Ag industry shows resilience in economic downturn

by Bryan Salvage
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ROME — The agriculture sector is showing more resilience to the global economic crisis than other industries because food is a basic necessity, according to the Food and Agriculture Organization of the United Nations (F.A.O.). But if the economic downturn deepens, the risks could increase, states a new study by the Organization for Economic Cooperation and Development (O.E.C.D.) and F.A.O.

Decreases in agricultural prices and in the production and consumption of farm goods will likely be moderate as long as the economic recovery begins within two to three years, according to the O.E.C.D.-F.A.O. Agricultural Outlook 2009-2018. As the downturn lowers food prices, pressure is eased on recession-hit consumers who have less money to spend, it adds.

Since their record peaks in early 2008, food prices have decreased — but they remain high in many poor countries. During the coming decade, prices for all farm commodities except for beef and pork — even when adjusted for inflation — are unlikely to return to their average levels before the 2007-08 peaks.

Average crop prices are projected to be 10%-20% higher in real terms (adjusted for inflation) for the next 10 years compared with the average for the period 1997-2006. Prices for vegetable oils are expected to be more than 30% higher.

Key drivers underpinning agricultural commodity prices and markets over the medium term include an expected economic recovery, renewed food demand growth from developing countries and the emerging biofuel markets.

Episodes of extreme price volatility similar to the hike in 2008, however, cannot be ruled out in the future, particularly as commodity prices have become increasingly linked to oil and energy costs and environmental experts warn of more erratic weather conditions, according to the study.

Agricultural production, consumption and trade are expected to increase in developing countries, but food insecurity and hunger remains a growing problem for the world's poor. The study argues the longer-term problem is access to food rather than food availability, with poverty reduction and economic growth being a big part of the solution.

Agriculture growth is necessary for sustainable development and poverty reduction since 75% of the poor in developing countries live in rural areas, the study states.

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