ROME – Higher food prices and volatility in commodity markets are here to stay, warns a new report by the Organization for Economic Co-operation and Development (OECD) and the Foreign and Agriculture Organization of the United Nations (FAO). However, a good harvest in the coming months should push commodity prices down from the extreme levels seen earlier this year, according to the OECD-FAO Agricultural Outlook 2011-2020.

Cereal prices could average as much as 20 percent higher and meat prices as much as 30 percent higher compared to 2001-10 over the coming decade. These projections are well below the peak price levels experienced in 2007-08 and again in 2011.

Higher commodities prices are being passed through the food chain, leading to rising consumer price inflation in most countries. This raises concerns for economic stability and food security in some developing countries, with poor consumers most at risk of malnutrition, the study states.

"While higher prices are generally good news for farmers, the impact on the poor in developing countries who spend a high proportion of their income on food can be devastating," said Angel Gurría, OECD Secretary-General. "We are calling on governments to improve information and transparency of both physical and financial markets, encourage investments that increase productivity in developing countries, remove production and trade-distorting policies and assist the vulnerable to better manage risk and uncertainty."

"In the current market context, price volatility could remain a feature of agricultural markets, and coherent policies are required to both reduce volatility and limit its negative impacts", FAO Director-General Jacques Diouf said. He noted that "the key solution to the problem will be boosting investment in agriculture and reinforcing rural development in developing countries, where 98 percent of the hungry people live today and where population is expected to increase by 47 percent over the next decades."

Action should focus on smallholders in low-income food-deficit countries, he added.

The Outlook reinforces the core messages for mitigating and managing price volatility in a recent inter-agency study to the G20, Price Volatility in Food and Agriculture Markets: Policy Responses, coordinated by FAO and OECD on behalf of 10 international organizations. The study suggests G20 countries take steps to boost agricultural productivity in developing countries, reduce or eliminate trade-disorting policies and establish a new mechanism to improve information and transparency on agricultural production, consumption, stocks and trade.

The Outlook predicts global agricultural production will grow more slowly over the next decade than in the past 10 years. Farm output is expected to rise by 1.7 percent annually, compared to the 2.6 percent growth rate of the past decade. Despite this slower growth, production per capita is still projected to increase 0.7 percent annually.

Per-capita food consumption will expand most rapidly in Eastern Europe, Asia and Latin America, where incomes are rising and population growth is slowing. Meat, dairy products, vegetable oils and sugar should experience the highest demand increases, the study relays.