Higher average farm prices expected globally

by Bryan Salvage
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ROME – Recent price spikes and the economic crisis have contributed to a rise in hunger and food insecurity, even though the world produces enough to feed its population, states the United Nations’ Food and Agriculture Organization (F.A.O.). According to the annual joint study from the O.E.C.D. and the F.A.O., farm commodity prices have fallen from their record peaks of two years ago but are unlikely to drop back to their average levels of the past decade.

The O.E.C.D.-F.A.O. Agricultural Outlook 2010-19 predicts average wheat and coarse grain prices over the next 10 years being between 15%-40% higher (adjusted for inflation) than their average levels during the 1997-2006 period. Real prices for vegetable oils are expected to be more than 40% higher. Dairy prices are projected to be on average between 16%-45% higher.

Increases in livestock prices over the next 10 years are expected to be less marked on the whole, although world demand for meat is climbing faster than for other farm commodities as increasing wealth among some sections of the population in emerging economies alters dietary habits.

One important factor underpinning growing demand and higher prices is sustained economic growth in emerging markets. Continued expansion of biofuel output — often to meet government targets — will also create additional demand for wheat, coarse grains, vegetable oils and sugar. Increasingly, higher production costs add upward pressure on prices, particularly where energy is used intensively

The Outlook predicts global agriculture output growing more slowly over the next decade than in the past 10 years, but will remain on track with previous estimates to meet the 70% increase in world food production required to meet the market demand of estimated population levels in 2050. Brazil is, by far, the fastest-growing agricultural producer, with output expected to rise by more than 40% between now and 2019. Production growth is also expected to be well above 20% in China, India, the Russian Federation and Ukraine.

About one-billion people are now estimated to be undernourished. The Outlook argues that agricultural production and productivity will need to be stepped up, while a well functioning, rules-based trading system will be crucial to fair competition and to ensure that food can move from surplus to deficit production areas.

Retail food prices initially remained high in many countries even after world commodity prices had fallen in the wake of the price surge of 2007-08. As commodity prices fell, the contribution of food-price increases to inflation fell sharply in 2009 in O.E.C.D. countries but remained a key factor in some developing and emerging economies. Higher food costs, if sustained, will undermine food security, especially for the poor who spend a significant share of their budgets on food.

A key concern of policy-makers is price volatility as the recent shocks — production shortfalls and surpluses, low and high stock levels, oil price fluctuations, the global economic recession — have unsettled agricultural commodity markets. However, the Outlook says that while short-term price volatility is now high, the evidence is inconclusive as to whether it has changed over the long run for major food crops.
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