels over the first part of the projection period”, it said.

Under the EU’s major farm policy reform in 2003, the bloc’s national quota system for milk production will expire in 2015. Before then, there will be one per cent annual increases to prepare the EU dairy market for supply liberalization.

But the quota system’s expiry was not expected to have a significant impact on milk production or prices, it said. Production quotas would be under-utilized up to 2010.

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