We continue to favour the grain and livestock industries in the UK because of good export opportunities and a strong domestic market. The country became a net importer of wheat in 2012/13 and 2013/14, but we do not expect this to be the case again in 2014/15. Indeed, we believe this will be temporary and continue to expect the UK's wheat production balance to improve in the coming years. The pig industry could be boosted by a recent trade deal to export to China, and the domestic market is appearing resilient. We see limited growth for the sugar and dairy industries, and note that the recent signature of the EU-Canada free trade agreement will favour the local poultry industry.
- Wheat production growth to 2017/18: 24.0% to 16.5mn tonnes. We expect the UK wheat industry to face challenges in the near term owing to increased competition for exports from the Black Sea region, decreasing direct payments to farmers as a result of Common Agricultural Policy (CAP) reform, and poor economies of scale on the back of a shift of the EU ethanol policy towards non-food biofuels.
- Poultry consumption growth to 2018: 4.3% to 1.9mn tonnes. Poultry meat is often viewed as a cheaper and healthier alternative to beef, for which consumption per capita is largely saturated.
- Milk production growth to 2017/18: 7.7% to 14.9mn tonnes. We expect production to recover moderately; however, we note that EU CAP reforms could make UK farmers less competitive.
- Real GDP growth: 2.1% year-on-year (y-o-y) in 2014 (from 1.9% y-o-y in 2013).
- Consumer price inflation: 2.0% y-o-y in 2014 (up from 2.6% y-o-y in 2013).
- BMI universe agribusiness market value: 1.4% y-o-y decline, to US$23.9bn in 2013/14, forecast to grow on average 6.2% annually between 2012/13 and 2017/18.
We maintain our forecast for UK wheat production to rebound strongly in 2014/15. The impact of recent flooding in the main producing regions will be minimal, as plantings for winter crops were finished early this season and moisture levels are likely to be sufficient but not too excessive to support yields. After decreasing by 10.0% y-o-y in 2013/14, we forecast wheat production to increase by 29.0% in 2014/15 to reach 15.5mn tonnes. Output in the UK has been particularly volatile over recent seasons, and volumes were far below potential in 2012/13 and 2013/14. We expect 2014/15 output to recover to the levels seen in 2009-2012 and forecast continued growth in the coming years. That said, output is expected to remain below 2008/09's highs.
We have turned more positive regarding poultry production in the EU-28 in 2013 and 2014, as the sector has benefited from strong regional and export demand growth. Poultry is less affected by periods of economic weakness, as it is cheaper and more convenient to cook. EU-28 production in 2013 is estimated to have increased thanks to higher broiler meat production in all major EU producing countries, including the UK, Benelux, Spain, Poland, Germany, Italy and France. In France, poultry production decreased in France in 2012 on the back of the demise of Doux, the largest French broiler producer. However, French output was expected to rebound in 2013 as competitors replace the company's lost market share.
We have revised up our long-term growth outlook for milk production in the UK, as we believe sharp moderations in feed prices, improved margins owing to the consolidation in the industry, and the abolition of milk production quotas in the EU will aid dairy industry growth prospects. This is reinforced by the fact that the UK dairy industry is relatively competitive by global standards, as it produces high-quality products for relatively low prices. As a result, we now forecast milk production to increase by 7.7% on the 2013 level to reach 14.9mn tonnes in 2017/18, compared with a previous forecast of 3.8% growth to 14.1mn tonnes.