PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 11:35 UK, 17th Jun 2011, by Agrimoney.com
Food prices to stay 'high and volatile' to 2020

Food prices are to stay "high and volatile" for a decade, international experts said in a report pegging vegetable oil and pork values as set for particular rises, and foreseeing diverging fortunes for European and US farming.

The United Nations food agency, the FAO, and the OECD said that while they were "cautiously optimistic" that farm commodity markets would fall from 2010-11 highs, as farmers ramp up output to capitalise on higher values, prices would not slide to historic levels.

"Agricultural commodity prices… are likely to remain on a higher plateau during the next decade compared to the previous decade," the FAO and OECD said in a joint report.

While demand was being whetted by population growth and rising affluence in developing countries, "there are signs that productivity growth… is slowing", undermined by higher costs to farmers from the likes of oil, as well as "pressures" on land and water.

Wheat vs coarse grains

However, the distribution of price rises will be uneven, with wheat prices falling from average levels in 2008-10 to finish the decade at about $240 a tonne, undermined by  a shift upmarket in human eating habits.

"Global consumption [of wheat] on a per capita basis is projected to decline over the next 10 years," while rising overall by some 10% by 2020-21, compared with the average of the past two seasons, the briefing said.

For coarse grains, however, consumption will rise by 18%, lifted by use in making biofuels as well as in feeding livestock, which will be greater demand as consumers in developing countries lift levels of animal protein in diets.

Corn prices will manage some increase from the 2008-10 average to reach $203 a tonne at the end of the decade.

Biodiesel boost 

Bigger increases would be seen in prices of vegetable oils, whose use for industrial purposes is seen growing even quicker than that for coarse grains, accounting for 15% of total consumption in 2020, up from 6% at the turn of the century.

In the European Union and Argentina, "biodiesel production will represent an increasing share of vegetable oil use, exceeding 50% and 70% respectively", helping vegetable oil prices rise more than 15%.

All meat types will also enjoy firm price rises, ahead of inflation, with pigmeat seen gaining the most – depending on dynamics China, which is responsible for half the world's consumption.

"Due to its extraordinary volumes both in terms of production and consumption, unforeseen events in China which could result in import surges of pigmeat have the potential to severely impact international markets," the briefing said.

Europe lags

The FAO and OECD saw a strong role for Eastern Europe and Latin America in driving growth in agricultural production, with Asia set to lift meat output.

But among developed regions, only North America would see significant growth in farm output, thanks to "highly mechanised, capital and input intensive agricultural industries [that] will grow mainly from intensification and efficiency gains".

Europe's output would be limited by environmental concerns, limited land availability and a forecast of strong currencies, making exports less competitive.

"Agricultural sectors of the main Western European producers [will remain] roughly at their current levels, barely higher than peak production in 2008," the report said.

Production growth in crop and livestock will increasingly come from efficiency gains" encouraged by reforms including the shake up of the region's Common Agricultural Policy.

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