Farm prices to rise over next decade

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World farm commodity prices will keep rising in the next decade, and oilseeds are set to outperform wheat and other cereals, both trends fueled by strong demand in emerging economies, the Organization for Economic Cooperation and Development (OECD) said on Wednesday in a joint report with the UN's food agency.

High income growth in developing countries will boost global demand for food and fuel, while stocks and output growth will struggle to keep up, the OECD and the Food and Agriculture Organisation said.

"Nominal prices are expected to trend upwards over the next 10 years. Prices in real terms (adjusted for inflation) will remain flat or decline from current levels but are projected to average 10 to 30 percent above those of the previous decade," the report said.

Record high food prices in February last year helped fuel the Arab Spring uprisings in the Middle East and North Africa, but prices receded in the second half of 2011.

Food prices measured by FAO have fallen in the past three months but are expected to rebound in July following relentless dry weather that has affected U.S. corn and soybean crops.

The risk of price spikes such as those seen in soybeans and corn over recent weeks will increase in coming years, the report found.

"We expect prices will remain volatile as demand grows but stock levels fail to rise as much as in the past - that way any shortfalls will tend to have a higher impact on markets," Merritt Cluff, FAO senior economist, said in a telephone interview.

Weather-related yield variability and slower growth in production will also encourage volatility, FAO and OECD said in the Agricultural Outlook 2012-2021 report.

Agricultural output growth is expected to slow to 1.7 percent per year over the next decade from more than 2 percent over the past several decades.

URBANISATION

Cluff said key sectors of growth in the next 10 years would be the livestock feed and vegetable oils markets as more people in developing countries consume meat and processed foods such as cookies and chocolate bars.

The trend will boost demand for oilseeds, while demand for wheat and other cereals is expected to be weaker.

"Higher income growth and urbanisation in emerging economies increases the tendency to buy value-added food products and get protein from meat, poultry and processed foods," he said. "Protein from cereals will not see such demand in future."

Prices for oilseeds are projected to increase in nominal terms by 9 percent over the decade, more than the rise anticipated for coarse grains and wheat, the report said.

High crude oil prices and biofuel mandates will also underpin oilseeds and vegetable oil prices. About 16 percent of global vegetable oil production should be used to produce biodiesel by 2021.

Meanwhile, ethanol production is set to absorb 14 percent of global coarse grain production and 34 percent of sugarcane production by that date, the report said.

Sugar prices will stay at high levels, underpinned by low stocks, and further bouts of price surges and volatility are possible in response to unforeseen production shocks.

Meat prices are also set to remain on a high plateau during the next decade under persistently high production costs and more stringent food safety, environmental and animal welfare regulations, the report said.

FAO and OECD said farms should aim to boost productivity in a sustainable way to help contain food price rises and reduce the insecurity of global food supplies.

It said this could be achieved through more efficient use of irrigated water, fertilisers and crop protection products, investing in agricultural research and innovation and introducing policies that encourage these changes. (editing by Jane Baird)


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