Evolving agricultural markets: Recent and projected trends

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1 Evolving agricultural markets: Recent and projected trends Highlights from the OECD-FAO Agricultural Outlook Jonathan Brooks, OECD 2018 ATPC OECD ICTSD FAO Workshop Policies, Challenges and Opportunities for Agriculture and Food Systems Development Nanjing, 24 October 2018

2 The food price crisis, ten years later Index = FAO Food Price Index (real) Real prices to be contained by strong supply growth, ample stocks and weakening demand growth Prices spiked due to a «perfect storm» of market shocks reinforced by policy responses

3 Declining real prices are expected for almost all commodities % Annual real price change over the coming decade Wheat Maize Other coarse grains Rice Soybean Other oilseeds Vegetable oils Protein meals White sugar Raw sugar Poultry Pork Beef Sheep Butter Cheese Skim milk powder Whole milk powder Fish Ethanol Biodiesel Cotton Cereals Oilseeds Sugar Meat Dairy Biofuels

4 Outlook is consistent with the long term trend But multiple long term projections are possible! USD/t Real price Long term trend OUTLOOK LS-low LS-high Long term wheat price

5 And agricultural markets are always uncertain Structural uncertainty Policy Uncertainty Demand Income growth (esp in Africa) Biofuels (esp in China) Supply Oil prices Pests and disease (e.g. Fall Armyworm) Food and health policies Regulation of new plant breeding techniques Increasing policy uncertainties are adding to market risks Climate risk Potential of precision agriculture Trade Emergence of new market players (esp Russia & Ukraine) Trade disputes Bilateral and regional trade agreements (CTTP, NAFTA, Brexit)

6 Despite downward trend, risk of temporary price increases remains USD/t 350 Real maize price: Baseline and 90% interval Grey range includes 90% of simulated prices from the stochastic analysis

7 Growth in demand for agricultural commodities to slow except for dairy Average annual growth rate in demand (%) % Due to per capita demand growth (food & other uses) Due to population growth Cereals Meat Fish Fresh dairy Sugar Vegetable oil

8 Most additional food demand will come from Sub-Saharan Africa, India and China Growth in demand Mt/decade Rest of World MENA China India Sub-Saharan Africa OECD Cereals Meat Fish Fresh dairy Sugar Vegetable oil

9 Biofuel growth slows down, reducing the demand growth for feedstocks bln L 140 World ethanol production World biodiesel production % 25 Maize used for biofuels Sugarcane used for biofuels Vegetable oil used for biofuels

10 Crop and meat production will increase without major changes in total land use Yield (t/ha) MENA Western Europe Eastern Europe and Central Asia Maize Americas Sub-Saharan Africa South and East Asia Area harvested (Million ha) Ruminant meat production (Million tonnes) Western Europe Oceania Ruminant meat South and East Asia Eastern Europe and Central Asia MENA Americas Sub-Saharan Africa Pasture (billion ha)

11 As demand growth slows down, so do agricultural trade volumes Annual growth rate of trade volumes (%) % Wheat Maize Rice Soybean Poultry Pork Beef Skim milk powder

12 Trade: Specialisation between regions is increasing over time 150 Agricultural trade balances by region, in constant value, (bln USD) Americas 100 Oceania Eastern Europe and Central Asia Western Europe Sub-Saharan Africa MENA South and East Asia

13 Exporter concentration remains high Country shares of global agricultural exports by commodity, % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Soybean Pork Maize Skim Milk Powder Poultry Whole Milk Powder Sheep Vegetable Oils Protein Meals Rice Butter Sugar Cheese Wheat Beef Cotton

14 Importer concentration less pronounced except for some products Country shares of global agricultural exports by commodity, % 10% 20% 30% 40% 50% 60% 70% 80% 90% Soybean Cotton Sheep Pork Vegetable Oil Protein Meal Butter Skim Milk Powder Beef Cheese Maize Whole Milk Powder Poultry Sugar Rice Wheat

15 Market and policy linkages With an Outlook for declining real prices, we might expect increased demand for farm support and protection Little appetite to remove market distortions in developed countries Rising demands for support in emerging economies Trade will be important for food security => need for open and predictable markets Yet countries will need to find effective policies for managing domestic and international price volatility Strong supply growth will come from intensification and efficiency gains There is a window to make sure that growth is achieved sustainably

16 Visit us at For inquiries or further information on the Outlook: Hubertus Gay Trade and Agriculture Directorate (OECD) Holger Matthey Trade and Markets Division (FAO)