A joint report by the OECD-FAO is ‘cautiously' optimistic that world commodity prices which marked ‘a period of high volatility in agricultural commodity prices' for five successive years would fall from their 2010-11 levels with markets gearing up to respond to these higher prices and the opportunities for increased profitability that they afford.
In their Agricultural Outlook 2011-20 released in Paris on Friday, the OECD and the Rome-based UN body FAO contend that harvests this year would be “critical but restoring market balance may take some time”. They also cautioned that unless stocks could be rebuilt, “risks of further upside price volatility remain high”.
The Outlook maintains the view expressed in recent editions that agricultural commodity prices in real terms are likely to remain on a higher plateau during the next 10 years compared to the previous decade. “Prolonged periods of high prices could make the achievement of global food security goals more difficult, putting poor consumers at a higher risk of malnutrition,” it warned.
Stating that there are signs that production costs are escalating and productivity growth is slowing, it said energy related costs too have risen markedly, as have feed costs.
Resource pressures, in particular, those related to water and land, are also increasing, it said. Land available for agriculture in many traditional supply pockets is increasingly constrained and production must expand into less developed areas and into marginal lands with lower fertility and higher risks of adverse weather conditions.
Giving highlights of production scenario, it said agricultural production is likely to increase in the short-term, assuming normal wealth, as a result of an expected supply response to current high prices.
Commodity prices should fall from the highs of early 2011 but in real terms are projected to average up to 29 per cent higher for cereals (maize) and up to 30 per cent for meats (poultry) over the 2011-20 period compared to the last decade.
Increases in commodity prices are now moving down the commodity chain into livestock commodities too, it said.
Global production
Global agricultural production is projected to grow at 1.7 per cent annually, on average, compared to 2.6 per cent in the previous decade.
Slower growth is expected for most crops, especially oilseeds and coarse grains, which face higher production costs and slowing productivity growth. Growth in livestock production stays close to recent trends.
It said the global slowdown in projected yield improvements of important crops would continue to exert pressure on global prices. Higher production growth is expected from emerging suppliers where existing technologies offer good potential for yield improvements.
The share of production from developing countries continues to increase over the outlook period. Per capita food consumption would expand most rapidly in Eastern Europe, Asia and Latin America where incomes are rising and population growth is slowing.
Vegetable oils, sugar, meat and dairy products should experience the higher increase in demand.
The use of farm output as feedstock for bio fuels would continue its robust growth, largely driven by bio fuel mandates and support policies.
By 2020, an estimated 13 per cent of global coarse grain production, 15 per cent of vegetable oil production and 30 per cent of sugarcane production would be used for bio fuel production as higher oil prices would spur yet further growth in use of bio fuel feedstocks.
At sufficiently high oil prices, bio fuel production in many countries becomes viable even in the absence of any policy support, it said.
Agricultural trade is likely to grow by 2 per cent per year, which is slower than over the previous decade, with only modest production increases by traditional exporter a higher domestic production by importers. The fastest growth would come primarily from emerging exporters in Eastern Europe, Central Asia and Latin American countries.