2. Livestock products

Introduction

The global livestock economy over the past decade has been characterized by the fastest consumption and trade growth of all major agricultural commodities. Growing numbers of quality-conscious urban consumers in developing countries have spurred global demand for meat and dairy products, which has increasingly shifted from bulk meat and dairy product trade to more specific value-added products such as specialized meat cuts. Much of this demand has been met by increased output in developing countries themselves where relatively low feed prices, technology transfers, and increasing vertical integration and concentration have combined to keep prices relatively low for consumers.

Among the major factors that have influenced the global livestock sector over the 1990s, the following were of particular relevance. Many of these factors are expected to continue to shape and influence markets over the next decade:

· Structural changes in the livestock industries, including improved genetics, animal housing and enhanced management: In part these changes are a result of growing cross-border technology and investment flows into meat and dairy industries around the globe, particularly in strong growth markets or low-cost production regions. This trend is likely to continue in the future, leading to changing cost structures in industries in developing countries.

· Changes in policy environment: Implementation of WTO provisions for both meat and dairy products have led to a reduction in the use of export subsidies and expanding access to various markets. These developments have stimulated trade flows and led to increasing participation of developing countries as exporters in international markets. In addition, the decline or disappearance of state-trading organizations dealing with dairy products in important importing countries, such as Algeria, Mexico and countries in the CIS region, has increased transparency in international markets. Continued progress toward freer trade on international markets is projected over the current decade, assuming the continuation of existing or announced national agricultural policies affecting these sectors.

· Increased instability in global meat markets as a result of animal disease outbreaks and escalating human health concerns related to BSE and antibiotics in feed. Worldwide import bans on meat from infected geographical areas and heightened border inspections and testing have had distorting effects on the patterns of livestock and meat trade, inducing trade diversion and shifting relative prices among meats. Human and animal health and product quality issues are expected to become more complex over the current decade.

Meat

Production

By 2010, global output of meat is projected to grow to 283 million tonnes, up 60 million tonnes, or 27 percent, over the 1998 - 2000 base period, with nearly three-quarters of these gains concentrated in developing countries. Although an average annual growth of 2.2 percent in the global meat sector will be possible given technical innovations and restructuring in the poultry and pigmeat sectors, it is slower than the 3 percent average annual gains observed during the 1992 - 2000 period. In developing countries, meat output is projected to grow 3 percent annually, compared to only 1.2 percent for developed countries. These trends continue the shift in world animal production from developed to developing countries, which has characterized the past 20 years of livestock development, reflecting the changing patterns in demand. By 2010, nearly 80 percent of ruminant animals will be reared in developing countries, while the share of poultry and pigmeat will be slightly less, at 70 percent. Correspondingly, the developing country share of global animal production is projected to increase to 59 percent, up from 54 percent in the base period and 46 percent in 1992.

As during the past decade, the poultry sector will be the most dynamic, growing at an annual rate of 3 percent and generating over 40 percent of the 60 million tonne increase in global meat production. Pigmeat and beef will account for approximately 38 and 17 percent of the remaining output gain, respectively. Developing countries are expected to contribute three-quarters of the 24 million tonne increase in poultry meat output over the projection period and account for 56 of total production by the end of the projection period. Meanwhile, similar trends of increasing concentration and integration of the pigmeat industry with the feed and processing industries in many developing countries, such as China and Brazil, are supporting a 2 percent gain in output to 112 million metric tonnes. Production by developed countries is expected to reach 34 million tonnes by 2010, only 3 million tonnes above the base year level. Capturing three-quarters of the growth in pigmeat production over the projection period, output in developing countries is likely, to reach 70 million tonnes, based on increasing productivity and an expansion in animal slaughtered. This would constitute 63 percent of global output, up from 58 percent in the base period.

Growth in beef and sheepmeat, constrained by the small size of farms and slow growth in technical innovations and restructuring, is projected to increase less than 2 percent over the next decade but at a slighter faster rate than in the previous decade. Developing countries are expected to supply 80 percent of these gains, with the expansion in production projected to rely both on an expansion in slaughtering and on rising average carcass weights stemming from genetic progress and improved management practices. Developing countries would account for the expected 8 out of the 10 million tonne increase in world beef production and the major share of the 3 million tonnes increase in world sheepmeat production. These increases would come particularly from Asia, the largest producing region.

Consumption

Relatively strong economic growth over the projection period is expected to prompt a 2.2 percent annual rise in world meat consumption. In developing countries, increases in per capita disposable income and the influences of changing dietary habits and food consumption patterns could facilitate meat consumption growth. However, despite projected per capita annual GDP gains of 3.1 percent, aggregate meat consumption in these countries is projected to grow at an annual rate of 2.9 percent, less than half of the rate over the 1990s.^[13] Meat consumption gains for develop-ing countries over the projection period will be more than double that in developed countries where already high per capita levels are expected to limit annual gains to 1.2 percent. As a result, developing countries would account for a larger share of global meat consumption, increasing from 47 percent in 1992 to 55 percent in 1999, and an estimated 60 percent in 2010.

In line with historical trends, the share of poultry in total meat consumption would continue to expand at the expense of other meats. Low prices of poultry relative to other meats, widespread consumer perception of poultry as a safer meat, and its acceptability by most cultures and religions are expected to push its share in global meat consumption from 25 percent in 1992 to 32 percent by 2010. Per capita poultry consumption is projected to rise from 11 kg/caput in the base period to 13 kilograms in 2010. Although per capita consumption of pigmeat, projected at 16.3 kg/caput by 2010, would continue to exceed that of poultry, overall consumption growth of 2.1 percent is expected to trail that of poultry. Beef consumption, growing marginally faster than population growth, is set to increase only slightly to 10 kg, while global per capita consumption of sheep and goat meat is projected to rise from 1.8 kg to 2 kg with the increase concentrated in Asian countries. In Africa, per capita consumption of sheep and goat meat, which accounts for more than one-fifth of total meat consumption, is expected to slip marginally to 2.2 kg. However, expectations of higher per capita income in this region will likely increase global consumption of meat to 11.1 kg per capita.

Trade

The dynamic growth in global meat trade, stimulated in the 1990s by increased market access provisions, growing meat demand in developing countries and increasing specialization of production/processing operations, is expected to slow from a 7.3 percent annual rate to an average 2.7 percent over the projection period. Nearly half of the meat trade gains witnessed in the 1990s can be attributed to increased imports, mainly of poultry meat, by the Russian Federation and China. This trend is unlikely to be replicated over the projection period.^[14]

Projected to reach 21 million tonnes in 2010, meat trade is set to rise 5 million tonnes over the base period, more than half of which will be destined for developing countries. Robust meat output gains in developing countries, as well as countries in transition, such as many CIS countries, however, are expected to limit meat imports as a share of global consumption to 7 percent, unchanged from the previous decade.

Growth in the poultry meat trade, while outpacing that of other meats, is expected to slow to 3 percent, which represents a significant decline from the 16 percent gains witnessed over the 1990s when both China and the Russian Federation emerged as major poultry meat markets. While this growth falls short of that witnessed in the 1990s, the favourable relative price and cultural preferences for poultry, combined with increasing specialization of preferred cuts, could push poultry trade up 40 percent to 9.5 million tonnes. In the 1990s, surging poultry meat shipments accounted for more than 70 percent of the gains in global meat trade; however, poultry could account for only half of growth in total meat trade over the projection period. By contrast, gains in pork and beef trade are projected to account for a 20 and 26 percent of the growth in overall trade, respectively.

Corresponding to historical trends, more than 60 percent of the increase in meat import demand over the projection period is expected to stem from developing countries, with Asia as the recipient of nearly half the growth in trade. Strong demand growth in Asia and Central America, Mexico in particular, is projected to push meat imports of developing countries to 10 million tonnes. As a result, the share of global imports of developing countries would rise by 5 percentage points to 46 percentage points. On the export side, in contrast to the previous decade when developed countries, benefiting from favourable natural resource endowments, combined with sophisticated processing and marketing structures, supplied nearly two-thirds of the growth in trade, half of the export gains over the projection period will originate from increasing supplies from developing countries, such as Brazil, Thailand and China. Increasing intensification of poultry and pork production, combined with extensive beef production in land-abundant Latin America, is expected to push up developing country exports to 33 percent of global totals, up from 27 percent in the base period.

World market prices

Given the developments foreseen in the feed markets, assumed economic growth and increases in productivity in the livestock sector, real meat prices are projected to remain below the level of the early 1990s. However, sheepmeat is an exception, with the slight price increase reflecting constraints on the supply side.

Milk and milk products

Production

Milk production is expected to shift from high-cost to low-cost countries, and output growth will increasingly be located in regions with rising demand for milk and milk products; this continues a trend evidenced in the 1990s. As a result, the proportion of world milk production originating in the developing countries is projected to increase. While some developing countries are projected to become more active in export markets, the developing countries as a whole would remain substantial net importers of dairy products.

World production of milk is forecast to rise to 665 million tonnes by 2010, representing an average annual increase of 1.5 percent, compared to an annual average growth rate of 1.0 percent during the 1990s. Milk production is projected to grow in each of the major country groupings (developed, transitional and developing); however, the largest increment is expected in the developing countries. In these countries, output of milk is projected to rise by 71 million tonnes to reach 293 million tonnes. As a consequence, the share of developing countries in world milk production is expected to rise to 44 percent (against 39 percent in the base period and 32 percent at the start of the 1990s). Conversely, while production in the developed countries and that in transition economies is projected to rise, the relative share of world milk production is expected to decrease in both groups.

At the global level, the increase in milk production is anticipated to stem from both an increase in the number of milking animals and higher yields, with most growth coming from higher yield per animal as a result of improved nutrition and breeding. Confirming a trend established in the 1990s, production is projected to rise primarily in the same areas as consumption and in a limited number of low-cost producing countries that are able to export dairy products without the use of subsidies. In particular, in Asia, strong demand is likely to stimulate milk production. In absolute terms, milk output is projected to experience the greatest expansion in India, growing by 27 million tonnes: despite this strong rise, this would imply a slowing of the rate of production growth compared to the 1990s. Other countries in the region will also register substantial increases in milk output, in particular Pakistan and China. Production growth is also projected for the Latin America and Caribbean (LAC) region, where output is expected to rise by 19 million tonnes, a 33 percent increase over the base period, although implying a slower rate of annual growth than in the 1990s. The main driving force behind higher national output in this region will be expansion in domestic demand, most notably in Brazil; however, for some low-cost producing countries in the southern cone, the increase is likely to be export-led. In Africa, milk production is projected to grow at a slower rate than in other developing regions, reflecting difficult economic conditions and, in some countries, climates that are ill-suited to dairying.

In the developed countries, milk production is expected to rise by 20 million tonnes to reach 267 million tonnes in 2010; average rates of annual growth in milk production would be similar to those in the 1990s. In Oceania, output is projected to increase by 11 million tonnes, or 53 percent, over the projection period in response to demand from abroad. Thus, strong growth in this region experienced during the 1990s will be sustained. In the United States, output will probably increase in line with domestic demand to reach 82 million tonnes by 2010, as in the 1990s. Elsewhere, Canada and Western Europe are assumed to continue imposing production restrictions, and consequently, output of milk would change little over the projection period, representing a continuation of the trend evidenced in the 1990s. In Japan, milk output is not expected to increase, potentially opening the way to some increase in their imports of dairy products. Milk production for transition economies is projected to be 9 million tonnes higher in 2010 than in 1999, mainly as a result of an anticipated increase in output in the CIS. This would be in contrast to the 1990s when production among this group of countries fell sharply following economic reforms and agricultural policy changes.

Consumption

Strongest growth in demand for milk and milk products is anticipated to come from the developing countries, where it is projected to grow at the rate of 2.5 percent per year, broadly comparable with the growth rate during the 1990s. For the countries in transition, little growth (0.9 percent per year) over the 1999 benchmark is projected; however, this would be a substantial improvement over the 1990s, when consumption dropped at an average annual rate of 3.3 percent. In the developed countries, consumption of milk and milk products is also expected to show only limited growth (0.5 percent per year - a similar level to that experienced during the 1990s).

Among the developing countries, as in the 1990s, consumption of milk and milk products is expected to grow most strongly in Asia, which is projected to account for almost 52 percent of growth in world demand. Significant growth in demand, 18 million tonnes, or 18 percent of the projected rise in the world total, is also expected in the Latin America and Caribbean region. Within this region, Brazil and Mexico are anticipated to see the largest increases in consumption. Africa is expected to register the smallest increase in demand among the developing country regions, as was the case in the 1990s. In many African countries, this will represent a growth rate lower than that of population.

For most developed countries, indications are that the current levels of consumption of milk and milk products are near saturation. Consequently, any growth in consumption is expected to be marginal and mainly associated with changes in the type and form of dairy products consumed and limited population growth - a trend already evident in the previous decade. As a result, while continuing to represent an important share of world consumption in 2010, this group of countries is anticipated to account for only 13 percent of the growth in world demand for milk. The economies in transition are expected to constitute 10 percent of the estimated increase in world demand over the projected period. This would contrast with a fall in total milk consumption experienced during the 1990s.

Trade

At the global level, import demand for dairy products could reach 51 million tonnes in 2010, an increase of 12 million tonnes over the base period, a similar proportional increase to that seen in the 1990s. This would imply that the proportion of total milk traded (excluding EU-intra trade) would remain small - 8 percent of world production.

Approximately 85 percent of the increase in import demand is projected to come from the developing countries, confirming a trend evident during the 1990s. While exports of dairy products from the developing countries are also expected to increase, the projections of consumption and production suggest that as a whole they will face a growing trade deficit in dairy products. While highest growth in import demand is projected for Southeast Asia, imports are anticipated to increase in all developing country regions. However, very few developing countries will be net exporters of dairy products in 2010, namely Argentina, Chile, Uruguay and India.

The developed countries should continue to account for the bulk of exports of dairy products in 2010 - three-quarters of trade, only a slightly smaller proportion than at the start of the 1990s, when they accounted for 80 percent of world exports. However, a shift in the relative importance of different regions is foreseen: The proportion of world exports supplied by New Zealand and Australia are projected to increase substantially, while those originating in Europe will decrease. There should be little change in the exports supplied by North America. Imports by the developed countries are also expected to remain relatively stable.

For countries in transition, limited growth in milk output and some increase in domestic demand are expected to inhibit export growth, and improvements in domestic processing capacity should act to curtail import demand.

World market prices

International prices for dairy products, measured by an index grouping the single commodities traded, are not expected to increase in real terms over the current decade. However, it is anticipated that even at these price levels, there would be enough income growth in importing countries to stimulate production for export in low-cost milk producing countries.

Issues and uncertainties

Growth in livestock industries around the globe is expected to continue to exceed that of many agricultural commodities. The strongest production and consumption gains are projected in developing countries, while trading patterns would favour low-cost exporters particularly developing countries, reflecting expectations of enhanced on-farm productivity gains and increased specialization in product processing.

Much of the expansion in global livestock industries is expected to come from poultry and pigmeat with the process of vertical integration in these industries. Such integration can facilitate a more efficient conversion of feed into meat and contribute to an increase in the competitiveness of these industries compared to that of beef and sheepmeat production. Meat output of ruminants is expected to trail that of the other sectors, limited by smaller farms and limited technical innovations. Milk production will grow at a faster rate than in the 1990s, mainly as a result of continued expansion in developing countries and a recovery in output in the countries in transition.

The results of this projection are subject to a number of uncertainties specific to the livestock sector:

· Any changes in the disease status of countries over the projection period would disrupt markets and change the outlook for international livestock markets. In this connection, particular attention will need to be paid by governments to their livestock development strategies, the enhancement of disease surveillance and control measures, as well as biosecurity of livestock operations.

· The progressive reduction of trade barriers since the inception of the Uruguay Round Agreement on Agriculture (URAA) has increasingly heightened the attention focused on trade restrictions due to human and animal health concerns. Escalating food safety concerns related to meat hygiene and safe use of veterinary drugs could lead to divergence from levels projected for the countries included in the model.

· The environmental concerns related to growing intensiveness of livestock production may lead to changes in regulations targeting animal feeding operations and waste management issues in major producing countries. This could shift the comparative advantage of individual countries in the feed/livestock sector in general.

· The adoption of reforms in the CAP will have an impact primarily on the beef sector in European, and potentially, new Member Countries. The decoupling of direct aid will lead to a reduction of beef production with individual countries’ competitive position determined by their adoption of either total or partial decoupling. Due to less supply pressure on the markets, producer prices will likely decline as would beef market surpluses.

· Limited increases in milk quotas, combined with a reduction in support prices will likely lead to lower domestic prices in the EU and higher consumption of milk and milk products. Internal EU prices, however, are anticipated to remain above world market levels at the end of the reform period.

· Meanwhile, EU accession with ten new Members in Eastern Europe is expected to lead to a redirection of trade according to the relative competitiveness of the individual Member States. The EC Commission indicates that the poultry and pigmeat sectors will be influenced by (i) growing competitiveness in poultry operations in Eastern Europe due to foreign direct investments into production and processing; and (ii) increasing imports of pigmeat by the same countries driven by uncompetitive feed prices and relatively poor pigmeat quality compared to old Member countries.

· In the dairy sector, new Member Countries have been allocated milk quotas based on recent average annual levels of production. While in the short-term no substantial shifts in production are projected, differing quality standards and marketing expertise will initially lead to a net flow of dairy products from longer-standing Members to new Members.

Table 2.17. Total meat: projections to 2010

^1/ 1998-2000 Average