OECD Agricultural Outlook 2010-2019:Highlights
Agriculture has experienced a number of severe shocks in recent years with record high oil prices, commodity price spikes, food security fears and resultant trade restrictions, not to mention the most serious global economic recession since the 1930s. The greatest impact has been on the poor, especially in developing countries, with the world’s hungry now estimated at over 1 billion people. Agriculture has shown remarkable resilience, particularly in the OECD area, with strong supply response to high prices and with continuing, albeit dampened, demand growth during the crisis. In 2010, a degree of normalcy has returned to many markets with production closer to historical levels and demand recovering. Still, many governments remain concerned about the potential for a repetition of significant shocks to such key factors as energy prices, exchange rates, and/or the macroeconomic performance of key countries and regions, and about the consequences that such shocks have on market volatility.
The macroeconomic environment underlying the commodity projections is more positive than in the 2009 Outlook. It reflects the start of global economic recovery in late 2009 and a slow transition towards higher sustainable and non inflationary growth beyond the near term. A two-speed recovery appears to be underway characterised by weak and hesitant growth with high unemployment in many OECD countries and by stronger growth and faster recovery in the large developing countries which is slowly spreading to the rest of the developing world and helping to fuel world income growth. High energy prices have returned and are assumed to remain a feature of the period covered by this Outlook. A further increase in oil prices could be expected to increase input and production costs, having an impact on crop supplies, prices and trade flows, and reinforce feedstock demand for biofuels.
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 (adjusted for inflation). Average wheat and coarse grain prices are projected to be nearly 15-40% higher in real terms relative to 1997-2006, while for vegetable oils real prices are expected to be more than 40% higher. World sugar prices to 2019 will also be above the average of the previous decade but well below the 29-year highs experienced at the end of 2009.
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. Continued expansion of biofuel production to meet mandated use will create additional demand for wheat, coarse grains, vegetable oils and sugar used as feedstocks.
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 livestockand 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.