Economic Aspect of Agriculture in 2010 and Beyond

The economic aspect of agriculture for 2010 shows more stability compared to the economic outlook for 2009, according to an annual joint report by the UN's Food and Agriculture Organisation (FAO) and the Organisation for Economic Co-operation and Develeopment (OECD) entitled Agricultural Outlook 2010-19. Rachel Ralte, Junior Editor of TheCattleSite, provides a brief outline of the Outlook.
calendar icon 28 June 2010
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The poverty-stricken, particularly in developing nations, are usually most affected by agricultural blows such as high oil prices, commodity price hikes, recession etc. The world’s hungry is now estimated at over 1 billion people. However, 2010 has seen the return of a certain degree of normalcy in various world markets. Production is getting closer to historical levels and demand is slowly recovering.

However, the governments of several countries are still anxious about the repetition of these agricultural shocks. They are concerned that energy prices, exchange rates, and/or the macroeconomic performance of key countries and regions may be negatively affected.

According to the Outlook report, "The macroeconomic environment underlying the commodity projections is more positive than in the 2009 Outlook." The world began to recover in late-2009. A gradual transition towards improved sustainable growth has been observed. An increase in oil prices is likely to increase input and production costs. This is expected to affect crop supplies, prices and trade flows, and reinforce feedstock demand for biofuels.

Growth of global agricultural production is forecast to be slower within the next decade, but in the absence of unexpected blows, growth remains on track with estimated longer-term requirements.

Net Agricultural Production for selected countries (index 2004-06=100)
[Sources: OECD and FAO Secretariats]

In the current Outlook report, average crop prices are projected to be above the levels of the decade prior to the 2007/08 peaks. As for livestock products, average meat prices in real terms, other than pig meat, are expected to surpass the 1997-2006 average over the coming decade. Pig meat prices are expected to stay relatively subdued due to an anticipated increase in supply from Brazil and China.

Change in production of crop and livestock products
(per cent change 2019 compared to 2007-09)
[Sources: OECD and FAO Secretariats]

Biofuel markets are dependent on government incentives and mandates. However, prospects remain uncertain mainly because of unforeseeable factors such as future trend in crude oil prices, changes in policy interventions and developments in second-generation technologies. An additional demand in feedstocks such as wheat, coarse grains, vegetable oils and sugar is expected as a result of expansion of biofuel production.

According to the report, "Developing countries will provide the main source of growth for world agricultural production, consumption and trade." Also, food consumption in developing countries will become less responsive to price and income changes as a result of increasing affluence and an expanding middle class.

For an extended period after world primary commodity prices fell following the price surge of 2007-2008, food prices remained high in many places. Last year, inflation of food prices fell considerably, but inflation is still highly significant in certain developing and emerging countries.

There has also been a considerable increase in short-term price volatility since the 2006-2008 price hike. The extent to which world prices are transmitted to domestic markets depends largely on the country in question and also on the level of market integration.

The report states: "At the international level, the uncoordinated policy actions of governments during the 2006-08 price spikes exacerbated volatility and impeded access to markets." Governments need to assure countries that there will be an unhindered access to global supplies and improved confidence in market functions.

Further Reading

- You can view the full OECD_FAO Agricultural Outlook 2010-1019 report by clicking here.

June 2010
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