Boston, MA -- (ReleaseWire) -- 04/14/2014 -- 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.
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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.
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