The OECD and UN Food and Agriculture Organisation have released the latest agricultural outlook covering the period to 2019.
The outlook examines the prospects for agricultural markets in key commodity sectors across the world, using established models developed by the OECD and FAO. The report provides an assessment of likely changes in consumption, demand, production and prices in both developed and developing countries as well as prospects for trade. In addition, this year's report provides an analysis of price volatility and measures that might reduce its impacts on producers and consumers.
The highlights of the report can be downloaded here or you can read the full version here.
General assessment
With the world economy recovering from the global downturn, the report presents a positive outlook for markets and prices over the coming decade, tempered to some extent by the likelihood of higher oil and input prices. Prices for almost all key commodities are expected to be significantly higher than over the decade prior to the 2007/8 price spike. The report assumes that production growth will not be as rapid as in the last decade, however it will remain on track to meet the growing demand for food resulting from population and economic growth.
Production growth is expected to centre on developing countries with output in Brazil expected to grow by 40% compared to 2007/9, Russia + Ukraine by 26% and 29% respectively and China and India by 26% and 21%. In contrast, EU production is expected to grow by a mere 4% over the period.
There are of course a number of uncertainties in this analysis which does not take into account the effects of climate change, the availability of water (a key issue for India and China) or necessary infrastructure developments (Russia) that may be required to meet these projections.
It should be noted that prospects for prices are based on a 2007-9 reference period with the Outlook frequently making comparisons to the decade prior to the 2007/8 spike. In addition, price movements relate to world market prices. EU prices are, to some extent, insulated from these moves since internal market supports and tariffs ensure that for many agricultural products, EU prices are higher than those on world markets.
Grains
To quote the report, world grain markets are marked by a return to normality at the start of the outlook after 2 turbulent seasons with bumber crops and a slowdown in demand. Wheat prices are expected to remain stronger than during the previous decade, though witness a fall in real terms with HRW US wheat forecast up 3% in 2019 over the 2007/9 average. Volatility will remain a feature of this market as a result of various production and market linkages. There is a much stronger upside potential for maize, in part driven by ethanol production.
Oilseeds/ biofuels
Sustained veg oil demand in developing countries comined with biodiesel consumption and use of protein meal in livestock feed are expected to see significant rises in prices and production of oilseeds - as much as over 40% higher prices in real terms over the previous decade (to 2007)
The share of veg oil consumption in biofuel is expected to reach 15% (currently 9%) in 2009 owing to blending mandates. The prognosis for other biofuels is equally positive although some slow down in expansion is predicted as the effect of various national mandates wears off after 2016. World biodiesel prices are expected to rise up to 2015 then plateau at around $144/hl.
Dairy products
Prices are likely to be driven by stronger demand and production costs, especially in oil importing countries and China with dairy one of the fastest growing sectors in the Outlook. Nominal dairy prices are expected to rise by 2-3% per annum over the period with prices expected to stay 15-40% higher than the 1997-2007 period. Butter prices are likely to see the highest gains owing to the linkage to vegetable fats.
Livestock products
All products are expected to grow quickly at the start of the period with nominal prices for beef and pork 21% and 17% higher by 2019 relative to the 2007/9 base period. Poultry prices are expected to be 32% higher on average. Expansion of beef output in later years will constrain prices whilst pigmeat prices are likely to be impacted by a signficant increase in production in Brazil and China in particular.
World meat consumption will see amongst the highest rates of growth as a consequence of economic growth.
Sugar
Despite higher production, steady demand growth underpins sugar prices. Production growth in the early part of the forecast period may lead to sharply lower prices initially but as production adjusts and demand continues to rise, they should recover to around $439/ tonne for white sugar by 2019.
Volatility
This year's outlook devotes additional analysis to the price spike of 2007/8 and assesses whether volatility is greater now than previously. The report concludes that the evidence is inconclusive as to whether volatility has changed in the long-run but agrees that volatility is a risk to both producers and consumers. A number of policy recommendations are made based around encouragement of better risk management by producers, greater price and market transparency, use of futures markets and hedging instruments and moving away from distortive market price supports. The report argues in favour of greater multilateral market liberalisation to allow goods to move easily to deficit areas and indicates that trade rules should include discipline against export constraints imposed by governments.
No comments have been made.