Slower demand keeping world food prices low

Abundant stocks of most commodities to limit price increases.

July 10, 2017

5 Min Read
Slower demand keeping world food prices low

Global food commodity prices are projected to remain low over the next decade compared to previous peaks as demand growth in a number of emerging economies is expected to slow down, and biofuel policies should have a diminished impact on markets, according to the latest 10-year agricultural outlook published today by the Organization for Economic Cooperation & Development (OECD) and the U.N. Food & Agriculture Organization (FAO).

The OECD-FAO "Agricultural Outlook 2017-2026" says the completed replenishment of cereal stocks by 230 million metric tons over the past decade, combined with abundant stocks of most other commodities, should also help limit growth in world prices, which are now almost back to their levels before the 2007-08 food price crisis.

The report foresees per capita demand for food staples remaining flat, except in least-developed countries. Additional calories and protein consumption over the outlook period are expected to come mainly from vegetable oil, sugar and dairy products. Growth in demand for meat is projected to slow, with no new sources of demand projected to maintain the momentum previously generated by China. In fact, the report says large low-income groups will keep growth in per capita global meat demand at 1% over the next 10 years, compared to a 6% increase over the previous decade.

By 2026, average calorie availability is projected to reach 2,450 kcal per person per day in least-developed countries and to exceed 3,000 kcal in other developing countries. Food insecurity and malnutrition in all its forms will, nonetheless, remain a persistent global problem that requires a coordinated international approach, according to the OECD-FAO report.

Future growth in crop production is projected to be attained principally through higher yields: 90% of the increase in maize production is expected to come from increased yields and just 10% from area expansion. Yield gains are also projected to account for 85% of an increase in wheat production. By contrast, only a 14% expansion in soybean area is projected, mainly in South America, accounting for about 60% of the global production increase.

Biofuel production is projected to grow 17% over the next 10 years, compared to a 90% increase over the previous decade.

Growth in meat and dairy production, by contrast, is expected to come from both larger herds and higher output per animal. Milk production growth will accelerate compared to the previous decade, most notably in India and Pakistan. India is projected to be the most populous country by 2026. With high and still rising per capita consumption levels for milk, the report projects the country to account for 42% of the increase in global milk production over the coming decade.

Aquaculture is expected to dominate growth in the fish sector, and farmed fish production will be the fastest-growing protein source among all commodities analyzed in the OECD-FAO outlook.

Growth in agriculture and the fish trade is projected to slow to about half the previous decade's growth rate and to average less than 2% per year in volume terms for most commodities. Nevertheless, agricultural trade is expected to remain more resilient to economic downturns than trade in other sectors, the report said. For nearly all commodities, exports are projected to remain concentrated in a few supplying countries, which may imply a greater susceptibility of world markets to supply shock, the report added.

"Real prices of most agricultural and fish commodities are expected to decline slightly over the 10-year outlook period," OECD secretary-general Angel Gurría said at the launch event in Paris, France. "As we have seen in the past, unexpected events can easily take markets away from these central trends, so it is essential that governments continue joint efforts to provide stability to world food markets.”

Gurría continued, “It is equally important that we look ahead as we seek to meet the fundamental challenge facing world food and agriculture: to ensure access to safe, healthy and nutritious food for a growing world population while at the same time using natural resources more sustainably and making an effective contribution to mitigating climate change."

FAO director-general José Graziano da Silva pointed out that the report foresees the average calorie availability per person per day increases in least-developed countries and in most emerging economies, “but we also know that more food alone is not enough to eliminate undernourishment and other forms of malnutrition. Access to the additional calories is extremely important. More challenging is the fight against malnutrition: Fighting malnutrition requires a diversified, safe and nutritious diet, ideally produced with a lower environmental footprint."

Focus on Southeast Asia

Every year, the OECD-FAO outlook contains a special feature, and this year, it covers Southeast Asia.

Economic growth has been strong, and the agriculture and fish sectors have developed rapidly in the region. The report found that this broad-based growth has enabled the region to significantly reduce undernourishment in recent years. However, the growth of agriculture and fisheries, in particular in the export-oriented fish and palm oil sectors, has led to rising pressure on natural resources.

A greater focus on sustainable development in Southeast Asia will slow the growth of palm oil production, according to the outlook. Across the agriculture sector, yields will continue to increase, but cropland is projected to expand by only 10% over the next 10 years, compared to 70% over the previous decade.

Improved resource management and increased research and development will be needed to achieve sustainable productivity growth across the agriculture sector, the report explained. Support for rice production could also be reoriented to facilitate the diversification of agriculture. Given the region's sensitivity to climate change, investments to facilitate adaption will be required, the report added.

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