OECD – FAO Agricultural Outlook 2009-2018. 15th ed

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Food security fears eased by prices outlook
By Javier Blas
Financial Times, 18 June 2009

Agricultural commodity prices will rise by less than previously feared in the next decade because of slower economic growth and cheaper oil, two leading organisations said yesterday, easing concerns over global food security.

"Continued weakness in the general economy will further dampen commodity prices over the next two to three years," the United Nations Food and Agriculture Organisation and the Organisation for Economic Co-operation and Development said in their Agricultural Outlook 2009-18 report.

Prices "should then strengthen with economic recovery". The price of agricultural commodities, including staples such as wheat, corn and rice, would rise by 10 to 30 per cent in real terms - taking into account inflation - over the next 10 years, compared with the 1997-2006 average.

Last year's report saw prices rising by an average of 40-50 per cent in the following decade. "The new plateau for prices will be lower than expected," said Merritt Cluff, a senior economist at the FAO and one of the report's authors. But he said prices would stay "well above the previous 10-year average".

The report's overall tone was more positive for consumers than last year, at the peak of the food crisis.

However, executives from the food industry and analysts are less relaxed. They fear that agricultural commodity prices have experienced a structural upward shift in costs, which is likely to be exacerbated in future by water scarcity and climate change .

The FAO and OECD did acknowledge risks ahead. "Further episodes of strong price fluctuations cannot be ruled out, nor can future short-lived crises," said the report. Despite low economic prospects and lower energy prices, this year's report "paints a picture of sustained crop prices in nominal and even in real terms that remain well above the levels observed prior to 2007-08".

The authors also gave warning that food prices would increase strongly if oil prices rose above the current level of $70 a barrel towards $90 to $100. Upward pressure would come from higher production costs and the link between agriculture and biofuels.

Agriculture, long a neglected sector in terms of policy discussions, is being examined more closely by policymakers after the 2007-08 food crisis , which saw food riots sparked by record prices for staples such as wheat and rice.

The FAO and OECD said that even if food prices rose less than feared over the next decade, global food security would remain a problem. "High food costs, combined with the global credit crunch, falling international trade and investment flows, lower remittances and budgetary pressures on development aid, are reversing the progress made in combating global poverty ," they said.

Jacques Diouf, head of the FAO, told the Financial Times recently that the combination of high food prices and the economic crisis would boost the number of chronically hungry people above 1bn for the first time this year - up from 963m in 2008. Before 2007, there were about 800m chronically hungry people in the world, a level that had remained roughly constant since the early 1990s.

Copyright The Financial Times Limited 2009

This fifteenth edition covers the outlook for commodity markets during the 2009 to 2018 period, and brings together the commodity, policy and country expertise of both Organisations, providing an assessment of agricultural market prospects for production, consumption, trade, stocks and prices of the included commodities.

This is the fifth time it has been prepared jointly by the Organisation for Economic Cooperation and Development (OECD) and the Food and Agriculture Organization of the United Nations (FAO).

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