Agriculture commodity prices to remain high

(MEATPOULTRY.com, May 29, 2008)
by MEAT&POULTRY Staff


ROME ― Although agricultural commodity prices should ease from their recent record peaks, they are expected to average well above their mean levels of the past decade over the next 10 years, according to the latest Agricultural Outlook from Organization for Economic Cooperation and Development (O.E.C.D.) and the U.N. Food and Agriculture Organization (F.A.O.).

"The way to address rising food prices is not through protectionism but to open up agricultural markets and to free up the productive capacity of farmers, who have proven repeatedly that they will respond to market incentives," said Angel Gurría, O.E.C.D. secretary-general at the Outlook’s launch in Paris. "Governments can also do more to foster growth and development in poor countries, so as to improve the purchasing power of the most vulnerable food buyers."

Food prices and their impact on the world economy will be one of the issues that will be addressed at the O.E.C.D. Ministerial Council Meeting in Paris from June 4-5. At a separate summit at F.A.O. headquarters in Rome, from June 3-5, world leaders, including many heads of state and government from around the world, will discuss policies and strategies on how to improve and ensure world food security and re-launch agriculture in rural communities of developing countries.

In comparing averages of the coming decade with those of the past, real prices, i.e. nominal prices corrected for inflation, are projected to increase in a range from less than 10% for rice and sugar, under 20% for wheat, around 30% for butter, coarse grains and oilseeds to more than 50% for vegetable oils, according to the report.

Prices may also become more volatile because stock levels are expected to remain low and as some of the demand for agricultural commodities becomes less responsive to price changes. The recent increase in investment funds on commodity futures markets might also become an additional factor in price variability. Climate change, too, would affect crop production and supply in unforeseen ways.

Drought in some of the world’s main grain-producing regions in the context of low stocks was a large – but transitory – factor in the sharp price rises of the past two years. Growing demand for biofuel is another factor contributing to higher prices. World fuel ethanol production tripled between 2000 and 2007 and is expected to double again between now and 2017 to reach 127 billion liters a year. Biodiesel production is seen to expand from 11 billion liters a year in 2007 to around 24 billion liters by 2017. The growth in biofuel production adds to demand for grains, oilseeds and sugar, so contributing to higher crop prices.

Another finding of the report includes Brazil’s share of world meat exports is expected to grow to 30% by 2017.