1 Global Agricultural Supply and Demand: Factors contributing to recent increases in food commodity prices Ron Trostle Economic Research Service U.S. Department of Agriculture Agricultural Markets and Food Price Inflation Federal Reserve Bank of Chicago October 2, 28
2 Food commodity prices have risen 13 % since January 22 (>7% in last two years ) Index: January 22 = Food commodity price index M1 1982M1 1984M1 1986M1 1988M1 199M1 1992M1 1994M1 1996M1 1998M1 2M1 22M1 24M1 26M1 28M1 2 Source: International Monetary Fund: International Financial Statistics
3 Prices of many commodities rose even more Index: January 22 = Crude oil Average of all comodities Food commodity index Jan 1992 Jan 1996 Jan 2 Jan 24 Jan % + 33 % + 13 % Source: International Monetary Fund: International Financial Statistics
4 Food commodity prices: Indices for selected crops and total food Index: January 22 = Corn Soybeans Wheat Rice Food commodity index Jan 197 Jan 75 Jan 8 Jan 85 Jan 9 Jan 95 Jan 2 Jan 5 Source: International Monetary Fund: International Financial Statistics
5 8 Crop price increases: real vs. nominal Average of 4 crops (wheat, soybeans, corn & rice) Index: January 22 = Real prices Nominal prices Jan 197 Jan 75 Jan 8 Jan 85 Jan 9 Jan 95 Jan 2 Jan 5 5 Source: International Monetary Fund: International Financial Statistics
6 Factors contributing to higher food commodity prices Strong growth in demand, based on: Increasing population + Rapid economic growth + Rising per capita meat consumption Slowing growth in agricultural production Declining demand for stocks of food commodities Escalating crude oil price Increased biofuels production Dollar devaluation Rising farm production costs Adverse weather Large foreign exchange reserves Demand factors in brown Supply factors in green Aggressive purchases by importers Exporter policies 6 Importer policies
7 Million metric tons 3, World grain & oilseeds Total production and use Production Total use 2,5 2, 1, Source: USDA PS&D Database
8 8 Total world grain & oilseeds Stocks and stocks-to-use ratio Million metric ons Stocks / Use (%) Ending stocks Stocks / Use 4% 35% 6 3% 25% 4 2% 15% 2 1% 5% % 8 Source: USDA PS&D Database
9 Long-term trends contributing to higher prices: 1. Supply-side factors Slower growth rate in yields 2. Demand-side factors Population growth Income growth Increased per capita meat consumption 9
10 Total world grain & oilseeds 1 Production, yield, area harvested, population & percap production Index: 197 = 1 Exponential trend growth rates: Production Yields Area Population Per capita use Total oilseeds = soybeans + rapeseed + sunflowers Production Yield Population Percap production Area harvested 1 Source: Compiled from USDA s PS&D Database
11 Population growth rates decline (Percent by period) 4 Percent World Developed Developing Middle East Africa Latin America USA 11 Source: USDA Agricultural Baseline Projections to 217.
12 Strong economic growth Average Real GDP growth rates Percent World Developed Developing China India United States 12 Source: USDA Agricultural Baseline Projections to 217.
13 Global rice imports Million metric tons 3 Other Other Asia Indonesia N. Africa & M. East Sub-Saharan Africa EU, FSU, & OE 1/ Latin America 2/ 1/ European Union, former Soviet Union, and other Europe. 2/ Includes Mexico. 13 Source: USDA Agricultural Baseline Projections to 217.
14 Global soybean oil imports Million metric tons / European Union, former Soviet Union, and other Europe. 2/ Asia excluding India and China. 3/ Includes Mexico. Rest of world EU, FSU, & OE 1/ India China Other Asia 2/ N. Africa & M. East Latin Am 3/ 14 Source: USDA Agricultural Baseline Projections to 217.
15 Global meat 1 Production, per capita consumption, and population Exponential trend growth rates: Production Population Per capita consumption Index: 1971 = Production Per capita Cons 1 Total meat = beef + pork + chickens & turkeys. Population 15 Source: USDA Agricultural Projections to 217.
16 Poultry imports 1/ Million metric tons Russia Other N Afr. & M. East East Asia China & Hong Kong Saudi Arabia Mexico European Union 2/ 1/ Selected importers. 2/ EU-27 excludes intra-trade after 22, EU-15 intra-trade before 23, Slovenia before Source: USDA Agricultural Baseline Projections to 217.
17 17 Role of biofuels: Major producers Impact on land use
18 Billion Gallons Biofuels production: Total of largest producers Biodiesel Ethanol 1 The 6 largest producers (USA, Brazil, EU, China, Canada, & Argentina) accounted for 96% of world biofuel production in 27. Source: FO Licht, various reports
19 Biofuels production: Largest producers Million Gallons 18, Ethanol Biodiesel 16, 14, 12, 1, 8, 6, 4, 2, Argentina Ukraine & Russia Brazil China Canada EU USA Source: USDA Agricultural Projections to 217
20 Global area harvested 1 : Total, and for biofuels feedstocks Million hectares Total area harvested area planted to feedstocks < 3% of total Crops include: Wheat, Rice, Corn, Barley, Sorghum, Other cereals, Soybeans, Rapeseed, Sunseed, Cotton. Excludes sugarcane and beets 2 Source: Compiled from data associated with generating Baseline Projections to 217
21 U.S. corn use Billion bushels Ethanol FSI less ethanol 1/ Exports Feed & residual / Food, seed, and industrial less ethanol. Source: USDA Agricultural Baseline Projections to 217.
22 Growth in world wheat and coarse grains use: 198/81-22/3 vs. 22/3-27/8 Use 198/81 to 22/3 22/3 to 27/8 MMT % MMT % Food Feed* U.S. corn for ethanol Total
23 Adverse weather reduced production: In 26 Australia Ukraine & Russia and 27 Europe: dry spring; harvest floods SE Europe: drought Ukraine & Russia: drought (2nd year) USA: late spring freeze Canada: hot and dry Australia: 2nd year of severe drought NW Africa: drought Turkey: dry 23
24 Total world grain & oilseeds 1 Production, yield, & area harvested Index: 197 = Production Yield Area harv Trend growth rates: Prod Area Yields Total oilseeds = soybeans + rapeseed + sunflowers 24 Source: USDA Agricultural Projections to 217
25 Other contributing factors: Devaluation of U.S. dollar Increasing foreign exchange reserves held by importers Role of hedge funds, index funds, & sovereign wealth funds: (affect demand and/or volatility?) 25
26 Value of U.S. dollar declines after 22 1/ Index values, 2= / Real U.S. agricultural trade-weighted dollar exchange rate, using U.S. agricultural export weights, based on 192 countries. 26 Source: USDA PS&D Database
27 Foreign Exchange Reserves Emerging Asia: Foreign exchange reserves $bn 16 China Emerging Asia ex China Japan OPEC Russia Source: Oxford Economics / Haver Analytics 27
28 Policy responses to food price inflation 28
29 Policy responses to rising prices by selected countries Exports Imports Domestic policies Country Raised Export Export Reduced Increased Imposed export volume bans import consumer price taxes restrictions tariffs subsidies caps. Export policies: Argentina x x Cambodia x Egypt x Kazakhstan x Russia x Ukraine x Vietnam x x Import policies: Bangladesh x x x EU x Mexico Morocco Mongolia Philippines Thailand x x x x x
30 Policy responses to rising prices by selected countries Exports Imports Domestic policies Country Raised Export Export Reduced Increased Imposed export volume bans import consumer price taxes restrictions tariffs subsidies caps. Both export and import policies: China x x x x India x x x x x Indonesia x x x Malaysia x x Serbia x x
31 Impact of high food commodity prices on consumers food budgets High-income countries Low-income food-deficit countries I. Base Scenario Income 4, 8 Food expenditure 4, 4 Food as % of income 1.% 5% Disaggregate retail food spending (staples vs. non-staples) Staples as % of total food spending 2% 7% Expenditures on staples 8 28 Expenditures on non-staples 3,2 12 II. Scenario: 5% Price increase in staples Partial pass through on staples Assumed % pass through 6% 6% Increase in cost of staples New cost of staples New total food costs 4, Food as % of income 1.6% 61% 31
32 U.S. Title II Food Aid Allocations $ Billion Million metric tons Value Quantity *28 is an forecast 32
33 28M1 Spikes in food commodity prices: Will this time be any different? Index: January 22 = Corn Soybeans Wheat Rice Food commodity index M1 1972M1 1974M1 1976M1 1978M1 198M1 1982M1 1984M1 1986M1 1988M1 199M1 1992M1 1994M1 1996M1 1998M1 2M1 22M1 24M1 26M1 33 Source: International Monetary Fund: International Financial Statistics
34 Categories of factors contributing to higher food commodity prices Temporary factors: Structural changes: Continuation of long-term trends: Questionable future impact: Adverse weather Trade policies by exporters and importers Aggressive buying by importers High oil prices Biofuels production High ag production costs Rapid economic growth in many developing countries Population growth in developing countries Increasing per capita meat consumption Further dollar depreciation Slower growth in ag productivity Role of large foreign exchange reserves held by importers Supply factors Demand factors 34
35 Prices have declined from their peaks (as of September 3, 28) Commodity Wheat Corn Soybeans Down 51 % 38 % 39 % Since peak in: Mid March End of June Early July 35
36 U.S. Commodity Prices: History & Projections Soybeans, Wheat, & Corn $ per bushel 12 1 Projections made in November 27 Dots indicate current estimates for 28/9 Soybeans Wheat Corn Source: USDA Agricultural Baseline Projections to 217, February 28.
37 Global Agricultural Supply and Demand: Factors Contributing to the Recent Increase in Food Commodity Prices The report is available at: Ronald Trostle Economic Research Service U.S. Department of Agriculture