OECD-FAO Agricultural Outlook for 2014-2023
The OECD and FAO launched their annual agricultural Outlook for the forthcoming decade, 2014 – 2023, on 11 July. Following its usual structure, the report includes an overview chapter and eight chapters assessing specific commodities (biofuels, cereals, oilseeds and oilseed products, sugar, meat, fish and seafood, dairy, and cotton). In a special feature, it also includes an Outlook for the prospects and challenges of feeding India in the coming decade (not featured here).
Global production of most agricultural commodities increased in 2013 compared to previous years; particularly, for cereals such as wheat and maize which had bumper crops following poor harvests in previous years, and oilseeds due to further expansion in Indonesian palm oil production. These increases in production, for the most part, have kept crop prices relatively low, including biofuel prices which have continued to decline since 2011. The rate of production growth has however slowed for meat and dairy, but which has allowed the price for both commodities to recover. Aquaculture production has increased rapidly in response to demand; yet prices have been volatile due to the inelastic and volatile supply of the product (caused by limits set out by catch quotas and high risk of disease outbreak in aquaculture). In light of the relatively stable prices for most commodities there has been an increase in trading activities at a global level.
To make its assessment, the Outlook considers the range of factors affecting production and consumption and thus price developments for these agricultural commodities. This includes productivity development, resources, expected macroeconomic growth, and demographic change. The Outlook assumes that:
- Global recovery will remain modest and uneven – at both global and EU level;
- The global rate of population growth will slow, and EU population growth will continue at its low rate of 0.1 per cent per annum;
- Inflation at a global scale will remain moderate, in the Euro area it will remain low;
- The US Dollar will be stronger in the analysed outlook period and that nominal exchange rates will adjust in line with inflation rates;
- Global energy prices will increase slightly at a slow rate.
- A number of policies will impact production and consumption. In the EU, it refers to the recent CAP reform and considers the anticipated impact that it could have (including the ‘expiry of the milk quota as of 2015, expiry of the sugar quota system as of 2017, budget ceilings for decoupled single farm payment, coupled payments to stay at current level until August 2014’, and the potential effects of “greening”).
Note that in previous years the Outlook has also taken into consideration climatic and environmental uncertainties.
Outlook for consumption, 2014-2023
The Outlook projects a slower growth rate for consumption of agricultural products compared to the past decade. For the EU, they project the consumption growth rate to fall below the previous decade’s rate.
The Outlook shows that cereals will likely continue to be used mostly for human nutrition, although they show a continuing shift in the use of cereals from human nutrition to animal feed. Demand for wheat and rice (predominantly used for human nutrition) is projected to grow by 12 and 15 per cent respectively over the next decade, whereas demand for coarse grain (predominantly used for feed and also, to a lesser extent for ethanol) is projected to grow by 20 per cent. By 2023 cereals for they project ethanol accounts for 12 per cent of global coarse grains consumption. The shift in use of cereals is influenced largely by changing diet patterns (linked to higher income levels among other factors) resulting in greater consumption of meat and dairy which requires higher levels of feed. Global meat consumption is projected to increase by 1.6 per cent per annum over the next decade (meaning ~58 Mt of additional meat consumed by 2023). The Outlook also projects greater consumption of ready-made foods which will affect demand for vegetable oils and sugar. Consumption of fish is also set to increase over the next decade (except in Africa); although the annual rate of growth is expected to fall in the second half of the next decade due to high fish prices exceeding meat prices. The consumption level of bioethanol for fuel and biodiesel is projected to increase and will continue to be affected by government targets and mandates.
Outlook for production, 2014-2023
The Outlook projects an increase in livestock and dairy production, thus also implying greater demand and subsequent production of feed grains and oilseeds for protein. The Outlook expects the projected production growth to occur mostly in Latin America, Sub-Saharan Africa, Eastern Europe (both EU and non-EU countries) and parts of Asia with production growth in Western Europe expected to increase very slightly. The increased crop production is expected to result predominantly from yield increases, especially in developing countries (ie where the production growth is expected to be most prominent) with continued investment in research and development and extension services. Domestic policies are also expected to have a growing influence on production levels.
- Global cereal production is expected to increase by 15 per cent by 2023 (~370 Mt). The growth of coarse grain production (ie for feed) will mostly occur in developed countries.
- The growth of oilseed production will mostly occur in developing countries, but also in the EU. Oilseed production is expected to grow by 19 per cent over the next decade in the EU in order to meet the targets for biodiesel use as set out in the Renewable Energy Directive. The EU is expected to remain the largest producer of biodiesel accounting for up to ~40 per cent of global output by 2017 and expected to remain stable thereafter.
- Global meal output is projected to increase by 27 per cent (~351 Mt by 2023) with production highly localised to just six producing countries/blocs (Argentina (43,432 kt by 2023), Brazil (40,984 kt by 2023), China (84,441 kt by 2023), European Union (28,835 kt by 2023), India (26,118 kt by 2023) and the United States (45,731 kt by 2023)) accounting for almost 77 per cent of global production.
- Global crop production of cereals for food consumption will increase moderately; 12 per cent for wheat and 14 per cent for rice.
- Ethanol and biodiesel production is expected to grow by more than 50 per cent over the next decade, representing a slowed rate relative to the previous decade. Traditional feedstock (sugar molasses, maize and vegetable oils) are expected to remain the main feedstock for biofuel production in this period.
- Overall meat production is forecast to grow. Rates of production growth are expected to slow where production relies on concentrate feed (such as poultry and pork), whereas sheep and beef production is expected to increase faster than the previous decade. The growth of production for beef will nonetheless remain lower than the rate of growth for poultry and pork due to reduced herd numbers, environmental constraints and generally longer production cycles.
- Milk production is expected to become dominated by India, which is projected to overtake the EU as the largest producer of milk .
Resulting implications for trade and commodity prices
Trade is expected to grow at slower pace due to reduced growth in production and consumption. In broad terms, the Americas are expected to dominate exports and import growth will be led by China. With regards to the EU, the removal of sugar quotas is expected to lead to increased sugar beet production and subsequent reduced EU sugar imports. The Outlook highlights the uncertainty of EU imports for biofuels which will ultimately rely on the outcome of the EU-US trade negotiations.
The projected consumption and productions trends are expected to result in slowly declining prices in real terms.
25 Jul 2014