OECD/FAO report: Future food demand to be met as population growth slows and productivity increases

06 Jul 2018 --- Slowing population growth is expected to lead to decelerating demand for food, according to a new Food and Agriculture Organization (FAO) report which says that cereal stock levels have climbed to an all-time high. This follows a steady increase across most commodities which also reached record levels last year. At the same time, the FAO Food Price Index declined in June for the first time in 2018, driven by trade tensions.

The report from the Organisation for Economic Cooperation and Development (OCED) and the UN's FAO, stresses that agricultural trade plays an important role in promoting food security, underscoring the need for an enabling trade policy environment.

The OECD-FAO Agricultural Outlook 2018-2027 sees weakening growth in global demand for agricultural commodities and food while anticipating continuing productivity improvements in the sector. As a result, the prices of the main agricultural commodities are expected to remain low for the coming decade.

According to the FAO, international agricultural food commodity prices fell last month as trade tensions affected markets.

The FAO Food Price Index – a measure of the monthly change in international prices of a basket of food commodities – averaged 173.7 points last month, down 1.3 percent from its level in May.

The decline was driven primarily by lower benchmark price quotations for wheat, maize and vegetable oils, including those made from soybeans.

The FAO Cereal Price Index dropped 3.7 percent in the month. Despite overall worsening production prospects for the main grains, there were “relatively sharp falls” in international maize and wheat prices, reflecting heightened trade tensions. Rice prices increased over this period. 

The FAO Vegetable Oil Price Index declined 3.0 percent from May to reach a 29-month low. Palm, soybean and sunflower oil prices all declined.

According to the FAO, heightened trade tensions between the US and its trading partners, particularly China, weighed particularly hard on American origin export prices, led by soybeans, with the strength of the dollar exerting further downward pressure.

The FAO Dairy Price Index dropped 0.9 percent while the FAO Meat Price Index inched up 0.3 percent from May, led by an upswing in ovine and pig meat values. The FAO Sugar Price Index rose 1.2 percent, reversing six consecutive monthly declines, due mostly to concerns that dry weather in Brazil, the world's largest sugar producing and exporting country, would negatively affect sugarcane yields and production.

OECD-FAO Agricultural Outlook 2018-2027
Agricultural trade plays a vital food security role, says the OECD-FAO Agricultural Outlook 2018-2027, which underscores the need for an enabling trade policy environment. 

The Outlook sees weakening growth in global demand for agricultural commodities and food while anticipating continuing productivity improvements in the sector. It was presented in Paris by OECD Secretary-General Angel Gurría and FAO Director-General José Graziano da Silva. 

They attribute the demand slowdown to a deceleration of demand growth in major emerging economies, stagnating per capita consumption of staple foods and a further gradual decline in global population growth rates. 

As a result of this, prices of agricultural commodities are expected to remain low for the coming decade.

In terms of forecast, the outlook finds that global agriculture and fish production is projected to grow by around 20 percent over the next decade. However, there is likely to be considerable variation across regions. 

Strong growth is expected in developing regions with more rapid population growth, including Sub-Saharan Africa, South and East Asia, and the Middle East and North Africa. Production growth is also expected to be much lower in developed countries, particularly in Western Europe. 

The report’s outlook also projects that the weakening of global demand will persist in the next ten years, sapped by declining population growth, flat levels or per capita consumption for staple foods and slowing demand growth for meat products. 

Declining demand growth for meat products will put a brake on the demand for cereals and protein meal used in animal feed. 

With slower consumption and production growth, agricultural and fish trade are projected to grow at about half the rate of the previous decade. Net exports are expected to increase from land-abundant countries and regions, notably the Americas. 

Countries with high population growth, in particular in the Middle East and North Africa, Sub-Saharan Africa and Asia, will see rising net imports.

“While overall exports from countries and regions that are abundant in land, are set to increase, notably in the Americas, many poorer countries with rising populations and limited land resources will be increasingly dependent on food imports to feed their people,” says Gurría. 

“It will be essential that exporters and importers alike have access to an open and predictable trade policy environment.”

“The Green Revolution of the last century largely increased the world's capacity to feed itself, but now we need a sustainability revolution,” notes FAO Director-General José Graziano da Silva. 

“This includes tackling high-input and resource-intensive farming systems that impose a high cost to the environment. Soil, forests, water, air quality and biodiversity continue to degrade. We need to adopt sustainable and productive food systems that offer healthy and nutritious food while also preserving the environment and biodiversity,” he states.

Demand for cereals and vegetable oil for the production of biofuels is expected to be largely unchanged over the forecast period, in contrast with the past decade, when biofuels expansion led to more than 120 million tons of additional cereals demand, predominantly maize. 

With existing policies in developed countries unlikely to support biofuels expansion, most demand growth will come from developing countries that have introduced policies favoring biofuel use. In particular, the use of sugarcane for biofuel production is expected to increase.

By Gaynor Selby