Biofuel demand changes markets

INCREASED demand for biofuels is causing fundamental changes to agricultural markets that could drive up world prices for many farm products, according to a new report published by the OECD and the United Nations’ Food and Agriculture Organisation.

The OECD-FAO Agricultural Outlook 2007-2016 says temporary factors such as droughts in wheat-growing regions and low stocks explain the recent hikes in farm commodity prices.

But when the focus turns to the longer term, structural changes are underway which could well maintain relatively high nominal prices for many agricultural products in the coming decade. Reduced crop surpluses and a decline in export subsidies are also contributing to these long-term changes in markets.

But more important is the growing use of cereals, sugar, oilseed and vegetable oils to produce the fossil fuel substitutes, ethanol and bio-diesel.

“This is underpinning crop prices and, indirectly through higher animal feed costs, also the prices for livestock products,” it says.

The report says trade patterns are also changing. Production and consumption of agricultural products in general will grow faster in the developing countries than in the developed economies — especially for beef, pork, butter, skimmed milk powder and sugar.

OECD countries are expected to lose export shares for nearly all the main farm commodities. Nevertheless, they continue to dominate exports for wheat, coarse grains and dairy products.

World agricultural trade, measured by global imports, is expected to grow for all the main commodities covered in the report.