How World Economics Impact Domestic Agriculture: The European Union

Monday, July 07, 2014

 With countries in Asia and South American often dominating the talk in agriculture circles, countries that make up the European Union are sometimes overlooked. But, the world’s economists and financial market participants certainly haven’t forgot about the region. EU countries have made plenty of news in recent years as credit problems have caused concerns over financial stability.
   The EU and US are closely linked by agricultural ties. The EU provides major export competition in wheat markets and is a major importer of corn and soybeans. For that reason, the health of those EU economies will have important bearing on the U.S. grain trade in the years ahead.
   The European Union is made up of 28 members that include core countries like the U.K., France, and Germany, as well as peripheral countries like Italy, Spain, Greece, and Portugal. Legal jurisdiction is supported by treaties among the countries and trade relations are controlled by various economic associations and agreements.
   The economies are also under purview of the European Central Bank (ECB), which in part governs money stock and interest rates. The ECB has played an important role in the effort to accommodate financial institutions after the last global economic crisis. As it has for the U.S., easy money in Europe has inflated the amount of funds that circulate throughout the economies and there is evidence that money has trickled into commodity markets.
   While the EU boasts strong agriculture production and export capacity, the region continues to be a major importer of finished food products. Countries in the EU also rely on imported machinery. Total U.S. exports of agricultural products to the EU were $11.9 billion last year and will continue to grow if the countries achieve economic stability.
   The EU is an important customer for U.S. ag producers, but the region is also a formidable competitor. Economic recovery has been led by export initiatives and agriculture is playing a major role in the trade market. Whether customer or competitor, U.S. agriculture will rely on a strong EU economy because of the interrelations that exist among them in the global ag sector.
   AgriVisor’s next blog edition will examine the U.S. agriculture as it is affected by the economic health of its two neighbors, Canada and Mexico. The North American Free Trade Agreement allows the three countries to benefit from a strong partnership where commodity flows are a linchpin.