Organisation for Economic Cooperation and Development Uncertainties in the Macro-Economic Environment Implications for Medium-Term Perspectives for Agricultural Markets Martin von Lampe Trade and Agriculture Directorate, OECD Conference on Prices and Market Risks: Farmers Faced with Volatility Centre de conférences Pierre Mendès France Paris France, November 23-24, 2009 Trade & Agriculture Directorate 1
OECD-FAO Outlook 2009-20182018 Agricultural Outlook - a set of conditional projections published in an OECD-FAO annual report The datasets are available at www.agri-outlook.org Trade & Agriculture Directorate 2
Key macroeconomic assumptions 2009 global economic recession 2010 global economic recovery 2% annual inflation in OECD; higher in BRICs stronger US dollar stable policy regime crude oil prices increasing from end-2008 low Trade & Agriculture Directorate 3
Real prices at or above historical levels 160 140 % change relative to 1997-2006 average 120 100 80 60 40 20 0-20 Wheat Coarse grains Rice Oilseed Veget. Oil Raw sugar Beef Pigmeat (pacific) (pacific) Butter SMP Crude oil Average 2007-08 Average 2009-18 Trade & Agriculture Directorate 4
Steady growth of global production 60 50 Production Growth from 2006-08 average to 2018 World Production Non-OECD Production 40 % 30 20 10 0 Wheat Coarse grains Rice Oilseeds Veget. Oils Sugar Beef Pigmeat Poultry Butter Cheese WMP Trade & Agriculture Directorate 5
Biodiesel increasingly important demand driver for vegetable oil USA EU 2018 2006-08 2018 2006-08 Demand shares - WORLD (2018) 20% Indonesia 2018 2006-08 non-biofuel use biofuel use + 90 Mt 80% 0 5 10 15 20 25 30 35 Million tonnes Trade & Agriculture Directorate 6
while feed and fuel push coarse grain demand up Demand Shares (2018) - OECD OECD Non- OECD 2018 2006-08 2018 2006-08 24% 11% 8% + 50 Mt 56% Food use Feed use Biofuels Other 0 100 200 300 400 500 600 700 Million tonnes Demand Shares (2018) World World 2018 2006-08 12% 13% 19% 56% 0 200 400 600 800 1000 1200 1400 Trade & Agriculture Directorate 7
Underlying macroeconomic assumptions uncertain Economic projections have changed a lot Timing/speed of recovery critical Energy prices important but highly uncertain Role of exchange rates Credit markets in turmoil Trade & Agriculture Directorate 8
How sensitive are agricultural markets to changes in the macro environment? 1. The impact of alternative GDP projections 2. The impact of alternative crude oil prices 3. The impact of alternative exchange rates Trade & Agriculture Directorate 9
Annual change in real GDP 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% Growthprojections revisedregularlyregularly Revisions of GDP growth March 2009 vs. Dec. 2008 2000 2003 2006 2009 2012 2015 2018 OECD: Base OECD: Lower GDP slow recovery Non-OECD: Base Non-OECD: Lower GDP slow recovery Trade & Agriculture Directorate 10
Lower income growth impacts livestock prices more Trade & Agriculture Directorate 11
which is partly linked to income elasticities, but also to slower production adjustments Trade & Agriculture Directorate 12
so feed consumption has strong impact on crop use Trade & Agriculture Directorate 13
How sensitive are agricultural markets to changes in the macro environment? 1. The impact of alternative GDP projections 2. The impact of alternative crude oil prices 3. The impact of alternative exchange rates Trade & Agriculture Directorate 14
Oilpriceshighlyunpredictable US$ per barrel 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 WTI Brent Trade & Agriculture Directorate 15
Oilpriceshighlyunpredictable US$ per barrel 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 WTI Brent Trade & Agriculture Directorate 16
Oil price assumption relativelylow low 120 USD per barrel 100 80 60 40 20 0 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 Outlook 2008 Outlook 2009 Trade & Agriculture Directorate 17
Impact of higher oil prices on commodity prices 50 40 2009-10 2018 % 30 20 10 0 Trade & Agriculture Directorate 18
Impact of higher oil prices on commodity prices -What is the relevance of biofuels? Medium-term impact of oil price at ~USD100 instead of USD70 14% Change in averag ge world prices, 2013- -2017 12% 10% 8% 6% 4% 2% 0% Wheat Maize Veget. oils Agric. Production Costs Biofuel Price Impact Biofuel Demand Effect Note: Results not exactly comparable to those in previous slide as based on 2008 baseline Trade & Agriculture Directorate 19
How sensitive are agricultural markets to changes in the macro environment? 1. The impact of alternative GDP projections 2. The impact of alternative crude oil prices 3. The impact of alternative exchange rates Trade & Agriculture Directorate 20
What if the Euro was 10% weaker? What if the Dollar was 10% stronger? Trade & Agriculture Directorate 21
What if the Euro was 10% weaker? What if the Dollar was 10% stronger? Trade & Agriculture Directorate 22
Conclusions Agriculture relatively resilient to changes in economic prospects compared to other sectors Food as necessity Larger sensitivity for livestock markets than for crop markets Crude oil prices are increasingly important for agricultural markets Agricultural production costs Demand as energy carrier Exchange rates remain crucial Trade & Agriculture Directorate 23
Thank You Trade and Agriculture Directorate Visit our website: www.oecd.org/agriculture Contact: martin.vonlampe@oecd.org Trade & Agriculture Directorate 24