The EU beef industry is experiencing one of its most challenging times in history. Cattle prices have surged to record levels driven by strong export demand since late 2010 and tight supply resulting from pulling cattle forward and declining beef imports. While high prices usually result in herd retention followed by supply recovery, the opposite is currently occurring in the EU. The 3.3 percent decline in cow calf numbers was responsible for the 1 percent decline of the total EU cow herd in May to June 2012 compared with the same period in 2011. Besides the high feed costs, which limit producers’ incentive for herd rebuilding, uncertainty about future incomes resulting from the new Common Agricultural Policy 2014-2020 (CAP) and the dairy quota abolition, due May 2015, are also playing a major role.
The combined impact of the new CAP and quota abolition is likely to have limited effect on the total volume of beef produced. However, it will result in the growth of dairy-based beef at the expense of prime beef; production of which will move from north-western Europe to southern and eastern Europe, and a price premium for prime beef. This will add further pressure to EU prime beef processors, and sourcing sufficient cattle with the right quality at competitive prices will be the distinguishing factor for survival in the coming decade. Further rationalisation of the EU beef industry, with increased investments in other countries to safeguard prime beef supply, will therefore be inevitable.
The current and projected strong price outlook should support EU beef farmers to rebuild their herds. However, the relatively small decline of cow slaughter numbers in the EU in 1H 2012 (-1.7 percent) and the drop in the EU cow herd by about 1.0 percent in May to June 2012, show the opposite development. This decline in EU beef production is set to continue. The latest CAP 2014-2020 proposals—put forward by the European Commission during autumn 2011 negotiations—confirm the continuation of many of the current market support measures for the foreseeable future, including trade restrictions and import tariffs.
The proposal that every member state can use a percentage of the designated budget (the current proposal suggests 5 percent) to support industries important for both their agricultural sector might limit the impact of CAP 2014-2020. However, how countries decide to use this budget and the possible impact on EU beef production will not be clear before the implementation of the final agreement in each country.
The fast rising cattle prices since the end of 2010 and the declining availability of cattle ready for slaughter since the end of 2011 have challenged the EU beef industry. Despite the supply recovery now being experienced, strong competition for scarce cattle ready for slaughter will remain until at least 2014. Beef slaughter companies in the EU should be analysing their slaughter locations and cattle quality to assess where the company should be in 2020 and to develop an action plan to reach this goal. The focus should be on building long- term relationships with suppliers, even up to the farm level.