Usefulness of the article: On the occasion of the opening of the 2019 agricultural show (February 23), we invite you to take a look back at the gloomy results of agricultural production in 2018, as reported by the Ministry of Agriculture (Agreste). Bad weather had a negative impact on grain, fruit, and vegetable yields, as well as on animal production. This decline in production led to price increases that did not cover all of the losses.
Summary:
- 2018 was impacted by chaotic weather conditions;
- Almost all agricultural production declined;
- The economic consequences vary across different sectors;
- The repercussions, especially in dairy production, could be felt in 2019.
On December 18, Agreste (the statistics and forecasting service of the Ministry of Agriculture and Food) published an overview of agricultural production in 2018. The agricultural sector experienced particularly chaotic weather conditions, with high rainfall at the beginning of the year and severe drought from July to September. This drought was all the more severe as the lack of water was accompanied by above-average temperatures.
1. Climate
Rainfall was uneven throughout the year: heavy rainfall in January (40% higher than average) made thewinter of 2017-2018 one of the rainiest on record, as were March and May. Rainfall was below average in July, August, and particularly in September (one-third of normal precipitation). In addition, except for February, temperatures were consistently 2 to 3 degrees above seasonal norms.
As a result of this inclement weather, summer and fall growth in grasslands, whether grazed or harvested for hay, was delayed (-23% at the end of the year).
In addition, the growth of fruits and vegetables has been disrupted.
2. Cereals
Harvests have not been this low since 2007 (excluding 2016[1]). Production is down 8.8% year-on-year, from around 68 to 62 million tons. However, as the graph below shows, France accounted for almost 30% of European cereal production in 2017. Representing more than 50% of French cereal production, soft wheat yields fell by 5.4% between 2017 and 2018. Corn yields fell by 13%, even though this cereal accounts for more than 20% of cereal production[2]. However, production quality remained high, with wheat protein levels above average.
Graph 1: Changes in cereal production among the main producers
Note : données provenant du ministère américain de l’agriculture (USDA) et du ministère français de l’agriculture (Agreste)
However, global production is expected to decline by 2% according to the International Grains Council, falling from 2,186 to 2,142 million tons. According to Agreste and USDA data presented in the graph above, Russia is expected to produce 16 to 17% less, falling from around 120 to 100 million tons. In Europe, the 8.8% decline in French production is compounded by a 7.5% decline in Germany, stabilizing at around 30 to 35 million tons. According to Agreste, these declines would cause global grain stocks to fall by around 10%.
Given the previous results, prices are rising: the price per ton of soft wheat delivered to Rouen has increased by 26% in one year, barley delivered to Rouen has increased by around 40%, and corn delivered to Bordeaux has increased by 15%.
3. Animal production
While the production of veal and male cattle is declining, the slaughter of female cattle is increasing. The drought is encouraging farmers to sell off some of their animals to save on feed. However, this decapitalization will have long-term repercussions on dairy production on farms. Finally, driven by institutional catering rather than household demand, overall beef consumption is increasing.
Sheep production is declining in the face of reduced domestic demand. In this context, from January to July, the price of lamb was up to 16% higher than in 2018, but it returned to the 2013-2017 average from August onwards (below 2018 prices).
Pig production is buoyant (+1.3% in Europe) despite uncertainties over the consequences of African swine fever in Europe and China. Foreign trade is still in deficit, with an increase in imports from Spain, which accounts for half of our pork imports. However, exports to Italy, the leading buyer of French pork, are increasing further (+14% year-on-year). Finally, the upturn in French pork exports to China could be explained by the Chinese authorities’ introduction of tariffs on American pork. High production continues to drive down prices, which are lower than in 2017 (by 15-20%).
Poultry production is on the rise, particularly thanks to the chicken (+5% compared to the 2013-2017 average) and fattened duck (+25% year-on-year) sectors. However, the good health of the latter should be put into perspective, as part of the livestock in the south-west was culled in 2017 as a preventive measure following the H5N8[3] epidemic. The trade deficit is widening, even though exports to the EU are higher than during the 2013-2017 period. Prices are 5.2% below the average price between 2013 and 2017, but they are rising at the end of the year under pressure from production costs (increase in cereal prices).
The drought has limited the growth of grasslands and fodder, which is of lower quality. As a result, milk production growth was limited to 0.8% in the first nine months of 2018 (and will have an impact on production in early 2019, as the hay consumed at the beginning of 2019 is that harvested in 2018). As a result, the price of milk has increased by 1.4% compared to 2017 (to an average of €334.5 per 1,000 liters). However, production costs have risen by 12.5%, which means lower margins for producers. Organic milk production has increased significantly (+35% year-on-year), reaching 3.5% of total collection. There is strong global demand for dairy products, which is helping to keep prices stable.
4. Fruit & vegetables
The impact of bad weather (frost, storms, hail, heatwaves) and high summer temperatures varies from one crop to another. Thus, national sales are low but stable for apricots (where production is down 30% and prices are up 43%) and falling for cherries (29% drop in sales and 32% drop in production), while it increases for apples and pears (+4.4% and +3.3% respectively, with production down by -3.5% and -1.5% respectively).
Similarly, vegetables suffered greatly from bad weather and prices tended to rise (-4% in cucumber production but a 23% increase in turnover; -11% in lettuce production but a 10% increase in turnover; -15% in zucchini production and -20% in turnover; -20% in chicory production and -9% in turnover; -11% in melon production and stable turnover; -12% in tomato production and -19% in turnover; -8% in carrot production and a doubling of turnover; -9% in leek production and +27% in turnover; -12% in cauliflower production and -14% in turnover).
5. Inputs
For the second consecutive year, the cost of production inputs purchased by farmers rose by 2.9% year-on-year. This is due to higher energy and fertilizer costs. From a macroeconomic perspective, the rise in the price of poultry feed (cereals) is offset by the fall in the price of pig feed. The prices of seeds and plant protection products also rose slightly (by 0.2% and 0.7% respectively).
6. Foreign trade
Foreign trade in agri-food products is consistently in surplus, although the trend has been downward since 2010. In 2018, the surplus increased by €1.3 billion, a 37% increase compared to 2017, fueled by the increase in the trade balance for unprocessed products, although the balance for processed products also improved slightly. Trade with countries outside the European Union is driving exports (88% of the growth in the trade balance), with cereals contributing most to this increase (overproduction in 2017). Sugar and wine are also contributing to the improvement in the trade balance. Oilseeds and protein crops are reducing their deficits thanks to lower imports. Fruit and vegetables had a negative impact on foreign trade, as did the meat and dairy sectors.
Given the harvests in 2018 and the importance of cereals in improving the trade balance (decrease in imports and increase in exports between 2017 and 2018), it is likely that the mechanism will be reversed (in other words, more imports and fewer exports), which would have a negative impact on the trade balance in 2019.
Conclusion
Production in 2018 was significantly impacted by bad weather. Some products are benefiting from much higher prices, which are helping to cover the shortfall in income resulting from lower production. Conversely, several products are not benefiting from such a significant increase, which is weakening farms. The increase in input prices is also contributing to this weakening. Finally, the decapitalization of dairy herds could have a significant long-term impact on farms’ productive capacity.
[1] Production in 2016 was particularly low due to unfavorable weather conditions.
[2] For a breakdown of cereal production, see, for example, this note from FranceAgrimer or this infographic.
[3] H5N8 epidemic, a type of avian influenza that poses little risk to humans but is particularly dangerous for certain species of wild and domestic birds.
