wheat fieldThe OECD-FAO Agricultural Outlook 2013-2022 reveals that the agricultural economy is growing too slowly and that it is not in line with global population growth. This may cause increase in prices in developed economies and food shortages in poorer countries.

 In the next decade global agricultural production is expected to grow by 1,5% a year compared to an annual growth rate of 2,1% that has been recorded between 2003 and 2012.  In practical terms this means that we will see a substantial fall in production and a shortfall in agricultural commodities,  if we take in to account the increase in population which will reach around 9 billion by 2050. The reasons for this shortfall is manly caused by   limited expansion of agricultural  land, increased production costs and pressure on resources and environment. 

It should be noted that the report takes into consideration agricultural commodities destined to human consumption because the land that is set aside for biofuels is not included. Moreover the report also acknowledges that the biofuels are one of the reasons why food commodities are falling. 

 The result of this trend is a shortfall in food supply in the global market and price volatility in developed economies. The reports points out that agriculture is becoming too market oriented instead of policy driven as it was in the past. This is offering developing economies many benefits in terms of economic return on investment given the growing food demand. On the other hand it is causing inequity in the agricultural market.

 Last years draught has caused havoc to producers in most countries resulting in an increase in price similar to the ones seen in 2008 particularly in the cereal sector.

 The OECD/FAO outlook warns “As long as food stocks in major producing and consuming countries remain low, the risk of price volatility is amplified. A wide-spread drought such as the one experienced in 2012, on top of low food stocks, could raise world prices by 15-40 percent.”

A recent report by Ocse-Fao which was published last summer pointed out that world agricultural production needed to increase by 60% in the next 40 years in order to satisfy population growth and biofuels demand  especially from China. 

With one fifth of the world population China will play a major role in the world agri-food sector in the future. China is set to be agriculturally self sufficient in the main food crops while output will decline in the next decade due to land water, rural and labour constraints. China has made progress in recent years in expanding production and improving domestic food security to around 100 million people since the 1990’s and it is set to play a crucial role in the agricultural sector worldwide. One example is the diary sector where China is expected to be the world’s leading consumer of pigmeat on per capita basis and will outperform Europe by 2022. Needless to say how this will affect the agricultural sector in terms of prices for Western consumers.

* OECD-FAO Agricultural Outlook © OECD, 2013   http://www.oecd.org/newsroom/oecd-fao-expect-slower-global-agricultural-production-growth.htm