- Crop and livestock product prices to remain higher than average.
- Supplies expected to keep pace with demand.
- Developing countries poised to narrow ag productivity gap.
GLOBAL agricultural production is expected to grow 1.5% per year, on average, over the coming decade, compared with annual growth of 2.1% between 2003 and 2012 (Figure), according to a new report published June 6 by the Organization for Economic Cooperation & Development (OECD) and the U.N. Food & Agriculture Organization (FAO).
Limited expansion of agricultural land, rising production costs, growing resource constraints and increasing environmental pressures are the main factors behind the trend. Still, the report argues that farm commodity supplies should keep pace with global demand.
The "OECD-FAO Agricultural Outlook 2013-2022" report expects prices to remain above historical averages over the medium term for both crop and livestock products due to a combination of slower production growth and stronger demand, including for biofuels.
The report says agriculture has become an increasingly market-driven sector — as opposed to policy driven, as it was in the past — thus offering developing countries important investment opportunities and economic benefits, given their growing food demand, potential for production expansion and comparative advantages in many global markets.
However, production shortfalls, price volatility and trade disruption remain a threat to global food security.
The OECD/FAO outlook warns, "As long as food stocks in major producing and consuming countries remain low, the risk of price volatility is amplified. A widespread drought such as the one experienced in 2012, on top of low food stocks, could raise world prices by 15-40%."
Developing countries to gain
Driven by growing populations, higher incomes, urbanization and changing diets, the OECD/FAO report expects consumption of the main agricultural commodities to increase most rapidly in Eastern Europe and Central Asia, followed by Latin America and other Asian economies.
The share of global production from developing countries will continue to increase as investment in their agricultural sectors narrows the productivity gap with advanced economies.
Developing countries, for example, are expected to account for 80% of the growth in global meat production and capture much of the trade growth over the next 10 years, the report says. They also will account for the majority of world exports of coarse grains, rice, oilseeds, vegetable oil, sugar, beef, poultry and fish by 2022.
To capture a share of these economic benefits, governments will need to invest in their agriculture sectors to encourage innovation, increase productivity and improve integration in global value chains, FAO and OECD emphasized.
Agricultural policies, they added, need to address the inherent volatility of commodity markets with improved tools for risk management while ensuring the sustainable use of land and water resources and reducing food loss and waste.
Outlook for China
China, with one-fifth of the world's population, high income growth and a rapidly expanding agri-food sector, will have a major influence on world markets and was the special focus of the OECD/FAO report.
China is projected to remain self-sufficient in staple food crops, although output is anticipated to slow in the next decade due to land, water and rural labor constraints.
China's consumption growth is expected to outpace its production growth by some 0.3% per year, signaling a further but modest opening of China's agriculture sector, the report says.
China's oilseed imports are expected to rise 40% over the next 10 years, accounting for 59% of global trade.
Both the meat and dairy sectors will continue to expand, which will result in higher imports of feed grains. China is expected to become the world's leading consumer of pig meat on a per capita basis, surpassing the European Union by 2022. China should maintain its lead in aquaculture at 63% of global production and remain the largest fish exporter.
According to FAO estimates, China's food security has improved, with the number of undernourished falling by almost 100 million since 1990 despite adding 200 million people to its population. Still, ensuring the food security of China's estimated 158 million undernourished people remains a major challenge, the report says.
Presenting the joint report in Beijing, China, OECD Secretary-General Angel Gurria said, "The outlook for global agriculture is relatively bright, with strong demand, expanding trade and high prices, but this picture assumes continuing economic recovery. If we fail to turn the global economy around, investment and growth in agriculture will suffer, and food security may be compromised.
"Governments need to create the right enabling environment for growth and trade," he continued. "Agricultural reforms have played a key role in China's remarkable progress in expanding production and improving domestic food security."
FAO Director-General Jose Graziano da Silva added, "High food prices are an incentive to increase production, and we need to do our best to ensure that poor farmers benefit from them. Let's not forget that 70% of the world's food-insecure population lives in rural areas of developing countries and that many of them are small-scale and subsistence farmers themselves."
He added that the volume of China's agricultural production has grown almost five-fold since 1978, "and the country has made significant progress toward food security."
Still, he said China's "resource and environmental issues need more attention, (and) growth in livestock production could also face a number of challenges."
Key uncertainties around the agricultural outlook for China should be closely monitored and addressed, the report says. These include the sustainability of high levels of economic growth, increasing resource constraints on production, land degradation and water depletion and greater production variability due to climate change.