Paris, France and Rome, Italy
July 4, 2007
Increased demand for bio-fuels is
causing fundamental changes to agricultural markets that could
drive up world prices for many farm products, according to a new
report published by the
OECD and
FAO.
The
OECD-FAO Agricultural Outlook 2007-2016 says temporary
factors such as droughts in wheat-growing regions and low stocks
explain in large measure the recent hikes in farm commodity
prices.
But when the focus turns to the longer term, structural changes
are underway which could well maintain relatively high nominal
prices for many agricultural products over the coming decade.
Reduced crop surpluses and a decline in export subsidies are
also contributing to these long-term changes in markets. But
more important is the growing use of cereals, sugar, oilseed and
vegetable oils to produce fossil fuel substitutes, ethanol and
bio-diesel. This is underpinning crop prices and, indirectly
through higher animal feed costs, also the prices for livestock
products.
In the United States, annual maize-based ethanol output is
expected to double between 2006 and 2016.
In the European Union the amount of oilseeds (mainly rapeseed)
used for bio-fuels is set to grow from just over 10 million
tonnes to 21 million tonnes over the same period.
In Brazil, annual ethanol production is projected to reach some
44 billion litres by 2016 from around 21 billion today. Chinese
ethanol output is expected to rise to an annual 3.8 billion
litres, a 2 billion litres increase from current levels.
The report points out that higher commodity prices are a
particular concern for net food importing countries as well as
the urban poor. And while higher feedstock prices caused by
increased bio-fuel production benefits feedstock producers, it
means extra costs and lower incomes for farmers who need the
feedstock to provide animal feed.
Trade patterns
The Outlook also says trade patterns are changing. Production
and consumption of agricultural products in general will grow
faster in the developing countries than in the developed
economies - especially for beef, pork, butter, skimmed milk
powder and sugar. OECD countries are expected to lose export
shares for nearly all the main farm commodities. Nevertheless,
they continue to dominate exports for wheat, coarse grains and
dairy products.
World agricultural trade, measured by global imports, is
expected to grow for all the main commodities covered in the
Outlook, but likely by less than for non-agricultural trade, as
import protection is assumed to continue to limit the growth in
trade. Nevertheless, trade in beef, pork and whole milk powder
is expected to grow by more than 50 percent over the next 10
years, coarse grains trade by 13 percent and wheat by 17
percent. Trade in vegetable oils is projected to increase by
nearly 70 percent.
OECD-FAO Agricultural Outlook 2007-2016:
http://www.oecd.org/dataoecd/6/10/38893266.pdf
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