Bridges Weekly Trade News Digest • Volume 13 • Number 24 • 1st July 2009

Food prices projected to resume historical decline: OECD, FAO

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Prices for wheat, rice and coarse grains are expected to resume their historical decline, after reaching record highs in 2008, says a joint report from the UN Food and Agriculture Organization and the Organisation for Economic Cooperation and Development.

Prices for some commodities, especially those used for biofuels such as vegetable oils and corn, are being propped up by government mandates on blending or minimum usage requirements in the transport sector, the report found. If the mandates are altered, prices for these products will also decline.

The report, issued annually by the OECD-FAO, provides insight on trends in global agriculture.

This year’s version responds to a year of record high food prices, followed by sharp declines as the global financial crisis broke. Since food is a basic necessity, the report predicts that the agricultural sector will be relatively resilient in the face of the economic crisis, even if prices for many commodities will be lower than last year.

It predicts that over the next ten years, agricultural commodity prices will remain 10 to 20 percent higher than the average for the period 1997-2006, but in a pattern that continues the global decline seen prior to the recent spike. This decline is explained in part by decelerating global population growth and the increasing productive capacity of many of the world’s farms.

The report forecasts increased price volatility and trade flows, resulting from increasingly frequent weather disturbances, growing economic interdependence and the linkages between food and fuel markets.

The report holds oil prices and overall trends in consumer behaviour - such as demand for meat and dairy - partially responsible for both the rise and the fall in prices. Rising incomes in the long term may drive up food prices, through increased demand for meat, even if population growth slows. In the short run however, the economic crisis may stunt the steady growth in income and demand for oil that emerging economies countries have experienced.

The report argues for the importance of food security for the world’s most vulnerable farmers but stops short of examining the role that developed country farm subsidies may have played in undermining developing country agricultural production. It argues that access to food could decline for the poorest even as the total amount of food available increases.

The OECD and the FAO suggest that aid for improved infrastructure and research and development in agriculture, along with more open markets and diversification away from heavy economic dependence on agriculture, will contribute to the alleviation of poverty and the reduction of food insecurity.

The report is available at http://www.agri-outlook.org

ICTSD reporting.