OECD-FAO Agricultural Outlook 2010-19

The OECD and FAO have published their latest joint Outlook report.

Key points as follows:

The macroeconomic environment underlying the commodity projections is more positive than in the 2009 Outlook.

Underpinning agricultural prices is increasingly a higher cost structure particularly in regions where energy inputs are used intensively. Global agricultural production is anticipated to grow more slowly in the next decade than in the past one, but in the absence of unexpected shocks, growth remains on track with estimated longer term requirements of a 70% increase in global food production by 2050. On a per capita basis, production growth in least developed countries is struggling to keep up with rapid population growth.

Global sectoral growth will be led by the regions of Latin America and Eastern Europe and, to a lesser extent, by certain countries in Asia. Average crop prices over the next ten years for the commodities covered in this Outlook are projected to be above the levels of the decade prior to the 2007/08 peaks, in both nominal and real terms

For livestock products, average meat prices in real terms, other than for pigmeat, are expected to surpass the 1997-2006 average over the coming decade initially due to lower supplies, higher feed costs and rising demand. Pigmeat real prices should stay relatively subdued due to an anticipated increase in supply from Brazil and China.

Economic recovery will strengthen consumption of meats relative to cereals, particularly in developing countries, with most growth favouring cheaper meat - poultry and pigmeat - relative to beef. Average dairy prices in real terms are expected to be 16-45% higher in 2010-19 relative to 1997-2006, with butter prices showing most gains, supported by higher energy and vegetable oil prices.

Biofuel markets depend heavily on government incentives and mandates, but prospects remain uncertain, due to unpredictable factors such as the future trend in crude oil prices, changes in policy interventions and developments in second-generation technologies

Developing countries will provide the main source of growth for world agricultural production, consumption and trade. Demand from developing countries is driven by rising per capita incomes and urbanisation, reinforced by population growth, which remains nearly twice that of the OECD area.

As incomes rise, diets are expected to slowly diversify away from staple foods towards increased meats and processed foods that will favour livestock and dairy products. Also, with increasing affluence and an expanding middle class, food consumption in these countries should become less responsive to price and income changes, as is currently the case in OECD countries. This implies that larger changes in price and incomes will be required for consumption to adjust to any unforeseen shocks

For virtually all commodities the projected growth in imports and exports of developing countries exceeds that of the OECD area. Only exports of processed protein meals increase faster in the OECD area by 2019. The higher share of developing countries in trade is reflected in expanding South-South trade in addition to North- South trade.

Since the price spike of 2006-08, short term price volatility has increased considerably. However, the evidence is inconclusive as to whether and how price volatility has changed over the long term for the major food crops examined.

The Outlook’s relatively stable price projections result from the assumption of “normal” conditions. Uncertainties around weather, macroeconomic factors, policy interventions, and especially energy prices suggest that  commodity prices will remain unpredictable.

Governments can underpin farmers’ risk management strategies by focusing on those unpredictable and unavoidable risks that may be rare, but have large consequences, and which farmers cannot manage themselves. Governments can also empower farmers to manage their own business risk.

National and local emergency stockholding of key food security commodities, for food emergencies, particularly for low-income food importing countries, may increase confidence in the access to food in times of crisis and help stabilise local markets.

Market price support for agricultural commodities is a policy option that has clearly shown in many countries and over several decades to be inefficient and its use has declined. Price support masks market signals to producers, destabilises world markets and acts as a regressive tax on the poor by raising prices to consumers. Price support also skews support towards large producers and, ncourages intensification with potentially adverse effects on the environment. Such measures should be assessed against other less distorting alternatives, such as targeted direct income supports, investments in productivity enhancements, etc.

You can download the highlights (88 pages), press release and various other things here. The BBC summary is also helpful.