OECD-FAO Expects Food Prices to Remain Relatively High

by: Research Recap

The OECD-FAO Agricultural Outlook 2010-19 sees average wheat and coarse grain prices over the next 10 years between 15-40 percent higher in real terms (adjusted for inflation) than their average levels during the 1997-2006 period.

Real prices for vegetable oils are expected to be more than 40 percent higher. Dairy prices are projected to be on average between 16-45 percent higher.Rises 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.

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.

OECD-FAO

Sustained economic growth in emerging markets is an important factor underpinning growing demand and higher prices. 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 sees global agriculture output growing more slowly over the next decade than in the past 10 years but nevertheless remains on track with previous estimates to meet the 70 percent 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 percent between now and 2019. Production growth is also expected to be well above 20 percent in China, India, the Russian Federation and Ukraine.

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 OECD 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.

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. The report adds that the extent to which world price fluctuations are transmitted to domestic markets varies markedly across countries. Price transmission depends on a country’s integration in world markets, its infrastructure and, often most importantly, its trade and agriculture policies.