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FARM PRICES: MARGINS IMPROVE AS FARM-GATE PRICES RECOVER

Summary:

Registering a slight lift of 0.4% on the fourth quarter in 1996 in real terms, the downward trend in output prices seen during 1997 was halted in the last quarter of the year, according to Eurostat's quarterly farm price calculations for October to December 1997. This figure was actually an increase of 2.2% in nominal terms. However, the good news was not enjoyed by all Member States - changes in the real output price index ranged from -14.9% in the United Kingdom, largely due to the strength of the Pound Sterling, to +9.5% in the Netherlands. The cost of buying in the raw materials of farm products continued its long-term drop, easing the pressure on farmers' margins.

Slight rise in real farm-gate prices.

In the fourth quarter of 1997, real producer prices for crop products in the EU as a whole rose moderately, (+1.2%) reversing the declines seen over the preceding four quarters. Price increases were observed for grape must or wine (+2.0%), flowers etc. (+5.4%), root crops (+9.2%) and fresh vegetables (+14.6%). In contrast, price falls were observed for seeds (-2.5%), cereals and rice (-.5%) and olives and olive oil (-28.9%).

Real producer prices for animals and animal products dipped slightly (-0.4%). Price drops were observed for milk (-1.8%), pigs (-2.8%), poultry (-5.6%), eggs (-7.5%) and sheep and lambs (-7.5%). For calves and cattle, for which steep price falls were observed in 1996 and early 1997, marked price rises were seen in the fourth quarter of 1997 (calves, +17.8%; cattle excluding calves, +5.9%). Notable price increases were also observed for "other animals" (+6.6%) and "other animal products" (+9.2%).

Real-term farm input prices still falling.

The average monthly purchase prices of raw materials continued to rise in nominal terms (+0.3%) for the EU in the fourth quarter of 1997, compared to the previous year. This nominal price rise was less than the inflation rate, and so the real price index declined (-1.5%), thus continuing the long-term trend in agricultural input prices.

The index of prices of goods and services for current consumption in agriculture fell in real terms (-1.8%). Declines were seen for the most important inputs: animal feed (-2.1%), energy (-4.5%) and fertilizers (-5.4%). In contrast, there was a marked price increase for animals for rearing and production (+15.0%).

The real price index for the purchase prices of goods and services contributing to agricultural investment declined slightly (-0.4%). A small price drop for machinery (0.9%) was partially offset by a smaller price increase for buildings (+0.3%).

Across Member States there were notable declines in the real input price index for Ireland (-2.6%), Luxembourg (-2.7%), Portugal (-2.9%), Greece (-3.0%) and Germany (3.0%). A comparable price increase was observed for Austria (+2.1%). Changes in the other eight Member States ranged from -1.3% in Italy to +0.6% in Spain.

Terms of trade.

The real agricultural terms of trade, calculated by dividing the real output price index by the real input price index, increased moderately (+1.9%) in the fourth quarter of 1997 for EU15. The slight increase in output prices combined with a moderate decline in input prices combined to reverse the downward trend in the terms of trade seen throughout 1996 and early 1997. The trend in the terms of trade mainly reflects trends in the output price index.
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Publication:European Report
Date:Jul 11, 1998
Words:587
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