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COMMITTEE ON COMMODITY PROBLEMS |
INTERGOVERNMENTAL GROUP
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Seventeenth Session |
Cape Town, Republic of South Africa |
12-14 November 1998 |
MEDIUM-TERM PROJECTIONS
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1. FAO undertakes a round of commodity projections every five years or so, using the World Food Model for basic foodstuffs (WFM) which links the meat and dairy sectors with cereals and oilseeds1. This paper presents the results for the meat sector of the most recent projections round which starts from the 1993-1995 base period and has the year 20052 as time horizon.
2. The global meat economy has seen a dynamic growth in production, consumption and trade since the mid-1980s, particularly for poultry and pig meat. Such trends have been spurred by the relatively low world feed prices prevailing over the period, steady increases in incomes, urbanization and the opening of several markets to international supplies. Most of the rise in meat intake has been met by poultry and pig meat, while per caput beef consumption has shown a tendency to stagnate.
3. Among the major factors that have influenced the world meat sectors in the 1984-94 period, the following were of particular relevance:
· Globally per caput income growth averaged 1.0 percent per year. It was faster in the developing countries, at 2.4 percent, and in the developed countries, at 1.9 percent, while it contracted by 3.6 percent per year in the economies in transition.
· The process of vertical integration between the feed and meat producers and processors as well as the concentration of production units has progressed, especially in the poultry and the pig sectors. These structural changes have given rise to an intensification of production, facilitating a more efficient conversion of feed into meat and contributing to an increase in the competitiveness of the poultry and pig meat compared with bovine and sheep meat.
· The recent outbreaks of Bovine Spongiform Encephalopathy (BSE) in Europe, of foot-and-mouth disease in the Chinese Province of Taiwan and of swine fever in the EC have been accompanied by a massive elimination of animals in the affected countries and have raised considerable concerns among consumers. They have also had distorting effects on the patterns of livestock and meat trade. In addition, bovine pleureupnomia and rinder pest outbreaks have affected food security in a number of developing countries in the Near East and Africa.
· The share of the EC in world exports has fallen since 1994, constrained by the URA limits on subsidized exports, while imports by Japan have been stimulated by a gradual reduction in import duties despite the invocation, on various occasions, of safeguard provisions. The acceptance, under the SPS agreement, of disease-free areas within in a territory has opened new export opportunities for several countries in Latin America.
· The implementation of institutional reforms in eastern and central Europe and in the former USSR led to price and trade liberalization. The impact of the reforms on the livestock sector, particularly the abolition of subsidies, was devastating, with meat production in the economies in transition falling by an overall 30 percent between 1989 and 1994. Although in several central and eastern European countries the livestock sectors have recently shown signs of a recovery, meat production has continued to fall in most of the former USSR Republics. The decline in meat output, combined with the relative openness to international trade, have converted the CIS into a major importing region.
· Regional agreements, such as MERCOSUR and NAFTA, have offered increased
opportunities for an intensification of intra-regional livestock and meat
flows.
4. Global bovine meat production is projected to rise from 55.1 million tons in 1993-95 to 64.3 million tons in 2005, or by 1.4 percent per annum, slightly above the historical trend. Unlike for poultry and pig meat, the process of technical innovations and restructuring has proceeded slowly in the bovine meat sector, constrained by the small size of the farms where cattle and buffaloes are reared and the special roles these animals play in a large number of countries, e.g. as a capital asset, for dairy production, social status and draught power. In the next decade, the expansion in production is projected to rely both on an expansion in slaughtering and on rising average carcass weight stemming from genetic progress and improved management practices. Eight out of the nine million tons increase in world production should come from the developing countries, while output in the developed countries is projected to rise by only one million tons overall. By contrast, a further contraction is foreseen in the transition economies, which comprise countries in eastern and central Europe, the Baltic States and the CIS.
5. In Africa, production is projected to expand by 2 percent per annum, somewhat above the past trend, favourably influenced by support policies in a number of countries. In Latin America and the Caribbean, the stabilization of the national economies has already fostered gains in productivity through improved management practices, which are projected to support a moderate expansion in output in most countries. However, the bulk of the expansion in global production should originate in Asian countries. In China, the expansion in bovine meat production which averaged 22 percent per year since the mid-1980s, is projected to slow down to 7 percent with the major gains coming from productivity improvements. Output should also rise in Indonesia and in the Philippines, where the Governments are expected to maintain current policies aimed at improving breeds and husbandry methods, and in Pakistan, in response to rising domestic demand.
6. In North America, bovine meat output is projected to expand in both the United States and Canada, driven by good sales prospects abroad. Likewise, production in Australia and New Zealand, which is mainly geared towards foreign markets, should also expand but at a much slower rate than in the previous ten years, reflecting stiffer competition in traditional markets in Asia and North America. In the EC, bovine meat output is projected to remain largely unchanged at around eight million tons, on the assumption of no major changes in the Common Agricultural Policy (CAP). In eastern and central Europe, bovine meat production is not expected to recover enough to reach the pre-reform levels of the late 1980s, when the sector was heavily subsidized. Production in most of the CIS is projected to remain well below the base period, as the contraction phase in many of them is still proceeding.
7. After undergoing a steady contraction in the 1990s, global per caput beef consumption in 2005 is projected to stabilize slightly below the opening level, at 9.8 kg per head. However, trends are likely to differ widely across regions. In the developing countries, bovine meat consumption is projected to rise by 1.4 percent per year from 5.4 kg in 1993-95 to 6.3 kg in 2005, which would still be only one quarter of the level projected for the developed countries3. The most dynamic rise should be recorded in South East Asia, reflecting income growth and a high propensity for expenditure on meat. As a result, beef consumption in the sub-region is projected to rise by 4.7 percent per annum, from 2.9 kg to 5.0 kg. Consumption increases are expected to be more contained in South Asia. In Africa, per caput consumption is projected to stagnate around 4.9 kg with some growth prospected in North Africa. By contrast, consumers in the traditional beef-eating countries of Latin America and the Caribbean are anticipated to diversify their consumption pattern and shift towards other meats.
8. Consumption in the developed countries could drop from 27.3 kg to 25.2 kg between 1993-95 and 2005, in line with the historical trend working in favour of poultry. This tendency should dominate in countries with relatively high beef consumption levels, including the United States, Canada and Australia, and would not spare those countries where beef is a secondary meat, for instance the EC. By contrast, per caput consumption in Japan is projected to rise from the relatively low level in 1993-95, but the pace of expansion should slow down substantially compared with the preceding decade. Governments of several countries in eastern and central Europe have been supporting the rebuilding of cattle herds, which should bring about a modest recovery in bovine meat consumption. However, none of them are anticipated to return to the subsidized levels of the late 1980s. In the CIS republics, the contraction is projected to proceed over the next decade, despite a modest recovery in total meat per caput consumption.
As a result of the projected changes in per caput beef consumption and in population, the developing countries should account for some 51 percent of global utilization in 2005, up from 42 percent in 1993-95. By contrast, the shares of the developed and of transition economies are projected to fall, from 43 percent to 36 percent and from 15 percent to 12 percent respectively. Thus, by the next century, the developing countries could emerge as the main market for bovine meat products.
9. International trade4 in bovine meat and animals in 2005 is put at 8.6 million tons at the global level, some 1.6 million tons more than in the mid-1990s. The increase reflects larger imports by some African countries, where production is unlikely to keep up with demand, but also by countries in Latin America and the Caribbean, and in Asia. In the latter region, the prospected growth in beef consumption in the Republic of Korea and Japan is anticipated to be met through external supplies. Imports are also projected to expand in other Asian countries, a significant part of which bought as live animals for fattening. The Russian Federation will probably remain the principal destination for subsidized beef from the EC. Overall, shipments there should remain close to the 1993-95 level. By contrast, imports by eastern and central Europe could decline as production recovers. The United States, which faces shortages of beef for manufacturing into hamburgers, is expected to remain the world's leading bovine meat importer, even though its purchases are unlikely to change much compared with the base period. At the same time, the United States is projected to emerge as the top world exporter, specialized in high quality, grain-fed beef. Australia and New Zealand should also raise shipments, even though they are likely to face stiff competition from producing countries in Latin American which, like them, mainly supply grass-fed beef. In that region, progress in eradicating foot-and-mouth disease should enable Argentina and Uruguay to gain a foot-hold in the "Pacific" beef markets. Exports from these countries should also continue to be stimulated by growing integration under "Mercosur". By contrast, the EC's beef shipments should fall in line with the reduction in subsidized exports scheduled under the URA, as domestic prices are expected to remain above the world level. This could lead to a considerable built-up of stocks.
10. During the last two decades the international beef market has been segmented into the high-priced Pacific market, the access of which has been restricted to exporters free of the main cattle diseases, and the Atlantic market, which has been the main destination of the EC subsidized beef exports. However, the basis for the beef market segmentation has been eroded since the implementation of the URA, with the introduction of ceilings on subsidized exports stimulating a rise in the Atlantic market prices. At the same time, both Uruguay and Argentina have achieved FMD-free status which should eventually allow them to participate fully in the Pacific market.
11. During the base period, the unit value of all bovine meat exports was
estimated at US$ 2,464 per tonne, in real terms, down from US$ 2,899
per tonne in 1983-85. Real prices are foreseen in the medium run to increase
by 5.5 percent compared to the 1993-95 level to close to US$ 2,600 per
tonne in 2005, positively influenced by the URA restrictions on subsidized
exports.
12. The sheep and goat sector is of much less significance to the world meat economy volume-wise than the other three major meat groups. However, because of the resistance of the sheep and goats to harsh rearing conditions and the role they play in religious celebrations, these animals are important for food security and social cohesion for certain populations, especially in Africa and the Near East. Except for a small number of countries in Asia, in particular China, which contributed to sustained growth at the global level, there has been a tendency for the sector to contract over the last decade, which can be partly attributed to low wool prices.
13. Global sheep and goat meat production is projected to reach 13.6 million tons in 2005, with an underlying annual growth of 2.5 percent per year, about the same as in 1984-1994. Much of the increase is anticipated to be concentrated in the developing countries which should account for about 70 percent of global output by the next century, up from 62 percent in 1993-1995. Prospects are for an expansion in a number of Asian countries and in northern and sub-Saharan Africa, while increased competition with crops and cattle could limit growth in Central and South America. Prospects in Australia and New Zealand, which export about 45 percent and 65 percent of output respectively, are for a small increase in production, in line with the expectations for a strengthening in world wool prices and a slowing down in the conversion of pasture land to other uses. Ovine meat production in the EC is projected to remain stable while it could fall in North America and in the CIS where the downward adjustment of the sector, initiated in the early 1990s, has not yet been concluded.
14. Globally, average per caput consumption of sheep and goat meat is projected to rise from 1.8 kilos to 2.1 kg but the increases should be concentrated in those countries in South and East Asia and North Africa that are expected to record production gains. Per caput consumption in the Near East and in most of the developed countries is projected to either stagnate or decline. A contraction in Australia and New Zealand from the high levels of the mid-1990s is also expected.
15. International trade in sheep and goat meat (including meat and live animals) which has fluctuated around 1 million tons since the early 1980s could rise to 1.2 millions. In a number of countries, the additional purchases would be made in the form of live animals, either for breeding or for domestic slaughter. Imports by the EC, which are limited mostly to supplies entering under preferential access arrangements, could rise somewhat to fill the tariff quotas. On the export markets, the dominance of Australia and New Zealand is unlikely to be jeopardized.
16. International prices for sheep meat, represented by the average unit
export value, were relatively weak in real terms during the base period at
US$ 2261 per tonne, down from US$ 2,464 per tonne in 1983-85. Prices
(in real terms) are projected to strengthen 4.7 percent by the year 2005,
to US$ 2,367 per tonne. However, because the international market for sheep
meat is very narrow, unexpected developments in Australia or New Zealand,
such as a drought, or marked changes in international wool prices could have
a disrupting influence on world sheep and goat supplies and hence on world
prices.
17. Pig meat production in several important countries is currently undergoing a process of concentration and of integration with the feed and processing industries, similar to the transformation that first characterized the poultry meat sector. This structural change is expected to bolster productivity and contribute to a projected rise in global pig meat production of 2.2 per cent per annum, to some 102 million tons in 2005 or 22 million tons more then in the base period.
18. Much of the increase in global pig meat output is projected to occur in China, which currently accounts for more than 40 percent of the world total, with a continued shift in production from small-scale household production to specialized medium and large-size farms. Output in the Republic of Korea is also expected to increase, sustained by Government support. By contrast, in the Chinese Province of Taiwan, it is projected to stabilize below the base year level, reflecting tighter environment regulations and a partial loss of the Japanese export market. Substantial increases in production are projected in other Asian countries, boosted by a strong expansion in domestic demand. Prospects for the pig meat sector in Latin America and the Caribbean also point to expansion, especially in Brazil, where large investments are currently being made.
19. Production by the developed countries in 2005 is set at 29 million tons, only 1.5 million tonnes above the 1993-1995 level. Most of the gains should originate in the United States and in Canada where the sector is undergoing profound structural reforms. A general recovery is foreseen in eastern and central European countries after the set-back of the 1990s, while a further contraction from the 1993-95 level is foreseen in the CIS countries, even though production is anticipated to recover from the 1997-98 depressed levels. Pig meat output by the EC is not projected to change much, as a tightening of environmental regulations and stagnating demand could discourage investments. In Japan production is projected to drop, in line with the historical trend.
20. Pork is the principal meat in the diet in large parts of Europe, in the CIS and in several south-eastern Asian countries, including China, the Republic of Korea, the Philippines, Singapore and Viet Nam. On average, per caput pork consumption world-wide is projected to rise from 14.2 kilos to 15.7 kg between 1993-1995 and the year 2005, somewhat less than one percent per year. The increase should be especially strong in the developing countries, especially in China, but a recovery is also anticipated for the economies in transition. By contrast, consumers in the developed countries are projected to eat less pork by 2005.
21. Trade in pig meat (including live pigs) has traditionally accounted for a very small proportion of overall production. In 1993-95, some three million tons of pigmeat were sold on the international market, or less than 4 percent of global output. The world market for pig meat has also been characterized by a high concentration: in 1993-95, the three main importers, Japan, the Russian Federation and the United States, accounted for close to 60 percent of total purchases, while the three chief exporters, the EC, Canada and China, for 55 percent of total shipments.
22. The volume of trade is projected to reach 3.6 million tons in 2005, up from 3 million tons in the base period with an implicit growth of 1.7 percent per annum since 1993-1995, down from 4.2 percent in the previous ten years. Purchases by Japan, the leading importer, are projected to expand, at a much slower rate than in the past. Larger shipments to Hong Kong SAR, Singapore and the Republic of Korea are also projected. The Russian Federation is set to remain the second most important destination for pig meat by 2005, as larger foreign supplies would be required to bridge the gap between production and consumption. By contrast, imports by the United States are projected to drop. Continued integration of Mexico with the two latter countries, under NAFTA, may boost its imports.
23. The EC is expected to lose its role as chief exporter of pig meat in the longer run, as increased competition should constrain its ability to sustain unsubsidized exports. This should contrast with the performance of Canada and the United States which are expected to make further inroads especially into markets in Asia and the CIS. Brazil is also projected to become a major player. Both Mexico and the Republic of Korea are projected to raise their shipments, especially of higher quality cuts, while remaining net pig meat importers, mostly of low-value products. Larger exports from various central and eastern European countries are also expected as production recovers. By contrast, sales by China are projected to drop in the light of strong external competition and restricted access to the most remunerative markets in the absence of FMD-free status. Sales from the Chinese Province of Taiwan, which collapsed following the FMD outbreaks in 1997 and early 1998, are anticipated to recover to about half the level of the base period by 2005.
24. International prices for pig meat vary widely between the very high prices
of cuts to Japan and the prices prevailing in other markets like the Russian
Federation or Mexico. On average, real export unit values have fallen from
US$ 2924 per tonne in 1983-85 to US$ 2547 per tonne in 1993-95, reflecting
to a some extent the increase of low-priced cuts in the composition of trade.
Despite a rise in international feed costs, estimated at around 6 percent,
world pig prices in real terms should strengthen by only 2.8 percent by 2005
to US$ 2618 per tonne. Keen competition among exporters should preclude any
stronger upward pressure on prices.
25. The poultry sector has been the most dynamic among the various meat categories, expanding globally by 5.6 percent per annum since the mid 1980s. Intensification of production, vertical integration of the industry and relatively low feed prices all contributed to the momentum. These factors are expected to remain at play in the medium run. As a result, annual growth is projected to stay above 5 percent, with global output rising from 51 million to 89 million between 1993-95 and 2005. Developing countries are expected to be responsible for about three quarters of that increase, which would lift their share from 46 percent in the base period to 57 percent in 2005. In Africa, large increases are expected in Egypt and Morocco. In Latin America a strong expansion is projected in Brazil which should benefit from the availability of abundant local feed supplies. Most countries in the Near East and in Asia should also record positive growth over the next seven years. However, there should be a slow-down in the rapid expansion in demand in China.
26. Among the developed countries, output is projected to surge in the United States and in the EC, assisted by rising domestic and external demand. Production is projected to recover in most central and eastern European countries but to remain below the base year level in several countries in the CIS. Little change is anticipated in Japan.
27. Poultry has recently displaced beef as the second most consumed meat in the world. This success can be attributed mainly to its low price relative to the other meats, to widespread consumer perception of poultry as a safe meat and to its acceptability by most cultures and religions.
28. Average per caput consumption is projected to rise from 9.1 kg in the base period to 13.7 kg n 2005, with increases expected universally. Consumption is projected to almost double in the developing countries, passing from 5.7 kg to 10.2 kg per caput between 1993-95 and 2005. The fastest growth is projected in the Asian countries and more moderate increases in Africa, Latin America and the Caribbean, and in the developed countries, often in substitution for beef.
29. Since the early 1990s, international trade in poultry meat has been boosted by a surge in import demand by several economies in transition to offset the shortfall in domestic meat production and by large purchases by China. As a result, trade in poultry meat rose by over 11 percent per year since the mid 1980s to 4.3 million tons in 1993-95. Growth to 2005 is projected to halve to 5.1 percent per year, bringing global trade in poultry to 7.5 million tons. As in the case of pork, an increasing number of countries is expected to raise simultaneously their poultry imports and exports, as they take advantage of price differentials and varying tastes for different cuts.
30. Most of the projected increases in import demand should originate in the developing countries and in the economies in transition. In recent years, China has emerged as a very large import market for cheap poultry parts, including chicken feet and wings. By 2005, such imports are projected at 1.4 million tons, which should enable the country to boost its exports of high value-added poultry products. Larger imports are also expected to be made by Hong Kong SAR, the Republic of Korea, which liberalized its market in July 1997, Singapore and, to a limited extent, the Chinese Province of Taiwan, following the opening of a small preferential quota this year. The volume of poultry meat shipments to the Russian Federation is projected to double to fulfill growing domestic requirements.
31. The increase in import demand is projected to be met principally by the United States, which alone could account for close to 50 percent of global poultry meat shipments by 2005. While Brazil, China, Thailand and Hungary could also raise exports, sales by the EC are projected to stagnate around the base level, with larger shipments on commercial terms offsetting the URA committed reduction in subsidized exports.
32. The average export unit value of all poultry products, was estimated
at US$ 1573 per tonne in real terms in 1993-95, down from US$ 1826 per
tonne a decade earlier. Real prices are projected to increase by 5.3 percent
from the base period to US$ 1656 in 2005, basically in line with the
expected rise in world feed prices.
33. The results of this projection exercise are subject to a number of uncertainties. First, much of the projected growth in trade is expected to reflect growing imports by Asian and CIS countries. These prospects assume that the former recover from the current financial and economic crisis and that the latter maintain the relatively open trade policy in place since the early 1990s. Secondly, the project of CAP reform currently under discussion in the EC, if implemented, could also boost the competitiveness of the domestic livestock sector and result in increased EC meat exports, a possibility which has not been taken into consideration in the current projection scenario.
34. The outcome of the projections suggests a reasonably balanced expansion in global meat production and demand with most of the upward pressure on real prices of meat stemming from the expected rise in international feed costs. Much of the expansion of global meat output should come from poultry and pig meat, which might widen their competitive edge relative to bovine meat thanks to technological innovations and structural changes. The developing countries should benefit most from the expansion in global meat production which will probably extensively rely on the development of intensive livestock systems, located predominantly in peri-urban areas. In this connection, particular attention will need to be paid by governments to their development strategies and the protection of local breeds as a continued shift towards intensive poultry and pig meat production, at the expense of extensive or mixed farming systems, could result in a growing reliance on imported basic inputs, including feed, genetic material and veterinary products.
35. Concerns over the impact of production on the environment are likely to become of increasing importance as production intensifies and incomes grow. As a result, many developed and developing countries are expected to tighten environmental regulations, which may constrain the level of output or induce a shift of the sector away from the most populated areas. Intensification of production could also be conducive to disruptive disease outbreaks as exemplified by recent events. Consumer concerns over meat safety are also expected to rise in some countries which may result in different levels of stringency in Government regulations on production and marketing, which in turn could lead to conflicts in international trade.
36. On the other hand, the progressive reduction of trade barriers, differences in tastes and comparative advantages could offer new market opportunities and encourage a greater reliance on trade. Several developing countries have already specialized in exporting value-added meat products while stepping up imports of cheaper cuts. However, for many developing countries, the main policy issue will remain that of meeting domestic demand for meat without jeopardizing the survival of traditional livestock producers and traders, including pastoralists and farmers relying on mixed livestock/crop systems.
2 Previous results of the FAO WFM projections have been reported in: "Medium-term prospects for agricultural commodities - Projections to the year 2000", Rome 1994; "Impact of the Uruguay Round on agriculture", Rome 1995.
3 However, the disparities among developing countries themselves are currently even wider, with consumption ranging from some 60 kilos in Argentina and Uruguay to one to three kilos in Bangladesh, India, Indonesia and Vietnam.
4 In carcass weight equivalent.