Category: Eastern African

EU Cereals Production Rises but Global Situation Remains Tight with Rising Cereals Prices

epamonitoring

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

Disaggregating EU Short Term EU27 Sugar Sector Trends

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Summary
In the short term the EC is projecting an increase in EU sugar production and imports following the Covid-19 import on production and imports. When industrial usage and increased EU exports of sugar containing products are factored out the EU has a surplus of production relative to human consumption of sugar of 15.7%. More recent reports, however, suggest actual imports in 2020/21 are down, with declines in ACP exports being particularly pronounced. This is attributed to the ‘smaller EU sugar price premium.’ With this price development projected to become the norm up to 2030, the commercial prospects for ACP sugar exports to the EU27 look far form favourable. This is likely to be compounded by public health policy measures to reduce the consumption of ‘hidden sugars’ in food and drink products. ACP sugar exports will increasingly need to target sugar deficit EU27 markets, where the price premium is much higher than the EU average. Read more “Disaggregating EU Short Term EU27 Sugar Sector Trends”

UK Government Seeking Fundamental Renegotiation of the Northern Ireland Protocol

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Summary
Following a lack of progress in EU/UK discussion on the implementation of the Northern Ireland Protocol, the UK government has tabled a position paper proposing what amounts to a fundamental re-writing of the mutually agreed Protocol. This would bring into question the continued participation of Northern Ireland in the EU customs union and single market as agreed in the Protocol. The EU continues to insist solution must be found within the framework of the agreed Protocol. Prime Minister Johnson’s willingness to suspend the Protocol, so the UK can act unilaterally subject to joint decision making under the Protocol, if acted upon, could result in a serious deterioration in EU/UK trade relations as early as October 2021. This could then be the final nail in the coffin of ACP triangular supply chains. Even if such action is temporarily averted in October, the UK proposals leave unaddressed issues related to the future regulatory regime applicable to ACP products onward traded from GB to Northern Ireland. This in turn will make it more difficult to set in place solutions to the issues disrupting the functioning of wider ACP triangular supply chains (both ACP-to-UK-to EU and ACP-to-EU-to-UK) Read more “UK Government Seeking Fundamental Renegotiation of the Northern Ireland Protocol”

Kenya Looking to Market Diversifications in Face of Growing Complications on EU Markets and Covid-19 Related Increases in Air Freight Costs

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Summary
The Kenyan authorities are once again looking to promote a diversification of exports towards non-EU markets, in the face of stricter EU SPS import controls and ongoing impact of Covid-19 related freight disruptions, which have increased the costs of serving EU market. These increased costs are likely to remain for some time, leaving little scope for investments in developing high value alternative non-EU markets for horticultural exports. If such investments are not made any shift to non-traditional markets is likely to reverse once Covid-19 disruptions are overcome. With UK and EU phytosanitary requirements beginning to diverge, new opportunities could open up in a traditional non-EU market, the UK. The ability of Kenyan exporters to exploit these opportunities will be critically determined by the evolution of freight rates to the UK.  Read more “Kenya Looking to Market Diversifications in Face of Growing Complications on EU Markets and Covid-19 Related Increases in Air Freight Costs”

Growth Continues in EU27 Imports in Organic Products Where ACP Producers Have an Export Interest

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Summary
ACP organic exporters have sustained strong growth in volumes to the EU market in 2020 despite a slight reduction in overall EU organic imports. In some organic product areas (rice and sugar) opportunities appear to exist which ACP producers have yet to exploit. Given the growing EU policy focus on the environmental sustainability of patterns of agri-food imports to the EU, exploring expansion into organic production in these areas could prove worthwhile. However, three headwinds are faced in continuing the expansion of ACP organic exports to the EU: the scheduled reforms to the EU’s organic product regime; the new trade administration complications for ACP organic exports to the UK, resulting from the UK’s departure from EU electronic systems for the management of imports of organic products; and the likely divergence of EU and UK organic certification requirements. Close attention will need to be paid to this issue by ACP organic exporters if existing growth in the volume of ACP organic exports to the Europe are to be sustained. Read more “Growth Continues in EU27 Imports in Organic Products Where ACP Producers Have an Export Interest”

Lack of Clarity on the Whether Brexit Disruptions of EU/UK Trade in Plants in Impacting ACP Exports

epamonitoring

Summary
The early introduction of ‘complex and lengthy pre-notifications, certificates and inspections’ for living plants and cutting crossing from the EU to the UK is impacting on the EU/UK trade in such products. Currently it is unclear what knock-on effects this is having on ACP exports to the EU, given the large proportion of imports which originate in AC countries and the central role the Netherlands plays in the import and re-export trade. Given the impasse in EU/UK trade relations around the Northern Ireland Protocol, the early conclusion of a substantive EU/UK ^phytosanitary agreement is unlikely. The scope for shifting over to ACP direct exports to the UK meanwhile is complicated by the commercial consequences of the UK’s Covid-19 linked ‘red-list’ travel restrictions which are raising air freight costs from East Africa to the UK. Read more “Lack of Clarity on the Whether Brexit Disruptions of EU/UK Trade in Plants in Impacting ACP Exports”

Recent Trends in ACP Sugar Exports to the EU27 Show Continued Decline, with Brexit Exacerbating This Pre-Existing Trend

epamonitoring

Summary
While EU sugar production is well down on the five-year average, the position of traditional ACP sugar exporters on the EU27 market is worsening. The reduction of traditional ACP sugar supplies has been larger than the reduction in total EU27 imports, with the share of EU27 import declining.  This is linked to the emergence of new non-traditional suppliers who take advantage of recently granted duty-free access arrangements. Given the high dependence of traditional ACP sugar exporters on the UK market, the UK’s withdrawal from the EU sugar market equation will compound this trend. New EU/UK rules of origin are also likely to see EU manufacturers of high sugar content products turning their ack on imported sugar in favour of domestic EU27 beet production where both EU27 and UK markets are being served. At the ACP level this may in part be partially offset by reduced UK sugar exports to the EU market. Overall, the long-term prospects for all but the most competitively priced traditional ACP sugar suppliers look grim, unless the focus is on specialty sugar markets. This could lead to smaller but more sustainable levels of sugar exports, by those ACP sugar producers who adopt such strategic market repositioning strategies. Read more “Recent Trends in ACP Sugar Exports to the EU27 Show Continued Decline, with Brexit Exacerbating This Pre-Existing Trend”

Effects of Rules of Origin Complications for ACP Exports Shipped to UK Via EU Being Increasingly Felt

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Summary
For products shipped across an EU/UK border since January 2021, the end of the 6-month grace period for the submission of documentation required to validate self-certified originating status claims (on which duty-free access is based) has started. Failure to validate initial claims will potentially see UK MFN tariffs imposed. This poses problems for ACP products shipped to the UK via the EU, where invalid originating status claims were initially made. For these products extending the grace period for document submission will not help.  What is required is the introduction of simplified procedures for the verification of initial ‘originating status’ of ACP products re-exported (e.g., through HMRC recognising country specific phytosanitary certificates as valid documentary proof of origin for duty free access claims). Such reforms need to be urgently introduced if the commercial viability of a wide range of ACP triangular supply chains are not to be fundamentally undermined. Read more “Effects of Rules of Origin Complications for ACP Exports Shipped to UK Via EU Being Increasingly Felt”

EU Phytosanitary Regulations at the Forefront of Challenge Facing Kenyan Cut Flower Industry

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Summary
The Kenyan cut flower sector has identified three major challenges currently faced: EU plant health regulations, freight costs and domestic Kenyan taxation. Of these, EU plant health regulations is seen as the most serious challenge since this relates to the accessibility of the all-important EU market. While there is no alternative to meeting EU requirements for access to the EU market, there is now scope for divergence in UK plant health regulations from inherited EU requirements. This could offer market alternatives for ACP cut flower exporters unable to verifiably meet EU requirements. This would appear to add urgency to expanding direct exports to the UK market, particularly since this would side-step the increased costs faced along triangular supply chains. However, Covid-19 linked airfreight disruptions greatly complicate such routing adjustments, with these new trading realities needing to be built into post-Covid air freight recovery plans. Read more “EU Phytosanitary Regulations at the Forefront of Challenge Facing Kenyan Cut Flower Industry”

Brexit Begins to Seriously Impact of Re-Exports of ACP Products to Ireland via the UK

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Summary
The border controls arising from the basis of the UK’s departure from the EU customs union and single market is profoundly disrupting the re-export of ACP fresh products to Ireland. While larger ACP exporters are able to adjust their routes to Irish markets to side-step the new border complications, smaller ACP exporters are simply losing orders. There are simple policy solutions which could be adopted to address the rules of origin/MFN tariff and phytosanitary complications now faced. Adopting such solutions is not only important in its own right but would offer a model for addressing the far more extensive disruptions to re-exports of ACP products to the UK which are likely to arise as full UK full border controls on good crossing from the EU are rolled out in 2022.   Read more “Brexit Begins to Seriously Impact of Re-Exports of ACP Products to Ireland via the UK”