The recent period of high agricultural commodity prices is most likely over, say the OECD and FAO in their latest 10-year Outlook.
But the two organisations warn of the need to be vigilant as the probability of a major price swing remains high.
The OECD-FAO Agricultural Outlook 2016-2025, published today, projects inflation-adjusted agricultural commodity prices will remain relatively flat overall in the coming decade. However, livestock prices are expected to rise, relative to those for crops.
It highlights that prices for the main crops, livestock and fish products all fell in 2015, signalling that an era of high prices is quite likely over for all sub-sectors.
Meat prices fell from record highs in 2014, dairy product prices continued declines that started in 2013 and 2014, while crop prices fell further from their peaks in 2012.
The main factors behind lower prices have been several years of robust supply growth, weakening demand growth due to the overall economic slowdown, lower oil prices and further accumulation of already abundant stocks.
Over the 10-year outlook period, the demand growth for food is expected to slow progressively. Global population growth, the main driver of demand increases, is declining, while income growth in emerging economies is projected to be weaker.
At the same time, consumers, especially in populous emerging economies, show a declining propensity to spend income gains on consuming more basic foodstuffs
However, according to the report, over the next decade as incomes improve, especially in emerging economies, demand for meat, fish and poultry will demonstrate strong growth. This creates additional demand for feed, particularly from coarse grains and protein meals, causing their prices to rise prices relative to food staples such as wheat and rice.
Globally, the increased demand for food and feed for a growing and more affluent population is projected to be mostly met through productivity gains. Yield improvements are expected to account for about 80% of the increase in crop output.
Key players dominate food trade
The Agricultural Outlook says that the bulk of all commodity exports will continue to originate in just a few countries.
For all products covered by the Outlook, the five main exporters will account for at least 70% of total exports, with just two or three countries dominating supplies of some commodities.
Imports, however, will be far less concentrated among countries, although China is projected to remain a critical market for some commodities, in particular soybeans.
OECD and FAO emphasise the importance of well-functioning markets in enabling food to flow from surplus to deficit regions and improving food security.
Other findings from the report include:
- Global agricultural trade is expected to grow by 1.8% per annum in volume during the next ten years, compared to 4.3% per year over the past decade.
- Food consumer prices are expected to be less volatile than agricultural producer prices over the coming decade.
- In developing countries, human sugar consumption is expected to rise by 15% per capita and that of dairy products by 20 percent over the projection period.
- After stronger gains in recent years, crop production is projected to increase at around 1.5% a year globally.
- In South and East Asia, agricultural output is expected to expand by 20% over the next decade.
- In Latin America, soybean cultivation is projected to drive most of the estimated 24% increase in crop area over the next 10 years.