Paris, France and Rome, Italy
May 29, 2008
Agricultural commodity prices
should ease from their recent record peaks but over the next 10
years they are expected to average well above their mean levels
of the past decade, according to the latest Agricultural Outlook
from OECD and the UN Food and
Agriculture Organization (FAO).
Current high food prices will hit the poor and hungry people
hardest, particularly urban net food buyers and rural non-food
producers in low income countries. Humanitarian aid must be
urgently mobilized to face this dramatic situation, but to find
sustainable solutions and avoid similar cases in the future, the
emphasis in these countries must be on boosting agricultural
production and productivity as well as growth and broader
economic development.
“The way to address rising food prices is not through
protectionism but to open up agricultural markets and to free up
the productive capacity of farmers, who have proven repeatedly
that they will respond to market incentives,” said OECD
Secretary-General Angel Gurría at the Outlook’s launch in Paris.
“Governments can also do more to foster growth and development
in poor countries, so as to improve the purchasing power of the
most vulnerable food buyers.”
Food prices and their impact on the world economy will be one of
the issues that will be addressed at the OECD Ministerial
Council Meeting in Paris on 4-5 June 2008. At a separate summit
at FAO headquarters in Rome, on 3-5 June, world leaders,
including many Heads of State and Government from around the
world, will discuss policies and strategies on how to improve
and ensure world food security and re-launch agriculture in
rural communities of developing countries.
“Coherent action is urgently needed by the international
community to deal with the impact of higher prices on the hungry
and poor,” Jacques Diouf, Director-General of the FAO said at a
press confence launching the Outlook in Paris. “Today some 862
million people are suffering from hunger and malnourishment –
this highlights the need to re-invest in agriculture. It should
be clear now that agriculture needs to be put back onto the
development agenda.”
In comparing averages of the coming decade with those of the
past, real prices, i.e. nominal prices corrected for inflation,
are projected to increase in a range from less than 10 percent
for rice and sugar, under 20 percent for wheat, around 30
percent for butter, coarse grains and oilseeds to over 50
percent for vegetable oils, according to the report.
More volatile
Prices may also become more volatile because stock levels are
expected to remain low and as some of the demand for
agricultural commodities becomes less responsive to price
changes. The recent increase in investment funds on commodity
futures markets might also become an additional factor in price
variability. Climate change, too, would affect crop production
and supply in unforeseen ways.
The report says that drought in some of the world’s main
grain-producing regions in the context of low stocks was a large
– but transitory – factor in the sharp price rises of the past
two years. More permanent factors such as high oil prices,
changing diets, urbanisation, economic growth and expanding
populations, are also at play and are behind the expectation of
higher average prices in the coming ten years relative to the
past decade.
Growing demand for biofuel is another factor contributing to
higher prices. World fuel ethanol production tripled between
2000 and 2007 and is expected to double again between now and
2017 to reach 127 billion litres a year. Biodiesel production is
seen to expand from 11 billion litres a year in 2007 to around
24 billion litres by 2017. The growth in biofuel production adds
to demand for grains, oilseeds and sugar, so contributing to
higher crop prices.
In OECD countries, at least, the growth of biofuel production
has thus far been driven largely by policy measures, and the
report says that it is not clear that the energy security,
environmental and economic objectives of biofuel policies will
be achieved with current production technologies. The report
suggests further review of existing biofuel policies.
Among other findings of the report are the following:
- Both consumption and
production is growing faster in developing countries for all
agricultural commodities except wheat. By 2017, these
countries are expected to dominate trade in most farm
products.
- High prices will be
beneficial for many commercial farmers both in developed and
developing countries. However, many farmers in developing
countries are not linked to markets and are unlikely to
benefit from the projected higher prices.
- Cereal markets are
expected to remain tight as stocks are unlikely to return to
the high levels of the past decade.
- Consumption of vegetable
oils, both from oil seed crops and from palm, will grow
faster than for other crops over the next 10 years. The rise
is being driven both by demand for food and for biofuels.
- Brazil’s share of world
meat exports is expected to grow to 30 percent by 2017.
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