Livestock products

MEAT AND MEAT PRODUCTS

The world meat market has been influenced in 1999 by low feed prices, a recovery in Asian meat import demand, wide currency exchange rate fluctuations, particularly of the Brazilian real, and increasing use of export programmes, encompassing export subsidies, food aid and credit packages, by the developed countries. A double-digit jump in Asian demand in 1999 prompted global meat trade to grow 5 percent to 15.8 million tonnes, and the FAO international meat price index witnessed a hesitant but sustained reversal from the declining trend which has characterized meat prices since the mid-1990s. Price recovery for most meats in 2000 is expected to be supported by tighter supplies.

Bovine meat

Economic recovery in Asia and unexpectedly large shipments to the Russian Federation - still one of the most important beef markets - supported a 6-percent expansion in bovine meat trade in 1999 to 5.4 million tonnes. Imports by the Republic of Korea soared while high prices in the United States for manufacturing grade beef prompted higher United States imports. Bovine meat shipments to the Russian Federation in 1999, expected to be limited to the 270 000 tonnes originally programmed in the EC and US food aid packages, are estimated to have matched 1998 levels of 535 000 tonnes, as increased subsidies for EC beef allowed cash-strapped Russian importers access to low priced commercial shipments. Increased exports were supported by record supplies in the United States and Canada and by more competitively-priced shipments from Australia and Brazil. EC food aid shipments to Russia and an escalation of export refunds supported a 30-percent jump in EC exports. Such a performance is unlikely to be replicated in 2000 especially as the large 1999 sales have substantially depleted intervention stocks. Meanwhile, shipments from other traditional exporters, such as New Zealand and Uruguay, were constrained by lower exportable supplies and, in the case of Uruguay, also by reduced demand in neighbouring Mercosur markets. International beef meat prices are likely to be pressured higher in 2000 as herd rebuilding progresses in some exporting countries.

Pig meat

More than a year after hog prices dropped 20 percent to hit near-record lows in late 1998, a very gradual reduction in the breeding herds in major exporting countries is finally signalling a slow-down in global production growth, from 6 percent in 1998 to a more moderate 2 percent increase in 1999 to 89.1 million tonnes. Industry contraction, particularly in the EC and the United States, was delayed by low feed prices and increased concentration and vertical integration which allowed producers to maintain overall returns despite low pigmeat prices. While very low prices early in the year induced some cut-backs in breeding stock in the EC and United States, more pigs per litter and heavier weights maintained production gains. Meanwhile, in Canada an 11 percent surge in output was made possible by a rapid expansion in slaughter and processing capacity. Production gains by the developing countries, which account for 57 percent of world output, slowed in 1999 to less than 2 percent. Dominating the outlook for both the developing countries and the world, China's pork output is estimated to have expanded less than 2 percent, constrained by low prices as consumer buying was weakened by economic uncertainty. Elsewhere in Asia economic recovery in the Philippines, Republic of Korea, and Thailand was accompanied by a rebound in production which was only slightly tempered by disease-induced hog slaughter in Malaysia.

Characterized by a small number of major importers and exporters, global pigmeat trade was shaped in 1999 by economic recovery in Asia and an intensive use of export programmes to move products to the Russian Federation. World trade in pigmeat is estimated to have surpassed 3 million tonnes in 1999, up 7 percent over 1998. In Asia, the largest regional pigmeat market, imports jumped by over 20 percent, supported by robust buying by Japan and the Republic of Korea, which also helped push up international pigmeat prices as reflected by an increase of 12 percent in the United States per unit export values for frozen pigmeat during 1999. Export programmes also played a critical role in underpinning pigmeat trade in 1999. In particular, deliveries to the Russian Federation, the second largest pork import market, were sustained by food aid packages from both the EC and the United States and strong use of EC export restitutions. The reactivation of EC export subsidies for all pigmeat cuts in late 1998, a near doubling in export subsidies for product destined specifically to the Russian Federation, and the use of the WTO-sanctioned roll-over provision allowed EC shipments to this market to exceed the 1997 record shipments. Exports from Canada jumped 30 percent, benefiting from strong Asian demand, while growth in shipments from the United States, slowed from the 11 percent gains witnessed in 1998.

Sheep and goat meat

Global sheep meat output in 1999 is estimated to have expanded by less than 2 percent to 11.5 million tonnes. Supply reductions in the developed countries were more than offset by production gains in the developing countries, especially in Asia, a region which accounts for almost 50 percent of global sheep/goat inventories and production. In China, the largest sheepmeat market, growth in output slowed from the strong gains witnessed in the two previous years, while Pakistan, the second largest market, registered modest output gains as did India, Bangladesh and the Islamic Republic of Iran. Output gains in Africa, a region where sheep and goats play an important role in food security, were underpinned by growth in Algeria and Nigeria. Aggregate output growth in developed regions was under pressure due to the continued contraction of the sheepmeat sector in CIS countries and in the United States due to low wool prices. In New Zealand, despite drought-reduced inventories going into 1999, favourable weather and near record lamb birth rates resulted in only a marginal output decline, while output in the EC and Australia expanded.

World trade in mutton and lamb is estimated to be up 2 percent in 1999 to 690 000 tonnes. Mutton and lamb are very thinly traded with only 6 percent of global output destined for the international market. While nearly three-quarters of total output is located in developing countries, global trade occurs mainly among developed countries and is characterized by a high degree of concentration. Imports by the EC, which account for one-third of global imports, were lower in 1999, depressed by higher domestic output and low domestic prices. Purchases by the United States, a high-value lamb market, were also depressed as deliveries slowed after the implementation of safeguard measures in July 1999 following an alleged surge in its imports. Stronger import demand in 1999, however, originated from the developing countries, particularly in the Middle East. Shipments by the two largest exporters, New Zealand and Australia, expanded slightly in 1999, while exports from the Sudan recovered, most of which moved into adjacent countries. Meanwhile, product movement from Uruguay dropped in response to lower exportable supplies and weak import demand from recession-plagued neighbouring countries.

Poultry meat

Buoyed by low grain prices, global poultry meat output in 1999 increased 4 percent to 63.7 million tonnes. While slowing from the average 6 percent/year growth over the 1990-1998 period, poultry meat output gains outpaced that of other meats, broadening it's share of total output to 28 percent from 23 percent since the early-1990s. Both the developed and the developing countries registered large output gains; however, the developing countries expanded faster, pushing up their share of global production to over 50 percent. Brazil witnessed double-digit output gains as its currency devaluation strengthened demand from other countries. Meanwhile, economic recovery in many parts of Asia, particularly in Indonesia, the Republic of Korea and Thailand, was accompanied by rising production. However, overall regional growth in Asia was constrained by a production slowdown in China in response to lower overall meat prices and hesitant consumer demand. Favourable producer margins in the United States, helped by rising red meat prices, induced output gains of nearly 6 percent in 1999, while growth in the EC was less than 2 percent as overall meat prices remained low and demand suffered from the dioxine problem.³ Rising grain prices in the Russian Federation led to an output decline, despite increased foreign investment and higher

MILK AND MILK PRODUCTS

International prices for dairy products showed a steady decline during the first-half of 1999, thus continuing the trend already evidenced in 1998 (the FAO Dairy Price Index dropped by 20 percent between mid-1998 and mid-1999). Ample supplies in the main exporting countries, coupled with reduced purchasing power as a result of currency devaluation in some important dairy importing countries such as the Russian Federation, Brazil and parts of Southeast Asia were important factors behind the fall in prices. Prices stabilised at low levels during the middle of 1999. Subsequently there was some strengthening in export prices, especially that of skimmed milk powder, during the remainder of the year.

Global milk output increased slightly during 1999, with production growing in most major milk producing countries. In Oceania, favourable weather conditions led to a strong start to the 1999/2000 production year. Over and above these weather-related production effects, the industries in both Australia and New Zealand are firmly set on a cycle of expansion because returns from dairying are higher relative to other pasture-based livestock activities - such as beef or sheep farming. Reflecting the industry's heavy reliance on pasture, the expansion of milk production in Oceania is based primarily on herd expansion rather than increased yields. Elsewhere, such as in eastern Europe, milk production is expanding largely as a consequence of improved yields. In the Russian Federation, milk production in 1999 was lower than in the previous year. The drop in milk output is largely associated with higher than usual slaughter rates for dairy cattle, linked to a rise in prices for meat following the devaluation of the rouble. This has led to large numbers of dairy cattle being slaughtered for meat. On the other hand, as the least productive cows tend to be slaughtered, average productivity per cow in the Federation is expected to rise.

In the United States, milk production rose by 3 percent for 1999 as a whole, as a result of low feed costs and ample forage supplies producing a favourable feed/milk price ratio, particularly during the first-half of the year. A rise in yield per cow is the main mechanism behind the rise in US output; however an additional factor has been a lower than average rate of reduction in the size of the national dairy herd during 1999 as farmers seek to maximise their returns under the current favourable conditions. Production in a number of developed countries (e.g. the EC, Canada, Japan, Norway and Switzerland) is subject to policies that restrict output and, consequently, changes very little from year to year.

In developing countries, growth in milk output continued in Asia and Latin America. Assuming normal weather conditions, India's milk output in the 1999/2000 (April/March) marketing year was expected to reach 76 million tonnes, confirming India's position as the world's single largest milk producing country. In China, moderate growth in total milk output was estimated. Unlike in the previous decade, milk production growth in China during the 1990s has focused on improved yields, rather than expansion of the dairy herd. In Latin America, the devaluation of the Brazilian real resulted in a rise in the border prices of imported dairy products, making domestically produced ones more attractive. This, on the one hand, encouraged domestic production and, on the other, created certain difficulties for fellow Mercosur members, like Argentina and Uruguay, where Brazil is the most important export market. Nevertheless, milk production in the Mercosur group increased in 1999 due to the momentum of the herd expansion cycle. Milk production increased in a number of other countries in Latin America. In Mexico, the introduction of improved technology and animal genetics have been important factors behind the increase in production. This process reflects a movement towards larger-scale, more capital intensive milk production.

From mid-1999, production of milk in excess of domestic requirements in the major exporting countries (EC, New Zealand and Australia) was finely balanced against international demand, with supplies of some dairy products being in short supply, compared to the first half of the year and 1998. As a consequence of generally good market conditions, particularly in the last quarter of 1999, intervention stocks of skimmed milk powder in the EC declined and commercial stocks in Oceania fell to almost nil. Purchases by most countries in Southeast Asia increased, as economic growth in this region strengthened import demand. Sales of milk powder to Algeria and Mexico were also substantial. In the Russian Federation, which until 1998 was the leading world importer of butter and a large importer of cheese, import demand was further depressed during 1999.

Price outlook

Important factors with a bearing on the price outlook for 2000 include the level of import demand by the Russian Federation and the degree of milk production growth in the main dairy exporting countries in the southern hemisphere (New Zealand, Australia, Argentina and Uruguay). Additionally, for the oil producing countries in the Near East and North Africa, and

Venezuela, increased revenue stemming from higher oil prices, could lead to some growth in import demand. Assuming normal weather conditions in the southern hemisphere, the international dairy market is expected to remain well-balanced during 2000 and, as a consequence, price gains made during the second-half of 1999 should be maintained, or even increased.

³ Dioxine contamination in animal feed in mid-1999 led a number of governments to ban meat imports from Belgium and neighbouring countries.

⁴ International trade numbers (both imports and exports) now reflect transshipments from all regions, including the Baltics, Hong Kong SAR, Eastern Europe, and the CIS.