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Outlook for Agriculture

International Outlook

The international outlook for food availability and prices is underpinned by the need for global food production to increase by 70% to meet expected population demands by 2050.  Meeting this goal, in an era of increasing pressure for land, water and energy, will be a significant challenge.  Achievement of this goal is further complicated by the issue of climate change.  Increasing food production has to take into account the ongoing requirement to reduce greenhouse gases and therefore this increase in food production has to be made in a sustainable manner.

In 2008 a food price spike led to increasing international focus on the security of global food supply.  Although price levels fell afterwards, global food prices have begun to climb upwards again, from mid 2010 with prices rising sharply towards the end of the year.  The FAO Food Outlook November 2010 notes that the October figures are only 16 points short of the 2008 peak and warns of increasing prices for consumers.  January 2011 figures show that prices continue to rise, with all products, except meat, increasing.  

A further issue complicating food price levels has been an increase in volatility of prices in global markets.  During the 2008 price crisis the effect of export bans was clearly seen in the soaring price of rice.  During 2010 it has been possible to observe again the effects in markets of export bans such as that imposed by the Russian Federation which immediately put pressure on prices in food importing countries. 

Overall production of cereals declined slightly in 2010 by 1.4%.  Weather conditions effected production in Australia, Russia, USA and Canada.  Reliable forecasts for 2011 cereal production have not been available to date and there is continued uncertainty regarding the effect of the La Nina weather phenomena on production.   However total utilisation of grain for 2010/11 is expected to exceed supply and stocks will have to be drawn on.  

Longer term projections of agricultural markets, such as the USDA long term projections to 2019, continue to forecast agriculture prices to remain above 2006 levels due to increasing world demand for grains, oilseeds and livestock products, combined with increasing costs of inputs, such as oil, and some growth in demand for biofuels.      

 EU Medium Term Outlook

The outlook for EU agricultural markets remains subject to a number of uncertainties regarding future market developments.  Climate change will continue to influence the market outlook, with unpredictable weather patterns leading to supply fluctuations.  The expected increase in input costs would limit the profitability of production.   On the other hand, commodity markets are expected to remain balanced over the medium term, supported by growth in global food demand and the development of the biofuel sector.

Domestic Outlook

The prospects for Irish and EU dairy exports are positive for 2011.  Milk prices have increased by up to 30% and output increased by 7%  Global supply has been limited by drought in New Zealand and demand continues to rise.  Prices are expected to stay at their current levels or perhaps increase slightly.  However, volatility has increased in recent years and input costs are also expected to increase in 2011.

There has been a drop in domestic cattle supplies for beef following a large increase in live exports in 2010.  A buoyant live export trade continues to be an important source of demand for Irish cattle output.  Most of the growth in live exports in 2010 was in calf exports, which increased by 35 percent in 2010 on the 2009 levels.  Low
returns from cattle production have led to some contraction in suckler cow
numbers in the UK and Ireland and this contraction is expected to continue.  While supply will decrease throughout the EU due to lower cattle numbers and a continuing ban on most Brazilian beef prices are only expected to increase slightly and increases in input costs will offset this.
 
The decline in the value of the euro relative to the pound sterling in 2010 contributed to the much improved prices Irish sheep farmers received in 2010.   Aggregate EU demand for lamb has been largely stable in recent years with minor declines in EU per capita consumption being offset by increases in population.  Lower supply in the EU should lead to stable or increased prices for Irish sheep farmers.  New Zealand is also experiencing declining production and is therefore not expected to be able to increase supply to the EU.  The weakness of the Euro against sterling will also help Irish exports to the UK.  

Pig production was particularly difficult towards the end of 2010 due mainly to the high cost of feed.  This input cost is expected to continue rising in 2011.  Output prices are expected to only rise slowly.  The dioxin incident in Germany may also cause a reduction in both supply and demand in the EU. However it is expected that the sector will recover later in 2011 as prices start to reflect the increased production costs.

The Irish poultry market remained relatively stable during 2010. In the current economic climate consumers regard poultry as a value-for-money food although the issue of rising feed costs is posing challenges for producers and will inform production decisions as 2011 progresses. While export volumes declined, they increased in value and are estimated to have reached €200 million for 2010. Weakness in the UK market was offset by stronger demand in Europe and International markets. However, the indigenous industry is under competitive pressure from imports.

2010 was a very good year for tillage farming in Ireland.  Third quarter figures in 2010 suggested an 88% increase in cereal output.  World prices for cereals are expected to increase in the first part of 2011, following lower production in 2010 and weather-related problems in some regions.  Estimates for world production of wheat and barley for 2010/11 relative to 2009/10 are for a 5% and 15% decrease in production respectively. Carry out stocks compared to carry in stocks in 2010/11 are estimated to be down 10 percent for wheat and 25 percent for barley.  However, input costs, including fertilizer and energy costs, are also expected to increase. This will reduce producer margins.  Given recent volatility it is very difficult to estimate prices for 2011.  Futures markets in January 2011 are predicting a continuation of the current high prices for the first 6-9 months of 2011 and small price decrease towards the end of 2011 as new production comes to the market.