With volatility continuing to characterise a number of agricultural commodities, the latest agricultural outlook from the OECD and UN Food and Agriculture Organisation considers market dynamics for the period to 2020. 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.
Pointing to low stocks and shortfalls in production as drivers of commodity price rises in the second half of 2010, the publication suggests that commodity prices will fall from their 2010/11 levels as markets respond to higher prices with increased production. However, it points to agricultural commodity prices in real terms remaining on a higher plateau during the next ten years. In real terms, prices are projected to average up to 20% higher for cereals such as maize and up to 30% higher for some meats over the 2011-20 period compared to the last decade.
On a positive note, stronger commodity prices are considered as a trigger for investment in agriculture globally. In a sector that has experienced declining prices in real terms, investment is essential to generate the improved productivity and output needed to meet rising demand for food.
Annual growth of global agricultural production is forecast to average1.7% in the coming decade, a slowdown on the average growth of 2.6% per year since 2000.Desipte this slowdown, annual growth per capita is still projected to rise 0.7%. These increases in supply will facilitate the growing demand for food stuffs, particularly in vegetable oils, sugar, meat and dairy products. Per capita food consumption will expand most rapidly in Eastern Europe, Asia and Latin America where incomes are rising and population growth is slowing.
Inevitably, market volatility is a key theme in the report. It confirms that supply-side fluctuations in major crop exporting countries have been a prime source of volatility in international markets and suggests that weather-related variations are expected to become even more critical to future price volatility. In the short term, it suggests that much will depend on the stock balances. Until stocks can be rebuilt, risks of further price volatility remain high according to the outlook.
More information on the report can be found
here.
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