EU Beef Demand Declines Faster than Production

April 13, 2001

The European Union's production of beef should decline about 7% this year, but at the same time, consumption is declining even faster, projected to total about 15% as consumers turn from beef and "potentially" shift to pork and poultry, according to a new USDA report. Bovine spongiform encephalopathy (BSE) in the EU cattle herd has caused growing domestic consumer fears about meat safety with near-weekly announcements of new BSE incidences, the closing of virtually all EU beef export markets as a result of importer fears over both BSE and foot-and-mouth disease (FMD), and, the market support policy measures undertaken by the European Commission that control cattle numbers and beef production.

The sharp consumption decline coupled with further contraction in EU beef exports will result in a spike in EU beef stocks by the end of 2001, the Foreign Agricultural Service report said. The more recent outbreak of a second animal disease, FMD, "exacerbates this situation by reinforcing the conditions that are generating the beef surplus. This is a reprise of the EU beef mountain that arose during the EU's initial BSE crisis in 1996.," says the report.

At that time, the first link between BSE and the human disease, new variant CJD, was made. This new link with BSE spurred a sharp, but temporary, decline in consumption and exports that generated a beef surplus on the EU market. "Then, and again today, in an effort to support market prices, the EU has used public intervention purchases to take beef off the market, creating a record stockpile that was only drawn down in 1999 and 2000 when the EU relied on heavily EU subsidized exports to dispose of the beef."

Russia's economic crisis provided an opportunity to dispose of intervention stocks. The EU made full use of the export subsidies allowed under the WTO to export beef and drew down the stockpile. Just months after clearing out the intervention stockpile, EU inventories are once again expanding due to BSE-related market reactions and policy measures. As before, the EU is turning to the use of intervention and other publicly financed policy tools to take beef off the market. By the end of 2001, EU beef stocks could reach 1 million tons. As of mid-April, 175,000 tons of beef have been placed in intervention, according to FAS.

The double whammy of BSE and FMD has closed off virtually all EU export markets, including the two most critical -- Russia and Egypt. As EU beef exports to the rest of the world declined between 1995 and 1999, these two markets, plus countries in the Middle East and North Africa, came to dominate the EU's beef export picture.

Over the last decade, while world beef exports have been fairly stable, the United States has nearly doubled its share of the total beef export market by targeting high-quality beef markets. "The current absence of the EU from global beef trade is unlikely to offer significant short-term gains for U.S. beef exporters as the EU's main markets, Russia and Egypt, purchase a different product from the EU than typically provided by U.S. beef exporters," the report notes.

"If the current import bans remain in place for an extended period, however, markets will adjust and additional opportunities may become available not only for the United States, but also for other beef-supplying nations without FMD or BSE," the report adds.

By the end of 2001, the EU will likely have nearly 1 million tons of beef in storage. All of the beef entering storage via an intervention program will have been tested and certified as BSE-free. Competitively priced EU beef will likely again be attractive to markets like Russia, particularly if some level of confidence in EU beef is restored through the testing measures and other programs in place. In this scenario, U.S. poultry exports to our key Russia market may be the U.S. meat product most challenged by the resurgence of EU export efforts to draw down the EU beef mountain.