Food prices set to remain higher in next decade as farm output slows

FOOD prices will remain higher in the next decade than in the past 10 years as agricultural production slows and demand increases, the OECD and the United Nations said in a joint report yesterday.

Global farm output is forecast to grow an average 1.7% a year through 2020, compared with 2.6% in the previous decade, the Paris-based OECD and the UN’s Food and Agriculture Organisation said in their annual Agricultural Outlook report.

“Slower growth is expected for most crops, especially oilseeds and coarse grains,” they said in the report. “The global slowdown in projected yield improvements of important crops will continue to exert pressure on international prices.”

Food costs rose to a record in February, according to an index of 55 agricultural commodities tracked by the Rome-based FAO. Corn futures have risen 73% in Chicago in the past 12 months, wheat gained 48% and rice climbed 27%.

“Harvests this year are critical, but restoring market balances may take some time,” the organisations said.

“Until stocks can be rebuilt, risks of further upside price volatility remain high.”

World corn inventories are forecast to slide for a third year in 2011-12 to the lowest in five years, while demand will be at a record, US Department of Agriculture data show.

Global soybean stocks may drop a second year to the lowest in 18 years, according to the USDA.

The world population is forecast to climb to 9.2 billion in 2050 from an estimated 6.9 billion in 2010, requiring a 70% jump in world agricultural production, the FAO said.

Corn prices in Chicago rose to a record this month as demand for the grain as food, feed and a raw material for ethanol has outstripped production growth, depleting stocks.

The OECD and FAO repeated last year’s outlook that agricultural commodity prices in real terms will generally be higher during the next decade compared to the past 10 years.

Higher commodity prices are a “positive signal” that will probably stimulate investment in productivity and output that’s needed to meet the rising demand for food, after decades of falling real prices, the OECD and FAO said.

In the short term, agricultural-commodity prices are expected to fall from “the highs of early 2011” as output rises in response to the price increase, they said.

Prices for corn will still be an average 20% higher in the coming decade than in the previous one, while poultry prices may be 30% higher, OECD and FAO said.

“There are signs that production costs are rising and productivity growth is slowing,” they said, citing rising energy costs and pressure on water and land use.

As higher commodity prices are passed on in the food chain, food inflation is on the increase in most countries, reducing purchasing power for poorer populations and raising concerns about economic stability and food insecurity in some developing countries, according to the OECD and FAO.

The “most frequent and significant” cause of price swings is unpredictable weather conditions, while an increasing link between agricultural and energy markets is also “transmitting volatility,” the OECD and FAO said.