Summary
Globally cereals prices have reached multi-year highs, with this threatening to compound national and household food security challenges which have been heightened as a result of the Covid-19 pandemic. While EU soft wheat and maize production is projected to show strong growth in 2021/220 (+7.3% and +8.7% respectively), far exceeding EU consumption growth, the scope for direct EU interventions in support of food deficit ACP countries is limited by the absence of any EU held intervention stocks. EU ending stocks which are at high levels are all held in private hands. Current global cereal sector trends suggest a need for a stronger and more sustained policy focus on developing local and regional supply chains, wherever this is possible. This applied both to direct human consumption and the use of cereals as part of local livestock sector development programmes (e.g., for poultry meat). Such a policy development, however, will require the retention of policy space for the implementation of a supportive trade policy framework.
- Macro-Economic and Global Trends
According to the EC’s most recent short term agricultural outlook report for the summer of 2021, economic recovery is not only underway, but is ‘stronger than previously forecast.’ This being noted ‘private consumption and foreign demand for EU goods and services decreased in Q1 2021’, although a rebound effect on the demand side is expected from Q3 2021. According to the EC in the EU ‘the impact of the crisis on unemployment is expected to remain contained’ (1).
Despite this more favourable outlook for the EU, ‘uncertainties and economic risks will remain for as long as the health crisis lasts’ (1). It should be noted the duration of the both the direct and indirect impacts of the ongoing health crisis is likely to be far longer in ACP countries than in the EU due to both the uneven rolling out of vaccination campaigns at the global level and the limited resources in ACP countries to support national and household level coping strategies in response to the profound economic disruptions generated by the Covid-19 health crisis.
In terms of the cereals sector, the EC’s analysis highlights how globally ‘prices for the main arable crops have been subject to notable variations in spring, driven by a high demand from China and the US and weather-related uncertainties around global production levels’ (2). According to the EC analysis, at the global level, ‘despite a close-to-record production, the continuous increase of maize global consumption weighed on global stocks which dropped to an 8-year low.’ This is likely to see global ‘grain prices reach multi-year highs’ (1).
This needs to be seen in the context of the other global factors driving up food prices. According to IMF analysis, this needs to be seen against the background of a pre-pandemic trend towards high food prices, which was compounded by ‘early lockdown measures and supply chain disruptions’ which ‘induced a spike in consumer prices’, in part linked to stockpiling of food reserves. This situation has then been compounded by ‘soaring shipping and transport costs’, which ‘have increased around 2-3 times’ since June 2020 (3). Weather related uncertainties arising from dry weather (and subsequently serious floods in some areas) have come on top of these pre-existing trends. The net effect however is to drive up cereal import prices for food deficit developing countries such as many of those in the ACP.
In certain cereals categories where ACP countries have a strong production presence, such as sorghum, rising demand for inputs for animal feed has seen a massive year on year increase in demand globally (+11.4%). To date however, ACP countries have only a marginal presence in the export trade in sorghum to the EU.
- EU Cereal Market Developments
According to the EC short term agricultural outlook report ‘EU cereals production is expected to reach 288.7 million tonnes’ in 2021/2022, this is an increase of 3.8% in usable production compared to the 2020/21 season (and an increase of 3.4% over the five-year average). This is a result of an increase in production of both soft wheat (+7.3% or + 8,679,000 tonnes), durum wheat (+8.2% or + 594,000 tonnes) and maize (8.7% or + 5,652,000 tonnes) (4). There is thus a significant increase in EU soft wheat and maize availability.
Not surprisingly, both barley and rye production, were down reflecting the reduced demand resulting from the closure of the hospitality sector.
Breakdown of EU-27 cereals gross production (1 000 t)
| 2015/16 | 2016/17 | 2017/18 | 2018/19 | 2019/20 | 2020/21 | 2021/22(f) | % Change 20/21 to 21/22 | |
| Total | 289 626 | 277 371 | 284 960 | 271 272 | 297 015 | 280 531 | 291 209 | +3.8% |
| Soft wheat | 136,072 | 120,641 | 128,306 | 115,751 | 132,145 | 118,101 | 126,780 | +7.3% |
| Durum wheat | 8,389 | 9,675 | 8,810 | 8,767 | 7,472 | 7,223 | 7,817 | +8.2% |
| Rye | 7,739 | 7,349 | 7,309 | 6,174 | 8,156 | 9,067 | 8,413 | -7.2% |
| Barley | 54,536 | 53,324 | 51,642 | 49,931 | 55,496 | 55,155 | 53,959 | -2.7% |
| Oats | 6,783 | 7 321 | 7 322 | 6 887 | 6 941 | 8 368 | 7 827 | -6.5% |
| Maize | 59,261 | 62,963 | 65,049 | 69,309 | 70,410 | 65,258 | 70,910 | +8.7% |
| Triticale | 12,674 | 11,785 | 11,646 | 9,770 | 11,200 | 11,481 | 11,068 | -3.6% |
| Sorghum | 719 | 688 | 719 | 833 | 1,016 | 1,191 | 1,106 | -7.1% |
| Others | 3,453 | 3,625 | 4,158 | 3,851 | 3,880 | 4,686 | 3,311 | -29.3% |
Source: EC, ‘Annexes for EU27‘Short-term outlook for EU agricultural markets in 2021’, Summer 2021,
On the consumption side, EU cereals consumption in 2021/2022 ‘is expected to rebound year on year’ (+1.1%). This increase will be equally shared between increased demand for direct consumption and increased feed demand. This rise in feed demand is occurring despite the projected decline in EU poultry production. This will give rise to an overall increase in EU domestic consumption of only 2.6 million tonnes for the 2021/22 marketing year. This will take EU cereals consumption back to only 0.04% above 2017/18 levels, after two years of declines. This growth in EU consumption demand of 2.6 million tonnes compares to an increase in EU usable production of 10.7 million tonnes, a projected increase in EU exports of 2.9 million tonnes and a projected decline in EU cereals imports of 2.7% or some 600,000 tonnes.
The projected decline in EU cereals imports was to be expected given the increase in projected EU cereals production in 2021/22 (+3.8%), which followed on from the 5.6% decline in EU cereals production in 2020/21 season.
Significantly the EU is no longer holding intervention stocks, which it needs to dispose of. Indeed, the EU has not held any cereals stocks in intervention since 2011, with no serious volumes in intervention stocks since 2009 (when ending stocks in intervention reached 6 million tonnes) (6). All ending stocks of cereals in the EU are currently privately held (4).
EU-27 overall cereal balance (million tonnes)
| 2015/16 | 2016/17 | 2017/18 | 2018/19 | 2019/20 | 2020/21 | 2021/22(f) | % Change 20/21 to 21/22 | |
| EU Beginning stocks | 38.4 | 36.0 | 31.1 | 39.8 | 39.7 | 42.8 | 40.8 | -4.7% |
| EU Gross Production | 289.6 | 277.4 | 285.0 | 271.3 | 297.0 | 280.5 | 291.2 | +3.8% |
| EU Usable Production | 287.1 | 274.9 | 282.4 | 268.9 | 294.4 | 278.0 | 288.7 | +3.8% |
| EU Consumption | 259.3 | 258.8 | 261.0 | 261.1 | 260.3 | 258.6 | 261.2 | +1.0% |
| EU Exports | 51.4 | 39.4 | 35.7 | 35.9 | 55.1 | 41.6 | 44.5 | +7.0% |
| EU Imports | 23.4 | 20.5 | 25.0 | 30.2 | 25.8 | 21.9 | 21.3 | -2.7% |
| EU Ending Stocks° | 36.0 | 31.1 | 39.8 | 39.7 | 42.8 | 40.8 | 43.3 | +6.1% |
° all of which are privately held with EU intervention stocks at zero
Source: EC, ‘Annexes for EU27‘Short-term outlook for EU agricultural markets in 2021’, Summer 2021,
| Comment and Analysis Rising cereals prices and increased logistical costs alongside Covid-19 induced income reductions and the ongoing spread of the pandemic across ACP countries, could lead to a perfect storm of heightened food insecurity at national and household levels, which could persist for many years.Against this background, in the short term, with EU production growth substantially higher than consumption growth, there would appear to be an increase in the availability of EU cereals for use in Covid-19 related food aid relief programmes. However, with cereals stocks available in the EU being in private hands, rather than public intervention storage, there would appear to be limited scope for direct EU administrative interventions to provide food aid to food insecure countries. This suggests a need for ACP governments to focus, wherever possible, on longer-term solutions involving a sustained policy focus on the development of local and regional cereal and wider agri-food sector supply chains, particularly in sub-Saharan Africa. For example, while growing international demand for sorghum as an animal feed could potentially hold out market opportunities for ACP producers, these opportunities should not be allowed to divert attention away from the need to develop local animal feed supply chains, as part of national and regional poultry sector development strategies. Sorghum has an equivalent nutritional value to corn as an animal feed, and providing millers are available to produce the appropriate feed mixes can be used as a more environmentally friendly animal feed input in the poultry sector (5). These opportunities need to be fully exploited if longer term food security is to be enhanced and vulnerability to global supply chain disruption reduced. However, this is also likely to require the granting of greater policy space to ACP governments in deploying trade policy tools, aimed at fostering long term local supply chains. This is likely to require the European Commission to continue to be flexible in how it interprets and applies commitments ACP governments have entered into under economic partnership agreements. This needs to be seen in the context of the creation of the post of Chief Trade Enforcement Officer, whose primary function is to enforce compliance by third countries with the commitments they have entered into with the EU under trade agreements they have signed on to (see companion epamonitoring.net article ‘The Implications of the EUs More Assertive Trade Policy: The EU Trade Policy Review Part 2’, 15 April 2021 and ‘Appointment of Chief Trade Enforcement Officer Could Signal a Push More Rigorous Enforcement of EPA Commitments Made by ACP Governments’, 11 December 2020). |
Sources
(1) EC, ‘Short-term outlook for EU agricultural markets in 2021’, Summer 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/short-term-outlook-summer-2021_en.pdf
(2) thedairysite.com, ‘Positive projections for EU agriculture in latest short-term outlook’, 16 July 2021
https://www.thedairysite.com/news/57194/positive-projections-for-eu-agriculture-in-latest-shortterm-outlook/
(3) IMF, ‘Four facts about Soaring Consumer Food Prices’, 24 June 2021
https://blogs.imf.org/2021/06/24/four-facts-about-soaring-consumer-food-prices/
(4) EC, ‘Annexes for EU27‘Short-term outlook for EU agricultural markets in 2021’, Summer 2021,
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/short-term-outlook-statistical-annex_en.pdf
(5) sorghumcheckoff.com, ‘Sorghum in Poultry Production Feeding Guide’
https://www.sorghumcheckoff.com/assets/media/feedingguides/Poultryguideforweb.pdf
(6) EC, ‘Prospects for Agricultural Markets in the EU 2020-2030’, December 2020 – statistics
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-tables_en.pdf
(7) EC, ‘Short-term outlook for EU agricultural markets in 2021- Highlights’, Summer 2021
https://ec.europa.eu/info/sites/default/files/food-farming-fisheries/farming/documents/short-term-outlook-summer-2021-highlights_en.pdf