Global agricultural production to grow, prices to remain high, says OECD-FAO

Growing agricultural production, particularly from developing countries, and higher prices are all in the global economic landscape for New Zealand’s meat industry for the coming decade, according to a new report from OECD and the UN’s Food & Agriculture Organisation (FAO).

Global agricultural production is expected to grow 1.5 percent a year on average over the coming decade, compared with annual growth of 2.1 percent between 2003 and 2012.

Limited expansion of agricultural land, rising production costs, growing resource constraints and increasing environmental pressures are the main factors behind the trend. But, the report argues that farm commodity supply should keep pace with demand.

The OECD-FAO Agricultural Outlook 2013-2022 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 strong demand, including for biofuels.

The Outlook says agriculture has been turned into an increasingly market-driven sector, as opposed to policy-driven as it was in the past, this 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 percent.”

The report predicts that China, with one-fifth of the world’s population will have a major influence on world markets and is a special focus of the report. China is projected to remain self-sufficient in the main food crops, although output is anticipated to slow in the next decade due to land, water and rural labour constraints.

OECD secretary-general Angel Gurria.Presenting the joint report in Beijing, OECD secretary-general Angel Gurria said: “The outlook for global agriculture is relatively bright with strong demand, expanding trade and high prices. But this pictures 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 added. “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 said: “High food prices are an incentive to increase production and we need to do our best to ensure poor farmers benefit from them. Let us not forget that 70 percent of the wold’s food insecure population lives in rural areas of developing countries and that many of them are small-scale and subsistence farmers themselves.”

Developing countries to gain

Driven by growing populations, higher incomes, urbanisation and changing diets, consumption of the main agricultural commodities will increase most rapidly in Eastern Europe and Central Asia, followed by Latin American and other Asian economies, the report says.

It predicts that the share of global production from developing countries will continue to increase as investment n their agricultural sectors narrows the productivity gap with advanced economies. Developing countries, for example, are expected to account for 80 percent of the growth in global meat production and capture much of the trade growth over the next 10 years. They 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, OECD/FAO stresses that governments will need to invest in their agricultural sectors to encourage innovation, increase productivity and improve integration in global value chains.

Agricultural policies 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’s consumption growth is expected to outpace its production growth by some 0.3 percent a year, signalling a further but modest opening of China’s agricultural sector, the report says.

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 pigmeat on a per capita basis, surpassing the European Union by 2022. It should also maintain its leading role in global aquaculture at 63 percent of global production and remain the largest fish exporter.

Output growth is anticipated to slow in the next decade. Key uncertainties around the agricultural outlook for China should be closely monitored and addressed, the report said. 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.

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