| ERC/00/4
|
| ERC/00/4
|
TWENTY-SECOND FAO REGIONAL CONFERENCE FOR EUROPE |
PORTO, PORTUGAL, 24-28 JULY 2000 |
Agenda Item 7 |
THE STATE OF FOOD AND AGRICULTURE IN THE REGION |
III. RECENT DEVELOPMENTS IN FOOD SECURITY AND POVERTY IN THE REGION
IV. AGRICULTURAL POLICY FRAMEWORK IN 1998-1999
A. Agriculture policy
B. EU enlargement and agriculture: new strategy in 1999
C. Agriculture policy harmonization
V. AGRICULTURAL PRODUCTION TRENDS 1995-99
A. Grains
B. Oilseeds
C. Animal stock and livestock output
Cattle and beef
Pigmeat sector
Poultrymeat sector
Milk
1. Since the start of the reforms in the early 1990s, the number of people below the poverty line increased in all countries in transition. In the mid-1990s, 28.1 million people lived below the poverty line in ten CEECs plus Moldova. In 1999 and the beginning of 2000, food insecurity, caused mainly by poverty and local conflicts, affected most of the countries with the lowest GDP per caput or those hit by local conflicts (the Caucasian countries and the countries of the Former Yugoslavia). These conflicts resulted in a massive displacement of population and in a disrupted normal agriculture. In these cases, food aid was crucial for preventing huge decreases in food intake and for containing incidences of malnutrition.
2. In 1999, as a result of bad harvests, grain production decreased in Europe by 6 percent. Adverse weather conditions in the Central and Eastern European Countries (CEECs) caused in particular wheat production to drop by nearly 50 percent in Hungary and Croatia and 35 percent in the Federal Republic of Yugoslavia and Slovakia.
3. Despite the decline in domestic agricultural output in 1998-1999, particularly in the CEECs, there was a strong downward pressure on farm prices as a result primarily of the global price deflation for many farm products, combined with the regional market impact of the Russian financial crisis. As a consequence, domestic support and border protection increased.
4. In October 1999, the Commission of the European Union proposed to start simultaneous accession negotiations with the CEEC-10, Malta and Cyprus. The proposal included an official acknowledgement of the status of Turkey as a candidate for EU membership. The Helsinki Council approved the Commission's proposal.
5. This paper presents an overview of the food and agriculture situation in Europe in 1999 and the beginning of 2000. Since the subject and the region are quite broad, the document is not intended to be exhaustive. On several occasions, to make the document shorter, developments are exemplified by selected representative countries only, while the remaining country cases are not presented.
6. The paper covers the European countries that are FAO members. In this context, The CIS-4 refers to Armenia, Azerbaijan, Georgia and the Republic of Moldova only. The CEECs include Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia,Slovenia, the Former Yugoslav Republic of Macedonia and the Federal Republic of Yugoslavia. The CEECs and the CIS-4 are often referred to as "countries in transition". This is to underline their transformation from centrally planned to market economies, which has had substantial implications for the performance of agriculture and food security. Six countries among the CEECs and the CIS-4 are low-income and food-deficit countries: Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Georgia and the Former Yugoslav Republic of Macedonia. Although their domestic production and trade developments are often discussed separately, when aggregates for the CEECs or the CIS-4 are shown, they include data for these respective low-income and food-deficit countries.
7. During the transition, the share of population has increased in Central and Eastern Europe and the CIS-4. Income inequalities have not declined in any country up until 1999, despite beginnings of stabilization there. Income inequalities rose most in the CIS-4.
8. In the mid-1990s, 28.1 million people lived below the poverty line in ten CEECs plus Moldova, an increase of 3.9 million since the end of 1980s. They include 8.1 million in Central Europe, 13.5 million in Romania, 1.3 million in Bulgaria, 2.3 million in the Baltic States and 2.9 million in Moldova (EBRD, 1999).
9. A measure of the depth of poverty below the officially set threshold is the average (recorded) income of all those below the poverty line divided by the poverty line income, expressed as a percentage. It is quite high, generally above 20% and reaching 43% in Moldova.
10. As there are large variations in the depth of poverty around the region, there is also a large variation in the poverty deficit. As a percentage of GDP it is insignificant in the Central European countries and Bulgaria. The poverty deficit is higher in the Baltic States, between 2 percent and 4 percent. It is significant in Romania and Moldova, with around 5 percent and 7 percent of GDP, respectively.
11. Regional food insecurity in Europe has been mainly caused by poverty and local conflicts. It has affected most of the countries with the lowest GDP per caput, or those hit by local conflicts, namely the Caucasian countries and the countries of the Former Yugoslavia. Such conflicts have brought about a massive displacement of populations and have adversely affected agricultural production. In these cases food aid was crucial for preventing huge decreases in food intake and incidences of malnutrition. Substantial food aid programmes continue to be necessary for the economically vulnerable and displaced people in the Balkans, especially in Kosovo Province of the Federal Republic of Yugoslavia. The economy of Bosnia and Herzegovina was also adversely affected, and the country is hosting a substantial number of refugees (FAO, 2000a).
12. In 1999, the Balkan countries were affected, to varying degrees, by the conflict over the Kosovo Province of the Federal Republic of Yugoslavia. At the outset, the crisis led to a large-scale exodus of refugees into neighbouring countries, among which Albania was particularly affected. At the height of the crisis in early June, some 440 000 Kosovar refugees were reported to be accommodated in camps and with host families in the country. Among the most notable impacts of the crisis was the disruption of food supplies from the rural to urban areas. Sharing food with refugees (around 60% of the refugees lived with Albanian families) decreased surpluses available for commercialisation in rural households (OECD, 1999). Also, military actions and movement of animals had a negative impact on livestock, particularly in the area bordering the Kosovo Province. Furthermore, many people from these areas were internally displaced which led to disruption of spring agricultural activities. Food aid for the affected people was timely and consisted mainly of imported foodstuffs. Beyond the consequences of the Kosovo crisis, poverty is the main source of food insecurity in Albania.
13. Also the Former Yugoslav Republic of Macedonia came under pressure due to a large influx of Kosovar refugees, estimated at 200 000, in the first half of 1999. The impact of the refugee crisis on food supply and food prices was small due to the timely assistance of the international community. However, apart from the refugee crisis, in the Former Yugoslav Republic of Macedonia there are traditionally vulnerable groups, which include populations in remote mountainous regions and Roma communities in urban areas. In 1999, 12 percent of the total population, namely around 63 000 households, received cash benefits calculated on the basis of a set poverty line. Despite poverty, there is no evidence of major reduction in food intake. For the period July-December 1999, a consortium of donors and NGOs topped up the social benefits provided by the Government with food aid, including monthly rations of wheat flour, vegetable oil, pulses, sugar and salt.
14. The Federal Republic of Yugoslavia (Serbia and Montenegro) is also in a state of acute economic crisis in the wake of the conflict over Kosovo and several successive years of economic sanctions. In early 2000, some 1.2 million vulnerable people, including refugees and economically socially deprived people in Serbia ( excluding the Kosovo Province) were receiving humanitarian food relief. In the Kosovo Province, domestic food production in the 1998 and in 1999 was affected by insecurity. FAO estimated the 1999 wheat harvest at 100 000 tonnes compared with the normal pre-war level of about 300 000 tonnes. Large food deficits since the end of the conflict have been met with food aid and commercial imports. Although commercial imports were quick to recover after the end of the conflict, limited purchasing power amongst both rural and urban population, combined with the urgent needs for non-food essentials remain a problem. Throughout early 2000 about one million people received food assistance in the Province.
15. By the end of 1999, the income situation in Bulgaria deteriorated. The most vulnerable groups in terms of income were people with the lowest education, pensioners and the Roma community. The share of food expenses in household budgets for all types of households was high and stable. More than one third of the households included in a sample survey indicated that they had produced more than 50 per cent of the food at home (UNDP, 1999). Home produced food is an important food source for vulnerable households. There are no signs of malnutrition in the country, but poverty is a major concern.
16. In Romania, the magnitude and severity of poverty is greater in rural areas. According to the World Bank, 3.8 million poor are living in the country's rural areas.The consumption gap measuring the consumption of poor people below the poverty line has been 27 percent in rural versus 24 percent in urban areas (World Bank/National Commission for Statistics). Most of the rural inhabitants depend on the land for their living. The poor rural households follow low-risk, low-return production strategies. The periods of GDP growth in Romania showed that even a short-lived growth was able to push millions of people out of poverty. As a result, the strategy pursued is the resumption of growth and rural development measures. However, some vulnerable groups, such as children in institutional care, need more targeted measures.
17. In the other countries, food insecurity affects vulnerable groups, while there are generally no shortages of food in rural or urban areas. Food production in Azerbaijan expanded in 1999 but nevertheless remained depressed, despite good growing conditions, financial stability and fundamental market oriented reforms, which started in 1997. The country has good agricultural potential, but, in the short term, production is constrained by a depletion of soil fertility, a critical shortage of rural credit, inadequate infrastructure and the need to rehabilitate the irrigation and drainage systems. Following trade liberalisation, any shortfall in domestic supply is offset by imports. The cause of concern is the low purchasing power of most of population (8 million). Expenditures on food account for 70 percent of total expenditures of the most vulnerable households. In recent years, the number of vulnerable people has declined, but nevertheless there are still some 860,000 Internally Displaced Persons (IDPs) and refugees mainly as a result of the still unresolved issue of Nagorno Karabakh. In all, nearly 500,000 persons, half from the displaced community, are still in need of humanitarian assistance. The WFP has been providing humanitarian assistance to Azerbaijan since 1993. WFP is continuing to support 485 000 beneficiaries through the 3 year Protracted Relief and Recovery Operation (PRRO) which started in July 1999.
18. In Georgia, agricultural production recovered sharply in 1999, mainly the result of markedly better growing conditions and some improvement in the availability of inputs and farm management. However, average crop yields are still far below their potential. The agricultural sector remains depressed and stagnant in a low- input low-output farming as access to markets and resources are limited. The main cause of food insecurity is poverty. Food continues to claim a large proportion - up to 60-70 percent - of household expenditures and a considerable percentage of the population (between 16-50% depending on the poverty line used ) remains poor. Although there is no officially recognised acute malnutrition, a slow but clear trend increase of malnutrition among children is being observed, despite some targeted distribution of supplementary food aid. In all, several hundred thousand people still need humanitarian assistance, including the 182 000 receiving assistance from the WFP under the current PRRO.
19. In Armenia, grain production in 1999 declined in response to import competition and a reduction in the area sown. The consumption of potatoes, fruit and vegetables is virtually covered by domestic production and livestock production is recovering. However, with relatively little arable land per caput and no comparative advantage in cereal production, the country needs to import grains. Although there is no acute malnutrition, there are risks for food insecurity due to poverty. In January 1999, one quarter of the families in Armenia were registered with the Ministry of Social Security as vulnerable and received family benefits (UNDP, 1999). Since then 25-30 percent of families have been removed from the register. However, despite increasing per caput GDP in recent years, household purchasing power remains low and at times insufficient to cover the cost of the minimum consumption basket. Living standards declined somewhat in 1999 reflecting the decrease in workers remittances from the Russian Federation. This pushed average household expenditure on food to 67 percent in 1999 compared to 57 percent in 1998. In total, some 170 000 vulnerable people will be covered by WFP food assistance, including some 110 000 refugees and vulnerable persons being provided with relief food aid, while 60 000 will be reached through community based food-for-work activities, supporting economic and social development. The programme is planned for three years and will be reviewed annually.
20. European farmers had a difficult year in 1999 mainly because of low world market prices. As examples, farm incomes reached a record low in the United kingdom, and in the Slovak Republic, farm sector losses were estimated to increase four-fold from 1998. The farmers in the Federal Republic of Yugoslavia saw their incomes plummet as a result of the lack of input supplies through the official marketing channels. Such inputs had to be obtained on the black market at a much higher price.
21. Despite the decline in domestic agricultural output in 1998-1999, particularly in the CEECs, there was a strong downward pressure on farm prices. This resulted primarily from the global price deflation for many farm products combined with the regional market impact of the Russian financial crisis. As a response, there were increases in domestic support and border protection in a number of countries of the region. These were reflected in higher levels of producer support estimates (PSEs).
22. PSEs measure market price support and various direct payments provided to farmers through agricultural policies. Farm receipts (revenue) are increased or expenditures decreased based on the amount of support given.The PSE can be expressed in monetary terms by country or commodity or as a ratio of gross farm receipts, including budgetary support, as a percentage. Figure 1 presents the changes in percentage PSE for the agricultural sector as a whole in selected CEECs and the EU.
FIGURE 1 - Producer support estimate
Source: OECD
23. In 1998 the PSE increased in all the CEECs as well as in the EU. This large increase was also a response to a fall in world market prices, which was not transmitted fully to domestic markets. The support extended to farmers in different CEECs converged to a certain extent. The support to the EU farmers under the Common Agriculture Policy (CAP) continues to be substantially higher than that in the CEECs.
24. The increase in domestic support and border protection in the CEECs in 1998 and 1999 impeded the liberalization of agricultural trade within the regional trade agreements, Central European Free Trade Agreement (CEFTA) and expansion within Baltic Free Trade Agreement (BAFTA). Serious tensions among CEFTA members raised doubts about the future of the regional agricultural trade liberalization. Not only was further liberalization frozen, but some of the bilaterally negotiated concessions within CEFTA were abandoned.
25. EU enlargement has acquired new impetus over the past year. There was a greater awareness within the EU of the strategic dimension of enlargement for achieving peace, security, growth and prosperity throughout the whole of Europe (European Commission, 1999). In October 1999, the Commission of the EU proposed the start of accession negotiations in parallel with the CEEC-10, Malta and Cyprus, and not, as had been decided in 1997, only with the six front-runners, Cyprus, the Czech Republic, Estonia, Hungary, Poland and Slovenia. The proposal included official acknowledgement of the status of Turkey as a candidate for EU membership. In December 1999, the Helsinki Council approved the Commission's proposal, and at the beginning of 2000, accession proceedings were formally launched with the second group: Bulgaria, Latvia, Lithuania, Malta, Romania and the Slovak Republic.
26. The agricultural negotiations have not yet formally begun. The countries from the first group presented their position papers, and a response from the EU is expected to allow for negotiations during the second half of 2000. Three areas of contention between the EU and the applicant countries have been identified.
27. First, the CEECs cannot comply fully with the EU's health and hygiene standards during the short period prior to accession. For example, Poland has asked for a transition period of up to four years during which it can upgrade its slaughterhouses, dairies and processing plants. There are similar requests from other applicant countries.
28. Second, the level of production quotas is expected to be a difficult issue. In their position papers, Hungary and the Czech Republic request milk quotas higher than the current production. Slovenia has asked for all quotas to be above the current production levels. However, as in the case of milk, if the EU is going to continue with price support, quotas for the new members must be close to their current level of production in order to prevent non-exportable surpluses and an overshooting of WTO commitments for an enlarged EU.
29. Third, the most difficult issue is the application of the direct payments. The EU would like to avoid the extension of the direct payments defined under Agenda 2000 to the new members in order to avoid the budget burden that would be created by such an extension. By the beginning of 2000 there were signs that the EU might take a more flexible position regarding direct payments, giving farmers in the new member states some aid upon accession, while fully harmonizing the system of payments for the long run.
30. Partly to minimize potential problems with accession, but mainly for domestic political reasons, the CEECs have progressively harmonized their agriculture policies towards the CAP. This has been done by the above-mentioned gradual increase in the level of support to farmers and, at a broad level, with a convergence of the means of support to farmers among the CEECs and between them and the EU.
31. The EU has seen a significant reshaping of the structure of its support, with an increase in the use of direct payments and a corresponding decrease in markets with support. The CEECs have also reduced their reliance on market price support with the exception of Poland. Some of the countries increased the use of direct payments, especially Lithuania. Beyond these elements of convergence with the EU, there has been a much greater use of "other" support measures in the CEECs, including input subsidies, especially subsidized credit.
32. There are also important divergences among the support levels given to specific commodities between the CEECs and the EU. For the EU, ruminant livestock products (beef, veal and milk) are more highly supported than grains (wheat and maize), and the intensive livestock products are the least supported. All the CEECs have a different pattern of commodity support. The only product for which the support level and ranking are similar to those in the EU is milk, which is highly supported in six of the CEECs. In most of the CEECs, poultry and pork are more highly supported than in the EU. It is expected that future harmonization of agricultural policy in the CEECs with that of the EU could cause further important adjustments in the applicant countries over the next two or three years.
(This section presents agricultural production performance, including 1999 data, production trends over the 1995-99 period for grains (FAO's definition of cereals includes rice), oilseeds, animal stock and livestock output.)
33. During the period 1995-1999, crop production in Europe increased, with an average annual rate of one percent and 1.8 percent in the cereal subsector. Under CAP there were incentives for crop production in the EU, and growth rates of 1.5 percent were posted for all primary crops, including 2.7 percent for grains. However, in 1999, FAO's latest estimate for the region's aggregate grain output (EU plus CEEC-10 plus CIS-4) is some 5 percent down from the previous year, at 276 million tonnes. The reduction was attributed to reduced area and adverse weather conditions. The region's aggregate wheat production fell by 8 percent to about 126 million tonnes, while that of coarse grains fell by about 3 percent to 150 million tonnes. In the EU countries, crop production dropped by 1.3 percent, but grain output decreased by nearly 5 percent, including wheat by 6 percent to 97.6 million tonnes. The grain area for the 1999 harvest was reduced due to increased set-aside and adverse weather affected yields. While most CEECs have recovered from the post-reform slump in production, several countries experienced reduced grain crops mostly due to the impact of adverse weather conditions. Wheat output nearly halved in Hungary due to the worst floods in 50 years. Output also fell by about 50 percent in Croatia, and dropped to about 65 percent of the 1998 level in the Federal Republic of Yugoslavia and Slovakia.
34. Early indications for 2000 point towards an overall increase in wheat production in the EU and CEECs, as weather conditions for crop development have been favourable. The aggregate winter wheat area in the EU is estimated to have increased by 5 percent, mainly at the expense of oilseeds. The winter wheat area is also estimated to have increased in several of the CEECs. However, in two of the major producing CEECs - Poland and Romania - the area is estimated to have fallen. In the low-income food-deficit countries, the limited access to credit for small farmers has been a constraint to purchase variable inputs and to improve productivity. Yields in the CEECs remained lower than those in the EU, in spite of some signs of improvement in 1999 (Figure 2).
FIGURE 2 - Wheat yields
Source: FAO database.
35. The rates of growth in the low-income and food-deficit countries were negative. Total grain output in 1999 was only 38 percent of the 1995 level. Production declined in Bosnia Herzegovina due to un-remunerative support prices and poor weather. The wheat harvest was particularly poor in Albania and this made both countries more dependent on grain imports. Crop production also decreased in the CIS-4. The highest average rate of decrease was recorded in Moldova. Wheat output was nearly halved during 1995-1999, from 1.3 million to 800 000 tonnes. In addition to these countries, Bulgaria, Estonia and Romania have also had negative average growth rates. Both Belarus and Ukraine experienced very poor grain harvests in response to persistent economic problems and adverse weather, falling almost 40 percent below the average of the past five years for the first, and 17 percent for the second.
36. Total grain exports (mostly wheat and barley) from the EU was forecast to rise by about 7 percent over the previous marketing season to around 26 million tonnes, in response to a significant expansion in world grain import demand during the 1999/2000 (July/June) and lower export availabilities in several smaller exporting countries (including Hungary and Romania). The export market for EU grains was further supported by the more competitive Euro, given a continuing weakness against the US dollar. In addition to the decline in production and larger exports, domestic feed use in EU countries continued to increase, albeit at a slower pace than in the previous three years. This brought about a sharp decrease in grain stocks in the EU from 41 million tonnes at the beginning of the 1999/2000 marketing season to around 35 million tonnes at the end. Some reduction was also expected in intervention stocks, mostly reflecting large export sales of barley from the intervention stores. Overall, total grain exports from the CEEC-10 countries in 1999/2000 were expected to decline by almost 2 million tonnes while imports were seen to rise by almost one million tonnes. However, on balance, the region was expected to remain a net grain exporter also in 1999/2000. The poor performance was reflected in the agricultural trade balance. Despite reduced exports and increased imports, total grain stocks held in CEEC-10 countries were expected to be reduced, with the largest decline in maize inventories. Although some decline in feed use was seen as inevitable, the overall per caput cereal consumption was expected to remain largely unaffected.
37. Grain trade balance (exports minus imports in value terms) remained negative in the CIS-4 and the low-income countries, although in 1998 the deficit decreased slightly (Figure 3). After two years with a negative trade balance, the CEECs had a small surplus in grain trade in 1998; however, it was much smaller than the good performance in 1995.
FIGURE 3 - Grain trade balance
Source: FAO database.
38. In 1999 there was a significant expansion of the production of oilseeds in Europe, which was consistent with the trends in global production. Here, two of the major oilseeds for the region are discussed: rapeseed and sunflower seed.
39. In the EU, the area under sunflower peaked in the early 1990s and under soybean in 1990. After that, these two crops areas decreased, while that under rapeseed increased continuously. As a result, during 1995-1999, rapeseed production increased by 9.6 percent annually, while sunflower seed production contracted by 2.4 percent.
40. In the 1999/2000 marketing season (October/September), rapeseed production in Europe increased by a record 23 percent, while in sunflower seed it was much lower, by 1.8 percent. The increase in rapeseed was mainly a result of the EU increasing its production from 9.5 to 11.2 million tonnes. The rise in production was caused by an expansion in area sown, itself the result of an increase in the EU's compulsory set-aside rate (which stimulated production of rapeseed for industrial uses) and of attractive compensatory payments under the CAP. Following the rise in domestic production, a moderate decrease was expected for the EU's net imports of oilseeds in 1999/2000, as well as an increase in global consumption of oils and fats. As to oilcakes and meals, consumption - which relies mainly on soymeal imports - was expected to stagnate due to the anticipated slow down in livestock production and continued competition from competitively priced feed grains. For the current season (2000/2001), a marked reduction in area planted has been reported, indicating that farmers have responded to last year's fall in prices and the prospect of burdensome supplies, as well as to the reduction in compensatory payments for oilseeds decided under last year's reform of the CAP (Berlin Agreement).
41. Oilseeds are also important in the CEECs. Oilseed production, mostly rapeseed, was expanding in the CEECs in the 1995-1999 period. However, rapeseed yields in the CEECs are still substantially below those in the EU ( Figure 4). In 1999, the share of oilseeds in the total cereal plus oilseed area reached 12.7 percent. The area under oilseeds reached a high in 1999, because of better prices in comparison with cereals and weather-related problems during cereal planting. As a result, the CEECs realized large increases in oilseed production in 1999 (sunflower seed output up by nearly 14 percent and rapeseed by a record 50 percent). The developments in 1999 in the oilseed sector in the CEECs are a signal that producers began responding quickly to the changes in relative market prices. As a result of the surge in output, the region's oilseed exports were estimated to expand by almost 50 percent in 1999/2000, while domestic crushing of oilseeds and consumption of oils and oilmeals were expected to continue rising. For the current season, rapeseed production in CEECs was expected to drop, mainly due to a decline in sowings in Poland, as farmers responded to the near record low prices for that crop.
42. Among CIS-4, the only important oilseed producer is Moldova, producing mainly sunflower seed. In 1999, sunflower seed production increased by nearly 45 percent.
FIGURE 4 - Rapeseed yields
Source: FAO database.
43. Meat and milk production in Europe decreased slightly in 1999, by 0.6 percent and 0.5 percent respectively. Pork and poultry output increased marginally but was not sufficient to offset the continued decline in beef production, under pressure by continuing BSE-induced herd liquidations in the EU. Total meat production increased in most low-income food-deficit countries, CEECs and CIS. Notable exceptions were Moldova and Latvia where meat output dropped by 5.5 percent and nearly 11 percent respectively. To a lesser extent there was a decline in the total meat production in the Czech and Slovak Republics and in Croatia.
44. The trade balance for total meat (excluding live animals) has remained negative in the low-income countries, while deteriorating slightly in the CIS (Figure 5). Reduced market opportunities in Russia eroded the positive trade balance of the CEECs in 1998. Live animal and meat trade from the CEEC to the EU are particularly important, accounting for 25% of total trade in 1997. One of the challenges to CEEC trade in live animals and meat products is adhering to EU strict requirements. Since many of the newly created private companies in the economies in transition can not adhere to these standards, countries requesting position papers for accession negotiations in agriculture have asked for longer adjustment periods. In the interim, the failure to meet the standards jeopardises CEECs and CIS exports to the EU.
FIGURE 5 - Trade balance: total meat
Source: FAO database.
45. The European beef industry has been under pressure since the mid-1990s, with output declining at an annual rate of 1.1 percent. BSE preventive measures, such as the Over-Thirty-Month Scheme (United Kingdom) and Calf Processing Aid Scheme (CPAS), are estimated to have removed a total of 5.4 million head from the market since their implementation. The Early Marketing Premium (EMP), a measure intended to lower EU beef production by encouraging slaughter at lower weights, was applied in the slaughter of 3.6 million EU calves. The CPAS and EMP were phased out in November 1998, although the CPAS was extended in the United Kingdom, where it ended in July 1999.
46. BSE-induced herd reduction in the EU and structural adjustments in the sector in CEECs, where output is mainly linked to the dairy herd, led to a reduction in cattle inventories and a marginal decline in production in 1999. The main producer, the EU, reached its cyclical downturn in the second half of 1999 with output expected to increase in 2000.
47. Beef consumption in the EU has continued to make a slow recovery following the 1996 BSE scare. In 1999 per caput consumption was estimated to 20.03 kg, only slightly lower than in 1994. i.e. before the BSE scare. Despite the recovery, long term trends point toward a renewed gradual decline in consumption, which existed prior to the 1996 crisis.
48. In almost all the CEEC countries in 1999, the size of herds was below the 1995 level. Herd size has declined 2.6 percent over the period at progressively slower rates as the transition from state to privatised farms proceeded. However, the beef sectors in CEECs are not homogeneous. In some of the countries the cattle herd stabilised or started increasing, for example Bulgaria, Hungary, Slovakia. In others the slump continued in 1999, e.g. Estonia, Croatia, Lithuania, and Poland. Amongst the low-income food-deficit countries, herds decreased only in FYR Macedonia. In the CIS-4, the decline continued in Moldova. In Azerbaijan, due to early privatisation of sector and the availability of grazing, cattle numbers by 1999 had recovered to 1995 levels as did cattle herds in Georgia and Armenia.
49. Over the 1995-1999 period, pigmeat production in Europe increased by nearly 2 percent annually supported by stronger prices induced by the BSE crisis. Denmark, France, Germany the Netherlands and Spain continue to be the major EU producers, with significant portions of Danish and Dutch production oriented towards third-country export markets.
50. The hog market in late 1998 and 1999 was affected by record low prices. Low feed prices and increased concentration and vertical integration allowed many European producers, however, to maintain output despite low prices. In fact, pigmeat production in the European Union remained high in 1999, with total production reaching 17.6 million tonnes, 2 percent above 1998. In spite of robust global pork supplies and continued economic instability in Russia, EU exports increased 30 percent due to the EU's use of export subsidies, private storage aid, and food aid to Russia. Current use of export subsidies is well ahead of last year's pace, with the EU already reaching 70 percent of this year's commitment level within the first eight months of the July 1999/June 2000 WTO year.
51. Pigmeat is the most produced and consumed meat in the CEECs. Despite economic turmoil in the region's largest market (Russia) and stagnation in the region's main producer (Poland) total pigmeat production in the CEECs increased by one percent in 1999. Increases were registered in Hungary and Romania, which along with Poland, account for nearly 64 percent of the CEEC production in 1999. Pigmeat production decreased in the low-income food-deficit countries, due mainly to reduced output in Albania. Low prices in the region stemmed from the slump in Russian imports and the displacement of CEEC from the Russian market by subsidised EU pigmeat. This market situation brought about increased intervention on domestic markets, border protection and trade disputes. Many of the countries, to protect themselves against low-priced subsidised imports, increased import taxes for pig-meat.
52. Poultrymeat has been the fastest growing meat sector within the region, with the CEECs witnessing annual growth rates of 3.7 percent since 1995. Despite overall low meat prices in 1999, in the CEECs poultry production continued to expand its share of the overall meat market - 22 percent in 1999, especially in the main regional producers of Hungary, Poland and Romania. Poultrymeat production increased in the low-income food-deficit countries at a similar rate as in the CEECs. There has been contraction, however, in Croatia, Latvia, Lithuania and Romania and particularly large in Bosnia and Herzegovina, from 14 800 to 8 200 tonnes. In the CIS-4, poultry production has increased in Azerbaijan (largest gains) and Georgia but dropped substantially in Armenia and Moldova.
53. While 1999 world poultrymeat production was supported by low grain prices, this growth was not well reflected in Europe. EU output gains were less than 2 percent as overall meat prices remained low and demand suffered from the dioxin contamination problem in animal feed, which disrupted exports from Belgium and the neighbouring countries. Nevertheless, regional poultry consumption has been growing dynamically and it has increased from 13.2 kg/capita in 1996 to 15.6kg/capita in 1999.
54. CEECs have maintained their position of net exporters (Figure 6), with Russia being a major market. The low-income and food deficit countries continue to be net importers with the value of the net imports decreasing slightly after the peak in 1996.
FIGURE 6 - Poultrymeat trade balance
Source: FAO database.
55. Over the period 1995-1999, the tendency in milk production in Europe was downwards, with an average annual decline rate of 0.35 percent (0.38 percent for the EU). In 1999, production in Europe was estimated at 176.6 million tonnes, down 0.5 percent over 1998. EU output in 1999, at 124.3 million tonnes, was down by nearly 2 million tonnes from 1995. The number of dairy cows has been decreasing, but milk yields per cow have been up. Most of the milk produced in the EU (around 94 percent) has been delivered to dairies.
56. Elsewhere in Europe the milk production situation is varied. In several CEECs, milk production recovered, going beyond the 1995 level. Poland is the only country among the major producers that showed a significant decline in comparison with 1998: 5.5 percent, a result of the decrease in dairy cow inventory due to low profitability. In 2000, milk output in Poland is forecast to recover to the 1998 level because of higher milk yields and expected higher milk procurement prices, the result of shortage of good quality raw milk for processing as a higher quality standard for raw milk goes into effect. Strong production growth was recorded in Azerbaijan and Georgia, 3.3 percent and 8 percent respectively. In three of the low-income food-deficit countries, Armenia, Azerbaijan and Georgia, milk production recovered, and in 1999 it was above the 1995 level. In the other three, production is still below the 1995 level. The largest drop was recorded in Bosnia and Herzegovina. Another drastic drop was experienced in Moldova, from 837 000 tonnes in 1995 to 572 000 in 1999.
57. The trade surplus of dairy products in Europe in 1998 was slightly less than in 1997, dropping from US$5 037.3 million to US$4 770.9. The trade deficit in the CIS-4 and the low-income countries increased slightly in 1998 (Figure 7).
FIGURE 7 - Dairy products and eggs trade balance
.
Source: FAO Database
58. The main factors that will shape the economic environment in the Europe region as defined by FAO in the coming years are the EU enlargement, the Balkans reconstruction and the situation in the CIS-4. The future development of the agri-food sector in the EU acceding countries will be determined by the necessity to harmonize market regulation and trade policies as well as institutions with EU requirements.
59. In 1999 global economic conditions looked better after disturbances in 1997-1998 due to the Asian and Russian crises. Economic growth in the European Union declined in the second half of 1998 but stabilized in 1999. The euro, introduced in 1999, brought about the highest level of economic integration among 11 states in Western Europe. Inflation of the euro area stayed under control, at 1.1 percent. Unemployment in the EU remained high, at 10.5 percent in April 1999, 0.5 percentage points lower than in April 1998.
60. In 1998-1999 there were still great differences in progress in reforms and the transformation of the economy among the CEECs and the CIS-4. Inflation was successfully curbed in 1998-1999. The mean inflation rate for the CEECs in 1998 was 7.7 percent, and down to 7.4 percent in 1999. The only CIS-4 country with high inflation was Moldova, with 30 percent in 1999. Unemployment rates stayed relatively high. In most of the countries in transition, they were above 10 percent in 1998. Unemployment was particularly high in Croatia and Albania, at around 17 percent. High unemployment contributes to poverty and creates concerns about food security in the households affected.
61. Total merchandise trade increased in Europe, with an average rate of nearly 6 percent for the period 1994-1998. The rate of growth of agricultural trade was much smaller, at around 1.6 percent. As a result, the relative share of agricultural exports in total merchandise exports decreased from 10 percent in 1994 to 8 percent in 1998. In the CEECs, the share of agricultural exports also decreased, going from 12 to 9 percent.
62. Several policy issues that were of growing importance in 1999 could have substantial implications for the future agricultural market situation and trade. These are the growing public awareness of food quality and safety and the impact of different technologies on the environment. It is expected that new regulations in these areas will be put in place, and the challenge will be to prevent their being used as non-tariff barriers to trade.
63. One of the main constraints on the development of CEEC and CIS-4 agriculture is poor access to investment credit. In some of the countries with a lower GDP per caput, investment needs are supported mainly through multilateral and bilateral donors. This support is still indispensable. A great deal of Official Development Assistance (ODA) in the CEECs and the CIS-4 in 1999 was targeted at food and agriculture, as these sectors are crucial not only for food security but also for employment and the overall functioning of the economy.
64. Another source of investment in the agrifood sector is foreign direct investment (FDI). According to the EBRD estimate, in 1998 the net inflow of FDI recorded in the balance of payments in the CEECs was US$16.4 billion, and in the CIS-4, US$1.6 billion. This was a substantial increase over 1997. The estimate for 1999 is for a slight decrease in inflows in the CEECs, to US$16 billion, and in the CIS-4, to US$1.2 billion (EBRD). In some subsectors, FDI has been important for improving the quality of products and the flow of supply. FDI is extremely important for improving competitiveness of the agri-food sectors in transition countries and preparing acceding countries for the competition in the European single market after the accession to the EU and in international markets in general.
