Spring 2023 edition
Since the autumn 2022 edition, energy and fertiliser prices have started to go down. High commodity prices last year helped countering high input costs and the first estimates indicate an increase of the EU average farm income, with significant sectorial and regional disparities. However, the spring 2023 short-term market outlook is still driven by the negative impacts of Russia's invasion of Ukraine, notably on energy, fertiliser and feed prices, and by the ensuing high input costs and food inflation, that continue to weigh on agricultural markets and EU consumers’ purchasing decisions.
Global agriculture faced the third consecutive climatic cycle of ‘La Niña’ in 2022, and large parts of the EU experienced winter droughts, further worsening water availability in regions with already record low water reservoirs.
These issues form the basis for the spring 2023 edition of the short-term outlook report. Market outlooks are provided for the EU-27. In addition to the short-term outlook, the Commission also publishes associated documents, including statistical annexes and balance sheets.
The current EU macroeconomic forecast is, however, relatively more positive than in autumn 2022, despite uncertainties about energy supply for next winter and recent financial market tensions.
Natural gas prices have continued declining, which eased pressure on the EU fertiliser market, but fertiliser prices are still significantly higher than two years ago. Nevertheless, food inflation could remain high until declining input costs are transmitted along the food supply chain and bring relief to consumers.
The EUR to USD exchange rate has come again above parity, but the US dollar is expected to remain relatively strong in the short term. The depreciation of the EUR could increase agri-food exports, but also lead to more expensive agricultural inputs and further deepen inflation.
The 2022-23 EU usable cereals production is projected at 265.6 million t, a 6.9% decrease compared to the 5-year average mostly due to the drought conditions that affected maize in particular (-24.3% below 5-year average).
The poor harvest combined with high cereals prices at the beginning of the season and an anticipated decrease in EU meat production is expected to reduce the use of cereals for feed by 2.9% year-on-year, while food use is expected to increase slightly (+0.8% year-on-year). EU imports of cereals could increase by 44% compared to a 5-year average to 35 million t due to an increase of imports from Ukraine. Cereals exports are expected to remain strong (+4.7% above 5-year average) thanks to an increased soft wheat availability.
The EU oilseeds production in 2022-23 is expected at 31.3 million t (+5.2% above 5-year average), helped by an excellent rapeseed harvest (+13.6% above 5-year average) which fully out weighted decline in sunflower seed harvest due to the summer drought.
EU olive oil production is expected to be record low in 2022-23 (1.4 million t, -39% year-on-year) mainly due to the production drop in Spain as a result of an extremely hot and dry weather. Lower availability, combined with high input costs, is leading to higher producer prices, which are passed along the supply chain and leads to higher consumer and export prices. As a result, both EU consumption and exports are expected to drop (after a record level of exports recorded in 2022).
Conversely, EU wine production is increasing and could reach almost 158 million t in 2022-23, an increase mainly due to a strong recovery in France. Following the strong consumption growth in 2022, it is likely to go back to a declining trend, slightly above the level during the COVID-19 initial outbreaks. EU wine exports could remain stable, at a level comparable to previous years.
The weather impacted negatively also the production of oranges in the EU, especially in Spain (-16%) and Italy (-20%). A stronger reduction is expected in processed oranges. The reduced availability could lead to an increase in imports. High prices are expected to have a negative impact on an apparent per capita fresh consumption (-7%), but less than for other types of fruits. Above-average apple production is expected in the EU. More apples could be directed to processing due to high storage (especially high energy prices) and transportation costs. Similarly to oranges, apparent EU per capita consumption of fresh apples could decline (-6%) while the processing of fresh apples could increase (+4.5%).
Milk and dairy products
Despite expectations of a lower output, 2022 EU milk production remained rather stable. However, lower fat and protein milk contents reduced the processing availability. EU dairy exports in volume declined (but were a record high in value terms), as a result of high EU prices, limited supply and lower China’s imports. On the other hand, domestic dairy use slightly increased despite the increasing food inflation.
In 2023, cows slaughtering is likely to elevate, responding to declining raw milk prices, which could also be partly compensated by increasing milk yields (normal weather conditions assumed). Despite a slight decrease in EU milk deliveries (-0.2%), processing availability might still be kept stable thanks to higher milk fat and protein content. The cheese and whey processing stream is expected to be favoured by the industry, due to EU exports potential and relatively stable domestic cheese consumption. Butter and SMP production could decline due to the larger than usual stocks (taken over from 2022), which could partially cover the increase in exports and domestic use.
Overall, EU consumption is expected to face some consumer preference shift to lower quality products, rather impacting the value and not the total volume. Recovering import demand in China would be an important factor for EU exports growth.
EU beef production is expected to decrease further in 2023 by 1.6%, mainly due to a structural adjustment in the beef and dairy sector, despite high beef prices. The current price environment could attract more imports from the United Kingdom and South America (+5%), while EU exports could remain stable as global supply is also low and demand rather firm.
A smaller breeding herd as well as African Swine Fever (ASF) push EU pigmeat production further down in 2023 by 5%, despite lowering feed prices. The decline in exports to China is expected to, slowing down EU exports further in 2023 by 3%.
As production costs are coming down from very high levels, EU poultry production could benefit from a modest recovery of 1.1% in 2023, despite the occurrence of Highly Pathogenic Avian Influenza (HPAI). In addition, high EU poultry prices make EU exports more difficult. The suspension of duties on products coming from Ukraine favours poultry imports and increases domestic availability.
The historical low EU sheep and goat flock push slaughterings down in 2023 by 1%, despite high domestic prices. More imports from New Zealand are expected due to favourable lambing conditions and high EU prices.
EU balance sheets are also available in Agri-food data portal, currently including cereals, sugar, oilseeds, olive oil, milk and dairy products, fruit and vegetables, and meats, both in a form of tables and graphs.