The password, in the background, will remain “uncertainty”. The recent seems to say so Outlook from the EU Commission published in recent days, from which some signs of improvement emerge on the cost side of production factors for agricultural companies (such as energy costs), with the unknown however of uncertain scenarios on a geopolitical level (the war in Ukraine, the crisis in the Middle East), which also partially affect international trade routes.
L’inflation should yield, continuing a cost containment trajectory, even if i prices consumption – in particular for some product categories, such as fruit, vegetables and olive oil – continue to increase, while others remain stable at high levels compared to the trend (for example meat, bread and cereals).
High prices, combined with reduced prospects for economic growth, and therefore household income, will continue to have a negative impact on trends Of consumption of the EU in 2024, leading to potential shifts between food product categories (e.g. oil and fats) or within them (e.g. types of meat or types of dairy products).
Focus on the economic outlook
According to the EU Commission’s Spring Outlook, the expectations of economic growth real in 2024 have been revised downwards, precisely as a result of the decline in household purchasing power, lower external demand, monetary tightening and a partial withdrawal of fiscal support in 2023.
2023 ended with economic stagnation caused by sluggish domestic demand and, according to the latest forecasts from the European Central Bank, the limited growth in real GDP of the euro area recorded in 2023 (+0.5%) would also continue for the current year (+0.6%). Growth is expected to resume in the second half of 2024, driven by rising private consumption and a recovery in economic growth.
The EU Commission’s Spring Outlook forecasts a slowdown in inflation in the eurozone, going from 5.4% in 2023 to 2.3% in 2024.
The economic outlook remains subject to uncertainty, particularly due to geopolitical tensions arising from ongoing Russian aggression in Ukraine and rising tensions in the Middle East, which could impact trade developments and put pressure on prices.
On the front energeticdespite the growing geopolitical tensions in the Middle East and the production cuts announced by the OPEC+ countries, the impact on prices is expected to be not significant and that prices will reach around 85 dollars per barrel, with the supply of oil still sufficient to satisfy weaker global demand in both 2024 and 2025. On the natural gas side, however, the current projections Of S&P Global expect a significant downward revision of prices compared to the short-term Outlook prepared in autumn 2023.
Following Houthi attacks on maritime vessels in the Red Sea, the maritime traffic in the area has decreased significantly (Red Sea transit in the first week of April was 73% lower than in the first half of December 2023 and container ship shipments decreased by 92%); Maritime operators rerouted flows around West Africa via the Cape of Good Hope, which grew 67% more than in the first half of December.
Special observed food price index
The farmers continue to face numerous challenges linked to the costs of production factors, even if many of them continue their downward trend. Input prices are expected to decline by 1.9% in the last quarter, but still remain well above the pre-covid-19 level (32% overall and up to 65% for fertilizers).
The production of fertilizers in the EU continues to recover from the energy shock. Imports of nitrogen fertilizers slowed in 2023, but remained at historically high levels, while imports of phosphorus and potassium fell 40-50% between 2020 and 2023.
With reference to thefood price index of the EU, although it has stabilized since March 2023, on average it has increased by around 43% compared to 2015. And there are still significant price movements when considering individual food products.
L’example the more obvious the category “oils and fats”, which recorded a 76% increase in February 2024 compared to 2015, recently driven by the increase in the price of olive oil (103% higher than 2015). Household food consumption fell from 12.8% in 2021 to 12.2% in 2022 of total consumption.
From the end of 2022, the sharp decline in the prices of cereals supported the downward trend of the EU agricultural price index, which was further pushed down by lower prices in the raw milk. However, the still high prices of animal products (meat and raw milk) support to a certain extent a certain stability of the general agricultural price index. At the same time, the prices of fresh products and of sugar remain high. Therefore, the EU agricultural price index remains relatively stable (between 143-145 points compared to the 2015 index) since last August.
The drop in prices of cereals and the consequent improvement in accessibility of feed could put some downward pressure on the prices of animal products. On the other hand, these could be supported by both internal and external demand. Undeniably, however, prices can vary depending on the outcome of the harvests and the consequences of climatic factors.
The role played by weather conditions
According to the latest Mars bulletin of Jrcthe weather conditions from March 1st to April 13th 2024 are less favorable for winter crops, while overall they are to be considered more positive for spring sowing conditions.
Winter crops were affected by excessively wet conditions during the winter, which affected yield potential in the northwestern EU. In several parts of Northern Europe, France and Spain, rainfall was significantly above average, while Central and Eastern Europe experienced a significant rainfall deficit.
What will the production trends be?
As for the main production trendsit is expected that for 2024-2025 the cereal production of the EU will increase further. In parallel, the European production of oilseeds and protein crops could increase in 2024-2025, while imports of flours and oilseed oils could continue to decline.
The production of sugar of the EU in 2023-2024 will increase to the five-year average, leading to a strong reduction in net sugar imports.
The European production of apples in 2023-2024 it is estimated at the lowest level in the last three years mainly due to two factors: the reduction of surface areas and unfavorable weather conditions in the main producing countries, which have had a negative impact on consumption.
Adverse weather conditions also affected the production of oranges both in quantity and quality, with significantly reduced exports and a negative impact on consumption.
Despite a certain recovery in the production of olive oil in the EU in 2023-2024, both domestic and European export demand continues to suffer from high prices.
It is expected that the production of wine in the EU will decline due to adverse weather conditions, while consumption continues its downward trend and trade contracts.
Despite the continued decline in the number of animals, the supply of milk in the EU it will increase slightly in 2024, while the combination of stabilization of milk prices above historical levels and easing inflation could improve margins for farmers.
The increase in production of poultry in the EU it almost completely covers the decline in other sectors of the meatwhile the overall trade balance continues to worsen.
